Transparency and authenticity have been lacking in consumer credit

In reading this piece by Joseph Stiglitz at CNN, he speaks of the causes of the crisis in banking.  In particular there is this little gem;

CNN:  How to prevent the next Wall Street crisis

The new “innovations” simply hid the extent of systemic leverage and made the risks less transparent; it is these innovations that have made this collapse so much more dramatic than earlier financial crises. But one needs to push further: Why did the Fed fail?

He is referring to the distance between the ultimate borrower (sub prime mortgage in hometown America) and the ultimate lender (perhaps a Bank in Switzerland or UK).  More on that here.

On the other hand we have Ron attacking the premise of Social Lending on various fronts, and in this case possibly because it is too transparent.

Marketingroi | Discrimination In P2P Lending?

They also discovered some discrimination against … [post goes on to list the people the report considers are being discriminated against, including race, age, weight]

However, when the entire report that is quoted is reviewed we find quotes such as “Yet the data tell a very different story that suggests that this peer-to-peer lending market actually treats the races more equally than would be expected in a market with accurate statistical discrimination.”  The author of the report is a behavioural economist whose scope is to “identify how consumers use information to make decisions”.

On the one hand we have a credit crisis caused by lack of transparency.  We have a new industry that bases its model on transparency.  Different social lenders use different levels of sophistication to manage transparency and that sophistication is something we spend a lot of time thinking about.  There must be adequate information to make decisions yet rock solid protection from anything illegal, including discrimination, or identity theft.  These considerations are paramount in our assessment of how we build out our Online Lending Service here in Canada.

Clearly the law must be followed, and Social Lending must deal with anything that is illegal.  The power of transparency as one step [of many] in elimination of future problems is not lost though, and as the industry evolves we will see a natural tension work to find the right balance.