It isn’t obvious to me that “credit worthiness for sale” is bad on net. There are the high publicity cases of people committing fraud by way of purchasing creditworthiness in some respect, but there are also (and I’d guess more wide-spread less exciting) legitimate purchases of creditworthiness.
For example, it might not optimal for very competent newer investors/inventors/organizations slowly get capital investment or other support. If you think of the marketing campaigns, sponsorships, etc. as a bond to show they believe in their performance, and believe their purchase will pay off from success, then it is somewhat less concerning and also valuable to do some amount of sponsorship/marketing.
Someone very close to me is a very competent real estate investor, who has had exceptional returns (and I believe exceptional risk adjusted returns) much higher than what most other real estate operators are making for their investments. It is not efficient for him to slowly get investors while others who have had longer to collect investors get more capital for lower returning projects, it makes sense for him to “buy creditworthiness” in a sense, selling some of his share of his investments to entice people to refer investors to him.
Buying creditworthiness allows competent new entrants to get investors/support grow quicker than they otherwise would. Scams will exist, but that is honestly part of the creative destruction of the market (not that they shouldn’t be rooted out). Those that don’t do their due diligence will have a smaller say in how capital is allocated.
I totally agree that marginal sales of creditworthiness are often totally fine. A system does not become badly exploitable just because on some occasion someone can buy some creditworthiness (and indeed, as I try to describe in some of the FAQ, there are often legitimate coordination problems that can be solved with money, which should increase expected future returns, and as such legitimately increase your creditworthiness, which can look like direct purchases of perceived creditworthiness, but actually increase your underlying creditworthiness in a way that makes it fine).
The issue is when you can keep pressing the perceived creditworthiness buy button without actually increasing future expected total returns, and when you can do so a lot of times even as you grow.
Buying creditworthiness allows competent new entrants to get investors/support grow quicker than they otherwise would.
I think you are conflating here, as I try to clarify in the previous part of this comment, the concept of “buying creditworthiness” and “marketing”. Marketing is not centrally about buying creditworthiness (though a bit of it is). It’s mostly about information exchange. Referral programs are about incentivizing people to cause important information about opportunities to be exchanged, not for people to vouch for you. Referral programs are totally fine, unless they extend into misleading people about your actual creditworthiness.
It isn’t obvious to me that “credit worthiness for sale” is bad on net. There are the high publicity cases of people committing fraud by way of purchasing creditworthiness in some respect, but there are also (and I’d guess more wide-spread less exciting) legitimate purchases of creditworthiness.
For example, it might not optimal for very competent newer investors/inventors/organizations slowly get capital investment or other support. If you think of the marketing campaigns, sponsorships, etc. as a bond to show they believe in their performance, and believe their purchase will pay off from success, then it is somewhat less concerning and also valuable to do some amount of sponsorship/marketing.
Someone very close to me is a very competent real estate investor, who has had exceptional returns (and I believe exceptional risk adjusted returns) much higher than what most other real estate operators are making for their investments. It is not efficient for him to slowly get investors while others who have had longer to collect investors get more capital for lower returning projects, it makes sense for him to “buy creditworthiness” in a sense, selling some of his share of his investments to entice people to refer investors to him.
Buying creditworthiness allows competent new entrants to get investors/support grow quicker than they otherwise would. Scams will exist, but that is honestly part of the creative destruction of the market (not that they shouldn’t be rooted out). Those that don’t do their due diligence will have a smaller say in how capital is allocated.
I totally agree that marginal sales of creditworthiness are often totally fine. A system does not become badly exploitable just because on some occasion someone can buy some creditworthiness (and indeed, as I try to describe in some of the FAQ, there are often legitimate coordination problems that can be solved with money, which should increase expected future returns, and as such legitimately increase your creditworthiness, which can look like direct purchases of perceived creditworthiness, but actually increase your underlying creditworthiness in a way that makes it fine).
The issue is when you can keep pressing the perceived creditworthiness buy button without actually increasing future expected total returns, and when you can do so a lot of times even as you grow.
I think you are conflating here, as I try to clarify in the previous part of this comment, the concept of “buying creditworthiness” and “marketing”. Marketing is not centrally about buying creditworthiness (though a bit of it is). It’s mostly about information exchange. Referral programs are about incentivizing people to cause important information about opportunities to be exchanged, not for people to vouch for you. Referral programs are totally fine, unless they extend into misleading people about your actual creditworthiness.