PLAY IT AGAIN, MARIO

Of all the homo sapiens species, few are more stubborn than bureaucrats and agenda wonks. Negative interest rates to date have caused more pain than remedy, but don't tell that to central bankers.

A piece in the today's WSJ notes: The battering of European financial stocks is putting heat on the European Central Bank not to slash subzero interest rates even lower next month, but its policy makers say they are considering a further cut.

Shares of European banks and insurers have tumbled recently, falling more than broadly slumping markets. Financial firms have been hit in part because negative rates erode their profit. Fears of more rate cuts have worsened the rout, investors say. But ECB policy makers are sending the message that they aren’t swayed by such concerns when reconsidering their €1.5 trillion ($1.7 trillion) stimulus at the next policy-setting meeting on March 10.

Negative rates amount to charging a fee on deposits, rather than paying interest. By charging banks to deposit funds, the ECB hopes to spur them to lend more aggressively and bolster the eurozone’s sluggish economy. ECB President Mario Draghi told European lawmakers on Monday that the bank won't hesitate to use all its policy tools at its disposal in its goal of reigniting inflation, trumpeting the success of ultra low rates in bolstering the bloc’s economy. Some members of the bank’s 25-member Governing Council have advocated deep cuts.

Just last month one of the ECB's so called top economists was quoted as saying negative rates are an "extremely effective policy tool." One of the unintended side effects, and there always is one either ignored or not considered beforehand, is banks will start charging more for their loans to make up for the costs of storing their cash with central bankers. Such would ramp up the cost to borrowers and could further stifle lending.

In the same issue of the Journal another story about an online lender raising its fees strikes an interesting chord. Or at least it should.

Prosper Marketplace Inc. has started charging borrowers more for loans on its platform, as the company deals with a greater risk of defaults while striving to keep its loans attractive to investors with higher-yielding alternatives.

The San Francisco company, which runs one of the biggest online consumer-lending platforms, told investors who buy its loans Monday that it was raising its rates by on average 1.4 percentage points due to “the current turbulent market environment that we have witnessed since the beginning of 2016.” That means Prosper’s borrowers pay more, while investors who buy the loans it makes earn higher returns.

Online lenders like Prosper aim to use powerful data and automated networks to reach borrowers with loans that are cheaper than competing bank services like credit cards. Unlike some lenders, they generally don’t hold their customers’ loans on the balance sheet, instead passing them along for a fee to investors ranging from hedge funds to individual investors.

If you don't recognize the building blocks here of something with a fetid odor, load up your portfolio with a swatch of these loans once they're out there. Just don't neglect your evening prayers.