If things go south, he can walk away and be a criminal. All the standard risk and profit/loss calculations people perform in finance make the assumption that you aren't going to shoot people in the head or screw them. Counterparty risk is the assumption that they might possibly do that to you
Ok we can stop the hyperbole. Defaulting on an unsecured loan isn't a criminal act. Not in the US, not anywhere.
Yes I get the concept of counterparty risk the point is the middle man has no financial stake in the game. The only thing being risked is reputation.
Personally to me that makes it a crappy deal when profit is split 50/50 and one person is risking actual assets and the other is risking only reputation.
If you disagree I assume you are interested in this deal?
You risk your life savings
I risk only my reputation
We split the profit 50/50
How much do you want to risk/invest? I will gladly risk/invest up to $100K of your money on my reputation.
It's not hyperbole. He agreed to give someone their money back, and if he doesn't, he can't simply walk away. He may default, but there's a lot more involved in that than just reputation (assuming we have "real-world" information about him, which I'd hope a lender would insist on). Anyway, all I'm saying is that the risk to him was small, but not zero.
I'm disinterested in this whole thing, and think it's arrogant to assume that the only reason someone would disagree with you is that they have something to gain by doing so.Edit: oh crap, I was in the middle of cooking and misinterpreted your "if you disagree I assume you are interested in this deal". Disregard the arrogance comment above, sorry
regardless, your "it's your life savings vs. my reputation" argument applies to any loan, and not just this one, so I stand by my "small risk, but not zero" statement earlier