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August 15, 2016 | Subprime Auto: Debt Crisis in the Making

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

The subprime auto industry boomed over the past 6 years on a familiar foundation of lax lending and packaging sketchy loans as investments–similar to the 2008 sub-prime mortgage crisis. For more see: “They had created this remarkable system for taking every last dime from their customers.“.

Auto lenders can steer vulnerable people into crushing debt. Keegan-Michael Key and Bob Balaban help John Oliver show exactly how.  Here is a direct video link. (Profanity warning).

Meanwhile, as shown in the below updated chart from the St Louis Fed, the delinquency rate on commercial and industrial loans (in blue) has been spiking over the past year and is now approaching the peak rate seen in the 2008 crisis (recessions in grey bars), while high yield bond yields (in red) like stocks, remain priced for the fantasy of endless calm and economic prosperity.  In reality, yield spreads always rise to catch up with delinquency rates again, as euphoric junk bond and stock prices sink.

Default cycle 2016

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August 15th, 2016

Posted In: Juggling Dynamite

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