Car Loans Tougher To Get, More People Getting Rejected By Lenders

[Bikeman315]

I thought 2008 was more about sub prime lenders and hedge fund investment firms, not banks.

You are correct primarily. But plenty of banks went down the toilet as well.

https://en.wikipedia.org/wiki/List_of_banks_acquired_or_bankrupted_during_the_Great_Recession

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[Hack]

The problem is prices are set at the margins. Take a neighborhood of 1000 houses. Any given year 50 houses sell. The price of the neighborhood is set by those 5% of houses that sold. The same goes for every asset. 2008 forced the selling of assets that were loaned against other assets which forced selling of other assets which forced the selling of other assets and so on. Banks are highly leveraged. Forced selling brings the whole thing down. The Fed stepped in and flooded the system with liquidity with QE and other packages. Trillions worth. It made gains private and losses public and we ended up with the moral hazard we have today.

There's nothing forcing any bank to be "highly leveraged". It all depends on who runs the bank and what they decide to do. Not all banks are managed identically or even in similar fashions.

Interest rates climbing help people with savings that want a steady, consistent return. I know several people that have liquidated their stock holding and bought CDs and bonds. No more worrying about future crashes and they can plan their income for the rest of their lives. This allows them to spend and stop saving.

The reason interest rates are high right now is because the Fed is trying to reduce inflation. 5% on a savings account or CD sounds good, but it's not if prices are increasing even faster. Inflation is really hard on everyone. Very few people are getting raises that keep up with inflation, and most investments are down right now.

If history is a judge, it's a terrible idea to get out of stocks and into CDs and bonds if you need your dollars to increase in value over time and not lose. And the stock market is low right now. It's not a great time to sell stocks.

Money flows into the most productive places it can go. 0% interest rates forced money to chase returns in places it had no business(stock buybacks) instead of productive places. Now money is returning to productive places and high yield savings accounts creating money with little risk and also productive money. The 70s was a good example of how moderate interest rates and cause high inflation. As we know inflation moderated/declined in the middle 70s then accelerated towards the end of the decade.

Savings accounts are not productive. They just seem productive if you don't consider the rate of inflation. 5% return now in a savings account is worse than 0% was a few years ago.

For those that want to listen to the FUD, why does the economy seem to keep improving as interest rates climb?

I think you have it backwards. The Fed increases interest rates to try to slow down inflation. Typically this hurts a lot short term with lots and lots of people getting laid off (just like is happening here right now), but after the economy shrinks back, then it can recover.

 

[Hack]

That sounds like exactly what I would have said about 10 years ago. My views has changed considerable. We are looking at the first year of 1 trillion payment of federal debt. 2 trillion dollar deficit looks likely next year perpetually. 300,000 baby boomers are retiring every month. Inflation is starting to head back up in many areas. More interest rate hikes are being talked about. Recession talk is fading fast. Retail sales keep beating estimates. Unemployment rate is at historic lows.

The unemployment rate that is reported doesn't include people who are not looking for work. There are a ton of people of working age who are not working right now.

Inflation doesn't surprise me. There's way too much money out there right now, and the banks are continuing to get loans for even more to stay liquid.

While I am not saying you are wrong, what you are saying is not the current reality. The economy is banging right now. Interest rates are allowing retirees to not worry about a crashing stock market and retire. 5% on 2 mill is 100k a year. Higher interest rates force people to save and buy instead of borrowing. So much money has been invested and saved and it is starting to be spent. Can’t take it with you.

My company had a layoff and lots of really big companies had layoffs this year. I think 3M laid off ~10,000 people. That doesn't happen with a good economy. Lots of tech companies have had problems. Ford laid off a bunch of people. I understand some people want to say that the economy is good right now, but it's actually terrible.

The reality is what is good for people is not what is good for the corporate machine. Wages climbing is the biggest threat to the machine and they are doing everything to stop it. The problem though is demographics. Wages are starting to turn up with ferocity. The workers are getting their power back.

We are already way behind on our wages. We took in essence a nearly 20% wage cut in the last couple years. Used car prices are still up 15% or more versus a few years ago. New cars are crazy high. If you are getting big raises right now, that's great. More power to you. I'm feeling lucky to have a job at any pay rate. Wages aren't a threat to corporations. Lack of sales are the big threat. That's why companies are laying off people. Not enough sales so they have to reduce their work forces. People are having trouble affording food and gas - so they are cutting back in many other areas.

I see higher inflation, higher interest rates, higher deficits, and higher wages in our future. Good for the people. Bad for the corporate stock machine.

A few years ago I bought a three year old GT PP1 with 25,000 miles for $26K. Now a 3 YO GT is in the 40s. How did this help me? My savings and wages haven't increased by 50%. My buying power is down by a huge amount, and the same is true of most people.

 

[ZXMustang]

Lending is a game of numbers. Not lending means lenders will make less than if they take the chance. This happens every few years. They will rubber band back the other way in a year or two when they see their profits decline.

 

[Inthehighdesert]

One area the Fed raising rates like they have has helped me is in material costs. My costs are down 30-35 over a year ago roughly for material. That’s increased my margin on the sale side for a home. What’s ironic is it’s the exact opposite for the large outfits.

I thought 2008 was more about sub prime lenders and hedge fund investment firms, not banks.



High interest rates hurt most everyone. They hurt people that save and people that want to buy. They hurt businesses for multiple reasons but one is that if people don't buy then businesses don't do very well.

 

[shogun32]

High interest rates hurt the banks and help the people.

Yes and no the problem is rate and duration mismatch. Banks have billions in loans and treasuries paying nothing for a decade or longer, but current or even just recent rates are north of 5.

The deposits are fleeing into high rate instruments and the banks don't dare mark to market or they are insolvent. So they are using billions at the fed window to pretend they are money good.

As one of the primary regulators, the fed fully knows what their rapid hike would cause but they did it anyway. And apparently didn't force the banks to roll their portfolios. So once more they are letting them play shell games to buy a little time.

 

[shogun32]

They hurt people that save and people that want to buy. They hurt businesses for multiple reasons but one is that if people don't buy then businesses don't do very well.

Actually you have it backwards. High interest is fantastic overall, assuming you're not doing it to try walking back 20 years of colossal stupidity known as zero rates.

High interest rewards savers. It also forces people to save up to buy something that is needed instead of satisfying the need immediately with credit. It also plunges the knife in and twists it good and hard for any economic activities that have no economic benefit.

Google, FB, twitter are ALL zeros. They have no redeeming value, because at the root advertising is a complete zero. If money were not free, merchants would not advertise in a system without factually proven benefit. The whole impression model is a complete fraud.

The stores you frequent all have their own websites or apps. It costs them basically nothing to advertise that way. They have zero need for FB and the like. Maybe some mom and pop outfit needs FB to reach a national audience, fine. But then they will demand accountability from their spend. And if their sales do not reflect that spend then the advertising is worthless. And increasingly merchants are finally wising up to the fact.

I haven't seen an online ad in 25 years.

 

[shogun32]

Banks are highly leveraged.

Only when they are running schemes and the regulator is asleep. Banking is properly a very stable enterprise that makes very little money percentage wise. But then they wouldn't be able to pay 6 figure salaries to first year graduates.

Fractional reserve lending is by definition fraud. It is counterfeit the money supply by the emission of credit that is not backed. It is actually illegal, but it's too convenient and profitable to the parties to reign it in. So you have spectacular economic crashes every 20 years or so as the system implodes.

2008 was a massive housing bubble. 2023 the bubble is worse by 3x or even 4x. And we also have a car bubble that is just massive as well. And the college tuition bubble is into the trillions as well.

And we are literally watching the usd lose it's global reserve currency status. We've been foisting our inflation overseas for over 30 years, and the rest of the world has finally had enough of it.

Guess what folks, it's gonna make 2008 look like a piker.

 

[shogun32]

The reason interest rates are high right now is because the Fed is trying to reduce inflation. 5% on a savings account or CD sounds good

Inflation THEY caused for 20 years of dereliction of duty. And congress couldn't be bothered to reign in and put an end to it. Because doing so would have lost elections.

CDs used to pay 15 even 20 percent. My grand parents lived easily on the interest alone. Inflation is properly supposed to be zero, not 2pct or frankly any positive value. Inflation is THEFT. It's diffuse, but it's still thievery.

Prices are supposed to go down. In absolute terms. You see that most clearly in tech gadgets. They aren't in everything else because the currency is becoming worthless at a faster rate than productivity improvements, or external costs are being imposed: eg out of control OSHA and EPA regs and other govt imposed inefficiencies.

The inflation in the 70s was double digits. The fed hiked to drive it back down. They are pussy footing around this time around. We should be at 12 pct today, not 5. And we're gonna need to keep it at 12 or higher for a decade to repent of our sins. It's not enough to stop counterfeiting in the immediate case, you have to ALSO undo the decades of damage.

 

[Hack]

Actually you have it backwards. High interest is fantastic overall, assuming you're not doing it to try walking back 20 years of colossal stupidity known as zero rates.

High interest rewards savers. It also forces people to save up to buy something that is needed instead of satisfying the need immediately with credit. It also plunges the knife in and twists it good and hard for any economic activities that have no economic benefit.

No, I still disagree. The only reason a bank or a CD or anything else offers a high interest rate is because the value of cash is falling faster than the interest rate indicates (there is high inflation). It's simple logic. The bank offers you that interest rate because they are still coming out ahead even paying it. They don't offer an interest rate that doesn't make them money.

High interest rates currently being offered in a savings account is losing you money. Yes you are losing money at a slower rate than if you put the cash under your mattress, but your BUYING POWER is declining. That is the main issue right now, people's buying power is dropping like a stone.

High interest rates are an indication of major problems in the economy. Problems such as someone printed tons of cash in the last couple years and gave them out to people, and now are giving out more cash to the banks. All that cash causes inflation (the dollar is being devalued).

 

[shogun32]

High interest rates are an indication of major problems in the economy.

We are both right. The current high interest rate environment is caused by the usd inflating itself away like Zimbabwe. And yes at 5 pct we are still losing money. The true rate of inflation is well over 10.

But absent an inflationary spiral, high interests are a very good thing since it forces sound business practices and quickly destroys the unsound.

When you have crazy low interest rates you get scams and frauds like internet advertising and nonsense like Wework. Which are finally imploding as they should have years ago. Except they first bilked billions of dollars from investors.

 

[Hack]

We are both right. The current high interest rate environment is caused by the usd inflating itself away like Zimbabwe. And yes at 5 pct we are still losing money. The true rate of inflation is well over 10.

But absent an inflationary spiral, high interests are a very good thing since it forces sound business practices and quickly destroys the unsound.

Yes I agree the banana republic factor is high right about now.

I prefer to be in an economy where businesses don't have to be perfect in order to succeed and even thrive. It's better for everyone.

 

[Balr14]

I know there was funny business with the investments that banks were issuing, and I blame poor bank management for that. So I do agree some amount with what you are saying.



I think a few large banks actually failed and were bailed out by dubya. Maybe the bailouts are the profits you are talking about? Failing is definitely not the same as huge profits, correct?

Any banks that made money were actually well-managed and their loans must have been lower risk in some way, right?

The huge profits I'm talking about were to the banks selling these mortgage packages before the bottom fell out.

It's complicated. Originally, the Investment banks were buying up these poor mortgages from lenders (at a nice discount), packaging them with good mortgages and reselling them at a nice profit, to banks and investors. Then some larger "well run" banks decided they could create their own mortgage packages to sell, as well, or hold (to look good to the regulators).

When the bottom fell out of this scheme, banks and investors who purchased these now worthless mortgage packages lost their shirts. In addition, some large banks and investment banks were still holding unsold worthless mortgage packages. As a result, both regular and investment banks failed or were bought by competitors. Nobody made a profit on the buyouts. That just covered some of the losses.

This happened really fast, so a lot of these banks were caught with their pants down and no way out.

I lost several good customers as a result.

 

[Balr14]

You have to appreciate, that in the commodity driven world we live in, everything has some financial value that can be packaged, bought and sold. Short selling in the stock market is a good example. Back in the 80s, a huge equipment manufacturer (Allis Chalmers) went out of business with billions of dollars in debt. They were actually able to package and sell that debt to companies that needed some debt to reduce their tax liability.

 

[Hack]

One area the Fed raising rates like they have has helped me is in material costs. My costs are down 30-35 over a year ago roughly for material. That’s increased my margin on the sale side for a home. What’s ironic is it’s the exact opposite for the large outfits.

That's good that you are doing better vs. last year, but my guess is last year prices were super high on materials compared to 2019 or so.

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