By John Lawrence
Wall Street needs to get people into debt. That’s one way they make their money – by collecting interest on people’s debts. They had a field day with subprime mortgages, and then those government bailouts were the sweet icing on the cake. Then they moved on to student loans.
Now they are making a killing off of subprime auto loans. Anyone can buy a used car, even those with no credit, the same way you used to be able to get a mortgage. They are also called liar loans which is the appropriate name for them because loan applications are falsified in the same way that mortgage loan applications were falsified.
It would seem that Janet Yellen, chair of the Federal Reserve, knows no other way of keeping the economy humming or even getting it moving than to shove zero-interest money at the big banks in the hopes that they will loan it out making a profit off the spread.
The theory is that, if the interest rate is low enough, people will go into debt in order to buy consumer goods whether it’s a mortgage, a student loan, a car or a big screen TV. Every time someone goes into debt to buy something, the Gross Domestic Product (GDP) goes up, and since 70 percent of GDP is consumer spending, all the stops are being pulled out to get people to spend and go into debt.
For example there is the case of 60-year-old Rodney Durham, a man who stopped working in 1991 after which he declared bankruptcy. His only income is social security. But that did not stop Wells Fargo from lending him $15,197 to buy a used Mitsubishi sedan. “I am not sure how I got the loan,” Mr. Durham said. A real head scratcher, that one.
And subprime auto loans don’t come cheap.
The New York Times examined more than 100 bankruptcy court cases, dozens of civil lawsuits against lenders and hundreds of loan documents and found that subprime auto loans can come with interest rates that can exceed 23 percent. The loans were typically at least twice the size of the value of the used cars purchased, including dozens of battered vehicles with mechanical defects hidden from borrowers. Such loans can thrust already vulnerable borrowers further into debt, even propelling some into bankruptcy, according to the court records, as well as interviews with borrowers and lawyers in 19 states.
Auto loans to people with lousy credit have risen more than 130 percent in the five years since the immediate aftermath of the financial crisis, with roughly one in four new auto loans last year going to borrowers considered subprime — people with credit scores at or below 640.
Just like the good old days of subprime mortgages, Wall Street is making another killing – this time off of auto loans. And when the suckers can’t make the payments, there is no need to go through the messy process of foreclosing on a house. The bank just repossesses the car.
And getting the car back is easy. After defaulting on the loan, the unsuspecting Happy Motorist goes out to start his car and the car won’t start.
Oh, the miracles of modern technology. Lenders use the starter interrupt device, which has been installed in about 2 million vehicles, according to The New York Times, to deactivate car ignitions remotely if borrowers are late on payments. Lenders can also track cars’ movements using the GPS on the device, and the device emits beeps when a payment due date is approaching.
There’s nothing like being prompted to make a payment by a beeping ignition device sort of like the beep from your cell phone when you have a text message. Are we being overbeeped yet?
Cars have been disabled while the unsuspecting motorist is out on the highway. And you thought GM had a problem with that. Or they have been turned off on the way to the hospital in life threatening situations. But the brighter side is that, when the motorist makes his payment, the car is miraculously turned back on. Oh, happy day!
Used car salesmen are having a field day pushing cars out the door based on falsified borrower’s income and employee information. Then the loans are pushed off the books, sliced, diced and securitized and made palatable for investors like the big pension funds. You’d have thought that the pension funds, who were screwed in the subprime mortgage fiasco, would be casting a wary eye on subprime auto securities. But like Phineas T Barnum said, “There’s a sucker born every minute,” and these days it seems that most of the suckers are pension funds.
So the American economy is dependent on big loan scams perpetrated at the highest level by Janet Yellen, through the power of her office, who shoves money at the big banks. But the big banks are constipated. They can’t defecate the filthy lucre fast enough to keep the economy humming. Their anal retentiveness requires them to siphon off the money Yellen wants spent in the real economy – which would boost GDP – and gamble it in the disconnected financial economy where it ends up going into the pockets of the very rich.
Most of Yellen’s money is going into the financialized economy where it sits or gets sat on or gets gambled in the casino. The big corporations are sitting on their billions refusing to “repatriate” them unless they get a big tax cut. These multinational companies have accumulated $1.95 trillion outside the U.S. And then there are corporations that are sitting on huge amounts here in the US while they refuse to pay their workers squat. For example, Apple is sitting on $159 billion. Rich investors are constipated with their stash. Anal-retentiveness is taking precedence over good bowel movements which metaphorically would necessitate their releasing it into the real economy. That’s why Janet Yellen’s gifts to Wall Street do very little good. A big load of money pushed out the Fed’s door results in only small droppings in the real economy, and those are scams like subprime auto loans.
The most scandalous of Freud’s ideas is anality and the anal state of development [which most Wall Street bankers are in]. For Freud excrement can represent property or money, the child’s gift to the parents, a plaything, a symbolic penis, a symbolic child, a weapon used for aggression, [a tactic familiar to simians], or a means of mastering and controlling the world. These meanings converge in the idea of the anal character, marked by an obssessive orderliness, thrift and stubborness.
Modern Western culture is dominated by capitalism and the desire to increase monetary wealth. Money is an intrinsically useless object that is given fantastic value; this is just what little children do with their excrement.
Another component of GDP is government spending which doesn’t result in individual Americans taking on more debt in order to keep the economy humming. However, Republican politicians have effectively negated any government spending except defense spending. There will be no infrastructure spending, for example, which could provide good-paying jobs and put money in American consumers’ pockets without the necessity of their going into debt. But the Federal Reserve will not take the approach of creating fiat money and giving it to the government to spend on infrastructure. Instead they create fiat money and give it to the Wall Street banks to loan out to Americans thus putting them in debt for their consumer spending.
Janet Yellen’s strategy has limited effectiveness due to the fact that the big banks would rather gamble with her Quantitative easing (QE) money than loan it out to the 99%. QE acts as a laxative to free up the money excrement and ease its way through the (Wall Street) colon to a final exit creating debt for the American people. But instead the money ends up going into the pockets of the 1%, thus contributing to increased constipation and, not to mention, inequality. The laxative doesn’t work, much to Janet Yellen’s chagrin.
Easy money loans have always been a temptation for average Americans who want or need stuff so much that they are willing to go into debt to have it. The problem is that there will always come a day of reckoning when the music stops, the jig is up and it’s payback time. Then will come the harassing phone calls, the wage garnishments and the repossessions.
A better way is for the government to invest in infrastructure with money created by the Fed for that very reason instead of the Fed’s fiat money creation activities being funneled through Wall Street into the pockets of the rich. Or better yet create a public bank that wouldn’t be beholden to Wall Street and could easily spend money on those things the 99% really wants and needs.