A booming business in lending to poor people with bad credit who need cars to get to work is as much about Wall Street’s demand for high returns as it is about used vehicles. . . . In a kind of alchemy that Wall Street has previously performed with mortgages, thousands of subprime auto loans are bundled together and sold as securities to investors, including mutual funds, insurance companies and hedge funds. By slicing and dicing the securities, any losses if borrowers default can be contained, in theory.I marvel once again at the problems created in our economy by too much money. With so much money chasing after any decent investment opportunity, the only way investors can get what they consider good returns is by taking bad risks. To "manage" those risks they deploy a whole array of techniques -- securitization, credit default swaps, etc. -- which do reduce risk for the original lender, but on the other hand have the effect of distributing the risk through the whole system, making everything vulnerable to a big enough crash. Right now this is still a pretty small business by Wall Street standards, so it poses nothing like the risk of the mortgage fiasco. But it is exactly the same process in action, and it brings home again why we desperately need banking regulation and why Republicans are crazy to keep fighting it.
Tuesday, January 27, 2015
This Time with Auto Loans
What could possibly go wrong with this?
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No more rapacious than the folks who own their own little used car businesses with "instant credit" that they issue themselves.
Usorious interest rates, and the first missed payment the car is repo's-- and promptly resold to someone else. Basically, the poor saps are renting the vehicle at an exhorbitant rate, since most of them do default at some point, according to the person I know who owns/runs one such business (and has worked for others in the past).
You need maybe $50K to start-- buy some cars at the wholesale auction, make sure they'll run till they leave the lot, and start "selling."
The whole used car market outside major dealerships (and private sales, I suppose) is rotten.
In their eyes, Republicans aren't crazy to fight it because many of them are profiting off it.
The Wall Street elites like having politicians who protect their loopholes, and they are willing to give such individuals a cut of the proceeds to keep the gravy train rolling.
The politicians like having risk-free funding for their campaigning and political needs, and since they're getting their cut directly from the original lender, there's no risk - it all get foisted off on others.
And neither party cares about a crash, because they don't stand to lose anything. Wall Street can always get themselves bailed out, and the politicians can always win more votes by spinning the crash in their favor.
Wall Street and Washington have the same problem - instead of operating for the good of the entire country, they operate soley for the good of themselves. So long as they personally come out ahead, what do they care if they spread misery and destroy lives?
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