A new credit bubble gets ready to burst

Post by loeg » Mon, Jun 03, 2019, 5:05 AM UTC

StevePerkins wrote: post #80

chiph wrote: post #29

> And household debt has grown no faster than household income and is concentrated in households best able to pay it back. I'm not so sure about this - what I'm thinking is that the next (current?) bubble is in auto lending. I'm seeing tons of advertisements saying "We will lend up to 72 months with very little down". With the average new car priced around $37500 that's a payment in the mid $500's for someone with go…

> With the average new car priced around $37500 That's absolutely jaw-dropping. I assumed that was a made-up Internet stat, and was going to ask for a cite, but some quick web searching confirms it. I'm a used car guy, typically buying vehicles 2-3 years old, and would never contemplate paying above $20k. Even a brand new sedan (e.g. Nissan Altima, Honda Accord) is around $23k MSRP. A crossover family vehicle (e.g. N…

Post by aaronblohowiak » Mon, Jun 03, 2019, 5:11 AM UTC

bastawhiz wrote: post #20

lbotos wrote: post #13

Earlier quoted context omitted.

Isn't the root of the problem this: > To fund all this loan-making, the shadow banks have turned to insurance companies, pension funds, university endowments and wealthy investors, offering them a chance to buy into a diversified pool of loans that offer returns ranging from 6 percent to 13 percent, depending on the level of risk they are willing to assume. If some hedge funds and "wealthy investors" want to take on…

What shape would the regulation for the latter look like? Should policy holders or pensioners have the ability to veto these investments? I don't want someone to lose their pension over a poor investment by a greedy fund manager. But I also can't think of how you'd draw a line where the investment is "too risky", or rather "too high of a risk to justify the effects on the persons who would be affected if the investme…

Post by blackbrokkoli » Mon, Jun 03, 2019, 11:48 AM UTC

apta wrote: post #104

rdtsc wrote: post #86

Earlier quoted context omitted.

There's a demand for them. SUV are quite popular for families who don't want to "drive minivans" but they still want a large vehicle to fit in everyone. Others buy it because of the perceived safety, larger vehicle so they feel more "protected". Trucks are just what you drive in rural areas. And there are a lot of small towns and rural areas. Companies noticed that people are shelling out $40k for them, so they start…

> Others buy it because of the perceived safety, larger vehicle so they feel more "protected". It's not just perceived safety though. Heavier cars are objectively safer when crashing into a lighter car. IIHS did several tests on this. The fact that SUVs are higher means that they have an advantage if crashing head on with a sedan.

Post by rcar » Mon, Jun 03, 2019, 3:06 PM UTC

rmah wrote: post #32

cascom wrote: post #3

The huge difference here is leverage. The typical bank in the US is levered ~5-12x which means, many of these "shadow banks" are unlevered, this creates an entirely different dynamic

US banks, overall, have the highest reserve ratio in recent history. US banks currently have a reserve ratio of nearly 100% or apx 1x leverage (see https://seekingalpha.com/article/2484795-u-s-banks-are-now-o... for more details). IIRC, the reserve requirement for large banks is 10% and historically, as cascom alludes, this is about where most US banks were at (i.e. about 5x to 10x leveraged) historically. But the th…

Post by smt88 » Mon, Jun 03, 2019, 7:09 PM UTC

gizmo686 wrote: post #74

smt88 wrote: post #65

Earlier quoted context omitted.

Very different from a housing crash in important ways, that's for sure. Vehicles are much more "liquid" -- they're portable and fungible to some extent. A bank repossessing many vehicles will get much more of its money back than a bank trying to sell foreclosed houses.

Vehicles also lose much more of their value than houses. The second you drive a new car out of the dealership, you are underwater unless you made a good downpayment; and it is not uncommon for people financing cars to find themselves underwater on their current one if they want to upgrade (or sell/downgrade to get out of debt). And that is in a good market. If there is a surge in used car supplies, we will see them d…