Deja Rear View or Who’s Sub-Prime Now?

Guest post from  James Cordelaine

Rotten, Stinking Crooks and How They Crash Our Economy

Sometimes I get mad (okay, lots of times) but this time I’m right on the money, literally. Everyone remembers the 2008 Great Recession; the giant gash torn through the global economy, from which we’re still trying to recover. Most people even know that one of the primary causes of that crash had to do with millions of defaulted subprime housing loans.

What they don’t know is that lenders are at it again. They’ve taken a long, sober look at the shady practices that crashed our economy, rendered millions homeless and unemployed, and instead of shuddering and saying, “We’d better mend our ways…” they’ve clapped their hands gleefully and said, “Hey, let’s do that again!” And why not—since no one who was responsible for the mass economic carnage of the Great Recession ever saw the inside of a courtroom, much less a jail cell (okay, one guy). No attorney’s fees, no foul, right?

Of course with enhanced scrutiny in the wake of the Recession, blasting out subprime housing loans was a no-go, at least for a while. But while everyone was staring in horror at the wreckage of the housing market, lenders trained their beady eyes elsewhere: at auto loans.

You’ve probably seen the sleazy commercials: “We’ll finance you when no one else will!” It’s an efficient net for reeling in low-income individuals, and those who through their own fault or just rotten luck have less-than stellar credit.

The beauty of subprime auto lending is the turnaround is so efficient. You can target the young, the less-affluent—after all, while many Americans have the option not to buy a home, few can exist, much less commute miles to work completely auto-free. Then, when they’re late on even one payment, you can get a repo man to hotwire that car right out from under your no-longer-valued customer, turn around and sell it again to another unsuspecting sucker. It’s great—right up to the moment the lightning strikes you.

“That’s shocking,” you say, “but what has it got to do with me?” Well it turns out for the first time that last year total outstanding auto loans, including subprime, exceed one trillion dollars. The default rate? Ten percent—and that’s in what’s generally believed to be a good economy. What happens when things go bad, particularly if touched off by an impending oil debt bubble burst? I refer you, gentle reader, to 2008.

Thank you,

That was a Guest post from  James Cordelaine

Speaking of bubbles…

 

  1. Bubbles always pop
  2. Bubbles, as they happen, are often not recognized as bubbles, especially by those invested in them.
  3. The world of late July 2016 is overloaded with bubble-like conditions. A few possibilities:
  4. Sovereign Debt – Bonds. Supposedly there are $12 – $13 trillion in “negative interest rate” bonds globally. That shouts out Bubble!
  5. Central bank credibility. “The Fed will save us” is a joke.
  6. Student loans in the US. Over $1.3 trillion. Really?
  7. Sub-prime auto loans.
  8. All-time highs in the DJIA.
  9. “Stay out of jail passes”
  10. Unbacked fiat currencies issued by insolvent governments and central banks.

 

What are not in bubbles?

Gold and silver!

 

Gary Christenson

The Deviant Investor