2. LendingClub, one of the largest fintech firms, attempts to match lenders and borrowers. Unlike some other fintech firms, LendingClub securitizes some of the loans it makes and sells them to investors. According to an article in the Wall Street Journal, it began to do that to "expand the pool of investors" in its loans. In 2016, its CEO was fired after LendingClub's board of directors learned that the dates on loans in some securities had been falsified. (a) What moral hazard problem do you face when investing funds on a site like LendingClub? (b) Is this problem increased or decreased if the site securitizes some of the loans it makes? Briefly explain.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question
2.
LendingClub, one of the largest fintech firms, attempts to match lenders
and borrowers. Unlike some other fintech firms, LendingClub securitizes some of the
loans it makes and sells them to investors. According to an article in the Wall Street
Journal, it began to do that to "expand the pool of investors" in its loans. In 2016, its
CEO was fired after LendingClub's board of directors learned that the dates on loans
in some securities had been falsified.
(a)
What moral hazard problem do you face when investing funds on a
site like LendingClub?
(b)
Is this problem increased or decreased if the site securitizes some of
the loans it makes? Briefly explain.
Transcribed Image Text:2. LendingClub, one of the largest fintech firms, attempts to match lenders and borrowers. Unlike some other fintech firms, LendingClub securitizes some of the loans it makes and sells them to investors. According to an article in the Wall Street Journal, it began to do that to "expand the pool of investors" in its loans. In 2016, its CEO was fired after LendingClub's board of directors learned that the dates on loans in some securities had been falsified. (a) What moral hazard problem do you face when investing funds on a site like LendingClub? (b) Is this problem increased or decreased if the site securitizes some of the loans it makes? Briefly explain.
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Investments
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education