At car dealers across the United States, loans to subprime borrowers like Nelson are surging - up 18 percent in 2012 from a year earlier, to 6.6 million borrowers, according to credit-reporting agency Equifax Inc. And as a Reuters review of court records shows, subprime auto lenders are showing up in a lot of personal bankruptcy filings, too.
It's the Federal Reserve that's made it all possible.
Money, money everywhere In its efforts to jumpstart the economy, the U.S. central bank has undertaken since November 2008 three rounds of bond-buying and cut short-term interest rates effectively to zero. The purchases of mostly Treasury and mortgage securities - known as quantitative easing and nicknamed QE1, QE2 and QE3 - have injected trillions of dollars into the financial system.
The Fed isn't alone. Central banks from Tokyo to Frankfurt to London are running their printing presses overtime. The heavily indebted advanced economies are trying to reflate their way out of the prolonged bout of crisis and recession that crystallized with the collapse of Lehman Brothers Holdings Inc in 2008. That crisis, of course, followed a nearly decade-long cycle of easy money and exotic financial products that itself began with the collapse of the tech-mania bubble of the late 1990s.
The Fed's program, while aimed at bolstering the U.S. housing and labor markets, has also steered billions of dollars into riskier, more speculative corners of the economy. That's because, with low interest rates pinching yields on their traditional investments, insurance companies, hedge funds and other institutional investors hunger for riskier, higher-yielding securities - bonds backed by subprime auto loans, for instance.
Lenders like Exeter have rushed to meet that demand. Backed by Wall Street banks and big private-equity firms, they have been selling ever-greater amounts of subprime auto loans in the form of relatively high-yield securities and using the proceeds to fund even more lending to more subprime borrowers.
Expansion of the subprime auto business was chronicled in a 2011 Los Angeles Times series. Since then, growth has continued apace. Consider that in 2012, lenders sold $18.5 billion in securities backed by subprime auto loans, compared with $11.75 billion in 2011, according to ratings firm Standard & Poor's. The pace has continued so far this year, with $5.7 billion of the securities issued, compared with $4.4 billion for the same period last year, according to Deutsche Bank AG. On Monday alone, three deals totaling $1.6 billion of subprime auto securities were announced by Wall Street banks.
Advertise | AdChoices
Advertise | AdChoices
To make up for the risk of taking on increasing numbers of high-risk borrowers, subprime auto lenders charge annual interest rates ,,,
At car dealers across the United States, loans to subprime borrowers like Nelson are surging - up 18 percent in 2012 from a year earlier, to 6.6 million borrowers, according to credit-reporting agency Equifax Inc. And as a Reuters review of court records shows, subprime auto lenders are showing up in a lot of personal bankruptcy filings, too.
ReplyDeleteIt's the Federal Reserve that's made it all possible.
Money, money everywhere
In its efforts to jumpstart the economy, the U.S. central bank has undertaken since November 2008 three rounds of bond-buying and cut short-term interest rates effectively to zero. The purchases of mostly Treasury and mortgage securities - known as quantitative easing and nicknamed QE1, QE2 and QE3 - have injected trillions of dollars into the financial system.
The Fed isn't alone. Central banks from Tokyo to Frankfurt to London are running their printing presses overtime. The heavily indebted advanced economies are trying to reflate their way out of the prolonged bout of crisis and recession that crystallized with the collapse of Lehman Brothers Holdings Inc in 2008. That crisis, of course, followed a nearly decade-long cycle of easy money and exotic financial products that itself began with the collapse of the tech-mania bubble of the late 1990s.
The Fed's program, while aimed at bolstering the U.S. housing and labor markets, has also steered billions of dollars into riskier, more speculative corners of the economy. That's because, with low interest rates pinching yields on their traditional investments, insurance companies, hedge funds and other institutional investors hunger for riskier, higher-yielding securities - bonds backed by subprime auto loans, for instance.
Lenders like Exeter have rushed to meet that demand. Backed by Wall Street banks and big private-equity firms, they have been selling ever-greater amounts of subprime auto loans in the form of relatively high-yield securities and using the proceeds to fund even more lending to more subprime borrowers.
Expansion of the subprime auto business was chronicled in a 2011 Los Angeles Times series. Since then, growth has continued apace. Consider that in 2012, lenders sold $18.5 billion in securities backed by subprime auto loans, compared with $11.75 billion in 2011, according to ratings firm Standard & Poor's. The pace has continued so far this year, with $5.7 billion of the securities issued, compared with $4.4 billion for the same period last year, according to Deutsche Bank AG. On Monday alone, three deals totaling $1.6 billion of subprime auto securities were announced by Wall Street banks.
Advertise | AdChoices
Advertise | AdChoices
To make up for the risk of taking on increasing numbers of high-risk borrowers, subprime auto lenders charge annual interest rates ,,,