Come On Obama, Stick Them In The Slamma!

“Fight Against Stupidity And Bureaucracy”

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Around this time last month I wrote a post about the explosion of sub-prime credit for people seeking automobile loans they couldn’t afford. Here’s a link if you missed it – click here. 

They say that if you don’t learn from what happened in the past you are doomed to repeat it. And it is clear the banksters have learned nothing, mainly because the government was not man enough to teach them a lesson when they almost brought the country to its knees. Their greed was excused and rewarded, not punished in any meaningful and lasting way.

So now we have the auto loans credit explosion, which is another mini sub-prime disaster in the making. And again it is being egged on by the stupidity and greed of Wall Street who just can’t pass on the chance to reap big profits from those people silly enough to take their high interest loans.

This time, however, it turns out some of the people in positions of power are beginning to recognize that this is becoming a big problem.

The regulators and prosecutors are starting to worry about the level of lending abuses. Not only that but they are also recognizing the similarities with the home loans fiasco that eventually resulted in the financial crisis.

The Consumer Financial Protection Bureau has recently fined subprime auto lender First Investors Financial Services Group Inc. $2.75 million for knowingly providing inaccurate information to credit reporting agencies for at least three years. It was a “computer error” don’t you know, and, of course, they paid the fine but without admitting any liability – perish the thought!

It should come as no surprise that First Investors Financial Services Group is owned by a prominent New York private equity firm.

And like the mortgage sub-prime fraud, the banksters and other money men are not only screwing the people who take out the loans, but once again they are re-packaging them up as “good investments” for their richer clients too.

A United States attorney in Manhattan, has already begun an investigation into whether lenders have sold questionable auto-loan investments to investors, and has sent subpoenas to General Motors Financial and Santander Consumer USA, to try to find out whether the lenders fully disclosed to investors the creditworthiness of borrowers whose loans made up the complicated securities.

Last time they got away with it. Will this time be any different? You have a lot more faith in the system than me if you think it will. All that is happening so far is tokenism. They need a lot more than a slap on the wrist.

In China or Vietnam and some other locations banksters committing fraud are stood up against a wall a shot. That’s maybe a little harsh, but at the very least some serious jail time is in order.

The fact is the banksters are doing it again because they think that they can get away with it again. And if they get away with it this time, then they’ll do it yet again in the future. All the time racking up fortunes for themselves and leaving the other poor sods, who didn’t know any better than to take out their loans or buy their toxic investments, a lot poorer.

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“No Credit. Bad Credit. All Credit. 100 Percent Approval.”

“Fight Against Stupidity And Bureaucracy”

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We had it with the real estate market. Billions of dollars being lent to people who obviously couldn’t afford it.

We saw the trouble, hardship, misery and financial woes that were caused as credit dried up, real estate prices began to tumble, and bankruptcies and foreclosures increased.

And we know the damage it did to the economy when irresponsible banks and other lenders went bust and almost brought down the entire financial system. 

Smart people would learn from such a situation.

Smart people would never contemplate doing such a thing again.

But despite what they would like to have you believe, bankers are not smart people. They’re dumb and they are greedy, a deadly combination.

As a result of the financial crisis millions of Americans (and people in other countries too) have been left with poor credit scores. Yet remarkably they are now able to easily obtain auto loans from used-car dealers, including some who fabricate or ignore borrowers’ abilities to repay. Even if you are bankrupt or living only on social security, banks like Wells Fargo will lend you thousands of dollars to buy a used car.

It’s called the new sub-prime boom, because the lack of caution resembles the frenzied sub-prime mortgage market before its collapse. And it is already bringing misery to many people who have been suckered into taking out loans that they clearly could not afford.

Worse than that, these sub-prime auto loans often come with terms that take advantage of the most desperate, least financially sophisticated customers, with interest rates that can exceed 20 percent. And many of the loans can be at least twice the value of the second hand cars they are being used to purchase!

This creates a vicious circle for some borrowers, who still owe money on a car that they are trading in when they purchase another one, meaning that the former debt is rolled over into the new loan and they end up, not just paying too much for their current car, but also continue to pay off the loan on their previous car that they don’t even have!

This is the way loan sharks operate. Eventually you end up borrowing your own money and paying them interest for the privilege!

This surge in sub-prime auto lending is being driven by some of the same dynamics that were at work in sub-prime mortgages. There is a veritable deluge of money pouring into sub-prime autos, as the high rates and steady profits of the loans attract investors.

And just as Wall Street stoked the boom in mortgages, some of the nation’s biggest banks and private equity firms are now feeding the growth in sub-prime auto loans by investing in lenders and making money available for loans.

To quote some of the figures, auto loans to people with bad credit have risen more than 130 percent in the five years since the immediate aftermath of the financial crisis, with roughly one in four new auto loans last year going to borrowers considered sub-prime, that is, people with credit scores at or below 640. Wells Fargo, mentioned earlier, made $7.8 billion in auto loans in the second quarter of this year, up 9 percent from a year earlier, and has at least $50 billion in auto loans on its books.

Even worse, as was the case with sub-prime mortgages before the financial crisis, many sub-prime auto loans are being bundled up into complex bonds and sold as securities by banks to insurance companies, mutual funds and public pension funds. They are all scrambling for these, which in turn creates ever-greater demand for loans, and leads to the banks issuing more and more sub-prime credit.

Unbelievably it’s the same crooks doing exactly the same thing, including using incorrect information about borrowers’ income and employment, so that people who had lost their jobs, or were bankrupt, or living on Social Security, could qualify for loans that they could never afford.

Admittedly, the size of the sub-prime auto loan market is only a tiny fraction of the sub-prime mortgage market at its peak, and its implosion would not have the same far-reaching consequences.

For the banks the investors silly enough to buy their bonds, that is.

But the misery is just as great for the people who are suckered into accepting credit they cannot afford.

Illegal it may not be, but immoral it certainly is.

Political leaders who sit astride high horses and purport to be working on behalf of the ordinary people should be doing something about it.

But, as I’ve said before, don’t hold your breath!

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