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Middle_Name-Danger t1_je8e6pq wrote

Reply to comment by Middle_Name-Danger in Subprime is back on the menu boys! by megaultraman

Here’s the kicker, a little birdy told me that banks with heavy exposure to auto lending have basically been lending at prime rates to subprime borrowers over the past couple of years.

My guess is Ally Financial is about to be fucked in the next year or two if unemployment goes up significantly. Just like the MTM unrealized losses on MBS and treasuries, it is much uglier if you start applying wholesale book values to auto lending collateral.

These Buffett investment rumors are a smoke screen, he’s too smart to bag hold Ally Financial anymore than he already is.

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megaultraman OP t1_je8eyff wrote

Damn, that's that shady shit that causes financial crises. Otoh, more credit into the market should mean even lower unemployment. Yay leverage!

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Middle_Name-Danger t1_je8h2nj wrote

Okay, alternate ending, the credit crunch never comes, but inflation is unrelenting. Borrowers whose wages cannot keep pace with inflation have to make hard decisions about how to allocate their limited capital. They need a car to get to work, so they prioritize that expense. Now the vehicle that they paid far too much for relative to its age and condition needs costly repairs that they cannot afford, it no longer has utility as transportation, so paying the loan is no longer a priority. They’re too upside down to trade it, so they get approved for a second auto loan because the lenders are chasing yield. Now they can default on the first loan and let the first bank take the loss.

The average auto loan written in the past 2.5 years is worthless. The risk adjusted return is negative. What do balance sheets look like if car notes are treated as liabilities rather than assets?

I’m drunk and rambling, but that doesn’t mean I’m wrong.

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CancerTaurusAnon t1_je8uttx wrote

perhaps, but ally offers pretty great rates on their deposits, so they're somewhat insulated from issues that banks with more branches and overhead have to compete with

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