http://www.cnbc.com/id/101599348
The article gets off to a great start: "U.S. subprime auto lenders are 'exercising more caution,' especially when it comes to higher-risk customers." However, the mood changes throughout the article, ending with: "Nonetheless, there are other indications 'that lenders are still willing to take on increasing risk...So we don't anticipate a major slowdown in subprime lending.'"
I don't know what to make of this. Is it that lenders recognize certain individuals are very high risk and will start to "cautiously" lend to them? This is starting to seem more and more familiar. Is anyone optimistic that they will start to exercise real caution?
"During the depths of the Great Recession, lenders all but abandoned the subprime sector. As a result, even some of the lowest-risk customers found it difficult to land loans and leases between 2008 and 2010." I believe this quote encapsulates the crux of the matter. From 2008-2010 sub-prime lending was identified as the "root of all evil". This distinction led to a dramatic contraction in sub-prime lending. But, as we've discussed, people have conveniently short memories. Without drastic legal changes being enacted, I doubt we will really see "real caution" being put into practice. I expect the subprime sector to be on a comeback.
ReplyDeleteI agree with Nick. There does not seem to be much incentive to be cautious about the subprimes and it may be awhile if we see any effort at all.
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ReplyDeleteDespite the severity of the Great Recession, the environment in the finance market is similar to the pre-recession environment. There haven't been any major changes in the ways we deal with finances. Therefore, I'd expect the same behavior to occur in today's auto loans market compared to before the recession.
ReplyDeleteI think that the large potential profits also make people's memory shorten. This is an interesting infographic from the Economist looking at the status of the banking industry since Lehman's collapse. Their September 2013 edition had an article that talked about whether the financial industry really is that much stronger since the crisis. Unfortunately, I can't find the article, so maybe somebody else can.
ReplyDeletehttp://www.economist.com/news/finance-and-economics/21586333-five-years-charts
I am not optimistic about lenders actually taking serious caution. Gambling can be addictive. When the prospect is high, you will simply lend money without thinking at the systemic level. The first time you are successful reinforces the second time and so on because you do not actually feel the risk!
ReplyDeleteI agree with bot Sanjay and Ly. I think that many of these lenders have short memory and see risky profits before safe investments. This is unfortunate because it seems as if memories are shrinking more and more and that society is not learning from its mistakes.
ReplyDeleteThe reason financial sector is willing to take the risk, even after the recession, is because the regulation has barely changed after the crash. If there is profit, people will go for it. As Mark said, lenders have short term memory. As soon as they realize there us profit to be made, they will jump into it. Furthermore, the people in finance sector also know that automobile sub-prime lending bubble, if it exist, will not burst tomorrow. They have the incentive to make that profit in that window.
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