Ed Driscoll

Subprime Auto Loans, Too?

Play the tape machine, make the toast and tea, we’re goin’ mobile — with another potential subprime loan bubble: “The Obama administration is pushing banks to make car loans to people with poor credit ratings,” Jim Hoft writes at Gateway Pundit, linking to a Reuters piece that notes:

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.

As I asked yesterday about the return of subprime home loans, what could go wrong — again?

Also, isn’t this a case of two administrations in one, with the Obama administration simultaneously wanting higher gas prices, and concurrently, more new vehicles on the road? To flip over a joke once made by President Reagan when his own administration appeared at cross-purposes, in the Obama White House, sometimes the left hand doesn’t seem to know what the far left hand is doing.

[jwplayer config=”pjmedia_eddriscoll” mediaid=”61704″]

(Via Maggie’s Farm, which has plenty more links worth reading this morning.)

Related: More thoughts on the subprime Obama economy from Ed Morrissey this morning in the Fiscal Times.