Economy
Related: About this forumThis Is Another “Subprime” Waiting to Blow
This Is Another Subprime Waiting to Blow
by Bill Bonner September 10, 2015
By Bill Bonner, Chairman, Bonner & Partners:
Dow down 239 points (Wednesday) or 1.5% after Japan posted its biggest one-day gain in seven years. This is getting interesting again. If it is just volatility, as Wall Streets shills in the press maintain, it will probably pass soon. Everything will be okay. Back to routine imbecility before the end of the month.
But if these whipsaw movements are heralding a bear market, U.S. stock prices could be cut in half or more. And they may not recover for 10 to 20 years.
.....(snip).....
The 2008 global financial crisis was centered on mortgage debt. There was too much of it that couldnt be repaid. When the value of the collateral homes headed down, the bubble popped.
Today, consumers have about the same amount of debt. But now the excesses are in auto loans and student debt. As you can see below, total auto loans stood at about $781 billion in 2007. Today, theyve topped $1 trillion. And student loans have more than doubled over that time to $1.3 trillion.
Again, the collateral is falling in value. Used-car prices fall, as leases expire and more used cars hit the market. As for student debt, the collateral is the earning power of the person who borrowed the money. ...............(more)
http://wolfstreet.com/2015/09/10/this-is-another-subprime-waiting-to-blow/
daleanime
(17,796 posts)Sunlei
(22,651 posts)Lender will repossess the autos and anyone who signed for a student loan is debted for life.
I suppose the Federal gov could lower the interest rates charged on student loans and perhaps they could change the laws & allow a court bankruptcy on student loans.
But that means any co-signers will be the ones who lose everything in a bankruptcy.
CoffeeCat
(24,411 posts)They'll change nothing.
They enjoy that we are enslaved by our student loans and our car loans. That keeps us working for lower pay. That keeps us in jobs that barely pay for health-insurance. They can continue to erode our pay and benefits and we are powerless--because we've got those payments to make and we have to take the abuse.
This is by design. Anyone who thinks otherwise, is living in sparkle-unicorn-rainbow land.
I shudder when I look at the automotive ads in the Sunday paper. People paying $30k-$50k for a car and financing it for ten years. Seriously, people.
People think absolutely nothing of having a $600 monthly car payment. And they'll gladly sign up, because that's what the Jonses are doing too--and everyone has to keep up with them. If you can afford it, more power to you. But most people cannot. But they'll buy that new $45,000 car because the Jonses did. Problem is, the Jonses everywhere, are broke.
Wellstone ruled
(34,661 posts)recoverable through repo's and resales for the most part. Most of the Sub Prime stuff has a Credit Insurance thing running inside it. The real scary part is which Reinsurance Company will blow up and need a bail out. Remember the Fed's are looking at several of these large reinsurance companies and are making them increase their reserves to cover such losses. Under Dodd-Frank,these Companies are not cover by and Federal back stop any more and if the crap hits the fan,so be it.
Student Loans are a crisis that is here and now. Had a relative in the last month tell of their dealings with one of their kids loan debt. Fortunate for them they were able to do a work out plan. Still going to be hit of 20k plus. And got a hunch there is more to come on this. How many other Parents are there out there thinking they were doing the right thing in Cosigning documents in order to better help their children's future. Millions? This is the real crisis. Again,it is the 1 %ers and their extended families,thought Hedge Funds and other entities that will reap the rewards of American Families trying to better their responsibilities to Society as a whole. Got the Degree with honors,no job openings,unable to repay their debts in a timely manner,now Mom and Dad get hit with a Judgement or a Lien or a Garnishment or even a IRS hassle.
Something seriously wrong with this picture.
Warpy
(111,114 posts)What could possibly go wrong? You know, especially when the cost of those educations is inflating much faster than everything but health care and the cost of the F-35.
The real estate market blew up in 2008 because mortgages were being granted on the premise that salaries would rise to meet the costs. They didn't. Student loans are being granted on the same premise and the salaries not only aren't rising, in to many cases they won't be there, at all.
Anyone who doesn't think this is going to go "poof" hasn't been paying attention. Will this finally be the one to break the derivatives casino? Who knows? If enough insiders panic at the same time, maybe it will.
What everybody does know is that our system is unsustainable and that any economy that has become this topheavy has toppled, spectacularly.