The logic of fixing the effects of over-liberal lending with a $700b “loan” from U.S. taxpayers– which includes enough boondogglage to keep the snack food industry in pork rinds for a thousand years– escapes me. But one thing is for sure: Motown’s magnates viewed the bailout bill important enough to mount a massive muscle flexing campaign to assure its passage. We’ve already published GM CEO Rick Wagoner’s pre-vote SOS to dealers. The Detroit News now reveals that ChryCo CEO Bob Nardelli called all MI’s reps and provided his employees with a toll-free 800 number to do the same. And just as the $25b Department of Energy low-interest auto industry loans, this is not a done deal. “While the department made no promises, [Representative] Knollenberg got a letter Friday from the Treasury Department. It confirmed that ‘automobile loans can be purchased in circumstances where the secretary and chairman of the Federal Reserve conclude that doing so would be necessary to promote financial market stability,’ wrote Kevin Fromer, assistant secretary for legislative affairs at the Treasury Department, in a letter obtained by The Detroit News.'” The DetN reveals the stakes. “Nearly 4 in 10 auto buyers have been unable to get financing for new vehicles, because of tougher requirements from lenders. A survey released this week said 64 percent of new car buyers had been approved for loans through Sept. 20 this year, down from 83 percent during the same period last year” And this is a bad thing because? Oh right, bad paper is good for business.
Find Reviews by Make:
Read all comments
Would those 4 in 10 be the ones that don’t even have equity in their present cars?
I’m with you on this one RF. The financial arms of the manufacturers have too much incentive to write bad loans already. Bailing them out would be a reward for bad discipline.
At least the mortgage security guys can point use government influence as an excuse, but I don’t remember a big push for GMAC to make more loans to poor people.
Wait until the public gets wind that their tax dollars are going to buying paper of credit cockroaches who took subprime loans for SUVs they had no way of affording. The best part will be when they learn that the government decides it’s not worth even repo-ing the vehicles.
When they learn that their tax dollars are going to reinvigorate the same lenders owned by a billionaire hedge fund kingpin who is a major Republican party donor (looking at you, Feinberg), it’ll get even more interesting.
Financially responsible people shouldn’t have much difficulty getting an $8000 loan from their bank or credit union. You can buy a lot of car (and especially a lot of truck) for that much cash. Somehow I’m not feeling sorry for those 4 out of 10 people who can’t get a new car loan… I’ve never owned a new car in my life.
One of the excuses the government gives for bailing out the housing industry is that taxpayers could recoup losses if the real estate value rises in a few years. Nearly no cars/trucks rise in value as they age, and the very few cars that actually do rise in value aren’t something the taxpayer should be supporting anyway.
I’ll support the gummint buying bad car loans only if it also repossesses the vehicles and stages enormous Demolition Derbies in every town over 100,000. That way the taxpayers get something for their money.
By the way, there’s a glimmer of hope for truck- and SUV-besotted Detroit: stations around here are now selling (adulterated) gas for under $3 a gallon.
I was for the rescue of our economy by buying up housing loans because there is some small chance we the taxpayers will get some of the money back and because the alternative of frozen credit would take down so many businesses and jobs.
But doing anything to encourage people to buy anything (cars, homes, furniture, appliances) with little down is ludicrous. That is what caused this mess!
Let’s hope that any car loan bailout requires purchases to have at least 30% down and with no loans offered for periods over 3 years.
Banks and merchants have got to stop offering easy credit.
Background: “Bad Money” by Kevin Phillips
I would much rather support them taking a portion of the write down that the entire loan(given I’m in Canada my support is pretty moot I suppose). There hasn’t been enough details at my finger tips to come up with a firm opinion on this yet.
Does anyone know if the bailout money is taking over the entire “toxic” mortgage, or only a portion of it? Say negative equity plus a failsafe percentage(5%-10%)?
Is most of the bad paper is at subprime lending rates? What’s the breakdown between subprime/conventional loans busting?
Maybe the subprime lenders are allowed to write off 50% of the value of the oustanding portion of the bad loan rather than the entire loan amount then I could see some support. This may allow GMAC, Ford Credit, (etc etc) to mop up it’s balance sheet and get the money moving again.
Being lazy, I’d like someone to tell me just how this is going to clearly work. Even the economist.com is scant of those sorts of details.
The subprime $700,000,000,000 Bailout is fundamentally over Fannie and it’s $5,000,000,000,000 liability. Loans that were repackaged and sold as structured investment vehicles to investment institutions and banks round the world. Fannie and Freddie were and are creatures of the Democratic Party. It has been no secret of Fannie risk for years. All efforts to impose audits and restrictions were defeated in Congress. Just for grins, auto installment loans are number 3 on the list of People debt 2004. 35 percent of all Families owe an average of $13,000.
It is “Patriotic” to pay additional income tax and also “Social Justice” that you pay for cars, SUV’s, and PU’s for the needy.
It is “Patriotic” to pay additional income tax and also “Social Justice” that you pay for cars, SUV’s, and PU’s for the needy.
Let’s just leave partisanship at the door, shall we? This is happening, to some degree, in every moderately developed country, and it’s happening wherever corporations and individuals let their short-terms needs cloud their long-term judgement.
Calling it a “Democratic” or “Republican” issue, or pointing fingers at the poor, or the rich, is just a way to feel morally superior to people you have an ideological disagreement with.
This is bailing out bad fiscal management on the part of the lenders who couldn’t resist quick profits. The lenders or their respective governments should have (some say they did) know better, see this coming, and take steps to mitigate the effects. But they didn’t. They ran full-bore and hoped tomorrow would never come.
Personally, I don’t care if they wear a little donkey or elephant button. They f_cked up. Governance was not done, necessary economic manipulation was not done. “The market” was allowed to run it’s course.
And yes, people ran up debts they couldn’t afford. But when your “personal financial advisors” are counselling you that, yes, you can afford this, who are you going to believe? People forget how powerful the advertising machine really is.
And now, like it or not, we’re going to have to cough up a relief package because the alternative–letting everything go to hell–isn’t a real alternative at all, unless you’re sure your job is recession/depression-proof. Really, it comes down to pragmatism versus ideology or punative justice. You can’t eat ideology or catharsis.
Yes, it’s socialized losses and privatized profits. So what? I happen to live having a job, a steady income and a local economy that isn’t collapsing. I’d rather pay a few extra tax dollars to keep it that way, then not pay the taxes and, well, have no income either. I think that government economists are seeing more or less the same picture.
Of course, I’d have preferred that Fed stepped in a few years ago and started applying the brakes to the economy and tightening credit gradually. But, oh noes, that would be Socialism!
The fact of the matter is – bad credit used to prop a business up should not exist.
Would it be such a bad thing to have independent financing and sales for cars?
Come on psar, that is too easy. You say to leave partisanship at the door, and throw out the liberal perspective on what happened.
How about this version.
A bunch of socialists warped the system of home loans in an attempt at social engineering and “fairness”.
Their method took away the only long term incentive that appraisers and mortgage originators had for acting with scruples. The market demanded large volumes of loans without regards to quality, and that’s what the market got.
The market wanted that because of a nasty combo of REGULATION. That’s correct, REGULATION. There was no lack of regulation anywhere in the process, only the sheer hubris of a bunch of people who thought they could tweak the system a little bit without it breaking. Well, guess what, TINSTAAFL raises it’s ugly head, and BAM – crisis.
The banks got bullied into making loans that didn’t want to make on grounds of redlining. Maybe it was racism, maybe it wasn’t, but it didn’t end there. Then you get the F&F sisters, securitizing loans to resell as investment vehicles. Only problem here is that the appraisers and originators used to depend on their reputation for ethical and diligent work to stay in business. If they sold a bank a bunch of bad loans, it would come around to bite them. But, NO MORE. Nope, now, the guys who get stuck with the bad paper are so far down the chain, they can’t figure out who the bad guys were.
At the same time, you stick a bit of good old fashioned REGULATION into the stew again by limiting the number of firms who are approved to rate the securities to a small, fat, and lazy oligopoly instead of doing the American thing and setting a standard that anyone who wants to play has to meet.
The finance people get a bit of this crack, and they can’t stop. They buy used toilet paper, and resell it as if it were dollar bills. Hell, they even use their own crack to boost their own books. All the while, the REGULATORS approve.
Was their greed involved – HELL YES. That’s what the system is supposed to COUNT ON. That’s what all these social engineers on the left don’t get. (The ones on the right get it, but think they are smart enough to game the system.)
If the only thing stopping cheaters is fear of getting caught, we might as well stock up on beans and bullets. America works best when honesty and hard work are the more reliable paths to prosperity. We learn this because failure to play along means misery, poverty, shame, and possibly jail. Taking away that lesson is not free, or even cheap.
Governance WAS done, the market was NOT allowed to run it’s course. All was fine until they tried to FIX it to get something for nothing. The players were reassured by the regulators. Had the players not had such reassurance, THAT would have been lack of regulation, and it may have all never happened because the guys in charge would likely never have accepted the risk.
I am no laissez-faire proponent. It cannot, and never will work. But messing with the markets is playing with fire. Too bad the guys who did it are not the ones who are going to get burnt.
Compared to what’s being pissed away in Iraq, this entire bailout is chicken-feed.
And for those families whose son/daughter/husband/wife/brother/sister didn’t/won’t return alive, they will never “recoup their investment”.
nudave:
Moral relativism is bad enough. Financial relativism, with my taxes, is worse.