Unbelievable!… Obama Is Pushing Risky Subprime Auto Loans, Too
In his early activist days, Barack Obama the community organizer sued banks to ease lending practices.
State Sen. Barack Obama and Fr. Michael Pfleger led a protest against the payday loan industry demanding the State of Illinois to regulate loan businesses in January 2000. During his time as a community organizer Barack Obama led several protests against banks to make loans to high risk individuals. (NBC 5 Week of January 3, 2000)
Some things never change
Recently the media has been celebrating new car sales numbers.
They say it is a sign the economy is improving.
There’s a reason for that.
The Obama administration is pushing banks to make car loans to people with poor credit ratings.
Thanks largely to the U.S. Federal Reserve, Jeffrey Nelson was able to put up a shotgun as down payment on a car.
Money was tight last year for the school-bus driver and neighborhood constable in Jasper, Alabama, a beaten-down town of 14,000 people. One car had already been repossessed. Medical bills were piling up.
And still, though Nelson’s credit history was an unhappy one, local car dealer Maloy Chrysler Dodge Jeep had no problem arranging a $10,294 loan from Wall Street-backed subprime lender Exeter Finance Corp so Nelson and his wife could buy a charcoal gray 2007 Suzuki Grand Vitara.
All the Nelsons had to do was cover the $1,000 down payment. For most of that amount, Maloy accepted Jeffrey’s 12-gauge Mossberg & Sons shotgun, valued at about $700 online.
In the ensuing months, Nelson and his wife divorced, he moved into a mobile home, and, unable to cover mounting debts, he filed for personal bankruptcy. His ex-wife, who assumed responsibility for the $324-a-month car payment, said she will probably file for bankruptcy in a couple of months…
…In its efforts to jumpstart the economy, the U.S. central bank has undertaken since November 2008 three rounds of bond-buying and cut short-term interest rates effectively to zero. The purchases of mostly Treasury and mortgage securities – known as quantitative easing and nicknamed QE1, QE2 and QE3 – have injected trillions of dollars into the financial system.
The Fed isn’t alone. Central banks from Tokyo to Frankfurt to London are running their printing presses overtime. The heavily indebted advanced economies are trying to reflate their way out of the prolonged bout of crisis and recession that crystallized with the collapse of Lehman Brothers Holdings Inc in 2008. That crisis, of course, followed a nearly decade-long cycle of easy money and exotic financial products that itself began with the collapse of the tech-mania bubble of the late 1990s.
The Fed’s program, while aimed at bolstering the U.S. housing and labor markets, has also steered billions of dollars into riskier, more speculative corners of the economy. That’s because, with low interest rates pinching yields on their traditional investments, insurance companies, hedge funds and other institutional investors hunger for riskier, higher-yielding securities – bonds backed by subprime auto loans, for instance.
Lenders like Exeter have rushed to meet that demand. Backed by Wall Street banks and big private-equity firms, they have been selling ever-greater amounts of subprime auto loans in the form of relatively high-yield securities and using the proceeds to fund even more lending to more subprime borrowers.
Expansion of the subprime auto business was chronicled in a 2011 Los Angeles Times series. Since then, growth has continued apace. Consider that in 2012, lenders sold $18.5 billion in securities backed by subprime auto loans, compared with $11.75 billion in 2011, according to ratings firm Standard & Poor’s. The pace has continued so far this year, with $5.7 billion of the securities issued, compared with $4.4 billion for the same period last year, according to Deutsche Bank AG. On Monday alone, three deals totaling $1.6 billion of subprime auto securities were announced by Wall Street banks.