Has anyone seen this new Facebook app?

http://apps.facebook.com/lending-club/

It’s Facebook members lending to Facebook members. It’s called Lending Club. They explicitly state “We are not a bank.”

Ummmm…. has anyone ever heard of the FDIC?

Great for borrower. Let’s see, you can’t get a real loan. I know, you can use Facebook’s Lending Club to travel around Europe this summer and just pay the 10k back with your part-time job this fall.

Not a bank means—-not a bit of regulation. Bank rates are where they are at because they have default rates figured in. Banks are also competing to loan you money with thousands of other banks. They are also competing to hold your money with thousands of other banks. These three aspects set the rates.

Why is Lending Club not affected by the basic economics that thousands of other institutions need to live by?

Fact: They are.

Remember, without regulation they (the owners) can, quite simply, declare Chapter 11 or 7 insolvency in a year or two without thinking about it and also walk away with millions.