Buy, Finance or Lease - the Car Conundrum

[don]

Re: Autos, usury, Irrational customers

1) The interest rate is proportional to the default rate, as expected.

2) Rates this high were formerly not allowed (usury laws). The laws had to be changed around 1980, because all the rates (and inflation) were so high.
But when inflation went down, the usury laws were not put back in.

3) I believe in personal freedom, but debt contracts of this sort are not meaningful freedom. They are self destruction. It's like seat belts for cars and helmets for motorcycles. People fight like hell against
something that will save their life.

4) The interest rate is not "too high" in the sense that the lender could charge lower rates and be profitable. The default rate is so high, that the interest rate seems reasonable. So it does seem to be a competitive market, just one that should probably not exist in a decent country.

I suspect Blackstone's business model would need tweeking if they didn't have free access to your savings. Lending to losers works with free money.

[Polish_Silver]

How I learned to stop worrying and love ZIRP

I suspect Blackstone's business model would need tweeking if they didn't have free access to your savings. Lending to losers works with free money.

There's probably something to that. "Experts" have said that Bain capital wouldn't work without all the tax breaks they get.

If you listen to "maxed out", there's an interview with Elizabeth Warren, and she explains how she was giving a presentation to some big lending institution. She had figured out that 50% of defaults come from 2% of the population, which could be identified with demographic data. So the bank could avoid 50% of defaults by just using her demographic criteria to block those loans in the first place. Then some guy in the back, who had not said a thing before, started talking, and everyone else was silent. He said that the bank makes 50% of it's profit on those 2% of the customers. End of conversation.

[don]

Re: How I learned to stop worrying and love ZIRP

All part & parcel of the Payday Loans family

[pianodoctor]

Re: How I learned to stop worrying and love ZIRP

Just wanted to add my personal approach to car buying: Save first, buy later. Go in with cash ready to the fleet sales department, not the regular salespeople. Determine how many years you want to keep your car and start saving on a monthly basis toward the next one. You are making "monthly payments" either way, but getting a much better deal for yourself if you are making the "monthly payment in advance" as it were.... Though in a ZIRP environment, MAYBE you can get some combination of negotiated low vehicle price low/no interest that competes with my scheme, but I think my concept is pretty advantageous the majority of the time. I can't say I'm not tempted when I see the 0% Financing ads....

[GRG55]

Re: Subprime Auto Loans - Shotgun Marriage

putting (your savings) ZIRP to work . . .


By Carrick Mollenkamp
JASPER, Alabama | Wed Apr 3, 2013 7:05am EDT

Money was tight last year for the school-bus driver and neighborhood constable in Jasper, Alabama, a beaten-down town of 14,000 people. One car had already been repossessed. Medical bills were piling up.

And still, though Nelson's credit history was an unhappy one, local car dealer Maloy Chrysler Dodge Jeep had no problem arranging a $10,294 loan from Wall Street-backed subprime lender Exeter Finance Corp so Nelson and his wife could buy a charcoal gray 2007 Suzuki Grand Vitara.

All the Nelsons had to do was cover the $1,000 down payment. For most of that amount, Maloy accepted Jeffrey's 12-gauge Mossberg & Sons shotgun, valued at about $700 online.

In the ensuing months, Nelson and his wife divorced, he moved into a mobile home, and, unable to cover mounting debts, he filed for personal bankruptcy. His ex-wife, who assumed responsibility for the $324-a-month car payment, said she will probably file for bankruptcy in a couple of months.

When they got the Exeter loan, Jeffrey, 44 years old, was happy "someone took a chance on us."

...

Man, there's something seriously wrong with our society when a car salesman with a "cheap" loan is your best friend.

I just cannot imagine my parents or grandparents generation behaving this way. Is it what we don't teach in school any more (Home Ec. etc)? Is it the breakdown in the family structure that has removed the opportunity to discuss these sorts of decisions over the supper table (making a major purchase, or taking out a big loan) before they are taken? Is it the relentless advertising that accompanies hours spent watching "reality" television shows? Has our society become so vacuous that we judge our own worth on the basis of a sales clerk arranging the loan of money we think we "deserve" but know we can't ever pay back?

FIRE (with Ben and Co.'s conisderable help) creates the opportunity, but FIRE doesn't sign the papers. I still think it is foolish to believe that governments can legislate common sense (e.g. trying to prevent consumers from borrowing more than they should know they can afford)...but maybe it's come to that now.

Here in Canada one tempering influence is that consumer credit interest (residential mortgages, car loans, credit cards) is not deductible against tax on other income, so historically there has been an incentive to pay off your home mortgage as quickly as possible. But in this day of ZIRP money that hasn't stopped Canadians from levering up and up and up. Although the government has taken some minor steps to tighten mortgage lending rules, it has come under intense criticism from the usual FIRE interests. This craziness is the foundation that is going to eventually create a more permanent two-tier society...those that actually own assets and those that own lots of debt. Today the two live side by side on the same street and are indistinguishable from one another. That won't last...

Canadians are carrying more debt than ever before

Canadian Press | 12/12/13 | Last Updated: 12/12/13 2:20 PM ET

OTTAWA — Canadians are more in hock today than ever before, Statistics Canada said Thursday in releasing fresh data on household debt.

The new report shows household debt to annual disposable income reached a new high at 164.6%, from 163.3% the previous quarter.

Bank of Canada governor Mark Carney has named rising household debt a key risk to the Canadian economy, but noted this week he was encouraged that credit growth appeared to be slowing...

...The debt-to-income ratio has been setting new records since 2003, but remains below the peak reached south of the border before the 2007 housing crash. StatsCan says using equivalent measurements, Canada’s ratio is about 10 percentage points below the peak reached in the U.S. prior to the housing crash in 2007.

The Bank of Canada, Jean notes, shouldn’t be shifted from its interest rate stance given “the evolution of debt seems to tie in to its expectations.” He pointed out that the effect of mortgage tightening rules brought in July had only begun to be felt in the third quarter numbers...

[don]

Re: Subprime Auto Loans - Shotgun Marriage

Man, there's something seriously wrong with our society when a car salesman with a "cheap" loan is your best friend.

I just cannot imagine my parents or grandparents generation behaving this way. Is it what we don't teach in school any more (Home Ec. etc)? Is it the breakdown in the family structure that has removed the opportunity to discuss these sorts of decisions over the supper table (making a major purchase, or taking out a big loan) before they are taken? Is it the relentless advertising that accompanies hours spent watching "reality" television shows? Has our society become so vacuous that we judge our own worth on the basis of a sales clerk arranging the loan of money we think we "deserve" but know we can't ever pay back?

FIRE (with Ben and Co.'s conisderable help) creates the opportunity, but FIRE doesn't sign the papers. I still think it is foolish to believe that governments can legislate common sense (e.g. trying to prevent consumers from borrowing more than they should know they can afford)...but maybe it's come to that now...

All true, all made possible by FIRE being in complete control. Who's not to say people would have been just as stupid in the past if they were given the opportunity through so-called legitimate channels. In the past people made fatal monetary decisions through the local loan shark. Now they simply welcome the Great White as manna from above



Not to mention the examples being set for the herd-mentality-inclined sheeple from their 'betters' . . .

“Our government teaches the whole people by its example. If the government becomes the lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy.”

Louis D. Brandeis


Jim Chanos observes that there is now A Fiduciary Duty to Cheat on Wall Street.

[astonas]

Re: Subprime Auto Loans - Shotgun Marriage

All true, all made possible by FIRE being in complete control. Who's not to say people would have been just as stupid in the past if they were given the opportunity through so-called legitimate channels. In the past people made fatal monetary decisions through the local loan shark. Now they simply welcome the Great White

Yeah, as much as one might like to decry the "nanny state" the fact is that common sense is not very common. Bank regulations protected those who couldn't work things out for themselves. Deregulation permits predatory practices.

The best answer might always be educating the population so that protections aren't needed, but such pervasive education is extremely hard to achieve in a society with the value structure of the United States. Valuing freedom will always include the freedom to fail. And since the payoff of an education is so far removed from the sacrifices associated with it, there will always be a significant proportion of society that does not see it as worth investing in, for others, or even for themselves.

[c1ue]

Re: Subprime Auto Loans - Shotgun Marriage

Yeah, as much as one might like to decry the "nanny state" the fact is that common sense is not very common. Bank regulations protected those who couldn't work things out for themselves. Deregulation permits predatory practices.

No argument here, but I would like to point out that the abuses which led to the real estate bubble were driven by banksters, not by the loan salesmen.

The loan salesmen were responding to their own management, which in turn was responding to bankster demand - as Bill Black has repeatedly and clearly shown as a 'control fraud'.

The screwing of mortgage loan consumers was merely a byproduct.

The truly pathetic thing about this entire situation is that the above cause - the creation and expansion of the control fraud - has in no way been investigated, much less punished.

We're going to get more and more unless this abusive practice is made resoundingly unworthwhile.

[GRG55]

Re: Subprime Auto Loans - Shotgun Marriage

No argument here, but I would like to point out that the abuses which led to the real estate bubble were driven by banksters, not by the loan salesmen.

The loan salesmen were responding to their own management, which in turn was responding to bankster demand - as Bill Black has repeatedly and clearly shown as a 'control fraud'.

The screwing of mortgage loan consumers was merely a byproduct.

The truly pathetic thing about this entire situation is that the above cause - the creation and expansion of the control fraud - has in no way been investigated, much less punished.

We're going to get more and more unless this abusive practice is made resoundingly unworthwhile.

The flaw that I see in the dependence on legislation in place of "common sense" is that in addition to legislation to protect potential sub-prime borrowers, by extension there should also be legislation to protect all those pension fund managers, Norwegian village council members and German Landesbanke executives that also demonstrated no common sense by piling into derivative instruments of which they knew absolutely nothing. Clearly they were no more capable of sound decision making than their Central California minimum wage agriculture worker counterparts in this grand scheme :-)

[don]

Re: Subprime Auto Loans - Shotgun Marriage

The flaw that I see in the dependence on legislation in place of "common sense" is that in addition to legislation to protect potential sub-prime borrowers, by extension there should also be legislation to protect all those pension fund managers, Norwegian village council members and German Landesbanke executives that also demonstrated no common sense by piling into derivative instruments of which they knew absolutely nothing. Clearly they were no more capable of sound decision making than their Central California minimum wage agriculture worker counterparts in this grand scheme :-)

No, you can't, and shouldn't attempt, to instill common sense in the masses. Regulating the debt makers is what is needed. Bring back Glass-Steagall. Prosecute the TBTJails. Make taking out a mortgage as savings-necessary as it once was. Drain the debt swamp that's fed 24/7 by the debt machines. Possible? That's a whole other question, Seņor.

[c1ue]

Re: Subprime Auto Loans - Shotgun Marriage

The flaw that I see in the dependence on legislation in place of "common sense" is that in addition to legislation to protect potential sub-prime borrowers, by extension there should also be legislation to protect all those pension fund managers, Norwegian village council members and German Landesbanke executives that also demonstrated no common sense by piling into derivative instruments of which they knew absolutely nothing. Clearly they were no more capable of sound decision making than their Central California minimum wage agriculture worker counterparts in this grand scheme :-)

The Landesbanke executives and council members were the other side of the scam: the crap being loaned out was repackaged and sold to these people.

The ones who made all this happen - and knowingly - are the ones who need regulation.

Prosecution is only possible with regulation.

Right now we have neither.

No, you can't, and shouldn't attempt, to instill common sense in the masses. Regulating the debt makers is what is needed. Bring back Glass-Steagall. Prosecute the TBTJails. Make taking out a mortgage as savings-necessary as it once was. Drain the debt swamp that's fed 24/7 by the debt machines. Possible? That's a whole other question, Seņor.

The common sense of the masses is, frankly, irrelevant.

The whole point of a control fraud is that the perpetrators are knowingly and deliberately making bad loans. They do so because they know full well that a few years of fantastic looking growth (with concomitant salary, options, and other benefits) are more than enough to reap a lifetime's worth of earnings before the whole scam falls apart, with the resulting mess left to depositors, depositor insurance, stockholders not in the know, and so forth.

[GRG55]

Re: Subprime Auto Loans - Shotgun Marriage

The Landesbanke executives and council members were the other side of the scam: the crap being loaned out was repackaged and sold to these people.

...

No. They were on the same side of the scam as their ag worker counterparts...

[GRG55]

Re: Subprime Auto Loans - Shotgun Marriage

...Here in Canada one tempering influence is that consumer credit interest (residential mortgages, car loans, credit cards) is not deductible against tax on other income, so historically there has been an incentive to pay off your home mortgage as quickly as possible. But in this day of ZIRP money that hasn't stopped Canadians from levering up and up and up. Although the government has taken some minor steps to tighten mortgage lending rules, it has come under intense criticism from the usual FIRE interests. This craziness is the foundation that is going to eventually create a more permanent two-tier society...those that actually own assets and those that own lots of debt. Today the two live side by side on the same street and are indistinguishable from one another. That won't last...

Canadians are carrying more debt than ever before

Canadian Press | 12/12/13 | Last Updated: 12/12/13 2:20 PM ET

...

Something else going on up here. Baby steps perhaps, but at least some steps. It is interesting how the various groups have aligned. Personally I am on the side of the CFIB. We use our credit card only when necessary (book a rental car, etc) The Minister of Finance in my household never, ever makes a major purchase without asking for cash discount.

New credit card surcharges would be a ‘big shock’ to Canadians, consumer group warns

By Peter O'Neil, Vancouver Sun April 3, 2013

OTTAWA — Canadians could soon be hit at the cash register with credit card surcharges of as much as 10 per cent of the cost of their purchases, the Consumers’ Association of Canada warned Tuesday.

The association says that could be the outcome of a pending ruling from Canada’s competition tribunal, which is judging a case against Visa and MasterCard that was launched in 2010.

“It’ll be like striking the marketplace with lighting. It’ll disrupt the whole way that we pay for our goods,” said association president Bruce Cran of Vancouver. “Nobody knows about it but you could wake up one morning — next week this thing might be out — and you could be paying, all of a sudden, a 10-per-cent surcharge on some things. So it’s going to be a big shock.”

The consumer group is siding with Visa and MasterCard, companies targeted in 2010 by tough-talking competition watchdog Melanie Aitken, who left her post as head of the federal Competition Bureau last year.

The bureau, backed by the Canadian Federation of Independent Business (CFIB) and the Retail Council of Canada, argues that merchants should be able to pass on credit card charges — typically anywhere from two to three per cent of the purchase — directly to consumers.

Retailers argue that the estimated $5-$6 billion a year in charges that retailers pay to credit card companies — primarily Visa and MasterCard — are “costs of doing business” that are already passed on to shoppers.

The bureau is challenging rules imposed by the credit card companies that prevent retailers from refusing to accept “premium” credit cards that offer reward miles, points and other benefits for consumers, but require higher processing fees to be paid by the merchants to the credit card firms.

Another rule prevents merchants from passing on costs of credit cards, and especially the premium cards, as a way of encouraging them to use cash or debit cards, which cost merchants a fraction of the cost of credit cards...

...A Competition Bureau lawyer argued before the tribunal last year that the current situation is like a “reverse Robin Hood.”

The $5-$6 billion in costs is passed on to all consumers, including those who use cash or debit cards. The wealthy, argued Kent Thomson, are more likely to use the premium cards.

“The least affluent consumers subsidize the purchases of the most affluent consumers,” Thomson said.

CFIB president Dan Kelly, writing in the National Post Tuesday, also argued that the “opaque” credit card rules result in merchants and consumers paying needless extra charges that are steadily rising...

[Polish_Silver]

Who to blame

No argument here, but I would like to point out that the abuses which led to the real estate bubble were driven by banksters, not by the loan salesmen.

The loan salesmen were responding to their own management, which in turn was responding to bankster demand - as Bill Black has repeatedly and clearly shown as a 'control fraud'.

The screwing of mortgage loan consumers was merely a byproduct.

The truly pathetic thing about this entire situation is that the above cause - the creation and expansion of the control fraud - has in no way been investigated, much less punished.

We're going to get more and more unless this abusive practice is made resoundingly unworthwhile.

I blame all of them.

Borrowers, loan brokers, bank executives. The higher up they are, the more blame (and prosecution) they deserve.

There were people who could have, but did not, borrow money they could not pay.

There were appraisers who didn't "play along" and lost business because of it.

I even heard of banks that did not make mortgage loans during the bubble .

[don]

Re: Who to blame

There were appraisers who didn't "play along" and lost business because of it.

As I recall, honest appraisers somewhere in the neighborhood of 10,000 strong signed a petition asking congress to intervene in the goosed appraisal racket, to no avail.