Tales of a Wannabe Banker
I'm not earning anything in the bank. Well, not earning anything would be lying. More like earning enough to buy a snickers bar every year. I like PMs. I like to dabble in the markets. But what else can I do with my meager cash sitting on the sidelines? How about a CD? Nah - the cash is locked up earning next to nothing. How about contribute to my 401K? Nah - I don't want it locked up either especially since I'll likely be dead by the time I get it. Real Estate? Nah - I don't have that much cash and even if I did, I'm not flipping nothing in this economy. Ok then, what about stocks? Hmmm.... thinking.... still thinking.... nah. I'll pass. I suck at picking stocks except for RGR and SWHC. Besides, the algos are quicker than me. Up is down, bad is good. It doesn't make any sense anymore. So what's a boy to do?
While randomly skimming FOFOA posts I came across something that caught my eye. He mentioned that we have to act like "giants." If you haven't read FOFOA, what he means by giants is the 0.1% or whoever is the top of the economic food chain. He states that they value things like gold, silver, art, real estate, basically things that hold value over generations. So I have a few of those but I don't currently have the capability of getting more of those items with my purchasing power. Then it dawned on me.
What do banks do? They loan. Then they magically create more "money" out of thin air and loan it to other people. I don't need to get into fractional reserve explanations but the main thing to consider is that banks LOAN and get INTEREST. Maybe not all banks are the 0.1% but at least they are on the right path (I have a feeling I'm going to be summoned to the fiery hell and locked up in the tfmetals dungeon for saying this). But what if I started doing this and tried to earn more interest than my stupid savings account?
Searching I go and find a few internet sites that allow the public financing for individuals. Call it crowd financing. I'm not sure what the term is. But what happens a guy wants $10k to consolidate his debt. Instead of going with a traditional bank, he goes to one of a few lending websites to get his cash. The people fronting the cash hold notes just like a bank would. But this is a little different in a way that hundreds of people could be financing this loan.
The loan would be broken into pieces and people buy/sell them. We could have something as low as $25 or as high as $500 per note. Depending on how much exposure you want to fund this person you can adjust accordingly. You would charge a fee for the transaction (typically 1% thereabouts) and decide whether the note is worth buying or not. You even get to see the borrowers information like credit score, credit rating, background check, income, total debts, mortgage or rent, credit delinquencies, and even where they are employed. You can even ask the borrower questions.
So this story is running long and I am honestly tired of typing, but you can catch my drift. I am looking to get a decent return on cash sitting around instead of in traditional banks. So I tested out this idea with lendingclub.com. I deposited $500 because that was what I felt comfortable losing.
So far after 3 months or so, I am earning around 18% annualized returns. I have 19 loans at $25 a piece. I live in a state where loan sharking is prohibited (don't get me started in this) and have to use a workaround website to place my orders called folio. The downside is that I cannot hypothecate my "assets" like a bank. I can't fractional reserve the shit out of my money. I act like a true 1:1 lender. If someone doesn't pay, I'm kinda screwed and it sets me back a few months. But what I plan on doing is rolling over my cash into more notes as time goes on.
Another bad aspect is I have to pay capital gains on the notes using the short/long guidelines.
So that's my story. I'd like to hear if anyone else has tried this, what has/hasn't worked, and could there be other alternatives? It would theoretically be amazing to have $10G's making enough in interest to go on a nice vacation every year. I'm just trying to figure out ways to beat the system or act like a giant.
