What Is Middle Class?

This article at Investopedia, entitled "Losing the Middle Class", delineates the classes based on income, while mentioning that $50,000 in Arkansas is much better than $50,000 in Beverly Hills. By now everybody has heard that "the middle class is shrinking". But is that so? And if so, why? And most importantly, how can you make sure you're moving up and not down? As you can probably guess, spending less than you make and saving more of it is key. Financing an upper class (or even upper middle class) lifestyle only gets you deeper in debt and puts you one paycheck away from financial crisi.

New Prosper Blog

Hollow Oak, a lender at Prosper and frequent forum participant, has started to blog about some stats he's been examining lately. It seems that the number of lenders is growing much faster than the number of borrowers, resulting in more bids. This means lower rates for borrowers, especially those with good credit.

Here is Prosper's chart showing the 30-day average rates for borrowers. It looks like B and worse credit borrowers get better rates with group membership. A and AA borrowers can get loans for $10,000 or less with interest rates below 10%, and $5,000 or less at less than 9% interest. E's and HR's have been averaging 22% with group membership, which is ridiculously low, considering the risk.

If you visit SavageNumber.com, you'll see that these latest rates are considerably lower than the average rates over the life of Prosper: 1% to 3% lower, actually.

Two Microlending Articles

What's better? For profit or non-profit?

This article was in the Wall Street Journal Wednesday:
Portals: Silicon Valley moguls eschew U.S. microlenders. It's about a non-profit microlending operation (the Lenders for Community Development) in San Jose, right under the noses of the Silicon Valley moguls. It is being ignored because it's a non-profit. It's hard to microlend profitably in the US, not because of high default rates (his are 15% for the smaller loans and almost zero for the large ones), but because of interest rate caps and the costs of marketing and servicing the loans. Overseas, lenders can charge double and even triple-digit interest, less than the local loan shark, but still be profitable.

Meanwhile, this article was in the New Republic on Thursday:
Why Nobel laureate Mohammed Yunus will doom microfinance. (free registration required)

Grameen is not profitable, but is instead a charity. It's labor-intensive to verify the creditworthiness of borrowers. To make a profit on these small loans, the microlending institutions must charge interest rates ranging from 21% in Bolivia to 30% in India to almost 90% in Mexico. Grameen only charges 10 to 20% interest on its loans. Can for-profit microlending operations compete with charities like Grameen? And which better serves the poor?