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Looking -- potential economic bubbles that could be ready to pop.
-- the auto industry that.
It's obviously recovering after -- the recession but the big question is.
Isn't going to be trouble down the road joining us this is Shah Gilani is the editor of capital -- forecast to show you wrote a piece a couple of weeks ago.
The way I've read into it was that this is an emerging bubble -- -- Once talking about auto loans that's who I feel about -- -- A lot of folks are not talking about the fact that sub prime lending and auto loans for both new and used originations is increasing.
It's up 60% in 2010 over 2009.
And actual total numbers are increasing to about 38% of total loan volume for -- We saw a lot of these couple auto companies -- giving out incentives basically doing everything they can't push their cars off the lot so it wouldn't be surprising.
That -- -- they were giving out loans.
It's not so much of the auto companies are giving out loans as the finance companies in the banks that are offering loans.
There's not a lot of loan demand out there are so they're going where they can and the auto loan sector is Buehrle and able a place -- -- can push.
They're enabling the auto loan companies actually and that auto finance companies to do this banks are by competing with them so.
There -- good going up against each other and are competing for the consumers -- -- lowering their standards to do it.
So I read your piece in -- right after that dealer track woods is a publicly traded company 171000.
Dealers in a retail space.
Come out they came out of this incredible earnings the seals it's -- -- blew me away.
He said he saw a significant increase for -- -- business particularly though in sub prime lending.
That's a red flag that is that you know what we're talking about is essentially banks are making these loans that got him in trouble in the first place and -- -- -- end -- -- -- that taxpayer.
That's exact what's happening to -- is exactly the same thing that happened in the mortgage debacle if you well.
The banks are lending a battle over backward bending over backwards to land and older to basically finance auto sales.
Thought accomplished love that obviously they wanna make the -- so without that -- late in the game stop but as long as they're continuing to feed the sub prime Sheen if you will.
So -- gonna back up just like -- -- -- Mortgages so why are we seeing this happen again how they if they're not as much scrutiny on auto loans -- there on mortgages we know that you know the rules for mortgages have been -- up at least supposedly bad 20% down and so forth.
The -- and she's not getting much attention so there -- overseas auto loans through Dodd-Frank was.
And there's heavy handed with the auto loans as -- was with mortgage business.
So that's certainly that kind of flown under the radar there may be some changes coming along the pipe but really comes down to banks have a lot of money finance companies have a lot of money.
Deposits are pouring into banks the cost the money to institutions is next to nothing so in order to lead at a spread they wanna go sub prime and increase that spread.
Hey you know let's Elena get a little politically or because you just mentioned Dodd-Frank -- just a little Tracy.
-- -- also be that the Obama administration is really.
Made a huge bet on auto -- auto industry coming back.
So banks it maybe have this implicit or.
Some sort of wink and a nod that if you do get in trouble don't worry about it this long this would auto loans we've we've got -- back.
That may be very interesting points on the have to look at it that way etc.
like -- -- like your twist on it I don't know it's -- Like I like that I haven't thought about that but you know you have a point there is something to be said about the fact administration has backed the auto industry.
There's a defect to guarantee that it's there to back -- so you you have a very valid point.
Haven't beaten nine that can spears story angle -- that it's less money leanings.
Break you know I can I please give money to the subprime -- look at 83040000.
It's not 250000.
That I would have to loan for home.
Well that's true another thing other aspect of the loans to sub primes in terms of cars is.
Secondary prizes for use autos have been rising.
So that allows lenders to say if we have to repossess the car we're looking a little better because our collateral is actually writer in the future and as these as far as they see it.
And that's allowing them to actually go out there and then go a little further out on the branch.
Let me let me -- -- -- a little bit because we covered all kinds of bubbles this week.
Student loans ethanol.
You know we saw -- -- yesterday lot of people saying is -- tech bubble.
Well how do you fill in general about the notion that we have really been a bubble nation for a couple of decades now whether it was baseball card stock through real -- I think more so than ever I think that's actually true that we have I don't we are -- bubble nation.
But police believe all of the need to have money does come into the system liquidity he's been added into the system has created a lot of bubbles -- it's -- mean.
There's no escaping it when there's more money chasing fewer goods and services you're going to have bubbles.
But above all -- -- when Amy -- point about the used car market.
Eventually be used car market is gonna have issues because when I use -- us as much as my new car I'm not going to be used car market anymore.
So maybe if it does not going to be there much longer for those banks.
This sentence will be there as long as the banks have money is long list and making significant enough spread over their borrowing costs but the secondary market won't be there right the secular market eventually going to weaken because obviously if folks you know to have trouble with the economy right dips further.
We've seen a little bit of a dip in the first quarter from the fourth quarter if that perhaps continues a lot of those folks who actually struts themselves out there to get these loans.
Can't make payments they're going to be trouble to going to be giving up cars are gonna come back and secondary used market.
We've got less than thirty seconds but I got to tell you looked fit and -- I know you live in Miami -- Yeah and maybe not are even -- you wrote this piece doesn't look like you losing sleep over how dangerous is this problem.
It's not an immediate threat I think I call as far as your your bubble pieces might -- -- -- terrific I call this thought about a hissing sound I think that this bubble is gonna deflate.
Little bit slower than we would expect in terms of a pop but I think it's going to happen I don't know -- time -- wise that maybe give it twelve months eighteen months we're gonna start seeing the effects -- that -- All right thanks a lot of great information great piece really appreciate nice seeing a person -- -- --
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