That is what you get for giving out risky loans to marginally qualified applicants just because you could charge high rates.
Same applies to the current student loan crisis too.
Central banks flooding banks with cheap credit. It is bound to end up somewhere where there is profit from higher interests and then go bust. Why do we keep saving the banks bad loans?
Is there also subprime credit card debt?
who knew bad loans to folks with no means to pay for them would ever backfire?
No problem, we'll just make more of them and once the economies of scale kick-in we'll be rich!
Don’t forget to repackage them! I’ve heard that doing so, and partitioning the resulting basket up dilutes the risk and makes them higher quality!
This seems like an excellent asset to insure. You're guaranteed profit unless the entire underlying market collapses!
I recall reading an article by someone or other which argued that auto loans cannot be a bubble in the way that stocks or houses have been, because generally there is not demand for cars by people who simply want to flip them for a higher price. Everybody who buys a car is buying a depreciating asset because they actually want to use it, so demand cannot get too out of control.
Interesting argument. Isn't the product being "flipped" the loans, and not the autos themselves?
Yes, but I can see the argument where its harder to loan out the same vehicle multiple times for ever-higher valuations given that autos depreciate pretty rapidly.
The problem wasn't houses, it was that the loans. It can't fuck the global economy, but car loans sure can screw with financial institutions that throw caution to the wind and start giving the equivalent of NINJA loans for cars
We lose money on each unit, but make it up in volume.