Well, it looks like my long ago prediction may be coming true. Here's what I said in June of 2006:

There's been a lot of hype about a newish Web site called Prosper.com that facilitates peer-to-peer lending. In short, you can go to the site and either try to secure a loan from other people that visit the site, or you can go to the site and be a lender, loaning out your money to others who need it.

Salon did a feature on it, as did BusinessWeek earlier this year (under the headline "The eBay of Loans?"), and I saw another one a few days ago. The site is run partly by the co-founder of E-Loan, Chris Larsen, so it's got some credibility in management. One person has already dedicated a whole blog to the wonders of Prosper.

It's really an exciting idea. Unfortunately, it will fail.

Well, Prosper is now not accepting new lenders. According to the New York Times, defaults were rising and:

Prosper stopped allowing lenders to make new loans, saying it needed to wait while the Securities and Exchange Commission evaluated its regulatory filings.

Monthly loan volumes at the company have been declining since the credit crisis worsened this spring. Prosper, which is unprofitable after raising $40 million in venture capital, now faces the damaging possibility that lenders may take their money off the site instead of waiting for the S.E.C. to allow lending to resume. That could take several months.

This does not mean Prosper.com is done. Read the full article & you will see that they are trying to create a secondary market that would allow people to sell the loans they make to other lenders in order to get out before the full loan period. However, it sounds like even before the lending was stopped, there were some bad signs:

Though the company says 7.9 percent more money has been lent on the site this year than last year at this time, the monthly total actually peaked in May and has been steadily declining ever since. The average loan amount on Prosper has also fallen 13 percent from last year, as lenders have become nervous about whether borrowers will repay the loan.

...

Half of the 20 largest lenders on the site have not made a new investment since August, according to the tracking site Lendingstats.com. A majority of the others have markedly decreased their lending. That might account for the declining month-to-month activity on the site during a time when Prosper needs to show that it has legs.

I don't wish for Prosper's demise, and the depth of the financial crisis makes it a bit more difficult to blame the Prosper business model for the troubles the site is having, but in the end my skeptical thoughts of 2 years ago appear correct.