It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.
- Charles Dickens, A Tale of Two Cities
The above passage is the opening paragraph of Charles Dickens’ classic novel about the French Revolutionary period, A Tale of Two Cities. I read the book back in tenth grade and it has stuck with me ever since. It wasn’t required reading for the class, rather it was the outgrowth of an assignment where each student had to independently choose a book to read. I had no idea what to pick so I went into the local book store and looked around. Charles Dickens was calling out at me from the shelves and I immediately purchased it. I quickly regretted my decision upon calling my best friend and learning that he had chosen his book, The Scarlet Letter based on its brevity. A Tale of Two Cities looked biblical by comparison.
All of my immature trepidation quickly dissipated as I started reading the novel and discovered that I simply couldn’t put it down. I was mentally and emotionally infected by the characters, the history, and the hard lessons learned. It created an indelible impression upon me that has never gone away.
Whether we want to admit it or not, we find ourselves in pre-revolutionary times at the moment. This doesn’t mean I predict violent upheavals everywhere followed by chaos and bloodshed, it means that the current paradigm is no longer sustainable because it is not longer working. More and more people now recognize this.
In case you needed anymore insight into the complete and total insanity of the “elite” Central Planners driving the U.S. economy off a cliff, I have decided to highlight a couple of articles explaining the rapid reflation of two important subprime markets: Homes and Autos. Clearly the only lesson learned from the 2008 crisis was that connected oligarchs can steal all they want with total impunity. There’s only one way this ends. With a complete and total collapse and then a massive paradigm shift. I’m quite hopeful our next system can be far better than this one. I predict it will be centered on decentralization, peer to peer interaction, the rule of law and competing free market currencies, but only time will tell. It’s really up to us.
First, here are some excerpts from a recent Bloomberg article on the resurgence of subprime auto loans (a topic I covered before regarding 97 month loans):
Subprime auto lenders are enabling buyers to borrow more relative to the cost of a car in a sign that underwriting standards are deteriorating amid increased competition, according to Standard & Poor’s.
The average loan-to-value ratio, or LTV, on vehicle sales to consumers with spotty credit has risen to 114.5 percent this year from about 112 percent in 2010, S&P said in a report yesterday. That compares with a peak of 121 percent in 2008, according to the New York-based rating company.
“We’re expecting continued weakening in credit standards as more players vie for a piece of the subprime auto loan market and others try to hold on to market share,” wrote the analysts led by Amy Martin.
The segment has boomed since 2010 as high margins and low funding costs attract private-equity firms such as Blackstone Group LP. After drying up during the credit crisis, originations of car loans to borrowers with bad credit have almost doubled since the fourth quarter of 2009 to reach $18.4 billion during the same period in 2012, Citigroup Inc. analysts led by Mary Kane in New York said in a Sept. 6 report.
I suppose becoming a real estate slumlord wasn’t good enough for the boys at Blackstone.
The increase in subprime originations is fueling growth in the asset-backed bond market, with sales of securities linked to the debt surging 24.4 percent to $14.7 billion through August compared with the same period in 2012, according to Deutsche Bank AG data.
Now let’s turn our attention over to Neil Weinberg, Editor in Chief at American Banker for some excerpts from his article: Who’s Pushing Subprime Mortgages? Uncle Sam. Here are some excerpts:
Complying with a mass of new regulation to make sure every loan is sound and defect-free is only part of what the government expects of mortgage lenders. It also wants them to chuck these standards of care out the window to lend to what it deems as disadvantaged borrowers.
Specifically, the government is enforcing with great vigor a range of so-called fair lending provisions. The gist is that lenders are to ignore all the talk about fat down payments, ensuring borrowers’ ability to repay and the like when it comes to fair lending applicants.
The Federal Housing Administration recently went so far as to cut to one year from three how long borrowers must wait after losing a home to foreclosure or a short sale before qualifying for a new mortgage.
One Phoenix conference speaker expressed shock that Shaun Donovan, the secretary of Housing and Urban Development, which runs the FHA, has referred to these low down-payment mortgages to recently failed borrowers as “plain vanilla” loans that can be made safely.
Bolstered by the theory of “disparate impact,” the DOJ and other federal agencies are prosecuting lenders over statistical analyses indicating that, even if they had no intention of discriminating, their business practices have resulted in more loans going to some groups than to others.
Lenders were cautioned that it’s futile to resort to the insanity defense – in this case meaning to argue that the law’s insane (a prospect that the Supreme Court will take up later this year). Instead, they were advised to hire or appoint fair lending officers and do their own statistical analyses before the feds come knocking. If the results are unfavorable, the antidote, presumably, is to balance things out by lending to members of specific ethnic groups — even if that means running afoul of all those rules and regulations about qualified mortgage standards, zero defects and the like.
Complete and total insanity. Brace yourselves.