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February 17, 2015

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“You can sleep in your car, but you can’t drive your house to work.”

Clearly he hasn't considered RVs.

Wait a sec, that gives me an idea for a new financial product.

“There is so much money looking for a positive return that people get lazy,” said Christopher L. Gillock, a managing director at Colonnade Advisors, a financial advisory firm in Chicago that has worked with subprime auto lenders. “Investors see it is rated triple-A, turn off their brains and buy into the paper.”

Don't raise taxes on capital gains. These people might not "invest."

"I have all this money. I need more money!!!"

If you give all the money to the rich, they will not invest. They will gamble.

Maybe it's time to put my money in jars and bury it out in the yard.

The minute you dig it up "investors" will be all over you figuring out a way to make it theirs because, deep in their hearts, they believe that to be the case.

russell, can you summarize for those of us unwilling to pay for a New York Times subscription? thanks

us unwilling to pay for a New York Times subscription

Download and use NoScript. I didn't even know there was a paywall until just now.

Sure, sorry about that.

Some financial companies are securitizing high-interest subprime loads, made to people who don't have a lot of money, for used cars.

The companies involved are Santander, GM Financial, and the Blackstone Group.

The loans are inherently high-risk, but are therefore high-yield if actually paid back, which is what makes them attractive to investors who are looking for a greater-than-T-bill return.

The folks offering the securities claim the risk can be contained, citing a concept that should be all too familiar to anybody who has been awake at anytime during the last 10 years:

By slicing and dicing the securities, any losses if borrowers default can be contained, in theory.

However, there may be trouble right here in River City:

Now questions are being raised about whether this hot Wall Street market is contributing to a broad loosening of credit standards across the subprime auto industry.

For example:

"I looked him in the eye and said, ‘I don’t have any income,’ ” said Ms. Payne.

Ms. Payne got a $30,770 loan, at 11.89%, for a 2011 BMW.

One might think that a loan to folks who don't have a lot of money, for a used car, might be even riskier than a loan to folks who don't have a lot of money for a house, which as we will all recall was the basis of the near-cratering of the economy just a few years ago.

Apparently, we'd be wrong, because as noted upthread, folks might well let their house go before their car.

You can sleep in your car, but you can't drive your house to work.

That's the gist of it.

It definitely sounds like someone's latest flight of financial brilliance is simply a replay of the housing bubble in a new sector.

I only hope that this time we decide that anyone stupid enough to fall for this a second time ought to be stuck with the costs. No bailouts, etc.

"Fool me once, shame on you.
Fool me twice, shame on me."

Part of what contributed to the housing bubble was that a lot of people thought that houses would get more valuable over time. I'm guessing that almost no one thinks that the case for cars.

Maybe it's time to put my money in jars and bury it out in the yard.

Or you could invest it in companies that are doing things you approve of. ... OK, the yard thing is looking better all the time.

As far as the cars vs. houses thing, I think a car is a more practical security for a loan than a house is. Cars are easier to repossess than houses. It's practical and legal to physically take a car away from its owner if they default, while evicting people from a foreclosed house is notoriously messy. Used mass produced cars are also unlikely to have the same kind of price bubble that the housing market experienced, so the amount you'll be able to get back by repossessing and selling them is much more predictable than for houses.

ChasWT makes a good point. The housing bubble was driven by the mass hallucination that house prices would go up 10%/yr. forever. If the hallucination had in any way reflected reality, the LTV (loan to value) would approach zero. Risk would be eliminated! AAA all the way, baby!!!!

Nirvana (snicker).

Now they are doing the same with wasting assets? Sheer financial genius. So how does a guy with no money have auto insurance? Are the bondholders paying for that? What about foregone maintenance? Those little nicks and dings that never show up on an adjuster's report? All such considerations impact asset value going forward.

If the bond buyers aren't getting 40% return, then the underwriters are taking them to the cleaners again.

“You can sleep in your car, but you can’t drive your house to work.

With Uber, we can all be homeless passengers, renting time for a mobile nap.

Actually, no you can't. By law in every municipality on this country, you can't legally sleep in your car* or even an RV, except in some Wal Mart parking lots, or designated RV and car camping spots, any more than you would be permitted to hop trains. Maybe some highway rest stops, but don't be there more than one night.

If it wasn't so, I'd wager 20% of the U.S. population would throw off the shackles of rent and mortgages, and go for it.

Try it, though.

I have, on road trips. Even in designated pull offs I've had the constabulary wake me up and shine a bright light in my eyes and ask me why I can't stay in one of their nice motels and inns.

At $120 bucks a night. What are you, nuts? I sez to myself.

And neither can you walk off into the woods and pitch a tent and sleeping bag either, for any length of time.

I mean, you can, but eventually you'll be rousted out by the authorities whose job it is to keep you on paying customer status to someone or other.

I ponder the idea of living out of a backpack and keeping to the back country, and back roads, and the beaches, but I can't sleep on the ground like I used to.

But this country isn't what it used to be.

Now, you are a suspect if you lead such a life.

Mostly in the eyes of the conservative leave us alone coalition who won't leave anyone the f*ck alone for fear they might be terrorists, or immigrants, or that they merely want to live low on the hog with no visible means of support.

You mean you don't work, boy. I suggest you hoof it to the town or county limits and keep ona goin.

*That so-called investor whose quote that is would be the first one to call the cops if he spotted a homeless person sleeping in their car on his street. Remind me not to buy horsesh*t futures from him.


hairshirt lays waste to GOP BS:

Don't raise taxes on capital gains. These people might not "invest."

"I have all this money. I need more money!!!"

The "financial industry" is as fanatical as ISIL. They just have a different Scripture. If I were a peaceful capitalist, I'd be trying to run these guys out of town for giving The Free Market (peace be upon it) a bad name.

--TP

"Cars are easier to repossess than houses"

true as stated, but banks don't want either one.

true as stated, but banks don't want either one.

They may not want to repossess, but they're going to have to at least occasionally. That's doubly true if they're in the business of lending to people with bad credit. The whole reason a secured loan is supposed to be relatively safe is because the lender has the ability to seize and sell the security if the borrower defaults. Part of the lender's job is to consider that process and how it will affect their ability to recover their capital. That's why mortgage lenders insist that owners have home insurance; it's there to protect the lender's security in the event of a disaster.

If you give all the money to the rich

Solution: don't give all the money to the rich.

I can check that box.

They may not want to repossess, but they're going to have to at least occasionally.

I understand what you're saying about cars being easier to repo, and therefore maybe a less risky asset to use to secure a loan.

I'm just not sure it will work out all that well in real life. Cars lose their value, they have to be stored somewhere until they're resold.

Banks could probably just wholesale them off and take their haircut, but then we get back into the whole thing of banks not wanting to have to book the haircut.

And, it ain't always that easy to get the car back. Houses stand still, cars don't.

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