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Old 08-11-2011, 02:24 PM   #1
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Default Amid financial turmoil, will lenders keep the subprime spigot open?

Most observers say the turmoil in the stock and other markets doesn’t directly affect car sales. What matters, they assert, is consumer confidence. If that holds steady, so will car sales.
But bank confidence matters, too.

So far this year, General Motors says 6.5 percent of its sales have been to subprime borrowers, above the industry’s 5.5 percent, thanks to accommodating financing partners GM Financial, Ally, USB and Wells Fargo.

Lenders should be willing to keep the spigot open. The Federal Reserve has pledged to keep the Fed funds rate at “historically low” levels, which will keep banks’ cost of funds down.

And banks already are sitting on reserves that are massively larger than historical averages: well over $1.6 trillion. Until 2009, those reserves held steady below $100 billion.
But banks can get just as skittish as consumers. Amid financial-market turmoil, warns Alec Gutierrez, Kelley Blue Book’s manager of vehicle valuation, “I could see banks going back to restricting” loans to subprime customers.
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Old 08-11-2011, 02:33 PM   #2
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Although the housing meltdown has greatly increased the number of sub-prime borrowers, it is not in the best interests of either auto manufacturers or the banks to foster the creation of a sub-prime car bubble.
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Old 08-11-2011, 02:48 PM   #3
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It wasn't the best interest to do sub-prime lending in the first place. The Community Reinvestment Act FORCED it, and bankers made out as best they could, sometimes dis-honestly, and with complicated financial devices that the customers didn't understand.

But it is hard to tell what ultimately negative things people will do for a perceived short-term gain, or even sustainability.

It seems like a lot of people succumb to what looks good on the balance sheet to keep things rolling in the short term, and put off the major consequences for later.

Look at Fannie, Freddie, and the US Government, including the national debt and deficit spending. Do we really expect our business people to not follow that example, when the government promised that Fannie and Freddie would buy out the risky packaged credit vehicles from the banks? What did the banks have to lose then?

If there is QE-3, and other government shenanigans, it could spread to any other form of consumer debt, in the false premise of bolstering consumer activity, rather than living by the rules of economics, and lying in the bed that has been made already.
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Old 08-11-2011, 04:49 PM   #4
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You are wrong. It did not force bad loans, nor did it force idiots to rate the loans as safer investments than they were, nor did it force the sellers of the loans to pawn them off on some clueless group who believed the ratings.
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Old 08-11-2011, 10:15 PM   #5
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CRA pressured banks, under threat of the Department of Justice under Janet Reno, to extend their lending practices to minorities and under-income clients.

Barney Frank and Chris Dodd, two of the biggest contribution recipients of Countrywide, (after Barack Obama himself during the more recent 2008 campaign), wrote that legislation and passed it during the clinton administration, but it has roots all the way back to Carter.

Banks (the big major chain lendors that the government focused on) didn't want to be saddled with all of that high-risk mortgage liability, so they packaged them into Real-Estate-backed securities, which the government agreed to assume under the quasi-agency/non-agency Fannie Mae and Freddie Mac.

No person with half a brain cell, and not under duress, would lend the way those banks were lending, without knowing more than the debtor's name and address. In some cases, willfully ignoring the debtor's inability to pay, because the debtor counted toward the government's CRA regulations.

Those securities crashed when balloon payments, coupled with rising unemployment caused a GLUT of foreclosures on mortgages that should never have been approved in the first place.

They counted on the bad debt being written into the bundles, dispersed with the non-sub-prime mortgages would balance the risk, but the bad debt was too much of a drag, and it dragged down the whole housing market into a crash, that still hasn't recovered.

The banks created the balloon payments in the hopes that enough people would survive them and pay them, that the high failure rate would be overcome by those who didn't fail to pay the much higher secondary rates. It didn't work, because the economy otherwise was tanking, and unemployment was on the rise. Again, because the government's unwise fiscal policy was de-valuing the dollar, and restricting businesses in other arenas, just as they still are to this very moment, and into the foreseeable future.

Why else, at this very day, does Fannie and Freddie own ~90% of the active mortgages in this country? ALL of the banks unloaded their mortgage load up to them, as mortgage backed securities.

If the housing market tanks again with the decline in the credit rating of the US Government, which could necessarily drive interests rates up in the future, causing a major slow-down to real estate sales, and business borrowing, which in turn slows consumer spending, new hiring, and every other economic indicator, it would not be out of the realm of possibility that the Government-backed Fannie and Freddie foreclose-in-place, and take over mortgaged property as an absentee land-lord, and turn people's mortgage payments into slightly lower perpetual rent payments. Basically turning most of the private housing sector into socialized housing, and turning the payments into a rent payment akin to a tax.

I am getting out soon, by paying my house off. Nobody will have a claim on the deed to my property but me.

It wouldn't surprise me if the government did that, and then handed the deed to the chinese in leu of cash payment of the 14+Trillion dollars in debt that our government has racked up. Our GDP certainly won't cover it anymore, the only other value we have is the land encompassed within our borders.

I am not saying it will absolutely happen, nor that it will happen tomorrow. But we are running out of options, and running out of exits from this scenario. The dollar is being devalued, and the countries that hold our government's debt know that. They know that they are being set up to be paid back with worthless paper. No one would be happy about being taken advantage of like that.

The debt ceiling was supposed to be a check (as in checks and balances) against going this far awry, and they just blew through that again for the 76th time in less than half a century, with a meager slight reduction in the base line of growth to show for it. No negative-number cuts were imposed, merely the rate of growth has been slightly lessened.

This isn't clueless, it is intentional. The ruling class is buying their power with money that the unborn generation hasn't even contemplated earning yet. That is the only explanation that fits the facts of what the politicos are doing. Nobody interested in sustainable business would do anything like this, EVER. This is destroying people, and economic infrastructure, and it is too precise to be accidental.

Last edited by HipToBeSquare; 08-11-2011 at 10:22 PM.
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