Credit Ratings

[PatrickHarnett]

I was reading Daily Anarchist's post and thinking about several others that have been made recently about credit ratings.  I've done some work in this area before, certainly around credit scores run by Dun and Bradstreet, and also having looked at the approach used by S&P.  It doesn't directly convert to bitcoin because it is still very new, and some people like to still use psuedo-anonymity.  However, there are some metrics that I would use (and borrow) to assess a credit rating.  From something I have lurking on my computer, business scores can be done on a 12 point basis:

Code:

	Key Area	    Score	   Weight	Weighted Score
A	Payment Severity	0	20.0%	 -   
B	Employees   	        0	5.0%	 -   
C	Legal Structure	        0	15.0%	 -   
D	Public Record	        0	5.0%	 -   
E	Length of Operation     0	10.0%	 -   
F	Overdraft	        0	5.0%	 -   
G	Principal's Antecedents	0	5.0%	 -   
H	Net Profit Growth	0	2.5%	 -   
I	Net Worth Growth	0	2.5%	 -   
J	Working Capital    	0	2.5%	 -   
K	Current Ratio      	0	12.5%	 -   
L	Net Worth	        0	15.0%	 -   

Fairly obviously A, B, D and probably F would not apply, but others would such as:

 - Time in bitcoin or time in business.
 - Identity (ie, a real one, probably including location).
 - Paid up capital (equity)
 - Surplus real assets (is someone debt funding their business or do they actually have real money)
 - Use of funds/business (is it transparent and verifiable, or hidden)

As an example, BS&T would score poorly on the use of funds/transparency/identity, but has not (yet) defaulted on any payments and has been around for quite a while.
Similarly, a new lender/bank or GLBSE asset would be scored down on the basis of newness, but might counter that by other factors.

Presumably there is an interest in this kind of service/function.  What would it be worth?  Would security issuers want to advertise such a score?
(and from the point of self interest, what would a sensibly charge be? and from a conflict of interest point of view, I wouldn't rate Starfish BCB)

[Kluge]

*bookmarks & waves to Starfish*

[sunnankar]

Definatenly a market need. But I doubt the market is large enough currently to make it very profitable. Plus, most of your potential customers at this time probably have the skill to do this themselves and already are when considering material investments.

I think the creation of a whole credit system would be a more feasible route. Something that mixes peer to peer lending, like Prosper, with a reputation system, etc. to spit out a credit score. Could even integrate the current credit score system.

[vite]

why not work on a 1 - 9 system

1, person always pays on time
2, person defaults 1 pay period
3, persons defaults 2 pay periods
until they reach 9

-->edit : thats how we are credit rated in Panama and we haven't had a financial collapse or recesion in 20 years

[waltmarkers]

One area where we don't have this now is if the bitcoin score could incorporate that persons actual fico (or local equivalent) without the need to disclose their name, address, and other personal details. (very much like prosper)

[cbeast]

So you would profile people by green addresses only?

[sunnankar]

One area where we don't have this now is if the bitcoin score could incorporate that persons actual fico (or local equivalent) without the need to disclose their name, address, and other personal details. (very much like prosper)

Well, I see privacy as a luxury good. If someone wants to disclose personal information, etc. then as a creditor it might make the difference in deciding whether to fund and at what interest rate. Anything that increases the probability of seeing the return of and on capital will decrease the risk and lower the interest rate and increase funding probability. Remember, the borrower is servant to the lender.

[PatrickHarnett]

Not just borrower/lender combos, but for people investing in securities. 

Picking BFLS (randomly as the next stock above 1000BTC total volume), what do you know about it, the guys that run it and their long term plans - yes the exchange tells me Inaba has done this and at least one person has some information on him (although I have no knowledge of Nef either).

Would having more information make this asset more or less valuable/more or less risky?

[sunnankar]

Would having more information make this asset more or less valuable/more or less risky?

I'd be more interested in a rehypothetication via a cross-collaterilization from a counter-party(ies) I already feel comfortable with their collateral and financial ability to perform.

[PatrickHarnett]

Having found some time to make progress on some requests and feedback from the lending section credit rating of issuers, I'm starting a project looking at GLBSE securities.  Before I wade through all of the assets compiling basic research on the top 100 offerings, has anyone else actually done this?

[Nefario]

I am Nefario, and I support this thread/message/project/idea.

[PatrickHarnett]

thank you Spartacus

[RandomQ]

I would support sending my documents my to a trusted 3rd party to increase my credit rating of my assets.

GLBSE is great. But I think the verification process should go to a 3rd party
I've never got anything in the mail yet to verify my address.
 I answer every cell phone call on Fridays .
I've been Linkedin buddies with the big guy for a month

and i'm still 3 of 6 lol  

I'm sending a support email reminder today

[PatrickHarnett]

I did remember there is a thread with a run-down of mining companies, but that was focused more on dividend flows rather than the fundamental description of each asset.  The purpose of this exercise is a little different. But I'll be starting at the top of the list and working down initially.

[OgNasty]

GLBSE is great. But I think the verification process should go to a 3rd party

I think the entire GLBSE verification process is a farce.  False documents can be obtained via SR, phone numbers via Google Voice, addresses via any random person willing to forward you a piece of mail, fake LinkedIn/Facebook accounts could be created over TOR, etc...

When dealing with anonymous currency, 1 thing matters.  How much of it you have on the line.  For this reason, I've suggested several times that the GLBSE implement a "bonded by the GLBSE" program.  Issuers could have the ability to store a specified amount of BTC in an account controlled by Nefario to be used in the event of a default.

You want a stranger to take a look at some phony documents and give you an A+ rating?  I want issuers to put up a few thousand dollars in BTC to compensate investors if the worst were to occur.  Any withdrawals from the bonded program could require a motion, which I believe should only be allowed to be voted on by non-issuer accounts.  In addition, Nefario could use funds from the bonded program to improve liquidity with some sort of bot (as long as it was profitable) and actually provide a small interest rate on the bonds, thereby encouraging their use and strengthening the entire exchange via added liquidity, bonded insurance against default, & an interest rate program on bonded deposits.

[AngryCatfish]

GLBSE is great. But I think the verification process should go to a 3rd party

I think the entire GLBSE verification process is a farce.  False documents can be obtained via SR, phone numbers via Google Voice, addresses via any random person willing to forward you a piece of mail, fake LinkedIn/Facebook accounts could be created over TOR, etc...

When dealing with anonymous currency, 1 thing matters.  How much of it you have on the line.  For this reason, I've suggested several times that the GLBSE implement a "bonded by the GLBSE" program.  Issuers could have the ability to store a specified amount of BTC in an account controlled by Nefario to be used in the event of a default.

You want a stranger to take a look at some phony documents and give you an A+ rating?  I want issuers to put up a few thousand dollars in BTC to compensate investors if the worst were to occur.  Any withdrawals from the bonded program could require a motion, which I believe should only be allowed to be voted on by non-issuer accounts.  In addition, Nefario could use funds from the bonded program to improve liquidity with some sort of bot (as long as it was profitable) and actually provide a small interest rate on the bonds, thereby encouraging their use and strengthening the entire exchange via added liquidity, bonded insurance against default, & an interest rate program on bonded deposits.

Real talk.

Despite knowing all that, I still get warm fuzzies when the issuer is verified, but not much of a deciding factor for me.

[PatrickHarnett]

I would like to know that someone has at least made the effort in being identified in addition to being sufficiently well known by members of the bitcoin community before they take on responsibility for handling someone else's funds.

On the warm fuzzies front: one of the points that is bothering me currently is a size issue and not just GLBSE assets.  Investing in something with 50 or 100 BTC standing behind it is a bit different to something that is in the 1000 to 10k range. 

[Bitcoin Oz]

https://bitcointalk.org/index.php?topic=88152.0  I did some work on this awhile ago but it is probably out of date now as some have verified since.

With my own asset of bitcoinrs I have submitted all verification to GLBSE and Im expecting a call today from them. I have about $50 000* in house equity if thats anything to back up my asset with .







*My wife gets half 

[PatrickHarnett]

Thanks for the links.

(I was actually considering BTC assets rather than necessarily real-life houses etc).

[Bitcoin Oz]

Thanks for the links.

(I was actually considering BTC assets rather than necessarily real-life houses etc).

Maybe it depends on how the asset is structured. For instance a mining farm located in a house without contents insurance would be a risk. Or if half the fund is in fiat and half in bitcoin it has some merit to look at both BTC and fiat backing ?

On the other hand it makes perfect sense if it is all BTC all the time