Are people better than banks?

Social lending Web sites pair willing lenders with entrepreneurs and other cash-strapped borrowers.

The sites charge fees to broker and service the loan--around 1% from the lender and 2% to 4% from the borrower--as well as penalties for late payments (to cover the costs of chasing deadbeats).

The Internet enables a new infrastructure for participation, reducing the transaction costs of matching the wants and needs of people and giving them the opportunity to coordinate.