Prosper as a microcosm of the banking crisis
I've written here a few times before about Prosper, the social lending site. Last year at tax time I noted that you could see the recession starting to show up in the statement, with two loans sold as delinquent, and more and more loans running behind in payment. Well, this year I've got a bunch more delinquent loans.
What's annoying though is that Prosper is reporting them as "charge-offs" meaning that they don't think they'll ever be repaid, but they're still trying to collect them. This makes it questionable to claim them as losses on my taxes, even though the one loan where they subsequently made some collections was reported as income.* By contrast, if they sold the loans for less than face value, it could have been a standard capital loss. My understanding is that they tried to sell them, but couldn't find anyone who would buy them. Sound familiar?
What makes this a less than complete miniature version of the banking crisis is that Prosper didn't sell tranches on its loans — when you bought a share of a loan, it was just a straight fractional share, with everyone getting a corresponding share of the monthly payments.
When Prosper suddenly stopped taking new money in the fall, they claimed it was because they were entering a SEC quiet period. My understanding is that this wasn't exactly voluntary — the SEC said that they weren't just a middleman, but were creating securities without any oversight. Frankly, I'd be shocked if they ever reopen for business.
*I've googled, and it's clear that some people are planning on claiming the charge-offs as losses. But the IRS looks very closely at losses that aren't matched with a 1099-B, and the $30 I would save on my taxes is not worth the increased risk of being audited. Even if I wasn't a DC policy wonk.
