Wednesday, August 6, 2014

This & That, August 6, 2014


I have blogged recently concerning the plethora of auto loans to unqualified persons. Now we learn the government is also becoming concerned.

Back tracking a bit to our recent past, do you remember these terms: subprime loans, collateralized debt obligations, credit default swaps, too big to fail, and Troubled Asset Relief Program?

Here is how they were all connected:

  • Unqualified applicants were given loans at high interest to buy homes.
  • Banks mixed these high risk loans with good loans into something called Collateralized Debt Obligations (CDO'S) and sold them to investors. The banks did not tell the investors that there were some very bad loans included in the CDO'S. 
  • Prudent investors bought insurance from insurance firms like American International Group (AIG). In exchange for premium payments to AIG they were insured against defaults on their CDO investments.  The insurance policy was something called a Credit Default Swap (CDS).
  • When the unqualified borrowers of  housing loans defaulted, so to did the CDO"S and because investors had insurance against such a failure they put in claims with AIG for full payment.
  • The defaults on the bad housing loans cascaded throughout the financial system and ended up with the federal government rescuing all parties considered too big to fail. This included the auto industry, Wall Street banking and investment firms and AIG. The final total of the rescue via the Troubled Asset Relief Program (TARP) still doesn't have a bottom line, but it is in the trillions. 
Recently there is talk of the same thing happening in auto sales.

  • Unqualified applicants are being given loans at high interest to buy cars.
  • Banks are mixing these auto high risk loans with good auto loans. 
  • The new thing is that bank analysis, credit rating agencies and insurance companies are warning investors of the risk. That was not the case during the housing bubble.
  • Also the government is getting involved in investigating the auto loan business.
Still it is reported that, "This year, G.M. Financial sold investors a roughly $730 million bond made up of auto loans that carried an average annual interest rate of about 13 percent."

NYT; Focusing on G.M. Unit, U.S. Starts Civil Inquiry of Subprime Car Lending, by Michael Corkey and Jessica Silver-Greenberg, August 4, 2014


Well, I thought there was a right to farm, but not in Missouri according to a coalition of farm groups and agra corporations. The primary villain is the Humane Society of America.

Out of state funding from the Humane Society and others are lobbying state legislatures in various farm states to pass laws and/or give their agricultural regulators additional power to regulate, among other things, a minimum space between livestock and control genetically modified crops. 

To fight this, the coalition mentioned above, has put together an amendment to the state constitution:

While the amendment mentions possible litigation, there appears to be no conflict with existing federal agricultural laws or regulations. 

Voting begins today, August 5, 2014.

August 6, 2014: reports the Amendment won by 2500 votes. The Missouri Secretary of State will probably do a recount.


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