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Comment by cabalamat | Hacker News Reader

Kiva are legal because they don't pay interest.

Yep, the profit motive was mentioned over and over again in the SEC document, and it seems that was the key. Because of the profit motives, loans on Prosper qualified as securities, and hence the SEC regulations applied. With Kiva, there's no way for the lender to profit, so the same SEC regulations don't apply to Kiva.

I wonder if there's a way around this: instead of an explicit interest or profit, make it a trade-based market:

I'll give you X dollars-today, in exchange for 1.1X dollars-N-months-from-now.

Or I'll give you X dollars-in-a-month in exchange for Y Euros-today.

Does the SEC regulate currency trading markets?

And, if not, why can't dollars-today and dollars-6-months-from-now be traded as separate currencies [taking into account expected inflation/deflation, as well as the time-value of money]?

"I'll give you X dollars-today, in exchange for 1.1X dollars-N-months-from-now."

Isn't that the very definition of interest?

No, interest usually compounds. This is more like a one-off currency trade of now-dollars versus future-dollars.

Still, you are giving some amount of today's dollars in return for a larger amount of tomorrow's dollars. That implies some effective interest rate over that time period. Also, while most financial institutions use compound interest, the concept of simple interest also exists.

Am I missing something?

This thread reminds me of Islamic laws dealing with interest. Since you can't charge interest, the solution is to go into a trade like transaction.

http://en.wikipedia.org/wiki/Islamic_banking#Modern_Islamic_...

So even if charging interest is forbidden in one way, there are ways to circumvent that.

That's called simple interest, as opposed to compounding interest.

They can and are. They're called "FX forwards", and what's more the technique you described is exactly the one the Medici family used to make their fortune (avoiding the usuary laws of the time).

However it doesn't work if you can't guarantee a fixed rate of interest (as in this case).

You'd think that by 2008 we wouldn't still be banning usury, but I guess not.

If you are a bank or some other org that paid lobbyists to create the loopholes for you, usary laws hardly effect you anymore.

However, I think usary protections should exist and we need to repeal all these loopholes.

Banking is a racket and they can practice usury all they want. They just hate competition, that's all. Credit cards have 21% limit in some states and no limit in others. How's that for usury?!

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