Subprime Auto Nation

By jimq, who operates the Burning Platform website. Originally published at Washington’s Blog.

Have you heard the news? Auto sales are booming. Total sales for the month of August were 1,285,202 vehicles, according to Autodata Corp, the highest monthly sales figure for any August since 2007, when 1.47 million autos were sold in the United States. Year to date auto sales have totaled 9.7 million and are on track to reach 14.5 million. Between 2006 and 2007, auto sales ranged between 16 million and 18 million. They crashed below 10 million in 2009. The Keynesians running our government have pulled out all the stops to restart this engine of consumer spending. First they wasted $3 billion of taxpayer funds on the Cash for Clunkers debacle. Almost 700,000 perfectly good cars were destroyed in order to keep union workers happy. This Keynesian brain fart distorted the used car market for two years, raising prices for cars needed by the working poor. After that miserable failure, they realized the true secret to selling vehicles is to give them away to anyone that can scratch an X on a loan document, with 0% interest for 60 months, financed by Federal government controlled banking interests. Add in some massive channel stuffing and presto!!! – You’ve got an auto sales boom.


General Motors sales are up 3.7% over 2011. Ford Motors sales are up 6% over 2011. The Obama administration continues to tout their saving of the U.S. auto industry with their bailout in 2009 that saved unions and screwed bondholders. If this strong auto recovery is not an illusion, how do you explain the two charts below? General Motors stock is down 42% since 2011. The highly proclaimed success story called Ford Motors has seen their stock collapse by 50% since 2011. This is surely a sign of tremendous success and anticipation of soaring profits for these bastions of American manufacturing dominance.



This is America, land of the delusional and home of the vain. The appearance of success is more important than actual success. The corporate mainstream media dutifully reports the surge in auto sales is surely a sign the economy is recovering and the consumer has finished deleveraging and is ready to spend again. The government propaganda machine proclaims the surging auto sales are due to their wise and forward thinking policies (like the Chevy Volt). Luckily for them, there are millions of gullible Americans who believe the storyline and are easily convinced that driving a $30,000 new car, financed over seven years, makes them a success. The decades of Bernaysian marketing propaganda has worked its magic on the government educated, math challenged citizenry. There are only two things that matter to the non-thinking auto buyer (renter) – the monthly payment and what the next door neighbor and his coworkers will think. Buying a fuel efficient car they can afford, paying it off in three or four years, and driving it for ten years, while saving the monthly car payment, is what a practical, rational thinking person would do. The fact that only 20% of the 9.7 million vehicles sold this year have been small cars and the average sales price of new cars sold is now $31,000 proves Americans are still living in a delusional fantasyland of cheap gas and monthly payments for eternity.


As gas prices surpass $4 per gallon across the country, somehow 4.7 million of the 9.7 million vehicles sold in 2012 have been pickups, vans, crossovers or SUVs. Three of the top eight selling vehicles are pickups. Luxury vehicle sales are booming, with Mercedes, BMW, Porsche, Land Rover and Audi showing double digit percentage sales gains over 2011. We’ve entered a recession, gas prices are approaching all-time highs, job growth is pitiful, and Americans continue to buy luxury gas guzzlers on credit. This will surely end well.

The average payment on a new car in 2012 is $461. For used cars, the average monthly payment is $346. Today, 77% of new car purchases are financed. About half of all used vehicles involve financing. Of those cars financed, 89% are through a loan vs. 11% with a lease. A critical thinking person might wonder how a country with 4 million less employed people than we had in 2007, median household net worth down 35%, and real wages lower than they were in 2007, could be experiencing an auto boom. The answer is a government/corporate/banker/media effort to funnel taxpayer funds to deadbeats across the land in a fruitless attempt to create a facade of recovery. Our governing elite are convinced that more debt peddled to the masses is the path to recovery for an economy that imploded due to excessive debt peddled to the masses in the first place. Essentially, it comes down to who benefits from the peddling of debt. It isn’t the masses, as they become enslaved in the chains of debt and monthly payments in perpetuity. Debt peddling benefits Wall Street bankers, politicians, and mega-corporations selling crap to the masses.

The storyline being sold to the vegetative dupes (watching Honey Boo Boo) that occupy space in this delusional paradise we call America, by the corporate media, is that consumers have deleveraged and are ready to resume their “normal” pattern of spending money they don’t have on stuff they don’t need. Of course, the facts always seem to get in the way of a good yarn. Consumers have never deleveraged. Consumer credit outstanding is at an all-time high of $2.58 trillion. The decline from $2.55 trillion in 2008 to $2.4 trillion in 2010 was NOT deleveraging. It was the Wall Street Too Big To Fail banks taking a big dump on the American taxpayers. They passed their bad debts to you through TARP, the Federal Reserve buying their toxic “assets”, and ZIRP.


Revolving credit (credit card) debt peaked at just above $1 trillion in 2008 and “declined” to $850 billion during 2010. The media storyline is that you buckled down and paid off your credit cards, therefore depressing consumer spending and creating a recession. Sounds convincing except for the fact that it’s a load of bullshit. The Federal Reserve’s own data proves it to be false. Your friendly Wall Street banks have written off $213 billion of credit card debt since 2008 and passed the bill to the few remaining taxpayers in this country. For the math challenged, this means that consumers have actually INCREASED their credit card debt by $68 billion since 2008. The bad news for our Chinese crap peddling mega-retailers is that the significantly poorer average middle class American household is using their credit cards to pay their property tax bills, IRS bills, and utility bills in order to survive.

Credit Card Charge-off in Dollars 2005 – 2011 — Not Seasonally Adjusted:

Year Dollar Amount
2011 $46,017,459,671
2010 $75,090,106,350
2009 $83,179,901,000
2008 $53,506,353,600
2007 $38,149,440,000
2006 $32,111,934,400
2005 $40,634,994,400
Year & Quarter Dollar Amount
2012Q1 $8,772,385,443


The category of debt that barely budged in the 2009 collapse was non-revolving credit. It stayed in the $1.5 trillion range in 2009 and has since surged to over $1.7 trillion in 2012. What could possibly have made this debt skyrocket by 33% when the GDP has only grown by 12% over the same time frame? You guessed it – your corporate fascist friends in Washington DC and on Wall Street. Non-revolving debt consists of auto loan debt of $663 billion and student loan debt of approximately $1 trillion. Student loan debt has shot up by $300 billion since 2008. This student loan debt is being distributed, like candy by a pedophile, from the Federal government in an effort to artificially hold down the unemployment rate.

Debt balance composition SUBPRIME AUTO NATION

Approximately $500 billion of the student loan debt is held directly by the Federal government, up from $100 billion in 2008. The Feds guarantee the majority of the remaining student loan debt. Can you think of a more subprime borrower than a 40 year old former construction worker getting a liberal arts degree from the University of Phoenix, sitting at his computer in his underwear scratching his balls, and paying with a $10,000 Federal student loan from you? This fraudulent attempt to obscure the true employment situation will end in tears for the borrowers and the American taxpayer. It’s tough to make a loan payment without a job. The student loan bailout is just over the horizon and will cost you at least $300 billion. Delinquencies are already off the charts.

Change in student loan delinequncy SUBPRIME AUTO NATION

When has offering low interest debt in ample portions to people without jobs, income or assets ever backfired before? The bankers and politicians that control this country seem to be a one-trick pony. They will never admit that debt is the problem and reducing it the solution. The real solution would make them poorer, so their solution is to pour gasoline on the fire with more debt at lower interest rates to more people. The addict will keep injecting more poison into their system until sudden death. The bankers and politicians know we are a car-centric society and appeal to our vanity and poor math skills to keep the game going.

During the first quarter of this year, total U.S. car loans totaled $52.5 billion. That’s 49% higher than the same period in 2009. Also during the first quarter, the average amount financed on new vehicles rose by $589, to $25,995, and for used cars by $411, to $17,050. Furthermore, buyers are stretching out payments for longer terms: The average length of new- and used-vehicle loans jumped a full month during the first three months of this year, to 64 and 59 months, respectively. The surge in auto sales is being completely driven by doling out more loans for a longer time frame to deadbeat borrowers. Subprime auto loans now make up 45% of all car loans and the vast majority of all used car loans. They have even created a category called Deep Subprime. Borrowers classified as “deep subprime” (i.e. those with Vantage scores below 600) account for 10.7% of auto loans. You can also classify them as loans that will never be repaid.

risk distribution for new car loans by credit score SUBPRIME AUTO NATION

Two thirds of all car sales are for used cars, so the fact that 37% of all new cars are being sold to subprime borrowers is exacerbated by the ridiculous lending practices for used cars. The fine folks at Zero Hedge have provided the outrageous data and a chart that proves beyond a shadow of a doubt what awaits the American taxpayer – another bailout. Zero Hedge has already revealed the GM fake recovery by detailing their channel stuffing over the last two years. Now they’ve dug up more dirt on why car sales are surging. What could possibly go wrong providing loans for more than the value of the asset to people with a history of not paying their debts?

  • Subprime borrowers received 56.46% of loans on used cars in the quarter, up from 52.70% a year earlier.
  • The average loan-to-value on new cars was 109.55%
  • The average used car loan-to-value ratio rose to 126.62%
  • 77% of Subprime Auto Loans are for a period greater than five years

It’s amazing how many cars you can sell when you aren’t worried about getting paid. This is the beauty of a fiat currency, a printing press, and a taxpayer available to pick up the tab after the drunken party gets out of hand. The chart below provides the details of our superhighway to disaster. The percentage of used car loans to prime borrowers is now at an all-time low, while the percentage of loans to subprime borrowers is near all-time highs reached just prior to the 2008 crash. When lenders cared about being paid back in the early 2000′s, they rarely made loans longer than five years. Today, more than 77% of all subprime used car loans are longer than five years and average FICO scores are now well below 600. Just to clarify – if your FICO score is below 600 – YOU ARE A DEADBEAT.


When you start to connect the dots, things that didn’t seem to make sense begin to crystallize. This is all part of the master plan concocted by Bernanke, Geithner, Obama and the Wall Street Shysters. The auto section of my local paper now makes sense. Offers of 7 year financing at 0% interest and monthly lease offers of $150 to $200 for brand new cars now are understandable. The newer model BMWs, Cadillac Escalades, Volvos, and Jaguars I see parked in front of the low income luxury gated townhome community in West Philadelphia now makes sense. A pizza delivery guy driving a new Lexus is now explainable.

The master plan is fairly simple. The Federal Reserve lends money to the Wall Street banks for 0% interest. These banks then turn around and provide credit card debt at 13% interest, new & used car loans to prime borrowers at 5% interest, and new & used car loans to subprime borrowers at 16%. When you can borrow for free, you can take a chance that a significant number of your borrowers will default. Essentially, Ben Bernanke is screwing the prudent savers and senior citizens by paying them 0.15% on their savings in order to subsidize the bankers that destroyed the country so they can make auto loans to the same people who took out the zero percent down interest only no doc mortgage loans in 2005. In addition, Wall Street knows the Bernanke Put is still in place. If and when these subprime loans explode in their faces again, Bennie, Timmy and Obamaney will come to the rescue with your tax dollars. Its heads you lose, tails you lose, again.

The chart below is like a who’s who of TARP recipients. The top 20 auto lenders control half the market. And look at the leader of the pack. Our friends at Ally Bank are the market share leader. You remember Ally Bank – they conveniently changed their name from GMAC (also known as Ditech – biggest subprime mortgage lender) after losing billions and being bailed out by you. They still owe you $11 billion and are 85% owned by the U.S. Treasury. No conflict of interest there. You have the biggest auto lender on earth controlled by the Obama administration. Do you think they have an incentive to make as many loans as humanly possible to help Obama create the illusion of an auto recovery? The only downside is for the American taxpayer when we have to eat billions more in Ally/GMAC losses. This insolvent excuse for a lending institution has been extremely aggressive in the subprime auto lending market and has forced the other wannabes – Wells Fargo, JP Morgan, Capital One and Bank of America – to lower their lending standards. Does this scenario ring a bell?

top 20 car lenders market share SUBPRIME AUTO NATION

We’ve become a subprime auto nation, addicted to easy debt, living lives of hope, delusion and minimum monthly payments. Storylines about economic recovery, fraudulent government statistics showing lower unemployment, feel good propaganda from the corporate mainstream media, and a return to easy money debt fueled spending does not constitute a real recovery. Until the bad debt is purged from the system and saving takes precedence over spending, the country will stagger and ultimately fall under the weight of its immense debt. We are lost in a blizzard of lies. This subprime fueled engine of recovery will propel the country into the same canyon of reality we entered in 2008. The crack up boom approaches.

thelma louise mustang SUBPRIME AUTO NATION

* * *

Lambert here: I’ve never owned a car, so I found this JimQ’s post especially interesting.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. El Guapo

    Yeah, cash for clunkers was implemented to “keep union workers happy”. If only we got rid of those damn unions.

    1. direction

      The strangest thing about the cash for clunkers program was that most people I know (myself included) looked into it but didn’t qualify because our crappy cars were too old! The only person I know who qualified had a fairly decent car, hardly a clunker. So, as usual, the poor got the shaft and the real clunkers stayed on the road. nice.

      1. ambrit

        El Guapo;
        “!Si, se puede!” Now THAT was unionizing!
        I agree with you. Getting that money into the pockets of a million or so ‘union workers’ is much more rational than giving it to banks. It gets spent into the economy for one thing. As for having a FICO score below 600, well, what do you expect from mainly poor, uneducated people constantly fed a diet of high consumerism through the media? I wait to see a pundit resurrect the phrase, “Aping their betters.”
        We had the same experience. So, we bought a semi-clunker and I fixed it up. Is the gentle art of DIY auto repair a dying pursuit?

      2. Art Eclectic

        It wasn’t a program for the poor, that’s just how it was sold. It was a progam to do one thing and one thing only: get inventory off lots where it was sitting and gathering dust.

        The poor can’t and don’t buy new vehicles. That’s reality. THe poor buy used vehicles for cash, they don’t finance because they can’t. The people who buy new vehicles are the middle class. Cash for Clunkers was about getting the middle class to upgrade and move inventory. It was a sales stiumulus that was green washed.

        We have a consumption based economy and it grinds to a halt if people aren’t spending. So, programs to get people spending are what is needed. Yes, unemployment is high, but the people who still have money and jobs are sitting on their cash and not spending because they are worried about their jobs and the economy.

        1. WorldisMorphing

          I’d rather go for “We have a *Hyper-consumption based economy that grinds to a halt if people don’t *waste.”
          Because if people don’t spend, it doesn’t really grind to a halt, it shifts in reverse and lands in the shithouse…

    2. albrt

      This post is right about Obama and his banker bosses being bad guys, but most of the rhetoric is about villainizing unions and workers.

      Blaming the state of the economy on unions and lazy poor people is profoundly right wing framing. I’m very sorry to see it here, especially from Lambert, who should know better.

      1. Lambert Strether Post author

        Fair enough. I’ve seen lots and lots of work on housing, and some work on student loans, but little on autos. So I filtered the rhetoric and thought the finance part would be useful — if only as an object of criticism. Now, I just processed the Republican convention for three days and the Democratic convention for four, and it looks like my filters were way more clogged than I thought!

        1. Warren Celli

          I’m very sorry to learn that Lambert, who should know better, “just processed the Republican convention for three days and the Democratic convention for four.”

          Kudos for manning up on the article though Lambert! It did have a lot of good info in it, and even some nice fire in the writing that caused one to overlook the blaming and berating the ‘addict’ as equally as the ‘drug dealer’ bias.

          Xtrevilism is a disease that spreads from the top down. The few at the top control the culture making propaganda machine and the government, and therefore make the masses what they are. Berating the masses for their poor reactionary behaviors to the deceptions plays into the intentional creation of the perpetual conflict and herd thinning that is the true driver of events presently taking place.

          There is truth to the fact that many have become; “the vegetative dupes (watching Honey Boo Boo) that occupy space in this delusional paradise we call America”, and it is by design, but the author does not go far enough in explaining his closing, intentionally all inclusive, remedial belief that; “Until the bad debt is purged from the system and saving takes precedence over spending, the country will stagger and ultimately fall under the weight of its immense debt.”

          This moronic, simplified, half wit — intentionally opaque — remedial measure does not even come close to rectifying the problems that he does lay out. After blaming ALL for the problems EQUALLY, without pointing out that some few, by virtue of the corruptly gained power that they wield, are far, far more responsible than others, for the conditions that we exist in, he obliquely lumps the victims with the perps in his ‘solution’. This is the ‘Personality Responsibility’ pap, ‘we are all to blame’, in a very deceptive suit.

          He is SELLING the Kool Aid of divisiveness as he adds to the divisiveness.

          Deception is the strongest political force on the planet.

  2. psychohistorian

    Nicely laid out, thanks!

    This debt cliff we are going over (not personally, mind you) is all part of some master plan by the global inherited rich to enslave folks further.

    It is interesting/sick to see how iron fist in velvet glove our government is now brazenly working for other than its rightful citizens.

  3. jake chase

    Of course this analysis is exactly right. The financial health of the pruduent has been ruthlessly sacrificed to support the profligate and enrich the predators engineering their fatuous life styles. The economy is a joke from end to end. There is no product worth buying in any of the shops. The workers cannot live on the miserable stipends they are paid. The students are not learning anything in the ripoff university system which provides the excuse for their lifetime debt enslavement. Medical care is the biggest joke of all, with the insurance companies impoverishing both the insured patients and the captive practitioners who are lucky to recover 10% of the charges billed, while the drug industry collects the largest share of the health care bill for masking symtoms and creating long term dependence and God only knows what unforseen consequences by dispensing inadquately studied and fraudulently promoted nostrums only one largely toxic step removed from patent medicines.

    There is no solution to any of this. An individual can try to live sensibly and decently but everything conspires to make that individual a sucker. Virtue is its own reward. That means you don’t get any other rewards.

  4. mp

    Yves, what happened to the I once knew and loved?

    This reads like someone’s coke-fueled rant.

    1. psychohistorian

      Gawd you are hard to please.

      Just because the author didn’t tell you explicitly about the delusion that students are under that school is a good place to hide when the economy is bad you think that a drive by blow off is appropriate.

      What is suppose to be the tone of a posting about your country fucking you like they didn’t teach you in high school civics?

    2. James

      Yep. It definitely expresses a point of view alright. That’s what you get when you actually strip American capitalism ‘naked’ and view the god-awful awful truth. Kind of like a corpulent out of shape geriatric exposed in the bright light of day for all to see. You can’t bare to look, it’s so ridiculously hideous, even as you can’t seem to look away either. Thing is, we need to look, cause it’s definitely our future coming straight at us all over again.

    3. BertS


      It’s a post [rant] about our government [stat crazed lunatics] using Keynesian stewardship techniques to manage the economy [flog the consumer until they buy something] and stimulate [MMT in your face Mutha] the private sector [GM] and save or create well paying jobs [UAW].

      What’s wrong with that?

  5. EconCCX

    >>This reads like someone’s coke-fueled rant.<<

    A rant that deploys hundreds of points of evidence to support its argument. As opposed to mere impressions, labels, insinuations and adjectives.

    1. leftover

      The author supplies no links to sources or verifications of those “hundreds of points of evidence.” As one who comes to this site to learn something, it’s disappointing to see space given to a writer who has so little respect for his audience. It’s certainly not consistent with what I usually find at Naked Capitalism.

      As far as “labels, insinuations and adjectives” are concerned, from the first paragraph to the last, the piece is pumped full of troll-chum that reads more like what’s found in comment boxes than under banners. Editorializing is one thing, even bias is tolerable, providing the author provides some sort of verification of assertions. Without that, for someone seeking to learn, there is no credibility…only specious rhetoric created to reinforce an all too obvious political bigotry.

      1. Tim

        Yeah, well most people here have a thick enough skin and critical enough thinking to realize that just because he says bad things RELATED to unions isn’t hating on unions. He just points out that unions IN THIS CASE (UAW) have received preferential treatment by Obama, despite all the other unions he has screwed, which is not fair to everybody else. which is absolutely the truth and entirely appropriate for an article to be shown on NC.

        And it absollutely is an issue that our government and a certain large population of our citizenry has learned ABSOLUTELY NOTHING by the subrime housin issue.

        Intelligence and wisdom are different things. If being a fool makes you a deadbeat that buys things you can’t afford, then you will indeed get whats coming to you without much simpathy from 99% of people.

      2. Capo Regime

        I bet your believe NPR and they offer no sources other than hear say and views by corproate sponsored “think tanks”. Lots of points provided–its a blog not an economics journal.

      3. Clara

        I am surprised this author appears on Naked Capitalism too.

        His website is an Obama hating machine filled to the brim with angry rants and bigoted readers.

        The phrase “free shit army” is a favorite when referring to the poor.

        Oh, and I forgot to mention the misogyny found there too, readers post “big tit” and “nice ass” pictures of women as if the website is a pin-up calendar.

        For shame Yves.

      4. Ron

        Slow news day at NC! The article is filled with less then notable information and the reality is that subprime credit is nothing new.

      5. Norcal_Steve

        @Lambert — please exercise some discretion and try to preserve Yves reputation for professionalism! This post is unacceptable for this blog. It’s up to you to have common sense about maintaining a minimal standard, and this post is a huge fail. Keep it up and you are going to start losing readers pretty quickly, imho.

        Point of view is fine with me but can we please manage to keep this site away from gross conspiracy theory “You have the biggest auto lender on earth controlled by the Obama administration. Do you think they have an incentive to make as many loans as humanly possible to help Obama create the illusion of an auto recovery?” and sophomoric gutter talk “Can you think of a more subprime borrower than a 40 year old former construction worker getting a liberal arts degree from the University of Phoenix, sitting at his computer in his underwear scratching his balls, and paying with a $10,000 Federal student loan from you?”

    1. F. Beard

      Since credit creation in a government enforced monopoly money supply is a form of counterfeiting then NO ONE is credit-worthy. And since the poor are typically the least so-called “credit-worthy”, then credit creation especially steals from the poor.

      So if someone built their business or wealth using credit, then “You didn’t build that” certainly has some truth in it wrt them.

  6. Middle Seaman

    Amazing nonsense. To call the Obama gang Keynesian amounts to calling Paul Ryan compassionate. Randian is a much better term for a gang that pumped trillions of $$$ into the financial industry subsidizing the richest people on earth.

    “Saving union workers” is a positive even if it costs money. Unless, of course, the scriber thinks that the gang should have forked over the subsidy directly to your Bain at the Caymans.

    The stock market as the supreme authority over value is yet another piece of right wing propaganda. In reality, the stock market merges a huge number of weights and balances from a widely diverse universe. This is not the Roberts court.

    American live on credit. It isn’t the best way to live and it isn’t the way other developed countries live. Credit as a way of life has started way back and will continue well into the future. The analysis of debt here amount to trying to stitch together two blocks of ice.

    We seldom sink that low in NC.

    1. LucyLulu

      Good critique of post.

      Lenders are no longer making subprime mortgages. Borrowers are replacing their mortgages with auto loans. Interesting so many are SUV’s and pick-ups. Are we still a nation of farmers? And where I live, there are no new luxury vehicles parked in low-income neighborhoods. For that matter, don’t see any new luxury vehicles anywhere else either. But when I travel to visit sisters, OMG! Did the author consider the wealthy might be buying the expensive cars? One can surely be wealthy AND subprime, often are. Who says the wealthy pay their bills?

      “This insolvent excuse for a lending institution has been extremely aggressive in the subprime auto lending market and has forced the other wannabes – Wells Fargo, JP Morgan, Capital One and Bank of America – to lower their lending standards. Does this scenario ring a bell?”
      Wait a minute. How do they do this? If a lender enforces sound underwriting, they’ll lose the crappy subprime market but why would they lose the better credit risks?

      The libertarian philosophy was evident in this article. Since the GFC, many credit-worthy borrowers faced extreme short term difficulties that adversely affected their credit ratings. A short sale hurts a borrower’s credit for 7 years, little difference from a foreclosure. If the borrower has recovered from their difficulties, should they still be locked out of the market?

      In any case, author found some very good data. 77 month loans for more than value ARE disturbing. Many of these loans are being securitized. Constituents of the dog-food (canines are persons too) commission seeking income to cover the debt payments that didn’t retire with them.

    2. Goin' South

      The central delusion in this article is that the “Guvmint” is responsible for everything negative going on in society. While the Fed’s easy money policy may facilitate subprime auto loans, it doesn’t make those loans. There’s nothing “Keynesian” about this. This article’s author is so desperate to defend his beloved “private enterprise” that he must attribute all its failings, greed and corruption to the State.

      This is the problem with Paulites, Randians and Propertarians in general. They so willfully blind themselves to Capitalism’s faults that they end up sounding ridiculous when making otherwise valid criticisms of our present circumstances.

      There’s plenty of blame to go around. The State finds ever more ways to encroach upon our liberty, while Capitalism invents new methods to steal whatever change it can find in our pockets to save itself.

      1. rotter

        the problem with neolibbatardlicans is they they are completly hung up on,(completely stuck on) what kind of hat the capitalist pigs who run the country are wearing.. If they put on an Ike or Doug MaCarthur olive-drab, leather- visored, U.S issue, mailman hat they are oppressive tyrants…if they put on one of those triangular yankee doodle hats with a big ostrich feather in it, and maybe a blue silk ribbon – then they are a founding fathers. Sideways napolean hats move one back onto the big gubmint tyrant side of the room… It matters not one whit that the only difference between “government” and “private” are a few letters and the shape of the hat..libertarians, even after they declare govt illegal, (i encourage you to take some time to try to figure out how that might work)..are still going to get the living shit governed out of them, hard and heavy just as if the bosses were wearing the regulation hats…they can call it “private” if they wish – the fact is the govt we have now is all but private and corporately run. Their stateless society will last about .000000000000000001 seconds,which is the amount of time it would take for a govt. vaccum in the modern to U.S. to be filled..many physicists believe the speed of the inrushing political power would create a small thermonuclear – like explosion, and suck the air out the lungs of opera singers on the other side of the globe!

      2. BertS

        In case you haven’t noticed, Guvmint and Finans have merged.

        Here’s Ally – formerly Guvmint Auto Credit division of Guvmint Motors.


        Ally Financial bets on risky subprime car loans

        Ally Financial Inc, the United States’ largest maker of car loans, hopes that people have forgotten the time when “subprime” became a synonym for “disaster.”

        Ally, once known as GMAC Financial Services, is getting ready to go public this year, and is making the case that subprime loans for used car buyers are not about to produce the same results that they did in the housing market a few years ago — a near-collapse of the financial system.

      3. Doug Terpstra

        “Keynesian” must be a typo; I’m sure he meant “Kenyansian” :^) We are aspiring to the African model of government, serving a shrinking inner circle of kleptocrats.

    3. Tim

      ““Saving union workers” is a positive even if it screws over the entire tax base of america and facilitates millions of people self-destructing their future.”

      There fixed it for you. Such simple minded Unions = Good is pretty low brow. Sorry.

  7. Conscience of a Conservative

    The auto data is alarming, that people are buying used cars of between 5-7 years in age and financing them with loans of about similar duration at loan to values above 100% all with the blessing of Dodd-Frank which exempted debt auto debt and pay day lending. And not so ironically, so far, we don’t see any warning signs in auto securitizations or demand for such paper all rated AAA.

  8. Can't Help It

    And this is why any deflation will be temporary in the USA. Pretty soon, they’ll figure out a way to turn this loan into an ATM, followed by student loan then back to housing, etc, etc. Hyperinflation, here we come.

      1. BertS

        But first they will have to figure out how to make cars appreciate in value, so you can build “equity” in one.

        But never say never.

        1. Zoomer

          They already have, thanks to Cash for Clunkers.

          I have been looking at a 2008 Dodge model (the last year they made them), they are going for $20K, the original MSRP was $18.5K. Double thanks to Ben, not only is inflation killing me but as a retiree, I no longer earn any money on my savings (I’m not going to the casino)!
          BTW, I remember in the 70’s when new auto loans went from 36 to 48 months, all of the blowback about “irresponsiability”.
          My how times change!

    1. reslez

      Don’t stop believin’, Can’t Help It! The Rapture will be here any day now! I can feel it.

      Hyperinflation requires a cyclical increase in prices and wages feeding into prices. Wages are not going anywhere but down. That means poverty, not hyperinflation. HTH.

  9. Greg R

    Obama claims to turn around the US auto industry in a time frame you couldn’t turn around your local pizzeria, and no one asks the obvious question: “How is this f’n possible?”.

    If you didn’t realize the fix was in at that point, you were sleeping.

  10. The Dork of Cork

    Yes the auto thingie destroyed Ireland also… became a conduit for the cores waste based industry and they wasted us.
    Now its over.

  11. JTFaraday

    “Can you think of a more subprime borrower than a 40 year old former construction worker getting a liberal arts degree from the University of Phoenix, sitting at his computer in his underwear scratching his balls, and paying with a $10,000 Federal student loan from you?”

    He’s probably not getting a liberal arts degree. He’s probably getting a narrowly defined vo-tech degree that will be even more useless.

    Last time I checked, literacy still had some residual value.

  12. F. Beard

    “Sub-prime?” Since credit creation in a government enforced monopoly money is a form of counterfeiting then NO ONE is credit worthy.

    Also, I note in the Old Testament that the poor were not be charged any interest, yet in the US they are charged the highest interest!

    But otoh, it is instructive to see what a mess the counterfeiting usurers have caused.

    I think it was Steve Keen who said that if reasonable people won’t solve this mess then unreasonable people will come to power by solving it, at least temporarily. Remember, Hitler was initially seen as a savior by the Germans.

  13. gerry

    Just, no. The idea that the problem comes down to a stupid government rigging it so that deadbeats can live beyond their means — and “we’re” all paying for them — stinks of proto-teaparty 2008 blame the poor BS.

    Sneering at the underemployed and quoting Zero Hedge – wonderful. Thanks for missing the point completely.

  14. BertS

    Personally, I’m glad Lambo posted this.

    I can see from the comments that some are disappointed that the post didn’t give equal time to bank abuses/bailouts nor did it weight the relative effectivness of all these government bailouts and manipulations of the last few years (perhaps the author lacks econometrics skills). And that it was seemily unbalanced in ideologolical slant without the author properly disclosing which one, and provided no references whatsoever to hard data at New Economic Perspectives.

    But I must point out that the Title/subject of the post is:

    “Subprime Auto Nation”

    and not

    “F*cked Up Nation”

    1. gerry

      Well I’d point out too that NC is a bank-abuses website not a deadbeats-taking-advantage website and that of the latter we have plenty, and unlike NC they have their own cable tv networks attached. The intellectual dishonesty of the plutocracy’s various barkers – for example this post – doesn’t need or deserve equal time.

      1. BertS

        C’mon now.

        deadbeats-taking-advantage ????

        I’m bet dollars to donuts in about a year there will be a post on NC about the subprime auto loan crisis and at that point it will be characterized as “predatory lending”.

        I think the point of this article is that we have “predatory Keynesians”.

        1. EMichael

          Um, you are five years too late on that subprime auto finance crisis thing.

          Happened already. Many examples, but just research the past five years for Americredit and Household Auto Finance.

          1. BertS

            I did programming work for Ford’s subprime unit in 2001, so I know about them a bit.

            In this post I mean the next crisis. We don’t stop with just one.

          2. EMichael

            But that is the bank’s decision and the buyers of the ABSs. As long as the goverment does not guarantee thier losses(like in mortgages) it’s just business. The market in action.

            And since they did not stop the demise of the largest subprime autolenders when the ratings firms(like S&P) were fraudulently rating the auto ABSs just like they did mortgages, it will not happen.

            Amazing, people hear sub-prime and they come up with delusional thoughts. Nothing wrong with it, more risk, higher rates, standard stuff. Problems arise when the banks and ratings firms conspire to sell it, and leverage it, like A paper. That happend in the mid oughts, it is not happening now.

          3. BertS

            The Ford place told me thay had a 30% repo rate first year and it’s in the biz plan.

            The S&P report is on ABS, so that implies there is still issuance.

            And we do have a consumer loan protection agency, and if what I saw Ford doing wasn’t preditory, then I don’t know what is.

          4. EMichael

            What’s wrong with a 30% repo rate if it is in the business plan? Why would that be predatory lending? (BTW, I think the 30% is way high, I operated at 16% at my rates were not low).

            These people are high risk for a lot of reasons, some their own, some by misfortune. But these loans give them a chance to live and work. The vast majority of them need reliable transportation to keep their jobs; take their kids to day care or school, etc.

            I am not saying that some loans are not predatory lending, but the vast majority of people who take out subprime loans have been rejected by many differnt banks. Dealers can actually make more money with A credit people than they can make with b, c and especially d credit people. So there is not the steering you saw in the mortgage markets.

          5. BertS

            Well, I do remember the ABS market freezing up back in 2006 or thereabouts. I also read that a lot of smaller companies kept their short term cash – cash earmarked for payroll and paying vendors – in ABS paper. They were nearly pushed into bankruptcy when the ABS market finally froze up due to concerns over underwriting.

            These had good ratings on the ABS paper, which is what the non-financial world goes by normally. So we could say S&P blew it again. But either way, there are far reaching consequences when they push this securitized crap on the world.

            So I certainly wouldn’t say “no problem.”

          6. EMichael

            You almost are there.

            ” had good ratings on the ABS paper, which is what the non-financial world goes by normally. So we could say S&P blew it again. But either way, there are far reaching consequences when they push this securitized crap on the world.

            So I certainly wouldn’t say “no problem.”

            See, it wasn’t the paper that did it, it was that the paper was misrepresented to the investor.

            Short story.

            Back in mid 2005 I am at a tent sale for a large dealership group. I am looking at a deal that the finance manager is pushing me to buy that I do not want, but I might take it(and it would be portfolioed) just to keep him happy with me. I was at 21% interest with a $950 discount fee to the dealer and I knew it was a bad deal.

            I am just about to say OK when he walks in with an approval from Houselhold at 12% with a $95 fee, not to mention an LTV 20% higher than me. Stone cold loser deal. And probably for the investor, a loss of over 40% on the loan amount.

            I knew what was going on from that weekend on. It was a fraud perpetrated on the investor, and my business could not compete. My business naturally reduced for a couple of years until I stopped originating in late 07. And trust me, I could have closed in 2006.

            One good thing. When I saw in 05 what the investment banks were doing, I put all of my investments into gold. I knew it would be bad, just did not know how far the fraud went.

  15. David Lentini

    I think this is a very helpful and thoughtful post. The point isn’t that “it’s the government’s fault”, as some seem to conclude here, but that the government has become coopted by the banksters and the 1% generally. But looking at Obama’s rentention of, and genuflecting to, Streeters like Geithner and Summers, and the Dodd-Frank reform sham, should have made that point obvious by now.

    What’s new isn’t the corruption but Lambert’s uncovering of the latest incarnation (pun not intended). The important lesson is that Obama’s failure to address Wall Street’s corruption–and the public’s failuire to demand that accounting–along with the TARP–or just letting the whole rotten structure collapse as Andrew Mellon would have advised–meant that the banksters were given license to keep playing their games and the public given liberty to return to their free-market exceptionalist fantasies. This is just the domestic version of the self-delision that we suffer in Afghanistan and Iraq, and with all our other undeclared SPECOPS- and drone-fought wars, in which we ignore the suffering and destruction we cause others in the name of GWOT.

    I don’t think this about Keynesianism; it’s about deciding to ignore the results of dereguation in the financial industry while simultaneously bailing out the failures who got rich off of foolishness and lies. Either we return to regulation and greater government involvement in the economy, or we let everyone who sowed the wind reap the whirlwind. Lambert points out that we continue to do neither by sinking into a bailout-nurtured corporatist state that, ironically, is the very nightmare that Ayn Rand’s heros raged against.

    1. BertS

      “but that the government has become coopted by the banksters and the 1% generally”

      Couldn’t we say that that’s the governments fault. Please, please? Y’know those lawmaker guys? The ones that can throw us in jail?

      1. F. Beard

        Not really. Most people cannot even conceive of a world without credit creation and usury. “Cognitive capture” is the phrase, I believe.

        1. BertS

          But we are talking about extending bad credit to bad credit risks as an instrument of government policy to stimulate the economy.

          1. BertS

            Besides, Besides

            The Fed was our official “consumer loan” protector, and due to the crappy job they did the job was pulled from them and given to a new consumer protection agency.That was Ms Warren, IIRC?

          2. Valissa

            As you requested… cries of neoliberalism…

            Some things cut through language barriers

            Iconic neoliberalism

            Wisdom of the ancients

            Neoliberalism + neodarwinism =

            The Neo-aristocracy

  16. EMichael

    ” 77% of all subprime used car loans are longer than five years”

    I only have thirty years of experience in sub prime auto financing, so perhaps my questioning of this statement is unqualified.

    But either the defintion of “sub-prime” is beyond silly or this is a stone cold lie.

    And I will not even bother to comment on the total absurdity of “0% interest” advertising.

    Man is a moron.

    1. BertS

      I only spent 30 seconds doing google searches, and I found this on 0 interest loans. They seem to be common from the automakers.

      Then I found the S&P ABS report which is the source for the 77% of subprime is longer than 5 years data.

      1. EMichael

        I cannot read that S&P report. Tried to find it somewhere else, but no luck. So I cannot comment on it.

        IN terms of the 0% interest thing, of course it is common, just like all advertsing gimmicks. All it is rebate from the manufacturer that pays the bank(captive)the interest on that loan upfront. You could walk in the door and pay less for the car at the going interst rate and, amazingly!, the payment would be exactly the same.

        It is an advertising gimmick.

        1. BertS

          The S&P site/report is some fancy “flash” thing and will need some sort of addin in your browser.

          But in the above post, the “Table 10 – Collateral Trends” is a direct reprint from the S&P report.

          1. EMichael

            I need to see more, but if he thinks 600 is subprime, he knows nothing about subprime. And making something about LTVs is beyond silly.

            The value part is wholesale, it does not include the seller’s profit; sales taxes, registration, warranty, etc. And somehow pointing to 111 and 112% as meaningful is beyond me.

            The biggest subprime dealers in the mid oughts wer way, way beyond that level. Always have been, always will be.

            And as a matter of receord, I take anything put out by S&P with a large grain of salt. Imho, their directors should have been placed in jail and the enitre operation shut down after their role in destroying the economy.

    2. Capo Regime

      No name calling. You obvioulsy don;t comprehend the article or macroeconimcs.

      Credit ratings have been vanity sized for some time. If the people you work for change the defnition of su prime and call it something else it matters not–given reality of comsumer finances and the volume of loans the inescapable reality is that most loans are sub prime. try and read the article again and not think from the perspective of a guy who fills out loan documents in a car dealership but from a citizen trying to understand the world from beyond your little shphere and dull certainties. If LS is a moron–what are you?

  17. kevinearick

    penn state, catholicism, the american dream…

    when you raise the bar, the mythology collapses, from the foundation up…

    how do you expect critters to respond?

  18. Schofield

    Hmmm…..emotive troll-chum and the dilemma of whether to bite or not depending upon how much of a reasoning brain you can actually muster.

  19. EMichael

    This is my favorite part, though:

    ” Almost 700,000 perfectly good cars were destroyed in order to keep union workers happy. This Keynesian brain fart distorted the used car market for two years, raising prices for cars needed by the working poor.”

    I am on the fence with the CFC program, can see both sides and I am not sure. But this claim is beyond belief.

    I would like to know how he rated these 700,000 cars as “perfectly good”. How many did he personally appraise?
    How did he determine that CFC screwed up the used car market for two years? Based on his appraisals?

    I personally visited over two hundred dealerships during the CFC. I would guess the total percentage of cars traded in under the program that were safe enough for a dealer to resell(if they could, as under 2%. Just what the poor in the US need: unsafe, unreliable cars that wi;l require more in maintenance than a payment would be on a decent car.

    My favorite line came when I walked up to a new manager at a dealership looking at these wrecks, and asked him if he was the used car manager:

    “Nah, I am busy running a junk yard right now.”

    1. BertS

      Agreed that the author went off the deep end on that part.

      Pissed that the new “cars” as still half trucks and suvs tho.

      1. Capo Regime

        No he is not pissed that they are trucks and SUV’s. The point is that as gas prices go up the unthinking buyers will find themselves in tighter times. Yeesh, can you read?

        1. EMichael


          Do you understand that BertS said he was disappointed with so many SUVS and trucks being sold and I agreed with his thought? That the author was not involved in those two posts at all?

          Can’t you read?

          1. BertS

            I always get in trouble whenever I don’t make my sentences clear enough.

            “Pissed that the new “cars” as still half trucks and suvs tho.”


            “I am pissed that the new “cars” [sales volume] are still half trucks[sic] and SUVs, tho.”

    2. Capo Regime

      If you are so curios as to what Lambert posed in terms of facts–look it up.

      You seem to be annoyed by the piece and want to nit pick.

      It was well reported that thousands of cars with long service lives were destroyed by cash for clunkers.

      Why don;t you use the google thingy and look it up–i

      f he put in the details you would not like it and say it was to long, he puts in well know items (or at least to those of us who have been awake for the last 5 years) and you dispute for the sake of it. Guess what Lambert wrote is hitting you on some emotional level.

      1. EMichael

        I do not have to look up his “facts”, the ones he posts make no sense.

        HEre, read this and see if you can figure out the distortion:

        “Furthermore, buyers are stretching out payments for longer terms: The average length of new- and used-vehicle loans jumped a full month during the first three months of this year, to 64 and 59 months, respectively. The surge in auto sales is being completely driven by doling out more loans for a longer time frame to deadbeat borrowers. Subprime auto loans now make up 45% of all car loans and the vast majority of all used car loans.”

        Now take that and compare it to the S&P numbers he posted in terms of the length of loans, and try to figure out how both are possible.

        They’re not.

        1. MrTortoise

          Aha! Good catch. Uhmm… how jittery can markets get? I’ve been wondering about that, because as some market analysts on CNBC have noted, markets sometimes catch pneumonia.

  20. kevinearick

    look at the emotion and underlying false ussumptions…

    sometimes a false assumption of false assumptions becomes a true assumption…

  21. C

    I am disappointed in this post. Lines like:

    “This Keynesian brain fart distorted the used car market for two years,”

    Do nothing to convince me that this is in any way reasonable or useful reading. If I wanted to waste my time with ranting I would watch Fox News. I don’t, I come here.

    With respect to the rest of the post’s contents, some of it looks true. The rate of auto loans is a bubble and the attempts to turn GMAC public to deal with it does support that contention. However I wouldn’t call this a government activity. Cash for clunkers was but where is the Fannie Mae and Freddie Mac with a guaranteed buy of auto loans? At best this shows the government simply ignoring the problem or giving thanks for the miracle and not looking under the hood when they should. It is yet another example of the problems with Dodd Frank.

    I agree that Cash for Clunkers was not a useful method. At best it was a short-term backstop like so many things that are done lately. But it is consumer focused. Good Keynesian spending is investment in infrastructure that will add long-term value. I don’t see this as particularly Keynesian since it didn’t yield long-term investment only another short-term injection of cash.

    I would find this post more useful if it read less like a screed than like an argument.

    1. Capo Regime

      Outrageous reality must be delivered with aplomb. I suppose you like many others prefer “news” or “reality” delivered in the anodyne cadence delivered by a blow dried celebrity “anchor”. Brain fart is actually a good characterisation of the ideas proffered by the corrupt douchebags in D.C.

      If you want style over substance go to NBC or NPR where they will deliver you comforting lies in nice rated G language which is measured, lacks passion and is approved for all audiences

      Great post in every single way and totally spot on Lambert.

    2. Capo Regime

      So like mary poppins a little bit of sugar will make the medicine go down? We are all getting ass raped as a country but you want nice words……Oy.

      1. Capo Regime

        Good Keynesian spending is investment in infrastructure? How so? Where is that written or demonstrated? What infrastructure is good for long term–canals? Freeways? Bridges to nowhere? How did spending in infrastructure work out for Japan? have you actually read keynes? If you did its clear you did not understand a word of his work.

        1. C

          If I spend money on appropriate infrastructure (say roads) I can make it possible for a market to function and for goods to be distributed. This brings money for the individuals building the roads and, in turn, helps businesses that would depend upon them. As such the multiplier functions and at the same time I invest in something that will last beyond the initial spending.

          Cash for clunkers by contrast will only stimulate the car makers as long as it functions and, once the guaranteed spending vanishes the demand will disappear as well.

          How is that wrong?

        2. reslez

          How did spending in infrastructure work out for Japan?

          Well, 20 years into a depression they have 4% unemployment, the best high speed trains in the world, medical coverage for all their citizens, number one in longevity, etc. Yes Japan has problems… but we should be so lucky.

  22. New Yorker with car

    I think you miss the forest for the trees and you have an absolutist vision that is not pragmatic or very real-world friendly. Yes, in a credit collapse, you have to reflate. If you can’t reflate with houses, you need a substitute. What’s wrong with saving union jobs, clearing inventory and restoring confidence. That is the only way out. Do you have a better idea? You prefer all three car companies to go under and millions of jobs lost.

    Get real.

    1. Capo Regime

      Saving millions of jobs by propping up via sub prime debt–yes a great solution.

      Did you enjoy your time at the DNC? How were the speeches?

      He is suggesting we get real–you obviously miss the point of the article and don;t understand the first thing about the real world of credit and finance.

      Seriously, do you work for the adminstration or where you a DNC delegate? I say those are among the few types daft enough to make comments like yours.

      Brilliant work Lambert

    2. Capo Regime

      More Obama speeches and money printed from nowhere will restore confidence and allow us to buy cars and save the unions! Oh wait–none of us have jobs. Its o.k., we can get more credit thanks to Obama?

      What is the planet you live on New Yorker with car? What is the weather like over there?

    3. Capo Regime

      New Yorker,

      With your logic I suppose we can reflate or flate everywhere! Why not inflate in Pakistan, Sudan and everywhere and end all human suffering? Create a bubble in Haiti and start a auto industry with good paying jobs? Give us solutions so we can raise up all nations. If we can finance cares for the jobless and poor in the U.S. we can do it around the world!!!!

      1. F. Beard

        We could reflate safely if we banned further credit creation and bailed out the population at the same rate as existing credit is paid off.

  23. Capo Regime


    Great post.

    Interesting how people are quickly taken in or aback by “tone”. There is a fixation with style and tone and if the tone departs from the bland network or msnbc tone they tune it out. Some show very little interest in the totality of what you are saying and sadly a lot of posters are now evocative of USA today–they cant read, overcome by dependent clauses or thrown off because he said a dirty work and what he has to say is bad…….

    You are on target and serious empirical economic and finance research support all of your points. If somebody who filled out auto loan forms or is throuwn off by the word fart disagrees never you mind–they are vegetative ruminants on bland assurances and viewing the world from their little peephole of idiotic certainties.

    1. EMichael

      You sir have no knowledge of finance, and a solid level of ignorance regarding auto finance. Yoy have swallowed this moron’s lies just like you swallowed( I will bet on it) the government caused the financial crisis “Big Lie”.

      You don’t know how finance works, so some guy gives you a long post that fits into your ideology, and now you know something?

      I did start out “filling out loan applications in a dealership”. Then moved to the other side working for a bank. Then I started my own bank. And I bought and sold sub prime for a couple of decades.

      I know the business, you know nothing. And what you cannot seem to grasp is that there is nothing at all wrong with sub prime financing of any kind. Such lending has never caused any financial problems on a large level of any kind.

      What caused the problem is banks lying to investors in ratings ABS’s; having them rubber stamped by rating companies and leveraging them far beyond any level they deserved(or should have had by law).

      When you find out some bank is leveraging sub prime auto ABS at 60 to 1, then this guy can write some tripe about the business that may be true. Of course he will then blame it on the government, which will just make it more rehashed tripe. And you will swallow it whole.

      1. F. Beard

        that there is nothing at all wrong with sub prime financing of any kind. Such lending has never caused any financial problems on a large level of any kind. EMichael

        Cause you make up for the increased risk with higher interest rates?

        So the banks drive the poor into debt with counterfeiting and then charge them higher interest rates?

      2. reslez

        there is nothing at all wrong with sub prime financing of any kind

        So, you were in favor of the no-doc NINJA loans that prevailed during the bubble years? Your comments could easily be read as supportive of that, and it’s clear those subprime loans caused plenty of problems no matter how they were packaged and resold.

        1. skippy

          Sub prime is like a financial sun burning iron, going red giant (expansive gas cloud), only to collapse into a white dwarf.

          Skippy… time of events is the only variable.

          1. F. Beard

            Suns don’t burn iron since making elements as heavy as iron absorbs more energy that it produces.

            Ain’t you never watch the Science Channel?

          2. skippy


            Massive stars burn brighter and perish more dramatically than most. When a star ten times more massive than Sun exhaust the helium in the core, the nuclear burning cycle continues. The carbon core contracts further and reaches high enough temperature to burn carbon to oxygen, neon, silicon, sulfur and finally to iron. Iron is the most stable form of nuclear matter and there is no energy to be gained by burning it to any heavier element. Without any source of heat to balance the gravity, the iron core collapses until it reaches nuclear densities. This high density core resists further collapse causing the infalling matter to “bounce” off the core. This sudden core bounce (which includes the release of energetic neutrinos from the core) produces a supernova explosion. For one brilliant month, a single star burns brighter than a whole galaxy of a billion stars. Supernova explosions inject carbon, oxygen, silicon and other heavy elements up to iron into interstellar space. They are also the site where most of the elements heavier than iron are produced. This heavy element enriched gas will be incorporated into future generations of stars and planets. Without supernova, the fiery death of massive stars, there would be no carbon, oxygen or other elements that make life possible.


        2. EMichael

          “it’s clear those subprime loans caused plenty of problems no matter how they were packaged and resold.”

          You don’t understand, without “how they were packaged and resold”, not to mention priced, there would have been very little of them, and no problems would have been caused.

          1. F. Beard

            You don’t understand, without “how they were packaged and resold”, not to mention priced, there would have been very little of them, and no problems would have been caused. EMichael

            Well, we’ve had financial crises long before MBS. Lending on margin was a popular way for the banks to wreck the economy in the 1920s and the borrower did not have to have an income for that, just a down payment.

      3. EMichael

        No, common problem.

        Both of you guy are taking the abuses of the financial crisis and equating it with sub prime lending.

        There is risk in all lending, the key is charging the appropriate price to offset the risk. That is it.

        Now you can look at the rate and say “you are taking advantage of the poor and unfortunate” but you totally miss the point that without that rate, there is no loan. On my average loan the consumer ended up paying an additional $70 or month or so due to the high rate, but without that my investors would not loan them the money.

        There are no such things as ninja loans in sub prime auto financing. Docs are mandatory with all banks and the lower down the credit scale you go the more extensive they are. As an example, my loans required(among the usual insurance, license, etc.:

        One month of original paystubs
        Last two months of phone bill at address
        Last two months of one utility bill at address
        Five personal references(who were all contacted prior to funding)

        And of course all of the credit information was verified. Much, much stricter than regular financing. Additionally, much lower LTVs on loans.

        I cannot tell you the number of people who, despite paying $70 a month more than they would if they had good credit, still send me Christmas cards(and I haven’t funded a loan in almost five years). These loans gave them the opportunity to change their lives, and they took advatage of it.

        And while I can understand people looking at high rates, delinquecies and repos and thinking predatory lending, don’t forget that over 80% of the customers paid their loans. Rebuilt their credit rating. Kept their job becuase they could get to work on time. Were able to get the kids to Grandma’s at 7 before going to work by leaving the house at 6:30 and driving their car instead of leaving at 5 am and taking public transportation. Not to mention picking them up at night.

        Don’t get me wrong, this was a business, not humanitarian work. But the price charged met the risk, and actually helped people.

        1. F. Beard

          but you totally miss the point that without that rate, there is no loan. EMichael

          I believe you miss the point that “credit creation” (a form of counterfeiting) creates negative real interest rates for savers and thus FORCES them to borrow.

          Otherwise, the poor might have a chance to save money.

        2. skippy

          Come on, loans depend on peoples ability to pay. Instability in the job market increases the risk factors.

          Can you with any degree of – certainty – gauge the future in this environment? Wages are going down, job market is going sideways – down, personal financial buffers are being striped mined, more and more people are ONE paycheck away from bankruptcy, etc, etc.

          Skippy… the last 20ish years were good too you, remember it fondly.

          1. EMichael

            ” Come on, loans depend on peoples ability to pay. Instability in the job market increases the risk factors.”

            Sure does, I agree. Always has, always will. You change your matrix and your prices to account for it. If you are right you win, if you are wrong you lose. That’s finance.

            The financial crisis happened because of two main things:

            Adjustable rate mortgages and ninja loans took debt to income out of the equation. Banks sold these to investors as AAA rated and therefore increased the supply of willing investors immeasurably.

            That is the financial crisis in a nut shell.

            Some sub prime auto companies used the scam on investors the mortgage industry used in different ways.

          2. F. Beard

            Come on, loans depend on peoples ability to pay. skippy

            But banks don’t lend existing money; they create money (“credit”) as they lend it. Otherwise, they would have to pay honest interest rates to poor savers.

          3. F. Beard

            The financial crisis happened because of two main things: EMichael

            Yes. Usury and counterfeiting (leverage) are the culprits. Both are unstable.

            Financial crises have occurred many times over the centuries. This time is always different except it never is.

          4. F. Beard

            Can you with any degree of – certainty – gauge the future in this environment? skippy

            Steve Keen predicts we’ll have another 20 years of this mess unless excessive private debt is dealt with.

        3. EMichael

          F. Beard says:
          September 8, 2012 at 7:21 pm
          but you totally miss the point that without that rate, there is no loan. EMichael

          I believe you miss the point that “credit creation” (a form of counterfeiting) creates negative real interest rates for savers and thus FORCES them to borrow.

          Otherwise, the poor might have a chance to save money.”

          I did not make the world. Perhaps you can explain to me(other than through some macro) how “the poor” can save money with no job? Cause a huge majority of these borrowers need reliable transportation to get to work. And perhaps you can explain to me how “the poor” can save money when they spend it on inefficient public transportation suplemneted by cab rides? Or how they can “save money” when “good” public transportation means their child has to be in daycare an extra three hours a day?

          Live their lives and tell me about “counterfeiting”. They don’t need an economics lesson, they need to get to work and hoime again.

          1. F. Beard

            They don’t need an economics lesson, they need to get to work and hoime again. EMichael

            Then you should not object to a universal bailout of the entire population? Just to fully back existing deposits with reserves would require about $7 trillion to be given away. That’s $28,000 per US adult. If we considered all US private debt to be counterfeit that would be $160,000 per US adult though I admit that what is owed to foreigners is legitimate so that amount should be lower.

          2. EMichael

            Why would I agree with that?

            I no more want to absolve people of their debts than I wanted to absolve the banks of their debts.

            I am a capitalist. I am unhappy with the crony capitalism that currently dominates(though it has always been around).

            I wanted the banks that perpetrated fraud to go under and criminals to be prosecuted. While I can understand why it has not happened(the cure might be worse than the disease) it does not make me happy.

            In the same way I want people to be responsible for their debts, though knowing that shit happens, and sometimes people default through circumstances that are not their fault. That’s the risk finance takes.

            And if you think the world can exist without finance(though reined in sharply), you will not have much conversation with me.

            I hear these things and it is like George Will talking about the founding fathers; interpreting their thoughts; telling me how we are going astray in this country; and not mentioning that is is 2012 and, oh, btw, there has been a pretty big change in the world since the 18th century.

          3. F. Beard

            I no more want to absolve people of their debts than I wanted to absolve the banks of their debts. EMichael

            Debt to what is essentially a counterfeiting cartel is not morally valid.

            With banking, “loans create deposit” but guess where the purchasing power for those new deposits comes from? It comes from the general population including ultimately the borrower unless he happens to be the last to receive a loan before the bust. And then during the bust, the borrowers are expected to repay their loans in a declining economy or lose their collateral and probably their equity too
            since it was an illusion caused by debt.

            And of course, the process cheats savers too. Thus the entire population deserves restitution at least to the extent that deposits are 100% covered by reserves.

          4. F. Beard

            And if you think the world can exist without finance(though reined in sharply), you will not have much conversation with me. EMichael

            Finance can be done ethically, don’t you think?

          5. EMichael

            Of course it can be done ethically, but you are taking your ideology beyond the bounds.

            Not one of my investors was guaranteed by any government agency. Their returns were based on their risk. Bad years they made nothing; good years they made as high as 15%.

            I think your thought is that you are equating normal savings with investments; then using the bank bailout, which certainly changed the game and socialized bank losses, as being valid then, now or down the road.

            You seem to think all credit dollars come from the “general population”. No it doesn’t. It comes from the investors. Granted, the socialization of the banks losses during the financial crisis makes your statement correct to a degree, but that is not the way it should be, nor the way it had been for most of my life.

            I am in favor of bank deposits, up to a limit, being guaranteed by the government. I cannot see a solid banking system without it. But I was on the fence regarding the bailouts when they happened, eventhough I believed the loss of the banking system would have devastated the US(and world) economy.

            Any banker who allowed this to happen would not change his behavior after being saved. And the last couple of years have shown that to be true.

            We should have let them go/

          6. F. Beard

            I am in favor of bank deposits, up to a limit, being guaranteed by the government. EMichael

            No. There should be a solid distinction between a risk-free fiat storage and transaction service and the lending of money. All US citizens, for example, should qualify for a risk-free account at the Fed (or US Treasury if the Fed is abolished) alongside the banks and that account should be free, as a public good, up to normal house hold limits. And shortly thereafter government deposit insurance for the banks should be repealed. Of course that would cause a massive run on the banks which is why they should be at 100% reserves by then. That’s where the universal bailout with new reserves comes in.

            I cannot see a solid banking system without it. EMichael

            Credit creation and even the honest lending of existing money is a form of gambling. Why should government subsidize that behavior? It shouldn’t.

            As for the needs for finance, common stock as private money is an ethical, stable private money form that does not depend on fractional reserves or usury. It “shares” wealth and power rather than concentrates them.

  24. WorldisMorphing

    All in all, good post.

    There is such a thing as stupid and wasteful allocation of resources. Especially when incompetent politicians and bankers need to patch giant macro economic holes.
    What are they going to patch them with ? –Cotton candy, that’s right, cotton candy.

    In all fairness though, that is the system’s main engine: Consumption and vanity projection go hand in hand, especially if you have nothing more meaningful to live for…

  25. kevinearick

    back in the day, when it was about work ethic, hard working older people provided hard working young people with a low cost transportatiom solution.

    1. EMichael

      Thirty years ago, or “back in the day”, hard working older families worked 600 hours less a year than young families work now.

      For the same income.

  26. LifelongLib

    My wife and I recently bought a new car because we need maximum reliability and some comfort (my wife has health problems that could make being stranded dangerous and our old car was hard for her to get in and out of). It isn’t the sort of car I would have bought for vanity. I personally would rather not own a car at all but we don’t live in an area where that is possible.

  27. Matt D

    How did this long-winded rant end up on NC? I could barely get past the first paragraph – what was Keynesian about Cash for Clunkers?

    1. KFritz

      There are other irrelevancies–f’rinstance the potshot at “fiat currency,” as if financial shenanigans are the exclusive provenance of paper currency. (It is true that complexity that’s possible with an abstract medium of exchange does increase the size and scope of shenanigans.)

      THAT ASIDE, this article is a treasure trove of information, pulling back the curtain on the latest bubble being created to mask the underlying unsoundness of the economy. As such, it’s well worth working past its flaws.

      1. Lambert Strether Post author

        “Take what you like and leave the rest.” That was my approach; at least in the blogs that I check, I hadn’t seen a detailed treatment of this topic. And at the 30,000 foot level, cars… Let’s double down on #FAIL, eh?

        * * *

        For the tone, I’ve noticed in other contexts that my irony and snark filters have become totally clogged lately, seriously. I think it’s from processing two national party conventions in one week.

      2. EMichael

        I will take this:

        “Total sales for the month of August were 1,285,202 vehicles, according to Autodata Corp, the highest monthly sales figure for any August since 2007, when 1.47 million autos were sold in the United States.”

        And leave the rest for a sanitizing crew to clean up. Though I should probaly check it, the more I read the more stench comes out.

        Just a totally bs summation.

  28. Stan Getz

    What passes in this country for economic policy are programs which feed a small influential subset of finance and big business in the short term and are designed to create unsustainable, destructive bubbles that place us all at hazard and are incongruent with long term economic growth. Its a political class that operates the same as greedy-short-sighted five years olds or corporate ceo concerned only with the effect their decisions will have on stock options exercisable in the next 6-18 mos.

  29. kevinearick

    what you are witnessing is a capital neutron bomb. if you look at it accordingly, you will see your entry point…

  30. FRauncher

    It looks to me that the writer is exaggerating in his text but doesn’t back it up with his graphics (unless they are way out of proportion). The auto outstandings don’t look like they have increased that much in the last nine years, and the percentage outstanding looks to be way down. Additionally, the percentage rated prime is high enough to suggest that banks as a whole will not lose on this.

    The only ones losing are the poor as usual, and that is the reason Strether must have been posting this. The top 1% are still raking off all the profits with their low wage minions still obliged to borrow at ruinous rates to make ends meet.

  31. Working Class Nero

    Globalization is drawing America into a two-way movement of jobs and workers. Well-paid jobs are being relocated to low-wage countries while at the same time third world workers are coming to America to drive down the wages of the jobs that cannot be moved. The result of this two-way movement is an erosion of wages and the standard of living of the bottom half of the population.

    In this headlong rush towards the bottom, credit is the only mechanism available to help maintain the fiction of a First World lifestyle for middle class Americans. The huge profit margins that result from third world workers replacing Americans and working for pennies on the dollar end up leaving plenty of loose capital to throw about. Americans still have access to moronic levels of credit; dispensable countries like Greece have been cut off for some time now. Like amphetamines to a cancer patient, credit will do nothing but prolong the illusion that nothing is wrong in America. In the meantime the cancer of globalization will be free to further hollow out the economy. Will people wake up before it is too late?

    I totally agree with the author that one should try to stretch the life of their vehicle as far as possible from the last month of payments. I’m well into my fourth year of payment free driving. But the morally corrosive reality is that it is probably a pretty good game plan to take the loans and the new car and never plan to pay anything back.

    And while I am very happy some working class union workers are getting work from all this; I cannot resist the dreadful image that these few surviving windbreakered hardhats are being placed on a sort of public reservation in a vain attempt to try to convince the American people that the ravages of the small pox of globalization have been greatly exaggerated and everything will be OK if we just continue to viciously attack the standard of living of the bottom 60% of Americans.

  32. PQS

    I, too, was turned off by the hostile tone, especially towards the working class that somehow haven’t absorbed the Great Wisdom on display here and elsewhere….I also think it is pretty shortsighted to blame truck sales entirely on Americans who are addicted to oil. This may be true, however, it is also true that some people – construction workers and farmers, for example – actually USE trucks for their work. You can’t put a 4×8 sheet of drywall in a Prius. I know I’ve seen a lot of new pickups on the jobsite lately, and as a business expense, isn’t it common practice to extend the deduction for the asset over seven years or more?

    The writer’s biases are betrayed by his use of snippy and condescending language, which mars an otherwise good presentation of yet another bubble engineered by our Overlords.

    1. Chris

      I will agree with you that the tone may distract from the logic in the article. But this stuff is worth getting pissed off about. This is about the entire financial engine of the country ignoring the distinction between what is legal and what is right. This is about inexperienced MBA’s optimizing equations for profit and having no grasp of the consequences of their decisions. I am glad to hear someone other than a talking head shouting about this to those who will listen. The fact that so many details were put behind the argument is just icing on the cake.

  33. EMichael

    One last word about this cretin that wrote this mess.

    ” and average FICO scores are now well below 600. Just to clarify – if your FICO score is below 600 – YOU ARE A DEADBEAT”

    He does not understand that it is very possible to have a credit score below 600 and be current on every single obligation?

    That it is possible to have a credit score below 600 and never, ever have missed a single payment?

    Man is a total, uninformed ah.

  34. Chris

    Excellent article.

    The question I have though is who, if anyone, is going to do anything about it?

    I’m trying to figure out how to diversify our savings and who to vote for. I’m desperate to find an option in November that will screw up my kids’ futures the least. The almost 25% unemployment rate they’re showing over on shadowstats is frightening. What kind of society will be there for my children after 10 years of this malaise?

    Right now that choice truly doesn’t seem to be Obama. His brand of crony capitalism is dangerous. But Romney? He doesn’t seem to understand anything from his public comments. And his record in PE makes me think he won’t do anything to restrict the creation of debt and the market for debt instruments. There’s got to be a way to fix this and get the country headed in the right direction. But where to start?

  35. Wandering Mind

    If you look at this guy’s website, he seems to enjoy making fun of the blue collar working class. His comments about student debt are revealing in that sense. How much student debt is actually held by laid off construction workers, after all?

    He makes it pretty clear who he is against, but I cannot figure out who he is for other than himself.

  36. different clue

    Of all the non-union-made foreign-based transplant car companies in the various right-to-work states (and some in some “right-to-unionize” states as well. . .) and of the cars they sell here, what percent of THOSE cars are financed by subprime loans? A different percent than the percent of rescued-GM’s cars which are financed by subprime loans? Or the same percent?

    If the same percent, then why is the author not upset by that fact? It seems to me that the author is only upset by the fact that the Obama Administration obstructed the Republican/RightToWork plan to exterminate American car companies specifically in order to exterminate the UAW and exterminate as many other unions as possible in the tied-in supplier companies which the RTW Republicans (with the signal exception of Senator Voinovich) wanted to exterminate. The author certainly doesn’t seem upset about
    nonUnion Hondas/Toyotas/etc. He merely seems upset that the GM/Chrysler/Ford workers haven’t been de-unionized as well ( even though it seems clear the author would have preferred to see them all the way disemployed).

    I remember hearing at the time that Ford Motor Company also supported this forced cramdown rescue even though FoMoCo would get none of the money, because FoMoCo feared going into equal liquidation if a GM/Chrysler liquidation bankruptcy forced more millions of midwesterners into foreclosure and paupery and out of carbuying. I have to assume the author is sorry that FoMoCo also avoided collateral extinction along with GM and Chrysler and that awful UAW.

    Lambert’s support for this article makes me wonder if Lambert’s putative Nader-voting anarcho-liberadicalism hasn’t been a cover for Ryanite Romneyism all along. Or is he just an anti-suburbanitic culture snob like James Klunster at Custerfluck Nation?

    As it is, the AmeriCar industry still has one last chance to power down gracefully and find something better-for-the-future to build than just cars. If they don’t take it then they and their workers may still await ultimate poverty . . . but at least they have this one last transition chance, as much as the author and apparently Lambert may hate the companies and the union for dodging the RTW Republican bullet.

    1. BertS

      I’ll try and help Lambo out.

      If you read “Table 19 – Collateral Trends”, you will see that around 70% to 80% of subprime loans are for used cars – any brand.

      I happen to know why that is, because the Ford subprime place told me so. But it is for an apolitical reason, so I won’t bother to say why because I would probably just be pecking away at my keyboard for no good reason.

        1. BertS

          I was waiting for someone to ask.

          It’s not that complicated really. In a nutshell, it’s to sell new cars.

          But the marketing people say it works like this.

          Dealers usually take a trade-in when they sell a new car. This goes to their used car lot. Dealers now have to clear inventory off the used car lot. Apparently there is a lot of subprime loan demand among used car buyers. Ford believes they are helping out their dealers clear used car inventory so the dealers can then sell a new car and take another trade-in.

          1. Lambert Strether Post author

            Thank you. You know what I’d really like to hear about, if you can (ie, aren’t under NDA or something like that)…

            You wrote: “I did programming work for Ford’s subprime unit in 2001, so I know about them a bit.”

            It would be nice to know what programming in Ford’s subprime unit was like.

          2. BertS

            Well, it is a feeling – and difficult to put into words.

            Probably also a product of my pre-conceived ideas – in this case always listening to GM (and the rest) proclaim “What is good for GM is good for the country”…etc…and associated special treatment. Getting a 35% import duty on SUVs and Light Trucks to protect their margins…instead of learning how to build small cars…things like that.

            Actually being in IT there was pretty much the same as anywhere else. It was management that was creepy. There was this odd combination of utter distaste for their clientele – the sub prime borrower – mixed with the conviction that they were the servants of the Greater Good.

            One time I was a quiet observer of a lunchtime discussion where some of the middle managers were seriously complaining that they needed to get more armed guards for the building because they fretted that a “crazy” re-possessee will storm the building and start shooting at them.

            Service with a smile, y’know.

      1. EMichael

        This is just beyond silly, a bunch of non-car people putting forth ideas based on various charts with their “background” consisting of programming for Triad a couple of decades ago. This comment just takes the cake:

        “If you read “Table 19 – Collateral Trends”, you will see that around 70% to 80% of subprime loans are for used cars – any brand.

        I happen to know why that is, because the Ford subprime place told me so.”

        C’mon Bert,

        The reason that sub prime loans are mainly used for used cars is simple: they cost less than new cars!

        Take 21% interst and throw it on a $25,000 purchase and you end up with a payment that very, very few (almost none) subprime buyers can get approved for, let alone pay.

        Then you put the icing on the cake with “the dealers sell used cars so they can sell new cars” comment. Yeah, that is earth shattering. It is called the car business.

        And banks do not finance used cars so their manufacturers can sell new cars, they finance used cars to….wait for it…MAKE MONEY!

        Startling concept, I know.

        Want proof? Find me the sales numbers of all of the captive banks in this cretin’s post and figure out what percentage of loans are made by banks that are not owned or affiliated with car manufacturers.

        Since they are not intersted in selling new cars, why do they finance used cars?



        1. EMichael

          Oh, then add in the fact that more than 1/3 of all used car sales in the US are done by independent dealers. Who have no manufacturer and/or captive bank to deal with.

          A fact which this author cannot print becuase it does not fit into his ideology. Just like there is no mention that about 30% of all US manufacturers car sales are flett sales(mainly rental companies).

          Figuring in these facts reduces his ideological argument so they are totally ingnord.

    2. Lambert Strether Post author

      On support: Posting doesn’t imply agreement, as you surely must know.

      From the 30,000 foot level, this is to my mind the nut graf:

      he government propaganda machine proclaims the surging auto sales are due to their wise and forward thinking policies (like the Chevy Volt). Luckily for them, there are millions of gullible Americans who believe the storyline and are easily convinced that driving a $30,000 new car, financed over seven years, makes them a success. The decades of Bernaysian marketing propaganda has worked its magic on the government educated, math challenged citizenry. There are only two things that matter to the non-thinking auto buyer (renter) – the monthly payment and what the next door neighbor and his coworkers will think. Buying a fuel efficient car they can afford, paying it off in three or four years, and driving it for ten years, while saving the monthly car payment, is what a practical, rational thinking person would do. The fact that only 20% of the 9.7 million vehicles sold this year have been small cars and the average sales price of new cars sold is now $31,000 proves Americans are still living in a delusional fantasyland of cheap gas and monthly payments for eternity.

      If you want a higher level version of that argument, see Ian Welsh on the oil these cars are runnning on:

      6) failure to restructure the economy to get off oil and over to an electrical economy means that the US (and the world) are caught in the oil price dilemna: any real recovery increases oil price and will be derailed by those high oil prices.

      And the lives these car owners (renters) lead:

      20) The economic numbers you hear don’t mean squat. Headline inflation does not matter, ask yourself instead “what are my fixed expenses?” Start with food.

      And after food, move on to transport.

  37. Milton Arbogast

    Well, actually it’s worse than the post indicates. A very strong argument can be made that cars are obsolete. Perhaps they wouldn’t be if oil were plentiful… and the corporate media would have you believe that oil is extremely plentiful.

    Problem: why are gas prices so darn high if oil is plentiful?

    Oil at a price that does not make cars obsolete (and I haven’t even mentioned global warming, neither has our poster because I suspect he doesn’t believe it exists) will never, repeat never, be available again.

  38. Ep3

    Hold it yves. Now I haven’t finished the article but two things stick out. First the union bashing (all their greedy fault).
    Then the author says the solution for frugal consuming is to buy a small fuel efficient car and pay it off early and then live payment free happily ever after. This is in itself a fallacy. I recently sold to my brother a 02 Honda civic. I financed at 5.65% over 5 years, and paid it off a year early. I also kept track of maintenance and repairs expenses over that period. I suffered no engine or drivetrain failure over the 8 years I drove it (and neither has my brother in the 2 years he has owned it). Yet, when averaged out over the 8 years, I paid $300 a month for the whole time. Michigan roads are hell on wheels (and other suspension components). Alignments must be performed at least once a year or other parts will suffer failure (tires wear fast). I sold the car with a bad air conditioner unit. Some would say this is an unnecessary accessory for the purpose of transportation. Assuming that tho, consider that the cost to replace (unit not repairable) is $1800. That’s 6 months payments ( not figured into my numbers above)!!! But if some say that it should be repaired, then how does that free a person of the burden of car payments? So if I was lucky in the previous 6 months (and didn’t have a million other unexpected expenses smack me in the face) then I would be liquidating that savings to AGAIN repair the car.
    So I have gone to leasing. If I am going to make payments for transportation then I will consider it just another monthly expense (like rent) that builds no equity. Because NO auto builds equity. And interest rates are tremendously low on leases.

    1. Lambert Strether Post author

      Hold it, EP3. Yves didn’t put the post up! I (lambert) did.

      If the analysis of the subprime market for cars is right, it’s right.

      That’s got nothing to do with the guy’s tone, or his other views on the world. And there’s a name for the argumentative technique you’re using. I know it’ll come to me.

      1. Norcal_Steve

        Good analysis is the bread and butter of NC. Professional style presentation – no that does not mean no rhetoric, but it does mean not writing like your hanging out drinking beers and shooting the shit, unedited, with your readers – has been up until now another important characteristic of this blog. What part of that don’t you understand Lambert?

      2. JTFaraday

        Ep3 did not make an ad hominem argument. The post is chock full of assumptions and prejudices. Ep3 questioned some of those assumptions, which is an entirely valid thing to do.

        It’s not as if the assumptions and prejudices through which a person structures their argument somehow become irrelevant to the argument.

        And when someone spends as much time on those assumptions and prejudices as this guy does, it is the argument.

        Didn’t posting dehumanizing pictures of Walmart shoppers’ butts on-line so his friends can make fun of them give anything away?

        1. JTFaraday

          Also, this is ultimately a public policy discussion, with regards to which I think the US, as a nation, has a fair degree of latitude.

          I’m inclined to say that prejudicial opinions about other people is the #2 driver of public policy decisions, following people’s understanding (which may or may not be based in some version of plausible reality) of their material interests, at #1.

          Enlisting #2 in the service of #1 is exactly what this writer thinks he’s doing, and also exactly what readers criticized.

          There is no discussion whatsoever of how people become subprime borrowers and Walmart shoppers in the first place, just the cultivation of hatred of said persons in order to drive what he narrowly takes to be his own cause.

      3. Norcal_Steve

        Also, aside from the quality of the analysis, we don’t want no stinking labor bashing here. If you can’t edit that out please don’t post this shit here, unless you think it’s a great idea to gratuitously piss off your core constituency. You may not believe that you have a product or brand here, and you may not believe in the concept of marketing, but please do have a little bit of common sense and exercise more judgement, for Yves sake.

        Yves, I would love to hear your views on this post and whether or not you are paying attention to the quality of your Naked Capitalism brand.

  39. GFQ


    Posting this piece from jimq’s blog certainly stimulated some discussion! Being a slow reader, I’ve read some but only skimmed much of the comments. Of the many things that strike me, rising out of the rants and reactions, are two that I didn’t only got inklings of.

    First is the issue of how prudence is rarely given any additional reward. With ‘incentive’ being the key to much of our economic thinking, why aren’t the people with foresight being held up as role models and given rewards that should encourage others to follow?

    Second is the whole issue of ‘gaming’. Everyone does their best to figure out how to work the ‘rules’ to maximize something they desire. I see the time and effort spent trying to ‘game’ the system as an underlying inefficiency of competition. Cooperation is more efficient but doesn’t fit our way of thinking. The last time we were in a similar situation, some 60 years ago, we successfully worked a compromise by instituting, and accepting, a rising marginal tax rate. Why not try that again?

    1. BertS

      “rising marginal tax rate”

      An idea waaay past it’s time.

      You’ll never get it past the “progressive” MMTers here tho.

      1. JTFaraday

        The people who gave birth to the idea of “MMT,” as such, run money. Why in the world would these dudes want to raise taxes?

    2. Lambert Strether Post author

      GFQ: That it did. Probably not the greatest cross posting decision I’ve ever made. OTOH, I am certainly learning a lot about automobile financing from the comenters. Seems like a real “coffee’s for losers” world.

  40. Mickey Marzick in Akron, Ohio

    The contempt for the average American consumer – masses – expressed in this piece is precisely why the average American consumer has nothing but contempt for the LEFT. The latter has gone negative damning everything about this country for so long that the average American consumer, presumably the people for whom the LEFT speaks, isn’t even listening anymore.

    Why would they when the only solution to rectify this situation, as evinced by too many on this blog, is COLLAPSE – fatalism? Much like the free-market loonies on the far right, they can only offer “collapse” as a solution. The “doom and gloom” of the LEFT is the “fire and brimstone” of the RIGHT! The APOCALYPTICS on the left and the right with the same messianic message: COLLAPSE! Things have to get worse before they get better… in a tragicomedy called immiseration. Let’s just sit back and wait for salvation in collapse.

    And who will pick up the pieces if this collapse occurs? The disorganized, negativity-trapped LEFT, or the better organized, better funded, armed to the teeth RIGHT?

    Since when is telling the jobless, the homeless, and the hungry that things have to get worse before they better a viable strategy? Isn’t this what the ruling elites are have told US for a generation or two? Now more sacrifice is required to incentivize the job creators?

    No, unless we begin the long march from negativity to the creation of a viable alternative the LEFT will remain in the wilderness howling wolf. Ruthless criticism is warranted and legitimate, but in the absence of something to replace it, such negativity degenerates into NIHILISM – godless, unpatriotic, elitist nonsense that the average American consumer doesn’t want to hear. [Recall Lynne Parramour’s “KICK-ASS Populism” piece the other day] I would be the first to plead GUILTY on this score as anyone who has read my posts overs the years can attest. But I have always tried to provide more than criticism as well, suggesting alternatives with a more positive approach.

    I don’t expect this comment to sit well with many of you. But if it doesn’t then I hit a nerve … which is what NC used to do for me. But it too has gone negative with predicable results. I’m not hearing you anymore.

    1. different clue

      Why isn’t “the left” as well-organized and especially as well armed as “the right”? Is there any reason why “the left” shouldn’t be as well organized and especially well-armed as “the right”? How many years does “the left” have to solve its security and survival problem?

    2. Norcal_Steve

      Good points Mickey, but if by the LEFT, you mean us here, then we will always be howling in the wilderness because without necessarily implying any disrespect, the general public is intellectually lazy, disengaged, fed a huge load of nonsense from age 6 onwards and does not have the culture to begin to understand the viewpoint of NC. This blog is not for them and never will be.

      If by the LEFT you mean the dems, well I think we agree that either and/or they have totally failed tactically and let the right define everything for years and years, or they are in fairly total agreement with the ever-rightward shifting world view of ‘common sense’ in the US.

      Reading NC and learning more about the massive and deep level of fraud in finance while watching in horror as tortures all whiste blowers while helping the banksters every way he can has indeed led me deeper into dispair and nihilism. I’m pretty damn sure this is rightly called ‘waking up’ and not ‘giving up’.

      There are occasional hints of optimism here that ‘this has to change’ or ‘this will change’. I don’t see it. I don’t see any institutions or movements – even hints of those or theories of what could manifest – which can reverse this huge fail of rule of law on top of everything else.

      I think the world economy and capitalism will somehow muddle through without any collapse at least thru the next 30 years max of my lifetime. Quality of life can go down and down an down and probably will. I’ve spent a lot of time in India. Huge populations can do do survive in incredible poverty. There may be growing anger in the west, but who the heck can focus and unify that except for simplistic scapegoating nationalists who when things get really bad always can play the war card?

      You are right, I am a goddamn pessimist. But I’d sure rather be a pessimistic realist than a deluded optimist. This blog is not, imho about saying ‘Yes we can’ to anybody, but rather to be as clear-headed as possible about a situaton which should not limit anybody’s personal happiness, but to me as a pseudo-social observer/philosopher looks really bleak for the social values I cherish.

      If anybody can leaven this blog with anything which is not wishful thinking about a ‘roadmap for a better outcome’ I’ll join you in loving it as long as it’s not based on non-analytic optimistic handwaving.

      1. different clue

        If some of the experts here on real estate law and all the layers of proof of “ownership” of a house and yard could explain the mechanical workings of those layers of proof in terms so simple that literate lay people like myself could understand them, that would be a service.

        If describing and explaining how to discover if a house-and-yard’s title or deed or whatever those things are called is contaminated by contact with the MERS system or is free from contamination by contact with the MERS system could be done so simply as to allow the prospective house-buyer to discover whether the desired house in question has been “all MERSed up” or is “MERS-free”, that would be a further level of help. It would allow people who have a choice about whether or when to buy a house to choose to buy houses uncontaminated by MERS and to boycott houses with MERS-cooties anywhere in or on their ownership paper-trails. That would allow for the identification and defense of islands of home-ownership where the rules of property law still apply.

        A next step after that would be to explain how to force would-be house-sellers peddling a house which is all MERSed up . . . to register all layers of ownership of that house at a County Courthouse record of deeds or whatever that thing is called. If I understood it I wouldn’t have to be so unclear on the language. Since the whole house-peddling industrial complex makes it complicated to keep people from understanding it, a write-up explaining it all and giving the reader the weapons needed to “torture” the house peddler into physically recording ownership of the house at a physical County Courthouse would be useful. “No deed? No sale!” would be the demand. Is there a way to inform the prospective housebuyer of how he or she can legally torture the housepeddler into meeting that demand? A write-up about that would be very helpful.

        Those are a few examples of the kind of weaponized disseminatable knowledge that would help people achieve real personal victories on real financialist battlefields.

  41. tiebie66

    I, for one, Lambert, appreciated the post with its different perspective (begone complacency…!) and the comments. The “tone” issue did not trouble me much; I find plenty of tone in other posts and in comments. I have come to realize that tone is very likely to be bothersome if it is not in tune with one’s own tone; the presence of “tone” is often only noticed if it is distonic. I also happen to know from experience that engineers can do a lot of fabulous stuff other than spell correctly, so I am happy to read past the first spelling mistake, or the first dissonant tone, or the first error, and evaluate the whole.

    Regarding the post, I am disquieted by the suggestion that student loans may be promoted in order to keep the unemployment rate artificially down. Is there really an impact on unemployment rates? If so, is it an unintended benefit to the administration of a poor jobs market and debt-based education opportunities or is it actively (and/or by stealth) being advanced because of the effect on unemployment? Could it be a good/productive way to deal with involuntary ‘idle’ time?

  42. Lambert Strether Post author

    Readers, I apologize. Rereading the thread and the post, it’s clear that this is not a post for NC. While I followed the mechanical process for selecting a cross-post, judgment is involved too, and clearly my judgment was impaired. I plead late hours, plumbing woes, and a clogged mental filter from processing too much political rhetoric over the span of the conventions. Yves doesn’t make this kind of mistake, but then she’s Yves.

    In RL, I deal with the right as well; we’ll be having a conversation about gardening, and suddenly we move into Agenda 21 via zoning. I have a sort of mental “strikethru” filter to deal with this so I can cope and get back to the gardening topic, but that shouldn’t be my expectation for readers here.

    So, I hope that, having been given the keys to the car, I only swerved it, and didn’t drive it into the ditch.

    * * *

    On the brighter side, I certainly learned a good deal about automobile financing from people who are quite passionate about it. It would be service to readers if somebody who knows a lot more than I do would take the many scattered points in the comments, and assemble them into a comprehenive demolition of the author’s thesis (or not!)

    1. Norcal_Steve

      Thank you for this Lambert! I think at first (seemed that way to me anyway) you were digging your heels in against the negative feedback. Hence my reaction of bringing out my sledge hammer. I don’t post much because i get much more out of my time by reading and I don’t have any data to add to any of the discussions nor special claim to specialized insight of any kind. But I have been reading NC every day for oh 5 years or so.

      This morning (here in Japan) I felt bad that I have never expressed any appreciation for your hard work and then I was quick to jump down your throat when you screwed up. Sorry about that and thank you indeed for helping to make this site the best place I visit every day.

      I’m glad you get the various messages about different aspects of your ‘disaster post’ :). I’m sure other people find my remarks to be ‘fuddy-duddy’ (60’s term is this dead?) or ‘uncool’ or ‘uptight’. BUT, I’m sure that those who have professional level grasp of facts will display that in a reasonable professional presentation and such poor presentations almost certainly imply failure on the substance, which can bit a bit hard to judge when hit with large amounts of data and specific assertions that we can’t easily judge for accuracy. Matt Taibi is the only professional I respect who has mastered the ‘down to earth’ type presentation and I’m sure lots of thought goes into it for him. He is very closely calibrated. If jimq cares enough to think about how he comes across, if he considers himself to be in Taibi’s mold he’s insanely far from pulling that off.

      Thanks again for your last comment, and all your work here Lambert!

  43. ChrisPacific

    Graphs over long timescales, like the total consumer credit graph, really need to be inflation adjusted.

    I suspect you would still see an increase; however, without inflation adjustment you can’t look at the overall shape of the curve and conclude anything meaningful.

  44. Charles Rock

    In a democracy it is the ‘sovereign’ (the people) who are always to blame?
    Even when elites consciously use Mad Men devices to make us even more stupid?
    We’ve met the enemy and he’s us.
    And the leaders of us are the worst in the swamp.
    Where are the elected leaders that really look like the bottom 2/3 of ‘us’?
    Even in Florida the political leaders get sweetheart deals on salaries, retirement packages.
    I see conscious strategy in our troubles and in many of the difficulties of all in the below ‘prime’ credit situation who might like to know exactly what they are being offered.


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