Why the legacy of the public-private finance franchise model makes it near impossible for more traditional “loanable funds” finance models to compete, irrespective of the technology they think they have in hand.
Here’s a snippet from the latest annual accounts of Ratesetter, one of the UK’s top three “peer-to-peer” lenders, and shows the startup taking £2m of risk on to its own balance sheet in order to fund a borrower in “financial difficulty”.
Imagine you lent a friend £2000 for three years at a 25 per cent yearly interest rate. That would be a nice little earner for you and, sure, it’s not a cheap loan as far your friend is concerned. But he’s not that good of a friend anyway and rent-seeking is easier than working. The first nine months pass and your friend pays up every month, right on time. But then he misses a payment. When you call his mobile, you get his answering machine and when you ask around, people shuffle their feet and mumble stuff like “I dunno maybe he’s like at the gym or something”.
This is a story of a startup going up against its most important investor and losing the fight. Each side has their version of events and the narrative is complicated by the various claims and counter-claims, but it’s a cautionary tale of how personal rivalries can almost ruin a business.
Andrew O’Hagan’s 35,000 word write up of the Craig Wright Satoshi affair in the London Review of Books has been out and circulating since the weekend. The market has had time to digest the information and yet it doesn’t look all that much like anyone has found much closure from the account. For now at least, more questions than answers persist. Some interesting snippets nevertheless included: