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Has The Federal Government Directly Financed The Purchase Of 2.25 Million Cars In The Past Year?
An interesting observation emerges when one analyzes the various holders of non-revolving consumer credit. While the traditionally largest players in non-revolving consumer credit provisioning, commercial banks and finance companies, have been actively curtailing their lending of auto loans (the primary form of non-revolving credit, which also includes student loans, as well as boat and trailer loans) with their combined holdings declining by 5% year over year (from $989 billion to $940 billion), another actor has jumped in to take their place at the margin. It should not surprise anyone, that with a 68% increase in non-revolving credit holdings over the past 12 months, this entity is none other than the Federal Government.
While in the domain of revolving, or credit card, credit, the government is still a non-existent entity in direct lending (not so indirectly if one accounts for major governmental holdings in bailout recipient banks such as GMAC, Citi and BofA, and all of them if one adds the TLGP and the various other Fed's alphabet soup backstop programs), in non-revolving credit, the Federal Government has long been an actor. And while the drop in revolving credit over the past year has been dramatic, in non-revolving credit the situation has been much less dire. The reason: the massive pickup in government lending, as the Feds have become a lender of first and last resort not only to banks but to the troubled U.S. consumer. Where in November 2008, the Government accounted for $110 billion of released credit, last month this number was a whopping $184 billion. The chart below shows the massive surge in government borrowings to offset all other traditional sources of credit.
We attempt to normalize for the government's sudden and dramatic lending spree. If one applies the same YoY level of change to the government lending amount as is the average for all other sources of credit, the resultant non-revolving credit amount in November 2009 would have been $1.520 trillion: a $75 billion cumulative lower total than the actual NSA amount of $1.595 trillion.
This renormalization allows us to do some thought experiments with this primary marginal lender. Assuming that out of this $75 billion, 60% has gone for auto loans, an extremely conservative assumption, we get that the Federal Government has financed $44 billion in auto loans in the past year that otherwise would not have found a source of funding. In addition applying an 80% LTV to these loans, implies that these loans purchased a total of $56 billion in cars that would likely not have been purchased otherwise. Lastly, assuming a $25,000 average price per car, leads to the observation that the government's largess permitted the acquisition of 2.25 million cars which otherwise would not have been bought.
2.25 million is a large number when one considers that the most recent SAAR came out at 11 million and change. Not only has the government goosed up auto sales with direct subsidies in the form of Cash For Clunkers, but has additionally provided a majority of the marginal financing that would not have been there otherwise for incremental car purchases in 2009.
The conclusion is that as long as the government is the marginal actor in all aspects of the economy, expect nothing bad to happen. However, stimuli, zero cost financings, AIG bailouts, record Wall Street profits, and other boons courtesy of Uncle Sam and US taxpayers will only continue for so long before the current administration is booted out as voters realize they have been had and all the current stability is at the expense of tens of trillions of new debt on the back end. When said booting occurs, watch as the floor falls out of the economy, and as the PPT becomes just a little troubled with containing the stock market together.
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Why the fyck didn't they just nationalize the fycking banks when they had the opportunity and stop this third party stupidity? Now the banks get the "profits" while the taxpayers get the losses.
"All the world's a stage..."
Its probably more for the theater of it more than anything, recall most people do not enjoy the act of researching.
You've answered your own question...
Damn it, if you are not going to spend your money they will do it for you. So stop saving and start spending!
"Now the banks get the "profits" while the taxpayers get the losses."
Mission Accomplished!
The beatings will continue until moral improves.
"When said booting occurs"...
...the game of kick the can will continue, yes the Ponzi game will end eventually but the quesiton is when. The dems and repubs are two sides of the same worthless coin.
Too true. Dems and repubs making it past the primary and party gauntlets are vetted insiders beholden to banks and the military industrial complex. The two party system is a farce.
Hummm. R u sure?
This is what Helicopter Ben's massive amount of research concluded. Credit must be extended to avert a crisis. Don't you get it. You must have attended a lesser institution. Fools!
I'd like one Saturn, two Pontiacs, GTP's of course, and one Corvette. Thanks.
does that come with french fries?
I'm sure Uncle Sugar will super-size it for you.
Interesting times.
In order for the game to be up, we need the people to understand. That will happen when pigs fly!
I know, I know, I've almost got it completed...soon... my rocket powered pigs are almost ready just give me few days, then the truth will be known!!! Muhaha!
1 corvette zr1 please
thanks
wasnt their a bunch of stimulus money to buy new hybrid cars????
The disparity between then and now makes me sick.
At least the congress didn't make it mandatory to buy a new car last year.
The last major financial cataclysm occurred unexpectedly perhaps, but the remaining players were selected by their homies in DC ("we love ya CC" George Clinton was prescient no?). The populus is hooked on credit and it seems as though those who are reportedly suffering the most can take a lot of pain. Who says the jig is up? As you have so graciously revealed the con goes all the way to the top. It will end when THEY say it will. Changing administrations hasn't even slowed the blatant (or not so?) looting. We The People are disaffected. Did you know that THEY claim non-existence? Ignorance was bliss.
Bolweevil
How Ironic? The USA has transferred inself into a former USSR, while the former USSR has become a former USA.
Welcome to the new new norm world!
We dont give a damn. What we did do is pay off one vehicle cold cash and we are already in a position to pay the other vehicle off.
That is what a credit union can do for you. Not the Government.
What I worry about is all those poor saps buying cars to replace a older vehicle (Psst.. paid for...) realize that they face repossession when the day comes that they cannot carry this loan multiplied by whatever number of clunkers are bought and paid for.
We were tempted... believe it... we were tempted. But no. Debt freedom is the true path. Cold cash for everything, including cars.
this is Japan pioneering a whole new level of vendor finance -
its like watching a goose being force-fed
Barry Ritholz thinks the idea of the government buying stocks is nonsense. What a dumb-ass.
I like Barry's blog and read it daily.
I was a bit shocked by Barry's position on this.
The Fed is absolutely manipulating the equities markets and that includes futures for sure and in my view, most likely equity purchases of the blessed 19 group of banks.
I just want to know if the Fed has sold that phucking mall in Okalahoma with the oil pump in the parking lot.....
I wondered if that could actually be a way to take some cash out of the system.
I'm no genius at anything. And I couldn't possibly run the numbers effectively enough to justify what I thought in an acceptable manner. I have thought it odd though that in a poorly performing market that prices haven't gone down and seemingly "acceptable" sales numbers are being released.
Would it be viable to circulate money through a bailed out entity to puff up the numbers through sales and not have the inventory actually be displaced? Inflation management?
and if a car-loan is not paid by his lender, the debt will (of course) stay in the books of the Treasury, sorry the taxpayer.
Welcome to USA (United Socialism of America ) !
Congratulations Tyler. This piece is a bigger joke than the 17 year Fed MBS duration piece and I wasn't sure that was possible. From a question in the headline to a "thought experiment" to an assertion of fact.
Where does one access one of these secret auto loans from the government?
GMAC/Ally would be a good start.
If you bother to read Tyler's piece he is not talking about GMAC and banks that the government has a stake in. He's talking about some mysterious direct government lending program that nobody has ever heard of or knows how to access.
Nice try though.
The unemployed get booted into limbo and the taxpayer picks up the tab. But why should they care, or the fawning liberal academia? They are all secure with safe jobs, safe salaries and safe pensions. Let the mob eat cakes.
The United States government along with Goldman Sachs et al, need to be sued for insider trading and collusion. First the Government allows these various investment bankers to rob the public blind thru abandoning prudent banking securities law at the request of these bankers (along with the usual well placed contributions to Republicans and Democrats alike). Then when these bankers bring the world to the brink, robbing people of their 401’ks, retirement plans and hard earned savings, the Government uses our tax funds purported for Social Security, ect to bail the same investment bankers out, AND THEN, as the Government gives these investment bankers the market play book, allows them to again rob the public blind thru bonuses and stock market manipulation. Everyone had the right to this insider information. Is this the United States of America or the Mob (or just God’s work)? They are hell bent on destroying our system with their brand of crony capitalism, and the American Public has been left holding the bag again.
It's like the looters in Atlas Shrugged.
All I got was a rock.
I still have my "pet rock" from the 70's. Does that count?
http://petarock.homestead.com/1970craze.html
I would like to see a figure of how many cars the Gov bought last year to replace there perfectly good ones. I would not be surprised if they acquired a million cars just by themselves, so it made the bailout look less bad in the taxpayers(sheeples) eyes.
As others have asked: what is the mechanism by which these loans are being made available? Is it through the govt ownership of GMAC, the banks, etc? The article is interesting--now, explain to us interested amateurs how it all works.
While I don't think this would be considered "directly financing", my suspicion is that they've been buying the paper once the loans are made and the direct lenders know that this will happen so they make loans they otherwise would not make (like with mortgages). Let's face it - if you know you have a buyer for the loans that you make, you'll probably make them. If you didn't have that Fed back-stop it might be a different story (to the tune of tens of billions of dollars).
Kind of like the Fed isn't "directly" monetizing the gov debt by purchasing it at initial auction but is still effectively doing so by almost immediately buying the bills, notes and bonds shortly after from the direct bidders.
TALF