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Speaker 1: Broadcasting live to New York, Bloomberg even to Washington, d C.

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Speaker 1: Bloomber to Boston, Bloomberg twelve hundred, to San Francisco Bloomberg

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Speaker 1: nine to the country's or General one, and around the

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Speaker 1: globe the Bloomberg Radio Plus happened. Bloomberg dot com. Peer

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Speaker 1: is taking Stock. Coming up on taking Stock. A look

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Speaker 1: at Lending Club. The shares are down more than twenty

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Speaker 1: seven percent today. It's chief executive has stepped down following

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Speaker 1: investigation into the company's sales practices. We're going to get

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Speaker 1: a detailed look at the peer to peer lending business

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Speaker 1: with Brenton Ross. He as the founder and the chief

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Speaker 1: executive of Direct Lending Investments. But right now, let's get

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Speaker 1: a direct look at news with Charlie Pellett in the

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Speaker 1: Puber Pastrol. All right, thank you very much, pim. So

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Speaker 1: it's a down day now for the Dow Jones Industrial Average,

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Speaker 1: an update for the SMP five hundred index. Also an

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Speaker 1: update for now a stack, and we are brought to

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Speaker 1: two months with the offer code. Broadcast equities are advancing

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Speaker 1: right now. We've got the SMP hired by four points,

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Speaker 1: up two tents and one percent to two thousand sixty one.

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Speaker 1: Crude oil slumping two point eight percent, West Texas Intermediate

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Speaker 1: Crew down a dollar twenty six, and arrel forty three

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Speaker 1: forty right now. Shifting winds moved wildfires away from oil

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Speaker 1: sands facilities in Canada's Alberta region, reducing speculation production cuts

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Speaker 1: will make a substantial dent in the US stockpiles. There

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Speaker 1: is plenty of ongoing speculation though about the federal reserves

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Speaker 1: next move. Jim Paulson is chief investment strategist at Wells

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Speaker 1: Capital Management. So I think that we're going to see

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Speaker 1: a little foot of a global pick up, and I

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Speaker 1: think that's going to force the FED, if wages go

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Speaker 1: about two and alf percent, to probably embark in more

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Speaker 1: than just one rate high yet this year, sugar rush

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Speaker 1: for Krispy Cream donuts. The Ryman family, one of Europe's

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Speaker 1: wealthiest business dynasties, is buying Crispy Green Chris greet Cream

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Speaker 1: shares up now by twenty four point two percent. Freeport

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Speaker 1: mcmaran shares their down ten point eight percent. Copper is sinking. Also,

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Speaker 1: the company has agreed to sell one of its minds

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Speaker 1: in the Democratic Republic of Congo. The ten year down

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Speaker 1: seven up, seven thirty seconds yield one point seven five

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Speaker 1: gold down twenty eight dollars the ounce, and now three

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Speaker 1: thirty two on Wall Street. Let's take a look at

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Speaker 1: the other stories making us Charlie. Thank you from the

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Speaker 1: Bloomberg Newsroom by Mark Crumpton. This news update is brought

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Speaker 1: one at your local Jeep dealer. Today, North Carolina Governor

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Speaker 1: Pat mccruary says Congress should quote bring clarity to the

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Speaker 1: nation's antidiscrimination laws. He made the remarks hours after his

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Speaker 1: administration soothed the Justice Department over a state law that

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Speaker 1: restricts the use of public restrooms by transgender citizens. Our

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Speaker 1: nation is one nation, especially when it comes to fighting discrimination,

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Speaker 1: which I support wholeheartedly. The Justice Department had sent letters

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Speaker 1: warning the state that its law violated the civil rights

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Speaker 1: of transgender citizens. Mccruary called that an attempt by the

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Speaker 1: Obama administration to rewrite federal law. How Speaker Paul Ryan

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Speaker 1: says he'll step down as chairman of the Republican National

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Speaker 1: Convention if Donald Trump asks him to. The Milwaukee Journal

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Speaker 1: Sentinel reported that Ryan said, quote, he's the nominee. I'll

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Speaker 1: do whatever he wants with respect to the convention end quote.

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Speaker 1: The two were scheduled to meet later this week. Ryan's

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Speaker 1: also dismissing claims from Sarah Palin that he's considered the

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Speaker 1: run for president. In the sole winner of a four

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Speaker 1: hundred twenty nine million dollar powerball lottery ticket hasn't come forward.

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Speaker 1: Global News twenty four hours a day, powered by our

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Speaker 1: two hundred journalists in more than one hundred fifty news

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Speaker 1: bureaus around the world from the Bloomberg News Room. By

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Speaker 1: Mark Crumpton, Charlitte and we thank you, and again recapping

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Speaker 1: the stocks higher, SMP advancing three points now to two

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Speaker 1: thousand sixty, a gain of two tenths of one percent.

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Speaker 1: I'm Charlie Platon. That's a Bloomberg business flash. You're listening

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Speaker 1: to taking stock with pim Box at Kathleen Nays on

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Speaker 1: Bloomberg Radio. Lending Club, this share is a lending club

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Speaker 1: down more than twenty seven percent today. It's chief executive

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Speaker 1: resigning after an internal review A found an investor was

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Speaker 1: sold twenty two million dollars of loans that didn't meet

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Speaker 1: that investor's explicit instructions. Let's find out more about peer

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Speaker 1: to peer lending from Brendan Ross. He is the founder

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Speaker 1: and the chief executive direct Lending Investments. Joining us from

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Speaker 1: Los Angeles. Brendan, thank you very much for being with us.

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Speaker 1: Thanks good to talk to you against him tell us

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Speaker 1: about peer to peer lending. How is it supposed to work?

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Speaker 1: Peer lending is supposed to work? Is a company like

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Speaker 1: lending club is supposed to make loans to borrowers, and

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Speaker 1: then it's supposed to match those borrowers with investors who

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Speaker 1: can either buy a whole loan or pieces of a

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Speaker 1: loan building a fixed income portfolio that delivers returns in

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Speaker 1: the case of Lending Club around six to eight. And

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Speaker 1: how does that differ from direct lending investments? And noting

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Speaker 1: of course that you're a private company, so we're an

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Speaker 1: institutional fund. We focus on a more conventional space instead

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Speaker 1: of consumer loans, which is what Lending Club does. We

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Speaker 1: do small business loans. We finance non bank lenders in

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Speaker 1: that space, so we're doing something that's a little more

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Speaker 1: tried and true. But the Lenning Club is something that

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Speaker 1: I know about well. I was one of the first

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Speaker 1: buyers personally of loans on their system back in the day.

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Speaker 1: And having that experience, can you understand this internal review

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Speaker 1: and the idea that the exstructions that the investor had

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Speaker 1: made explicit apparently to the company weren't followed according to

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Speaker 1: this uh, this internal review, and it all sounds very mysterious.

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Speaker 1: So these loans were purportedly sold to Jeffreys, an investment

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Speaker 1: bank that was going to build up a pool of

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Speaker 1: these and sell them in a securitization, probably the institutional investors.

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Speaker 1: What I'm guessing happened is that Jeffreys had specific criteria

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Speaker 1: because it wanted to present its securitization with diversification along

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Speaker 1: all sorts of dimensions. Could have been geography, could have

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Speaker 1: been psycho scores, could have been anything. And the fact

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Speaker 1: that these loans came maybe more from one particular origin

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Speaker 1: amation month instead of another than may have monkeyed with

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Speaker 1: Jeffrey's plans for the securitization. So it looked like there

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Speaker 1: were some changes made that were untoward. And it's astonishing

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Speaker 1: how rapidly this process corrects itself. I mean, you have

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Speaker 1: that this is discovered, these loans were from March and April,

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Speaker 1: and the CEO is gone, did not affect the company's earnings,

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Speaker 1: which were positive. Is really, I think an extraordinary example

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Speaker 1: of transparency in action. I really think there would be applauded.

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Speaker 1: So having said that, I'm wondering if you can draw

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Speaker 1: the analogy to the larger banking system of the aftermath,

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Speaker 1: let's say, of the housing crisis, if it had reacted

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Speaker 1: with the same kind of speed and the same kind

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Speaker 1: of tone. Yes, I mean, the housing crisis would have

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Speaker 1: been over in UH in a month, and much smaller.

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Speaker 1: I mean, just to put things in perspective, this is

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Speaker 1: about sixteen billion dollars in loans that they've originated, including

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Speaker 1: a billion. In the last month, they had twenty two

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Speaker 1: million dollars in loans for which the dates were miss marked. Again,

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Speaker 1: completely unethical, totally outside of the bounds of what of

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Speaker 1: what's acceptable, and what did they do? They bought the

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Speaker 1: loans back at PAR and within days had sold them

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Speaker 1: to another investor at PAR. So these were not bad loans,

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Speaker 1: They just what happened wasn't right, and the company addressed

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Speaker 1: pretty quickly. Again, I think, you know, this is where

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Speaker 1: we're a long way from the housing crisis, and I

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Speaker 1: think this kind of transparency is something would be amazing

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Speaker 1: to see everywhere in the financial system. Just pick up

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Speaker 1: on that and tell people a little bit about direct lending.

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Speaker 1: Because you're very upfront about telling people where you get

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Speaker 1: the loans from, we have a little bit more information.

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Speaker 1: We are a little more conventional. So one of the

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Speaker 1: things that lending club does is when they sell loans

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Speaker 1: to individual investors. You have confidence in lending clubs underwriting,

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Speaker 1: but you don't know who the borrowers are, and that's

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Speaker 1: to protect anonymity and create a marketplace. In the case

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Speaker 1: of us, because we're a private fund, we don't make

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Speaker 1: loans where we don't know the identity, so we have, uh,

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Speaker 1: you know, the full information about the borrowers, so we're

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Speaker 1: less subject to the types of issues that can crop

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Speaker 1: up in a middleman type of a situation. But um

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Speaker 1: uh you know that's that's I don't think a reflection

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Speaker 1: on the fact that lending Club is making consumer loans.

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Speaker 1: We're making small business a little bit different. And the

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Speaker 1: information that you're getting about those loans does it tell

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Speaker 1: you anything about the health or strength of the small

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Speaker 1: business market. We get the same information that the underwriter sees,

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Speaker 1: so there's not a stripping away of variables the way

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Speaker 1: there would be with consumer loans. So for example, I

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Speaker 1: can look online now and I can look at seven

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Speaker 1: thousand different businesses bank statements from last month. I can

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Speaker 1: look at the business owners personal credit files. Now these

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Speaker 1: are all this is all sensitive information that's available to

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Speaker 1: the twenty people that worked for me, not to the

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Speaker 1: folks who are investors in my fund. There's the transparency

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Speaker 1: that's been enabled by techno oology has been a wonderful thing,

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Speaker 1: and it's increased investor's confidence in this type of fixed

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Speaker 1: income at a time when regular fixed income yields are

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Speaker 1: really really in the downa tubes. Any chance we're going

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Speaker 1: to see this rolled out on a larger institutional basis.

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Speaker 1: You know, it's very interesting. In the last vintage as

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Speaker 1: lending club of their loans were purchased by banks, and

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Speaker 1: actually only about were purchased by individuals, hedge funds making

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Speaker 1: up the difference. So this is actually becoming much more

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Speaker 1: attractive to banks. And it's fascinating because you would think

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Speaker 1: of banks as being the companies that would do these

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Speaker 1: types of originations. In fact, they're doing less of them

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Speaker 1: and buying them from companies like lending clubs. Brendan Ross, Founder,

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Speaker 1: chief executive Direct Lending Investments, based in Los Angeles, thank

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Speaker 1: you very much for spending time with us. You're listening

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Speaker 1: to Taking Stock on Bloomberg Radio. Coming up on taking

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Speaker 1: Stock will introduce you to a fund manager who runs

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Speaker 1: a portfolio of stock's designed to be a great America

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Speaker 1: fund will tell you why life's independence