In a real free-market capitalist system, one has the opportunity to succeed beyond his or her wildest dreams, but also to fail miserably. And those successes and failures should be on the person or persons willing to take the risk. The decision should be ours and ours alone and thus the consequence of our decisions should also be ours.
But as we know (or should), America does not have a free-market capitalist system. What we have is a fixed, crony corporatist system – where a select, connected few can game the system, which is coincidentally setup to be gamed, make poor decisions based on the rigged system and never suffer a consequence for those mistakes.
As long as the same politicians and corporate cronies run the system, mistakes, which we pay the price for in the form of government bailouts, will repeat.
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We all know what happened regarding the housing bubble, as the government forced banks into granting loans to people who would otherwise have no business buying a house and in a lot of cases had no means to pay for the property. Still, due to government policy, virtually anyone could overextend themselves in search of the “American dream.”
And when the whole thing collapsed, as it was preordained to do, Nanny Government came to the rescue.
Now it appears to be happening again, only this time the bubble, which is on the verge of bursting, is that of auto loans.
The great Obama economy is such that more and more people are simply unable to acquire traditional automobile financing and thus must look elsewhere for the funds to purchase a car. These folks are pretty much stuck due to the lack of good paying full time employment and poor credit.
The Office of the Comptroller of the Currency (OCC), the department which tracks this data, supervises more than 1,600 national banks and federal savings associations and about 50 federal branches and agencies of foreign banks in the United States. The Comptroller of the Currency is Thomas J. Curry, who says, “what’s happening in the auto loan market reminds me of what happened in mortgage-backed securities in the run-up to the (housing) crisis.”
Roughly 86% of all new vehicles are financed –and small wonder, considering the cost – and more customers are having to opt for longer and longer terms. Gone are the 36 and 48 month purchase agreements. Nowadays it’s not uncommon to see terms running from 73 to 84 months. Imagine a 7 year auto loan.
Of those financed vehicles roughly 43% of all subprime auto loans are being issued to millennials. You know millennials – kids graduating from expensive colleges racked with school debt, who have little or no credit. How, you may ask, are they able to even get an auto loan? Just like the run-up to the housing bubble bursting, loan standards are being lowered. Combine lower credit standards with longer terms and its cars for everyone!
It is a virtual repeat of the housing crisis where the market was awash with subprime mortgages and delinquencies were at record levels. Today “US subprime auto loan 60-day delinquencies levels are at 20 year highs.”
Subprime auto loans account for about $25 billion. Yes that’s a lot, but it’s no where near a crisis. No it’s not, until you also factor in the “$170 billion of bonds backed by auto debt outstanding, up more than 45% from 2010.”
And what do we think will happen when this bubble bursts. Will the market be allowed to correct on its own? No silly! Nanny Government will ride in on its white horse and, with our money, save the day once again.
And then we’ll be free to move on to the next crisis. Maybe, if we’re really lucky, the federal government, like they did with most mortgages and ALL college loans, will decide to simply take it over the auto loan business. That will be great! That way we can go see those nice people at the DMV more often.