Getting a loan once upon a time meant putting your best foot forward.
It was back in the days when banks were open 10 a.m. to 3 p.m. Monday through Thursday and until 6 p.m. on Fridays.
People were happy with returns on their investments if they were steady and exceeded inflation.
Most actually saved up to make a sizeable down payment when they bought big ticket items such as cars, major appliances and TV sets.
That said, bank loan officers would weigh your character as much as your credit rating.
That meant going to the bank in your Sunday best. This didn't mean simply pulling up your pants to cover your underwear or covering up your belly button piecing. Asking for a loan was serious business and it was treated accordingly.
Times have changed. The advent of ATMs and debit cards makes your money available 24/7.
Silicon Valley types think loans should be that easy to obtain as well.
Last year Mark Zuckerberg secured a patent that would enable lenders to determine creditworthiness employing the credit ratings of people on a borrower’s Facebook network.
You read that right. The credit ratings of friends on your Facebook page would be used to determine whether you were good enough of a risk to loan money.
It’s a concept loosely based on a loan officer’s ability back in the Dark Ages before banks had annual profits larger than the gross national product of a mid-sized European country to assess an applicant’s good standing in terms of trustworthiness, dependability and character as well as a source of income to repay a loan.
That went to the wayside when banks became “impersonal” by either growing beyond one office, becoming a massive corporation and requiring loan officers to follow a strict formula based on numbers only.
Facebook hasn’t done anything with its patent — at least not yet.
And you can thank regulators for the likes of Facebook not being able to bump FICO as a major factor in determining your creditworthiness whether it is at a brick and mortar financial institution or an online bank.
Zuckerberg and his minions thought it would be great to make money from on-line lenders and credit-data providers by selling data on a person’s Facebook page to judge a borrower’s creditworthiness. That would have been accomplished, in part, by judging a credit applicant not just by the company you keep as old school loan officers once did but by your associates’ credit worthiness.
Zuckerberg — who once proclaimed he wasn’t motivated out of a desire to make money — isn’t alone among self-proclaimed and self-promoted Silicon Valley swashbucklers who are going to save us by unchaining us from capitalism’s evil rules and regulations. Others have proclaimed — such as venture capitalist Charles Moldow that shower tons of money on upstarts that take aim at established profit centers of brick and mortar firms — that things such as the number of friends on your Facebook page is a better judge of your credit worthiness than FICO scores.
Of course they are doing this so — as one TV commercial goes — you don’t have to shave and get dressed and go to the bank to put your best foot forward when applying for a loan.
What they are really doing is trying to find ways to get your money. And the only way to do that is to destroy the business model of established concerns such as banks.
Lenders — unless they are your parents or someone that has a collection department that employs brass knuckles — have to comply with federal banking regulations.
This is a “necessary evil” not only to protect you but also the people whose money the bank is loaning you. That’s right — a bank doesn’t print money, instead they aggravate deposits and investments of others to loan you money and make a profit off interest.
When it comes to playing fast and loose with the rules, Silicon Valley is no different than Wall Street except the former conjures up images of iPhones and Netflix while the latter brings to mind inside trading and eight-figure CEO compensation packages.
In fact, Silicon Valley types can be even more brazen than Wall Street. Uber personalizes the Wild West mentality by refusing to adhere to any regulations when they muscle into a market. Their business model correctly assumes they will be sued which is why they employ more lawyers than the size of the standing army of The Netherlands. Their “hell-with-the-rules” and “shoot them up” mentality does their bottom line well.
Ignore local regulations for firms that offer ride services. Rewrite labor laws. Make others take all the risks in terms of hard costs such as vehicles, gas, and maintenance.
Make up your own rules while your target has to play by the rules and you can seize market share and become immensely rich in the process. All you have to do is be slapped in the wrist later and pay minuscule fines.
The intent of the Facebook patent is even more self-serving. Instead of risking the mountains of cash Zuckerberg and his creation are sitting on, they simply would muscle out FICO and make their money essentially in the form of finders’ fees to direct borrowers to lenders.
And they are doing this on the egotistical and self-serving assumption that the new world they have created — such as Zuckerberg with Facebook — is far superior to what they seek to replace.
In this case, who do you trust with your future: A 20-something billionaire trying to stockpile even more money or a government regulator enforcing rules designed to protect consumers and investors?