Consumer lending

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Frontrunning: June 16





  • Greek PM sticks to hard line as contagion hits euro zone bonds (Reuters)
  • Greek Deadlock Has Leader Hoping for Miracle to Avoid Default (BBG)
  • Greek Showdown Puts Merkel's Teflon Legacy at Risk (BBG)
  • Greek standoff saps Europe, dollar swings ahead of Fed (Reuters)
  • Allianz Increased Holdings of Greek Debt as Its Largest Investor (BBG)
  • French Bonds Infected as Greek Crisis Swells Euro-Region Spreads (BBG)
  • Statoil to cut 1,500 more jobs as savings drive intensifies (FT)
  • UnitedHealth, Anthem Seek to Buy Smaller Rivals (WSJ)
  • Five Million Reasons Why China Could Go to War (BBG)
 
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Our Current Illusion Of Prosperity





Current policy coming from the Fed seems to be geared to create a never-ending series of booms and busts, with the hope that the busts can be shortened with more debt and easy money. Yet one major driver behind the financial crisis in 2008 was too much debt - much of which led to taxpayer-funded bailouts. In spite of this, the best the Fed can come up with now is to lower interest rates to boost demand to induce households and governments to borrow even more. Interfering with interest rates, however, is by far the most damaging policy. The economy is not a car, and interest rates are not the gas pedal. Interest rates play a critical role in aligning output with society’s demand across time. Fiddling with them only creates an ever-growing misalignment between demand and supply across time requiring an ever larger and more painful adjustment.

 
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Frontrunning: March 16





  • Germans Tired of Greek Demands Want Country to Exit Euro (BBG)
  • Weak euro powers European stocks to new highs (Reuters)
  • Siemens Cheers Euro Slump as Emerson Eases Dollar’s Sting (BBG)
  • A Police Gadget Tracks Phones? Shhh! It’s Secret (NYT)
  • If Economists Were Right, You Would Have a Raise by Now (BBG)
  • iWatch: who’s going to pay $17K for a device that will be obsolete in two years? (Barrons)
  • Ferguson Suspect Said to Claim He Wasn’t Firing at Police (BBG)
  • Why Bankers Are Leaving Finance for No-Salary Tech Jobs (BBG)
 
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5 Things To Ponder: Salmagundi Introspections





This past week has been a virtual tennis match watching the evolution of the Greek bailout negotiations. No Deal, Deal, No Deal, Deal. However, despite the fallout that would likely come from a Greek "exit," the markets have largely managed to ignore the risk and hit an all-time high this week. Market valuations, bullish sentiment and complacency are all pushing higher as the focus remains on the ignition of the ECB's QE program as a stimulus for the markets. In fact, this is so much the case that the net percentage of managers overweight Eurozone equities is at the highest level on record.

 
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Another Conspiracy Theory Becomes Fact: The Fed's "Stealth Bailout" Of Foreign Banks Goes Mainstream





Back in June 2011, Zero Hedge first posted: "Exclusive: The Fed's $600 Billion Stealth Bailout Of Foreign Banks Continues At The Expense Of The Domestic Economy, Or Explaining Where All The QE2 Money Went" Of course, the conformist, counter-contrarian punditry promptly said this was a non-issue and was purely due to some completely irrelevant micro-arbing of a few basis points in FDIC penalty surcharges, which as we explained extensively over the past 3 years, has nothing at all to do with the actual motive of hoarding Fed reserves by offshore (or onshore) banks, and which has everything to do with accumulating billions in "dry powder" reserves to use for risk-purchasing purposes. Fast, or rather slow, forward to today when none other than the WSJ's Jon Hilsenrath debunks yet another "conspiracy theory" and reveals it as "unconspiracy fact" with "Fed Rate Policies Aid Foreign Banks: Lenders Pocket a Spread by Borrowing Cheaply, Parking Funds at Central Bank"

 
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Subprime Car Loans Are The New "Cash For Clunkers" - Auto Production Soars Most Since July 2009





In July, the gain in durables was led by an increase of 10.1 percent in the index for motor vehicles and parts, which was the largest since the index jumped 26.9 percent in July 2009. In other words, when it comes to the US economy, subrpime is the new "cash for clunkers" as can be seen on the chart below.

 
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As "Housing Recovery" Fizzles A New Scheme Emerges: Boost FICO Scores By Changing The Definition





Now that the the fourth dead cat bounce in US housing since the Lehman crisis is rapidly fading, and laundered Chinese "hot money" transfers into US luxury real estate no longer provides a firm base to the ultra-luxury segment, the US government is scrambling to find ways to boost that all important - and missing - aspect of any US recovery: the housing market. This is further amplified by the recent admission by the Fed that it is in fact encouraging asset bubbles, not only in stocks but certainly in all assets, such as houses. Well, the government may have just stumbled on the solution to kick the can yet again and force yet another credit-driven housing bubble, a solution so simple we are shocked some bureaucrat didn't think of it earlier: changing the definition of the all important FICO score, the most important number at the base of every mortgage application.

 
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"My Credit Score Is Terrible...I'm Surprised They'd Give Me So Much [Credit]"





Banks and other lenders issued 3.7 million credit cards to so-called subprime borrowers during the first quarter, a 39% jump. "Even though [those borrowers] could be considered subprime, they're still creditworthy," is the deja-vu all over again message from the Financial Services Roundtable, who proudly crow, they are "starting to see an environment where issuers are feeling more comfortable to extend credit." How great is that? What could go wrong? One credit union exec notes, "lenders in general have really saturated the higher-credit-quality market, so it is only natural that as they look for growth opportunities, they expand downward," and sure enough, as one new borrower exclaimed, "my credit score is probably terrible," adding "I was surprised they'd give so much." Exceptional America is back...

 
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Subprime 2.0: 125% LTV Loans Are Coming Back





Yesterday we mocked China for being desperate enough to push its tumbling housing market (which directly and indirectly accounts for some 80% of Chinese GDP per SocGen estimates) no matter the cost, that at least 20 developers were offering the kinds of mortgages that resulted in the first credit bubble crack up boom and collapse, namely "Zero money down." Little did we know that the US, never one to lag in the financial innovation department had once again one-upped China, by bringing back from the dead the company that according to Housing Wire was "once a poster child for pre-crash subprime lending" - Ditech Mortgage Corp.  But best of all, ditech was known as a leader in subprime. The bulk of the mortgages were interest-only, low-documentation subprimes, and ditech was a pioneer in offering 125% loans allowing the borrower to borrow more than the sale price.

 
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After Seven Lean Years, Part 1: US Residential Real Estate: The Present Position And Future Prospects





In the last 8+ years, housing has proceeded through a cycle of bubble-bust-echo-bubble: now the echo bubble is crumbling, for all the same reasons the 2006-7 bubble burst: a prosperity based on asset bubbles and low interest rates is a phantom prosperity that cannot last.

 
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Frontrunning: December 12





  • J.P. Morgan to Pay Over $1 Billion to Settle U.S. Criminal Probe Related to Madoff (WSJ)
  • Ford board aims to pin down CEO Mulally's plans (Reuters)
  • Raising Minimum Wage Is a Bad Way to Help People (BBG)
  • Japan Lawmakers Demand Speedy Pension Reform (WSJ)
  • EU reaches landmark deal on failed banks (FT)
  • In which Hilsenrath repeats what we said in August: Fed Moves Toward New Tool for Setting Rates (WSJ)
  • Senators Vow to Add to Iran Economic Sanctions in 2014 (BBG)
  • Centerbridge in $3.3bn LightSquared bid (FT)
  • Banks, Agencies Draw Battle Lines Over 'Volcker Rule' (WSJ)
 
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Frontrunning: December 9





  • Glass-Steagall Fans Plan New Assault If Volcker Rule Deemed Weak (BBG) ... "if"? The banks control the legislators and regulators...
  • Cellphone data spying: It's not just the NSA (USA Today)
  • Major tech companies push for limits on government surveillance (Reuters)
  • Shanghai Warns Kids to Stay Indoors for Seventh Day on Smog (BBG)
  • Protesters fell Lenin statue, tell Ukraine's president 'you're next' (Reuters)
  • Everyone must be flying private these days: EADS to cut 5000-6000 jobs, close Paris HQ in restructuring (FT)
  • Big Players Trade 'Upstairs' (WSJ)
  • There’s no way to tell how many people who think they’ve signed up for health insurance through the U.S. exchange actually have (BBG)
  • Slower China inflation reduces worries of tighter policy (Reuters)
 
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How Brazil's Middle Class Dream Became A Debt-Fuelled Nightmare





Quick: which BRIC nation has the highest consumer loan default rate?

If you said China, India or Russia, you are wrong. Actually, if you said China you are probably right, but since absolutely all economic "data" in China is worthless, manipulated propaganda, only a retrospective post-mortem after the Chinese credit, housing, commodity, consumption bubbles have all burst will we know the answer. So excluding China, which country's consumers after a multi-year shopping spree funded entirely on credit, are suddenly suffering the epic hangover of soaring non-performing loans as they suddenly find themselves unable to even pay the interest on the debt? Just ask former billionaire Eike Batista whose OGX oil corporation is days away from filing bankruptcy. The answer, with 5.6% of all loans in default, above Russia, South Africa, Mexico, Turkey and India, is Brazil.

 
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