The auto finance market bubble may not have a big bubble in the property market, but the distance between investors such as Wall Street big banks and car borrowers is getting farther and farther. The auto finance bubble may make the economy hard landing in the near future.
Carl runs a scrap car service store in the Tennessee countryside of the United States. His job is to dismantle old cars, sell them with profitable parts, and sell the rest of the parts directly as metal scrap. There are more and more scrap cars piled up in Carl's store. Obviously, his business is getting better and better. “A lot of people bought cars they shouldn’t have bought,” Karl said. “If someone is unemployed, he can’t afford a loan. His car is taken back and disposed of. I have a business.”
Many people buy cars indirectly through bank loans on Wall Street. In order to earn high interest rates, bankers’ eyes on the borrower’s credit background are closed, and people with large repayment ability problems also get car loans. This phenomenon is similar to that before the 2008 international financial crisis. Only then was the mortgage that disrupted the entire financial market.
There are conservative estimates that the current US subprime mortgage loan volume reached 26 billion US dollars, although this number is only a small number compared with the 2006 US$500 billion property market subprime mortgage, but because the car unit price is far lower than the house price, the car subprime The number of households or loans involved in the scale is definitely not small, and the social impact is absolutely not small.
The current subprime mortgage crisis and the last subprime mortgage crisis have one thing in common. Wall Street bankers do not directly lend to customers with poor creditworthiness. The main operators of automobile subprime mortgages are small financial companies, and many companies do not have long-term fixed office space.
Small financial companies packaged the loan for sale to Wall Street. Wall Street financial predators classify these loan assets and package them by rating and sell them to other customers. Customers who purchase these subprime assets include hedge fund companies or local banks. Regardless of whether the credit rating is the highest or the lowest, all of these subprime assets can be sold without exception. The above process is asset securitization.
What kind of person is the original borrower of these car subprime mortgages? In the words of Wall Street bankers, it is “a car consumer who does not have the auto credit qualification, has no reliable credit background, has a low income level, and is basically unable to pay the loan down payment.”
According to the standard financial operations, such people are usually not able to borrow loans. Most of them are working class in areas such as Texas or Florida, where public transportation is underdeveloped and people need to drive to work, shop, pick up and drop off children. These people have lower incomes and poor credit records.
The annual loan interest rate for auto subprime loans is an average of 17%, but in many cases it will exceed 20%, sometimes as high as 30%.
Advances in technology have contributed to the operation of subprime mortgages. If the borrower fails to repay the loan in time, the lender can remotely limit the car's ignition through GPS and track the location and dynamics of the car. With only a computer and a smart phone, the lender can easily control the car.
The $26 billion subprime loan alone is not enough to trigger a massive economic crisis, but the financial logic behind this operation continues to spread enough to bring about a crisis.
Wall Street's financial masters have qualified for people who have not had a loan, but the borrower's price is a very high loan rate.

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