Person-to-person (P2P) networks have been promoted to reduce both banking charges and control by banks of the lender-borrower interface.
It seems implicit that both lender and borrower will need a level of mutual trust. This is not new, of course, and has always been the basis of financial transactions and the majority of other human behavioural interrelationships. Also inferred is that the expectations of all parties should be very proximal. Said another way a strong cultural homogeny is required.
Much behavioural interplay has been weakened over the last century for multiple reasons which will not enter this debate.
One result has been the attempt to replace the harmony of trust, reputation and approval – the underlying ingredients of human behaviour – with legislations. These rules (inflexible by definition) were doomed to fail, but nevertheless the lawmakers continued to beaver away, and as cracks appeared in legislation these were papered over repeatedly by further legislation.
One pitiful attempt to replace trust has been legally engineered into the financial behaviour equations is the insistence that banks “know their customer”. This required costs, delays and other inefficiencies, but was doomed to failure – as illustrated by continued fraud and theft.
P2P should lessen the “inter-personal dimension” by reducing the relationship separation to one or two degrees.
This development will, I hope, weaken the banks and other financial sectors by providing unmatchable competitively.
Whether the insurance giants can be broken by P2P may be more difficult, because of the actuarial skills required.
I am more concerned by the “insurance” imposed on individuals by legislation. Volkswagen camper-vans will no longer be produced (in Brazil, to where production had originally fled because of economic and other “insuring” regulations in Europe). The reason for the production stoppage is the requirement that these vans must have air-bags and other safety equipment. This vehicle, being at the bottom of the market will cause the poorest to be deprived. Some will have to walk, a substantial deprivation in terms of living and income. So the rich-poor divide increases.
One example of “insurance” ordered by legislation is the obligatory head-rest intended to “prevent” whiplash injuries. There is little evidence that this (expensive) device works. What is apparent is that it produces a significant level of brain damage, by causing the rear-end collision forces to be transmitted to the back of the head comparable to a blow from a cricket bat. Worsening matters this brain injury seems to be diffuse axonal damage. This affects subjective qualities, predominantly memory, which is difficult to both measure and prove.
I hope that the coming financial collapse will reduce the complex legislative packs of cards, by making it economically impossible to enforce. This will allow individuals to make their own assessments of risk. Whether their perceptions will be correct or not is relatively irrelevant, given the errors made by legislators which seem to be equal or greater.