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Cleansing Spite
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Posted - 2011.01.10 20:25:00 -
[1]
Is there a formal standard for credit rating?
IRL one of the "edges" in debt markets is insight into the quality of borrowers. EVE obviously requires a wholly unique way of evaluating borrowers - the availability of forum postings, character age, etc. Determining a bespoke format or building a quality book of business is obviously desirable, but what are baseline standards EVE lenders consider prior to issuing credit to an individual?
I'm debating the formation of a credit ratings bureau that I would maintain based on a combination of character traits and analysis of character activity. My data and effort would then be licensed to prospective lenders. The only concern I have at this point is the availability of other sources for information, which doesn't appear to exist.
Just as in reality, FICO score is not infallible. Prime borrowers default periodically. By surely the use of analytical techniques can limit the risk and due diligence requirements of EVE's lenders? Soliciting interest before I begin.
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Londo Cebb
Official Market Discussions Troll
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Posted - 2011.01.10 20:37:00 -
[2]
I like this idea. I will gladly pay you for a good credit rating.
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Manipulation Attempt
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Posted - 2011.01.10 20:38:00 -
[3]
Credit ratings in EVE are of limited use because the bulk of barrows are one time customers. If they are inclined to borrow again they will most likely return to the previous lender who has now a personal relationship with the client.
Credit ratings for businesses are of limited use because generally there is only a short period of time for which to invest. Credit ratings for business runners are also equally unreliable because many scammers understand the necessity of building reputation.
So you would have to put forth time to rate many people/ventures, for no pay, with minimal to no practical value to your reports.
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Cyaxares II
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Posted - 2011.01.10 21:02:00 -
[4]
Edited by: Cyaxares II on 10/01/2011 21:03:00
a formalized credit rating system would eventually drive away many of the more naive investors which might be a good thing.
just look how much some people did rely on the "MD street cred" rating system and how well it served them.
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Cleansing Spite
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Posted - 2011.01.10 21:05:00 -
[5]
Originally by: Manipulation Attempt Credit ratings in EVE are of limited use because the bulk of barrows are one time customers.
Use of previous credit is obviously a key factor. That said, the widespread adoption of standards by lenders is likely to influence behavior in this area. The important of building history is something that many lenders will understand immediately and enforce upon borrowers, creating a sense of scale.
Even with that said, assuming no change in behavior, commercial paper markets and other forms of short-term unsecured credit commonly operate on less firm grounds. And in those spaces access to credit is still arbited by risk analysis techniques that don't seem exigent elsewhere.
Originally by: Manipulation Attempt If they are inclined to borrow again they will most likely return to the previous lender who has now a personal relationship with the client.
That's probably a consequence of the lack of formal ratings moreso than it is a matter of ideal market function. This will give lenders and borrowers a defined set of criteria upon which to judge requested yields.
Originally by: Manipulation Attempt Credit ratings for businesses are of limited use because generally there is only a short period of time for which to invest. Credit ratings for business runners are also equally unreliable because many scammers understand the necessity of building reputation.
Even so, measuring the building of that reputation is valuable. Madoff had an impeccable rating and reputation, to use an example. That said, Madoffs is a statistical anomaly - the majority of borrowings in EVE take place at a smaller relative scale. And it's good to have a defined list of the Madoffs in conjunction with an analysis of the non-Madoffs.
Quote: So you would have to put forth time to rate many people/ventures, for no pay, with minimal to no practical value to your reports.
Practical value is relative. If found to be a good "rule of thumb" for lenders to expand the liquidity of the lending marketplace to medium-scale and small-scale lenders the larger-scale "Black Swan" concerns become less relevant. Realistically, the main use of this tool is to provide opportunities to smart lenders in the lower-end credit market, which appears to be extremely underserved.
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Londo Cebb
Official Market Discussions Troll
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Posted - 2011.01.10 21:11:00 -
[6]
Why should anyone trust you?
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Cleansing Spite
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Posted - 2011.01.10 21:29:00 -
[7]
Credit ratings would contain high-level insight into the underlying data. And since the system necessarily relies on the establishment of a contract API or the participation of lenders themselves (much as in the case of Fair Isaac ratings) it's difficult to manipulate the system. I would, however, charge more for insight into the aggregate data relative to the price of simply the scores.
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Londo Cebb
Official Market Discussions Troll
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Posted - 2011.01.10 21:31:00 -
[8]
You didn't answer my question.
Also it sounds like you want to be an auditor.
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Caldariftw123
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Posted - 2011.01.10 21:46:00 -
[9]
Edited by: Caldariftw123 on 10/01/2011 21:47:42 This is basically a way of 3rd partying your investment decisions yet still assuming the risk of that investment yourself, ie not wise. What difference would this 'credit rating' make to someone in EVE? None at all if they intend to scam in the first place, they wont care about their 'credit rating' if they scam, and if they do not intend to scam then there's no need for the rating in the first place. It has no enforceable consequences and allowing it to influence investment decisions in my opinion would INCREASE your risks not lower them as you are relying on someone else to do your thinking for you and you cannot be sure they are accurate or HONEST (you could be high-rating your alts, low-rating others)
Unless you are privy to information that others are not then there's nothing you can give to a credit rating that they can't figure out for themselves (invest or not) and if you have access to information then basically you are an auditor, and that's a whole different ballgame ..
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Cyaxares II
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Posted - 2011.01.10 21:53:00 -
[10]
Edited by: Cyaxares II on 10/01/2011 21:57:04
You have 3 types of risk:
(a) business failure
(b) premeditated scam
(c) theft on impulse
type (a) is already covered pretty well by the audit system (past performance is reviewed, viability of business plan roughly assessed).
type (b) would profit from a credit rating system as it would be easy to game (an even more simple checklist than audits).
type (c) cannot be stopped (and this risk cannot be assessed in any sensible way) - reasons might range from "impeding business failure, being a successful thief is still better than being an incompetent business manager", over "got this really awesome RMT offer in my mail" to RL burnout or "I just feel like being nasty today".
(c) is probably the most common form of "scam" in MD (as it absorbs part of (a)) and can only be mitigated by collateral (or maybe a very close relationship between business manager and investor - but at least I know nobody in this game good enough to be sure they won't snap at some point).
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Cleansing Spite
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Posted - 2011.01.10 23:02:00 -
[11]
Edited by: Cleansing Spite on 10/01/2011 23:02:55
Originally by: Caldariftw123 Edited by: Caldariftw123 on 10/01/2011 21:47:42 This is basically a way of 3rd partying your investment decisions yet still assuming the risk of that investment yourself, ie not wise.
The value created here is in the low and medium end of the credit market. With large investments you're best just assuming it gone given the lack of law enforcement capabilities in EVE.
Quote: What difference would this 'credit rating' make to someone in EVE? None at all if they intend to scam in the first place, they wont care about their 'credit rating' if they scam, and if they do not intend to scam then there's no need for the rating in the first place.
A rating system makes it more expensive to scam, and ruins access to credit for scammers in their scamming accounts. Either valuable biomass is being lost (as the most crucial component of my nascent proprietary formula is game life time) or the user is flagged as high-risk. This is more effective than you'd think, and has value with people interested in the small potatoes, high yield market. The only way to make money there is in aggregate and currently lenders avoid it due to a lack of risk management tools.
Also, the use of the tool affords for the possibility of "pooled" credit securities and a securitization market for low-end debt. CDS can then be used to hedge exposure.
Quote: It has no enforceable consequences
As stated above, it has more enforceable consequences than a typical two-party lending arrangement and affords access to higher-margin markets.
Quote: and allowing it to influence investment decisions in my opinion would INCREASE your risks not lower them as you are relying on someone else to do your thinking for you and you cannot be sure they are accurate or HONEST (you could be high-rating your alts, low-rating others
A prospective method of gaming the system is to create a large number of alts and pay me to rate them highly. Your cost there is very high at $20 per account plus the ISK to bribe me. It is unlikely that such a rating system is vulnerable to such scams in effective quantities of capital. Again - this is not for a 30B ISK bond. This is for 10M ISK tech 1 cruiser loans, and for pools of securities based on those loans.
Quote: Unless you are privy to information that others are not then there's nothing you can give to a credit rating that they can't figure out for themselves
False. My nascent proprietary system provides a superior level of analysis that I am not willing to divulge publicly. Plus, aggregating that info and performing calculations so you don't have to is a service in and of itself.
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Drab Cane
Carbenadium Industries
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Posted - 2011.01.10 23:09:00 -
[12]
Edited by: Drab Cane on 10/01/2011 23:10:21 Cleansing Spite:
As an example,
How much would a credit rating cost for a 10 mil ISK loan, what would be required of the borrower, who would have to pay for the service (borrower or lender?).
Edit: removed duplicate question.
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- Who Dares, Wins
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Cleansing Spite
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Posted - 2011.01.11 00:10:00 -
[13]
Originally by: Drab Cane Edited by: Drab Cane on 10/01/2011 23:10:21 Cleansing Spite:
As an example,
How much would a credit rating cost for a 10 mil ISK loan, what would be required of the borrower, who would have to pay for the service (borrower or lender?).
Edit: removed duplicate question.
A 10MM ISK loan - a pittance - is not the driver of cost. Cost per transaction really depends on your volume; my target client is a large lender providing general lending services or lines of credit. The lender pays for access to ratings for thousands of players. I anticipate providing three central services:
1.) A risk integer, yield "bracket," and summary statistics for thousands of players updated regularly with cost assessed upfront and then on-going as a service 2.) Customized audits of business clients 3.) In-depth, low-level analyses of specific high-risk lending situations
The first is the primary interest here of course.
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Caldariftw123
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Posted - 2011.01.11 00:46:00 -
[14]
Originally by: Cleansing Spite snipped for char space
I fail to see how you could have access to more information, your 'propriety system' will either pull publicly available information or information from an API. The first gives you no new information that I cannot get myself already and the second puts you in the status of auditor, and that means we have to trust you first of all. Auditing is a hard profession with a higher level of trust needed than the original investee needs as we have to take their word for it on what they have found. This, as I said before, is a whole different ball game for you, it's no longer providing a service and requires that your own character is in a position of trust to fill this role.
Also, to say that the bad credit rating will deter a scammer, does not make any sense .. If they are scamming, they wont care about the damage to their rating done after they scam. Someone who walks away from their investors and takes the isk with them would not under the current system of simply looking up posting history gain any more public funding, so there is no need to credit rate them. A credit rating in advance of knowing whether they will scam or not, in EVE, is also useless as it does not follow that "new character is more likely to scam" - look at the biggest scams as an example of this. If your CR system is aimed more towards the low end market, then by default they will be new characters because what 2 year old character will need a 100mill isk loan in the first place?
Someone else tried a CR system in EVE and posted their decisions on every bond for a while, I think it was mocked out of existence I certainly haven't seen it around for a while. Look it up though.
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Breaker77
Gallente Reclamation Industries
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Posted - 2011.01.11 00:47:00 -
[15]
We already have someone try a credit rating system a few months ago. Haven't seen him post in a while though.
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Drab Cane
Carbenadium Industries
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Posted - 2011.01.11 02:17:00 -
[16]
Originally by: Cleansing Spite
A 10MM ISK loan - a pittance - is not the driver of cost. Cost per transaction really depends on your volume; my target client is a large lender providing general lending services or lines of credit. The lender pays for access to ratings for thousands of players. I anticipate providing three central services:
1.) A risk integer, yield "bracket," and summary statistics for thousands of players updated regularly with cost assessed upfront and then on-going as a service 2.) Customized audits of business clients 3.) In-depth, low-level analyses of specific high-risk lending situations
The first is the primary interest here of course.
I suspect that the criteria you would use in EVE is much different from that used in RL, considering that you would be working with little to no credit history. Also, income in EVE is much less stable than in RL. The information you would need to assign risk to individual borrowers (like past history of earnings, current net worth, etc.) would require a full API audit, something difficult to imagine done on a large scale for "small to medium borrowers".
It would be great if you could build a model based on a character's publicly available information, or even a limited API pull. Perhaps you can work with an existing lender to gather the statistics necessary to building such a model.
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- Who Dares, Wins
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Thoraemond
Minmatar Far Ranger
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Posted - 2011.01.11 03:15:00 -
[17]
Originally by: Breaker77 We already have someone try a credit rating system a few months ago. Haven't seen him post in a while though.
My recollection is that there have been several well-developed threads on the ups and downs of possible credit rating agencies in New Eden. For the OP especially, a visit to good ol' eve-search.com might be fruitful. á á
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egola
Amarr
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Posted - 2011.01.12 08:51:00 -
[18]
Originally by: Breaker77 We already have someone try a credit rating system a few months ago. Haven't seen him post in a while though.
you're talking about jita guy and his "credit rating system" right? the thing where all he did was arbitrarily give out a rating based on hearsay? hell he didn't have access to any logs or API to even make it legit, he only did it based on the material given by the OP. Heck, it was no better then having my kid nod yes or no at a thread when i ask him to and then give that an A or F accordingly
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