Auto sales – Page 2 – The Burning Platform

Behind Those Booming Auto Sales: 7-Year Loans, 125% LTV Ratios, 34% Sub-Prime Borrowers

Auto lending is currently 40% higher than the last peak in 2003.

Auto leases are growing at a 20% annual rate.

The average car loan term is now 66 months, the highest in U.S. history.

The average amount financed is at an all-time high of $27,612.

The average monthly payment reached a new all-time high of $474.

The percentage of subprime deadbeats getting car loans has soared to 34% of all loans.

Lenders are doling out loans that are 25% higher than the value of the autos they are “selling”. A new car depreciates 10% the second you drive it off the lot.

Real household income is 7% lower than it was in 2007, while gas, utilities, food, health insurance, and taxes are significantly higher. The entire consumer spending “recovery” has been nothing but another Federal Reserve/US Treasury engineered debt bubble of auto and student loans. The piper will be paid. The bubble will burst. The losses will be epic. Who coulda knowed? I bet you can’t wait to bail out Wall Street and Obama again. You’ll do it for the children.

Via David Stockman’s Contra Corner

By Editor, Fabius Maximus, a multi-author website with a focus on geopolitics. Reposted from Wolf Street

http://wolfstreet.com/2014/08/07/auto-loans-once-a-boon-for-america-now-malignant/

One of the many oddities of this cycle is that many things that were good during the post-WW2 era have become bad in the era now starting (unrecognizably so, as we remain unaware of our changed circumstances). Like debt. Such as auto loans. Our use of debt gives clues to our future..

Consumer debt in the old world, and the new

During the post-WW2 era increasing debt supercharged economic growth for the young and rapidly-growing West. But after 60 years of this our societies now carry massive debt loads, both public and private — while the numbers of elderly grow (who experience a crash of income upon retirement, plus rising costs to society for their pensions and health care). Carrying our current load might prove difficult; adding to it now is madness.

Plus, there are other factors in play. Fifty years of growing inequality, for still poorly-understood reasons, have hollowed out the middle class — diminishing their ability to carry their existing debt, making them dependent on borrowing to maintain their lifestyle.

Some take another step beyond borrowing. Borrowing to buy cars and homes results in slowly accumulating equity, one of the most common ways middle class households save. Increasingly Americans abandon buying with debt for renting. Rent homes instead of owning. Renting cars (leasing) instead of owning.

Automobile sales point to our new world

Accelerating borrowing was a natural leading indicator of economic recoveries during the post-WW2 era. So economists see the waves of desperate borrowing by consumers since 2000 as a good thing. Hence their excitement about the subprime lending boom that drove the housing bubble. Such as today’s subprime borrowing to buy cars.

The extreme case of this blindness to our changed conditions is glee about the shift to renting cars (aka leasing). It shows vibrant demand for cars! As we see in this excerpt from a report by BofA-Merrill global economist Ethan Harris, 6 August 2014, showing that after mid-2012 leasing grew faster than total spending on vehicles (2012 saw many such transition points for the US economy).

Households go for the low capital option: leasing soars:

Household outlays on leasing are booming at a 20% yoy pace — a clear sign that demand for vehicles is alive and kicking. With average lease payments lower than typical monthly ownership costs and with a down-payment not typically required to enter into a lease, the surge in vehicle leasing is likely a sign that financial restraints are still holding back some would-be buyers. Thus, as the economy improves, bottled-up household demand for vehicles could translate to higher sales.

Yes, in our society demand is “alive and kicking” by subprime households for cars bought with low-rate loans on easy terms — or even just renting (aka leasing). But does it point to an economic recovery — or exhaustion?.

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The terms are very easy

Turning back to people at least attempting to buy, there are four dimensions to consumer loans: the creditworthiness of the borrower, the interest rate of the loan, the length of the loan, and the collateral (the loan to value ratio). A report by Experian Automotive, 2 June 2014, describes the first three.

… average automotive loan term reached an all-time high of 66 months … loans with terms 73-84 months grew to 25% of all loans originated during the quarter. …

The average amount financed for a new vehicle loan also reached an all-time high of $27,612 in Q1 2014, up $964 from the previous year. In addition, the average monthly payment for a new vehicle loan reached its highest point on record at $474 in Q1 2014, up from $459 in Q1 2013.

… Market share for nonprime, subprime and deep subprime new vehicle loans in Q1 2014 rose to 34%.

Six- and seven-year-long auto loans! At what point will the borrower have equity in their cars? Especially since these are probably the subprime borrowers that make up 1/3 of auto lending.

The fourth factor is equally ugly. Lenders are lending more than the value of the collateral (i.e., including closing costs and rolling over the deficit of the buyers’ trade-in). These are averages; half of loans have even higher LTVs. From Semiannual Risk Perspective, Office of the Comptroller of the Currency, Spring 2014:

Why are these numbers important?

The changing nature of auto sales tell us much about ourselves. They show how economists do not see the new era beginning. They imply slower growth in the future, as a household’s longer loans with smaller down payments push out their ability to buy their next car. They tell us something about the recovery.

Auto sales have been a major driver of the recovery. Most economists expect auto sales to continue growing, helping power the long-awaited acceleration from slow ~2% growth to 3% or beyond. So the sustainability of auto sales — and the borrowing and leasing that fuels them — matter.

Atif Mian and Amir Sufi show the importance of auto loans to auto sales, and of auto sales to consumer sales. These are from their post “Another Debt-Fueled Spending Spree?“, 31 March 2014. First, lending is rapid:

Second, since the crash, auto sales have grown much faster than overall consumer spending.

Auto sales have been one of the few drivers of this recovery. They have been pushed up by easy credit, longer terms, lower credit quality, and sky-high loan-to-value ratios. But these loans lock the buyer out of the market for years to come. Charge-off for lenders will rise, and in response lenders will re-tighten their underwriting standards. And outstanding auto loans, once useful in the prior era, will become malignant. By Editor, Fabius Maximus.

The US economy has repeatedly failed to resume normal growth after the crash. But potentially worse is the decline in long-term growth estimates. Read…. Has America’s Economy Entered the “Coffin Corner”?

WHEN DID RENTING BECOME A SALE?

Subprime autonation is alive and well. Orwellian Doublespeak most certainly applies to the fact that the MSM and the auto peddlers don’t actually sell cars anymore. They rent them and call it a sale. The 0% interest rates from the Federal Reserve allow these recall specialists to rent millions of cars to millions of deadbeats using the tried and true method of no down payments and low low monthly payments.

The three year leases and 7 year 0% loans to subprime mouth breathers eventually come due. As Zero Hedge points out, the avalanche of returned vehicles after three years might just have a bottom line impact to Government Motors and the rest of the finance companies disguised as automakers.

But keep believing the monthly headlines announcing tremendous auto sales when they are nothing but short-term rentals and cramming inventory down the throats of dealers.

The Mystery Behind Strong Auto “Sales”: Soaring Car Leases

Submitted by Tyler Durden on 08/06/2014 10:01 -0400

When it comes to signs of a US “recovery” nothing has been hyped up more than US auto companies reporting improving, in fact soaring, monthly car sales. On the surface this would be great news: with an aging car fleet, US consumers are surely eager to get in the latest and greatest product offering by your favorite bailed out car maker (at least until the recall comes). The only missing link has been consumer disposable income. So with car sales through the roof, the US consumer must be alive and well, right? Wrong, because there is one problem: it is car “sales” not sales. As the chart below from Bank of America proves, virtually all the growth in the US automotive sector in recent years has been the result of a near record surge in car leasing (where as we know subprime rules, so one’s credit rating is no longer an issue) not outright buying.

From BofA:

Leasing soars: Household outlays on leasing are booming at a 20% yoy pace – a clear sign that demand for vehicles is alive and kicking. With average lease payments lower than typical monthly ownership costs and with a down-payment not typically required to enter into a lease, the surge in vehicle leasing is likely a sign that financial restraints are still holding back some would-be buyers. Thus, as the economy improves, bottled-up household demand for vehicles could translate to higher sales.

Chart 1: Households go for the low capital option: leasing soars

(yoy growth rate, inflation-adjusted)

It could also translate into even higher leases, which in turn bottlenecks real, actual sales.

Of course, the problem is that leasing isn’t buying at all. It is renting, usually for a period of about 3 years. Which means that at the end of said period, an avalanche of cars is returned to the dealer and thus carmaker, who then has to dump it in the market at liquidation prices, which in turn skews the ROA calculation massively. However, what it does do is give the impression that there is a surge in activity here and now… all the expense of a massive inventory writedowns three years from now.

Which is precisely what will happen to all the carmakers as the leased cars come home to roost. But what CEOs know and investors prefer to forget, is that by then it will be some other management team’s problem. In the meantime, enjoy the ZIRP buying, pardon leasing, frenzy.

AUTO SALES HAVE PEAKED – LOOK OUT BELOW

Charts always tell me a more truthful story than the written and spoke propaganda doled out by the corporate mainstream media. The bimbos and boobs on CNBC and the rest of what passes for financial journalism in the dying legacy media were ecstatic about the fantastic May auto sales. These mouthpieces for the establishment just regurgitate the lines written for them by their corporate PR departments. They blather about new highs and best sales since 2007. Maybe they could try using their brains and dig a little deeper to examine the underlying foundation of these fantastic sales.

With a cursory investigation they would discover that average loan length reached an all-time high of 66 months and the average amount financed exceeded $27,000. I’ve never spent more than $20,000 on a car, let alone finance $27,000. The percentage of people leasing those “sold” cars also reached an all-time high of 26%. And the cherry on top is the 34% of auto loans going to subprime deadbeats. “Selling” automobiles using easy money and extending loan lengths is the same strategy employed from 2002 through 2008. That worked out so well, I’m sure it will work just as well this time.

These same clueless dolts paraded on TV as financial journalists would do well to try and explain the chart below. When the economy is running on all cylinders the motor vehicle inventory to sales ratio hovers between 2.0 and 2.5. So at this current point in time, with auto sales reaching seven year highs, we have an extreme inventory to sales ratio of 3.0. Therefore, we have 20% to 50% too many automobiles for the current sales level. An inquisitive mind might wonder what happens next? Are GM, Ford and Chrysler going to allow 10 year auto loans and bump up their subprime clientele to 50%? The inventory continues to pile up on dealer lots, even with the extremely loose financing deals being pushed on the delusional American public.

Based upon history, only a fool, a CNBC economics reporter, or a Federal Reserve chairwoman would expect auto sales to accelerate above the current level. Real household incomes are back at 1998 levels, financing terms are at the loosest in history, the economy is contracting, and gas prices are near three year highs. Does that sound like a recipe for accelerating automobile sales? The data I see is telling me we have reached a peak in auto sales. The extremely high inventory levels will lead to major discounting by the auto companies and huge profit declines. These companies will have to cut back on production, further pushing the economy into recession. It’s amazing what you can see when your agenda isn’t to mislead, obfuscate and misinform.

SUSTAINABLE?

Our beloved leaders and their insistence on democratizing the world at the point of a few hundred tomahawk missiles has had predictable consequences. West Texas crude oil hit $109 a barrel today, the highest level since February 2012 when we were saber rattling over the imminent threat of Iran. Gas prices breached $3.90 per gallon then and again in September of 2012 when West Texas crude hit only $99 per barrel. The price at the station near my house has jumped by 8 cents in the last few days to $3.71 per gallon. The national price of $3.62 is headed higher. If and when the missiles start flying, the sky is the limit depending on what Syria, Russia and Iran do. There already appears to be a disconnect, as WTI has surged by 23% since April, but national gas prices are only up 4%. Some of this is due to demand destruction as the high prices and declining economy have led to a collapse in vehicle miles driven and fuel usage.

Some of the disconnect may be explained by the price of Brent crude. It is pretty much flat versus last year, while WTI has gone up 12%. The West and Midwest are most influenced by the price of WTI, while the East is impacted by Brent. The price of Brent hit $116 today, up 16% since April. That is close to the one year high reached in February, when U.S. gas prices hit their high for the year of $3.70 per gallon. Last year ended up with the highest average price for a gallon of gas in U.S. history and that was with falling prices from September through December. The average price in 2013 is only slightly lower than 2012 and we are about to experience much higher prices from September through December. Throw in a hurricane or two and we’ll really be partying. Prices in Chicago and Los Angeles are already above $3.90 per gallon.

There is nothing like high energy prices to kick the ass of this economy. We are already in recession, as the consumer is up to their eyeballs in debt and getting gouged by higher taxes, healthcare costs, tuition costs, and food costs. These soaring oil prices will make everything more expensive, as our economy is dependent upon shipping shit by truck. One of the storylines peddled by the MSM has been the fantastic auto recovery. Thank God Obama saved GM!!!

Again we have a disconnect. The number of vehicle miles driven continues to decline. Why would auto sales be soaring if people are driving less and young people can’t afford cars? The chart below makes the point. We’ve got record high energy prices and a decade long decline in miles driven, but somehow we have a booming auto industry. It couldn’t possibly be driven by cheap credit doled out to subprime auto buyers? Obama and his minions at Ally Financial, along with Bennie and his Wall Street cohorts wouldn’t be using those free Bennie bucks to create the illusion of an auto recovery? Would they?

Do you think the auto recovery is sustainable with rising interest rates, rising gas prices, falling stock prices, increasing bad debt on auto loans, and a recession? If you do, I have some prime real estate in Damascus I’d like to sell you.

IF AUTO SALES ARE BOOMING THEN WHY……..

GM and Ford reported “strong” sales for March, up 6.4% and 5.7% respectively. The current annual rate of auto sales has “surged” to 15.2 million. Last year sales rose to 14.5 million from only 12.7 million in 2011. This sure sounds like a tremendous recovery led by great new models from our “saved” GM and wonderful iconic Ford Motors. The MSM was crowing about the results today, except the details tell a different story. GM’s car sales FELL 3% in March. The surge in sales was due to fleet sales going up 12%. It couldn’t possibly be the Federal government buying vehicles, could it? Cadillac sales surged as subprime loans in West Philly to the FSA reached record levels. There were 1,478 Volts sold in the whole country – so there will be 15.2 million vehicles sold in the country and the Obama Volt will account for less than 20,000 of these sales or .0013 of all car sales. Ford car sales FELL 0.2%. Their increase was also driven by fleet sales and truck sales. How dense is the average American? Gasoline prices are above $4.00 per gallon in many cities and they continue to buy low gas mileage trucks and SUVs.

The auto market is completely dependent upon 7 year 0% financing for good credits and subprime lending for 45% of sales and this is all they can achieve?

If sales have been so awesome for the last two years, why are their stocks and their profits in decline? Inquiring minds want to know.

If auto sales were 12.7 million in 2011 and they are pacing at 15.2 million in 2013, why has GM stock dropped from $38 to $28, a 26% decline? I thought Obama saved GM and they were doing awesome. Vehicle sales are up 20% since 2011 and GM still managed to earn $3 billion less in 2012 than they earned in 2011. This doesn’t even take into account the massive channel stuffing that has artificially boosted their sales figures.

It seems that selling vehicles to your dealers and to deadbeats through Ally Financial doesn’t generate profits. But who needs profits when a storyline will do.

If Ford Motor is doing so well why is their stock at $13 today when it was at $19 in 2011? For the math challenged, that is a 32% drop when auto sales are up 20% since 2011. Is the MSM reporting that Ford sales dropped by $2 billion in 2012 and their net income from operations dropped by $1 billion? Are we really having a strong auto recovery if the two biggest US automakers are making significantly less profit?

The MSM is not in the truth business. They are in the propaganda business. The storyline of auto recovery is false. The reported sales increases are due to channel stuffing and easy money from Bennie. The 45% of sales from subprime loans will bite the taxpayer in the ass when Ally Financial reports billions in losses over the next few years. You own Ally Financial. So it goes.

PONDERING THOSE “GREAT” AUTO SALES

You gotta love these stories. The lady in this article sums it up perfectly:

“Even I wouldn’t make a loan to me at this point.”

But that isn’t stopping Ally Financial and the rest of the Wall Street slimeball banks from dishing out car loans and credit cards to anyone with a pulse. There is no doubt in my mind that these banks are doing this because Bernanke and Obama have told them to do so. The Fed has let them know they have their back. When these loans go bad the Federal Reserve will step in and buy up the bad debt and hide it on their balance sheet. This is the plan stan. It will not work. The brand new cars all over West Philly will be repossesed in the next 24 months and the bad debt will skyrocket. And you will be picking up the tab. Again.

Lenders Again Dealing Credit to Risky Clients

By JESSICA SILVER-GREENBERG and TARA SIEGEL BERNARD

Published: April 10, 2012

Annette Alejandro just emerged from bankruptcy and doesn’t have a job, and her car was repossessed last year. Still, after spending her days job hunting, she returns to her apartment in Brooklyn where, in disbelief, she sorts through the piles of credit card and auto loan offers that have come in the mail.

“Even I wouldn’t make a loan to me at this point,” Ms. Alejandro said.

In the depths of the financial crisis, borrowers with tarnished credit like Ms. Alejandro were almost entirely shut out by traditional lenders. It was hard enough for people with stellar credit to get loans.

But as financial institutions recover from the losses on loans made to troubled borrowers, some of the largest lenders to the less than creditworthy, including Capital One and GM Financial, are trying to woo them back, while HSBC and JPMorgan Chase are among those tiptoeing again into subprime lending.

Credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3 percent from the same month a year earlier, according to Equifax’s credit trends report released in March. These borrowers accounted for 23 percent of new auto loans in the fourth quarter of 2011, up from 17 percent in the same period of 2009, Experian, a credit scoring firm, said.

Consumer advocates and lawyers worry that the financial institutions are again preying on the most vulnerable and least financially sophisticated borrowers, who are often willing to take out credit at any cost.

“These people are addicted to credit, and banks are pushing it,” said Charles Juntikka, a bankruptcy lawyer in Manhattan.

The banks, for their part, are looking to make up the billions in fee income wiped out by regulations enacted after the financial crisis by focusing on two parts of their business — the high and the low ends — industry consultants say. Subprime borrowers typically pay high interest rates, up to 29 percent, and often rack up fees for late payments.

Some former banking regulators said they worried that this kind of lending, even in its early stages, signaled a potentially dangerous return to the same risky lending that helped fuel the credit crisis.

“It’s clear that we are returning to business as usual,” said Mark T. Williams, a former Federal Reserve bank examiner.

The lenders argue that they have learned their lesson and are distinguishing between chronic deadbeats and what some in the industry call “fallen angels,” those who had good payment histories before falling behind as the economy foundered.

A spokesman for Chase, Steve O’Halloran, said the bank “seeks to be a careful, responsible lender,” adding that it “is constantly evaluating the risks and costs of funding loans.”

Regulators with the Office of the Comptroller of the Currency, which oversees the nation’s largest banks, said that as long as lenders adhered to strict underwriting standards and monitored risk, there was nothing inherently dangerous about extending credit to a wider swath of people.

In fact, an increase in lending is a sign that the economy is improving, economists say. While unemployment remains high, consumers have been reducing their debts. Delinquencies on credit card accounts and auto loans are down sharply from their heights in the crisis. “This is a natural loosening of credit standards because the banks feel they can expand again,” said Michael Binz, a managing director at Standard & Poor’s.

And lenders miss many potential customers if they focus just on people with perfect credit.

“You can’t simply ignore this segment anymore,” said Deron Weston, a principal in Deloitte’s banking practice.

The definition of subprime borrowers varies, but is generally considered those with credit scores of 660 and below.

The push for subprime borrowers has not extended to the mortgage market, which remains closed to all but the most creditworthy.

Capital One is one lender that has been courting borrowers with damaged credit, even those who have just emerged from bankruptcy, with pitches like, “We want to win you back as a customer.”

Pam Girardo, a spokeswoman for Capital One, said, “Our strategy is to provide reasonable access to credit with appropriate guardrails in place to ensure consumers stay on track as they rebuild their credit.”

Ms. Alejandro, 46, was one of the borrowers fresh out of bankruptcy courted by Capital One. So far, she has turned it down.

David W. Nelms, chief executive of Discover Financial Services, the sixth-largest credit card lender in the United States, told investors this month that the company planned to extend credit to a broader group of borrowers. But, he added, Discover is not “suddenly going to go into the subprime business.”

Credit card lenders extended $12.5 billion in loans to subprime borrowers last year, up 54.7 percent from 2010, according to Equifax and Moody’s, but still below the $41.6 billion in 2007.

Lenders are ramping up their advertising, according to Synovate, a market research firm. Others are developing credit cards specifically aimed at borrowers with damaged credit. Capital One, for instance, introduced a credit card last year that allows these borrowers to lower their interest rate after making timely payments for a year.

Auto loans are particularly attractive for lenders since they were largely untouched by many of the new regulations. The new Consumer Financial Protection Bureau said it had not yet decided whether it would oversee the largest nonbank auto lenders.

At the same time, the market for securities made up of bundles of auto loans is heating up. Last year, investors scooped up $11.7 billion in auto loan securities, up from $2.17 billion in 2008. The pace of securitization in credit cards is slower, with lenders selling roughly 30 percent of their card portfolios to investors, down from 60 percent before the financial crisis, according to S&P.

Steve Bowman, the chief credit and risk officer for GM Financial, an auto lender, said he expected subprime auto loans to continue to grow. Unlike mortgage lenders, Mr. Bowman argued, auto lenders understand how to manage risk while still making loans to borrowers with poor credit.

But Moody’s was already sounding the alarm last year that some very risky borrowers were getting auto loans. The market, Moody’s wrote in a report in March 2011, could be growing “too much too fast.”

Ms. Alejandro is not the only borrower with bad credit to question why anyone would offer a loan. The offer, of course, does not necessarily translate into the issuing of a card.

Shauna Ames, 41, an office manager from St. Paul, said she got a credit card offer from Capital One even though the company had won a lawsuit against her for $5,485 in overdue credit card debt last September. Ms. Ames, who had filed for bankruptcy, said she was surprised at the offer. “I still can’t believe it,” she said.

Ms. Girardo, the Capital One spokeswoman, said the bank doesn’t solicit customers that it has previously sued. “We believe we can establish long-term relationships with products that are predicated on consumer success,” she said.

SUBPRIME IS BACK BABY!!!

I’ve been harping on all the new cars I’ve been seeing in the slums of West Philly as I drive to work every morning. It seems you can get a car loan even if your credit score is 500. Just to give you some prespective, this dude has a credit score of 500.

It is amazing how many cars you can “sell” when you don’t need to worry about getting paid for the car. The “recovery” in U.S. auto sales has been so fantastic, Obama and his minions are rolling the same method out to the housing market. If you want to know why Fannie Mae and Freddie Mac have lost $200 billion of your tax dollars just read the story below where they are waiving that ridiculous underwriting requirement that forces the lender to determine if the borrower has a “reasonable ability to repay” the loan based upon debt-to-income ratio, income, and other factors.

Why should we expect people to repay their car loans and home loans? That is racist and discriminatory against people who don’t have money, assets, or a viable income stream. All hail Subprime loans, the savior of our country. They’re back baby!!!

Subprime to the Rescue

By Greg Hunter’s USAWatchdog.com

Subprime lending is back, and it is creating headlines like: “February auto sales rise to highest level in 4 years.” That comes from a story last week from Reuters. Reuters goes on to say, “U.S. auto sales rose nearly 16 percent in February and the annual sales rate leapt to its best level in four years . . . For a second month in a row, sales surpassed even the most optimistic expectations. Analysts ascribed the gains partly to rising consumer confidence and upbeat U.S. economic data.” (Click here for the complete Reuters story.) Subprime lending was one of the major causes of the 2008 economic meltdown. You would think the banks and the government would have learned a lesson, but they did not.

Subprime auto lending played a big part in those car sales figures. According to published reports, people with a credit score of just 500 can now get a car loan. As of last August, more than 40% of car loans were given to subprime borrowers. That number is growing according to Loans.org. It said two weeks ago, “Due to a new trend that many lenders have begun to participate in, more and more subprime borrowers were able to obtain vehicle financing. As a result, outstanding car loans rose by 3.8 percent, which is roughly $23 billion. That sharp uptick in outstanding vehicle financing brings the national total to $658 billion.” (Click here to read the complete Loans.org story.)

Nothing gets the economy going faster than loaning money to people with a high chance of not paying it back. Mind you, the economy is not improving because of increased exports, productivity gains, some sort of new technology or dynamic innovation. It appears to be improving (somewhat) because of the return of subprime lending. If that is not a sign of the impending doom of another future crash, I don’t know what is. If we could only put people back to work as fast as someone could qualify for a subprime car loan, we’d be able to fix America’s chronic unemployment problem—at least for a little while.

Not to be outdone by the auto industry, real estate is getting a boost from the government’s revamped “Home Affordable Refinance Program,” also known as “HARP 2.0.” This program is only available to homeowners who have mortgages with Fannie Mae or Freddie Mac, but that is effectively around half of the mortgage market. Perspective borrowers have to be current on their payments, and the mortgage must be under 125% of the home’s current value. In other words, if you owe a $125,000 mortgage but the home is only worth $100,000, you can still borrow the full $125,000 and get a new loan with cheaper payments.

Bankers love this new government financing program. It cuts payments for mortgages by a few hundred bucks (on average) but not principle. It retains the value of all those mortgage-backed securities packaged and sold by the banks, and this locks the homeowner into another underwater mortgage at taxpayer expense. What do you think will happen when interest rates on mortgages go back up to more normal levels? The underwater mortgages will be sunk even deeper, and taxpayers will be on the hook for billions in more losses. On top of that, HARP 2.0 creates new mortgage paperwork so foreclosing will be much easier next time around. Stupid consumers live on this question, “What are the payments?” It is the dumbest finance question you can ever ask.

One mortgage website called Harploans.com touts this new government boondoggle as some sort of consumer rescue. A recent Harploans.com posting said, “In addition to helping more than a million underwater homeowners refinance their mortgages, HARP 2.0 could cause an increase in mortgage originations of between $200-300 billion in 2012-2013.” Here’s the real kicker and the most outrageous part of this new program. Harploans.com goes on to say, “It is also notable that Fannie Mae has made some key changes to their underwriting guidelines pertaining to HARP 2.0 that could encourage more lenders to jump on board with the program. Fannie eliminated an underwriting requirement that forces the lender to determine if the borrower has a “reasonable ability to repay” the loan based upon debt-to-income ratio, income, and other factors. It appears that the lender is now able to qualify borrowers through a streamlined process that could only take into account credit score and the number of recent payments made. This could make it significantly easier to qualify borrowers for new loans. (Click here for the complete Harploans.com posting.)

Talk about throwing good money after bad, I think “HARP 2.0” should be called “Subprime 2.0” or maybe “Subprime Lite.” No matter what you call it, this is nothing less than another banker bailout program handed out at taxpayer expense. What can you expect in an election year? It’s subprime to the rescue for autos, housing and the bankers; but they are trying to rescue a system that cannot be saved.

ILLUSION OF RECOVERY – FEELINGS VERSUS FACTS

“There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as the final and total catastrophe of the currency involved.” – Ludwig von Mises

The last week has offered an amusing display of the difference between the cheerleading corporate mainstream media, lying Wall Street shills and the critical thinking analysts like Zero Hedge, Mike Shedlock, Jesse, and John Hussman. What passes for journalism at CNBC and the rest of the mainstream print and TV media is beyond laughable. Their America is all about feelings. Are we confident? Are we bullish? Are we optimistic about the future? America has turned into a giant confidence game. The governing elite spend their time spinning stories about recovery and manipulating public opinion so people will feel good and spend money. Facts are inconvenient to their storyline. The truth is for suckers. They know what is best for us and will tell us what to do and when to do it.

The false storyline last week was the dramatic surge in new jobs. This fantastic news was utilized by the six banks that account for 80% of the stock market trading to propel the NASDAQ to an eleven year high and the Dow Jones to a four year high. The compliant corporate press did their part with blaring headlines of good cheer. The entire sham was designed to make Joe the Plumber pull out one of his 15 credit cards and buy a new 72 inch 3D HDTV for this weekend’s Super Bowl. When you watch a CNBC talking head interviewing a Wall Street shyster realize you have the 1% interviewing the .01% about how great things are.

What you most certainly did not hear from the MSM is that the NASDAQ is still down 42% from its 2000 high of 5,048. None of the brain dead twits on CNBC pointed out the S&P 500 is trading at the exact same level it reached on April 8, 1999. Twelve or thirteen years of zero or negative returns are meaningless when a story needs to be sold. On Friday the hyperbole utilized by the media mouthpieces was off the charts, leading to an all-out brawl between the critical thinking blogosphere and the non-thinking “professionals” spouting the government sanctioned propaganda. Accusations flew back and forth about who was misinterpreting the data. I found it hysterical that anyone would debate the accuracy of BLS (Bureau of Lies & Swindles) data.

The drones at this government propaganda agency relentlessly massage the data until they achieve a happy ending. They use a birth/death model to create jobs out of thin air, later adjusting those phantom jobs away in a press release on a Friday night. They create new categories of Americans to pretend they aren’t really unemployed. They use more models to make adjustments for seasonality. Then they make massive one-time adjustments for the Census. Essentially, you can conclude that anything the BLS reports on a monthly basis is a wild ass guess, massaged to present the most optimistic view of the world. The government preferred unemployment rate of 8.3% is a terrible joke and the MSM dutifully spouts this drivel to a zombie-like public. If the governing elite were to report the truth, the public would realize we are in the midst of a 2nd Great Depression.

The unemployment rate during the Great Depression reached 25%. Without the BLS “adjustments” the real unemployment rate in this country is 23%. Cheerleading and packaging the data in a way to mislead the public does not change the facts:

There are 242 million working age Americans. Only 142 million Americans are working. For the math challenged, such as CNBC analysts, that means 100 million working age Americans (41.5%) are not working. But don’t worry, the BLS says the unemployment rate is only 8.3%. Things are going so swimmingly well in this country the other 33.2% are kicking back enjoying the good life.
The labor force participation rate and employment to population ratio are at 30 year lows. The number of Americans supposedly not in the labor force is at an all-time record of 87.9 million. A corporate MSM pundit like Steve Liesman would explain this away as the Baby Boomers beginning to retire. Great storyline, but the facts prove that old timers are so desperate for cash they have dramatically increased their participation in the labor market.

The data being dished out by the government on a daily basis does not pass the smell test. The working age population since 2000 has grown by 30 million people. The number of people working has grown by only 4.7 million. A critical thinker would conclude the unemployment rate should be dramatically higher than the reported 8.3%. But the government falsely reports the labor force has only increased by 11.8 million in the last eleven years. They have the gall to report that 17.9 million Americans just decided to leave the workforce. The economy was booming in 2000. It sucks today. Don’t more people need jobs when times are tougher? The Boomers retiring storyline has already proven to be false. The fact that 46 million (15% of total population) people are on food stamps is a testament to the BLS lie. A look at history proves how badly the current figures reek to high heaven:

2000 to 2011 – Not in Labor Force increased by 17.9 million.
1990’s – Not in Labor Force increased by 5 million.
1980’s – Not in Labor Force increased by 1.7 million.

The Not in the Labor Force category is utilized to hide how bad the employment situation in this country really is. They conclude that 17 million out of 38 million Americans between the ages of 16 and 24 are not in the labor force. That is complete bullshit. From the time I turned 16, I worked. Everyone I knew worked. I worked through high school and college. It is a lie that 45% of these people don’t want a job. If you dig into their data, you realize the horrific state of employment in this country:

74% of 16 to 19 year olds are not employed
85% of black 16 to 19 year olds are not employed
31% of black 25 to 54 year old men are not employed
40% of 20 to 24 year olds are not employed
22% of 25 to 29 year old males are not employed
22% of 50 to 54 year old males are not employed
According to the BLS, 11% of men between 25 and 54 are not in the labor force

Not only is real unemployment at Depressionary levels, but those that do have jobs are falling further and further behind. Wages have gone up less than 2% in the last year and have been rising at an annual rate below 3% for the last four years. According to our friends at the BLS, inflation has risen 3% in the last year. This is almost as ludicrous as their unemployment rate. Anyone living in the real world, as opposed to the BLS model world, knows that inflation on the things we need to live has been rising in excess of 10%. It is a fact that if you measure CPI exactly as it was measured in 1980, at the outset of our great debt inflation, it exceeds 10% versus the fake 3% reported without question by the MSM to a non-thinking public. A poor schmuck making the median salary of $25,000 who gets a 2% raise thinks he has $500 more to spend when in reality he has lost $2,000 of purchasing power. Federal Reserve created inflation is an insidious hidden tax that destroys the 99%, while enriching the 1%.

Until Debt Do Us Part

“Insanity is doing the same thing, over and over again, but expecting different results.” – Albert Einstein

The recovery storyline being touted by the oligarchy of politicians, bankers and media is designed to make consumers feel better. This is a key part of their master plan. Any honest assessment of the financial disaster that struck in 2008 would conclude it was caused by too much debt peddled to too many people incapable of paying it back, too few banks having too much power, the Federal Reserve keeping interest rates too low for too long, and that same Federal Reserve doing too little regulating of the Too Big To Fail Wall Street mega-banks. I wonder what Albert Einstein would think about the “solutions” rolled out to fix our debt problem. Would he find it insane that total credit market debt has actually risen to an all-time high of $53.8 trillion, up $533 billion from the previous 2008 peak? Our leaders have added $6.1 trillion to our National Debt in the last four years, a mere 66% increase. This unprecedented level of borrowing certainly did not benefit the American people, as real GDP has risen by $96 billion, or 0.7%, over the last four years.

Would Einstein find it insane that the governing elite would encourage the 4 biggest banks, that were the main culprits in creating a worldwide financial collapse, to actually get bigger? The largest banks in the U.S. now control 72% of all the deposits in the country versus 68.5% in 2008. The Too Big To Fail are now Too Bigger To Fail. Rather than liquidating the bad debts, breaking up the insolvent banks, selling off the good assets to well run banks, firing the executives, and wiping out the shareholders & bondholders foolish enough to invest in these badly run casinos, the powers that be chose to protect their fellow .01% brethren and throw the 99% under the bus.

Ben Bernanke, in conjunction with Tim Geithner and his masters on Wall Street, implemented a zero interest rate policy designed to enrich the Wall Street banks, force investors into the stock market, and encourage Americans to borrow and spend like it was 2005 again. Rather than accepting that our economy has been warped for decades, with over-consumption utilizing debt as the driving force, and allowing a reset, the Federal Reserve insanely encouraging banks and consumers to do the same thing again. We do know Bernanke has stolen $450 billion of interest income going to savers and senior citizens and handed it to Jamie Dimon, Vikrim Pandit, Lloyd Blankfein and the rest of the Wall Street cabal. The “austerity is bad” storyline is pounded home on a daily basis by the politicians, corporate chieftains, Wall Street billionaires, and MSM pundits. The definition of austere is “practicing great self-denial”. Did you see the mob scenes on Black Friday? Americans are incapable of any self-denial, let alone great self-denial, and the masters of our country will not allow it to happen. One look at our GDP figures confirms the non-austerity occurring in this country. In 2007, prior to the collapse, consumer spending accounted for 69.7% of GDP. Today, consumer spending accounts for 71% of GDP, with investment accounting for 12.7% of GDP. In the good old days of 1979 prior to the epic debt bubble, when the financial industry do not run this country, consumer spending accounted for 62% of GDP and investment accounted for 19% of GDP. What an insane concept. You spend less than you make and save the difference. You then invest that money where you can get a reasonable return (.15% in a money market account is not exactly reasonable).

As Ludwig von Mises pointed out, a false boom created by credit expansion will ultimately collapse. We had the chance in 2008 – 2009 to voluntarily abandon the Wall Street induced credit expansion and allow our country to reset. The pain and misery would have been great, especially for the 1% who own most of the stocks, bonds and peddle the debt to the ignorant masses. As you can see in the chart below, the powers that be need debt per employed American to grow at an ever increasing rate to maintain their power and wealth. The miniscule reduction in debt from 2009 to 2011 was unacceptable. The governing powers will not be satisfied until von Mises’ final currency catastrophe is achieved.

Bernanke and his Wall Street puppet masters’ plan is actually quite simple. It’s essentially a confidence game. A confidence game (also known as a con, flim flam, gaffle, grift, hustle, scam, scheme, or swindle) is an attempt to defraud a group by gaining their confidence. The people who commit such tricks are often known as con men, con artists, or grifters. The con man often works with one or more accomplices called shills, who help manipulate the mark into accepting the con man’s plan. In a traditional confidence game, the mark is led to believe that he will be able to win money or some other prize by doing some task. The accomplices may pretend to be random strangers who have benefited from successfully performing the task. Bernanke and the 1% are the con men. They are attempting to defraud the 99% by convincing them their “solutions” will benefit them. The shills acting as accomplices are Wall Street bankers, bought off economists, politicians, journalists, and mainstream media pundits. You are the mark. The game has multiple facets but is based on more freely flowing low interest easy debt. The con man has reduced interest rates to zero at the behest of his puppet masters. The Wall Street accomplices offer enticing financing to the marks for big ticket items like automobiles, furniture and electronics. As the marks go further into debt, the Wall Street shills report record earnings ($26 billion from loan loss reserve accounting entries), consumer spending rises and GDP goes higher. The mainstream media accomplices dutifully report an improving economy. The government accomplices massage the employment and inflation data and declare a jobs recovery with no inflation. The marks are supposed to feel better about the future and spend even more borrowed money. This is what is considered a self-sustaining recovery by the psychopaths running this country.

All you have to do is open your daily paper to see the confidence game in full display. Last week the MSM reported another surge in automobile sales. Our beloved American automobile manufacturers are back baby!!! Automobile sales are now pacing above 14 million on an annual basis. This is up from the depths of the recession in 2009 when the annual rate was below 10 million. We’ve breached the Cash For Clunkers level and there is nowhere to go but up. The storyline is that Obama was right to save GM and Chrysler with your tax dollars. They are now making splendid vehicles (except for the exploding Chevy Volts) and employing millions of Americans. This is a true American comeback success story. Clint Eastwood should do a commercial about it.

There is one little problem with this storyline. It’s bullshit. Remember GMAC? You bailed them out when all their subprime auto and mortgage loans went bad in 2009. They have a brand new business plan. Change your name to Ally Bank and start making as many subprime auto loans as possible. You will be happy to know that according to Experian, 45% of all auto loans being made today are to subprime borrowers. What could possibly go wrong? In addition, the average loan term has grown to almost 6 years. Executives at Ally Financial said that subprime car lending had become “very attractive” because profit margins on the loans more than cover the cost of expected losses from borrowers who fail to repay what they owe. I’m sure they have everything completely under control. Gina Proia, a company spokeswoman, said the company places “greater emphasis on the higher end of the nonprime spectrum” and only lends to people who show they can pay. I can’t believe they are restricting their loans to only people who they think can pay. I’m surprised Obama isn’t condemning them for such restrictive loan terms. If you open your paper to the auto section you will see financing offers of $0 down-payment, and 0% interest for 7 years across the board on most models. But why buy, when you can lease a luxury automobile for $300 per month? It is simply amazing how many vehicles you can “sell” when “credit challenged” Americans can rent them for seven years. I wonder if this explains why I see dozens of $40,000 luxury autos parked in front of $25,000 dilapidated hovels during my daily commute through West Philadelphia. It also seems the Big Three are “selling” a few extra vehicles to their dealers in January as pointed out by Zero Hedge. No need to let a few facts get in the way of a feel good story.

Ford month-end inventory 86-day supply at end of Jan. (492k vehicles) vs 60-day supply (466k) as of Dec. 31
Chrysler had 83-day supply (349k units) end of Jan. vs 64-day (326k units) as of Dec. 31
GM month-end inventory 89-day supply (619k units) vs 67-day supply (583k) Dec. 31

The facts prove the issuance of billions in easy credit is creating the illusion of recovery. Non- revolving (auto & student loans) consumer credit outstanding is now at an all-time high of $1.7 trillion. Even with billions in bad debt write-offs since 2009 the amount outstanding has risen by $100 billion. Does this sound like austerity is gripping the nation? The Federal government is dishing out student loans like candy, as hundreds of thousands of students get worthless degrees from for-profit diploma mills like the University of Phoenix and its ilk. By keeping them occupied in school, the government is able to keep them in the Not in the Labor Force category. Not to be outdone, our friends at GE Capital, Wells Fargo and the other too big to fail entities have been doing their part on the revolving credit side of the scam. I’ve recently been seeing an ad by the largest U.S. furniture retailer, Ashley Furniture, offering 0% interest with no payments for 7 years. I don’t know about you, but my kids destroy a couch in less than 7 years. Wells Fargo Credit doesn’t seem too worried. A critical thinker might ask, how can Wells Fargo possibly make money offering these terms? But there is the rub. Ben Bernanke is loaning Wells Fargo money at 0% so they can perpetuate the confidence game. These insane bankers truly believe they can kick start this moribund debt saturated economy by issuing billions more in debt to people incapable of repaying them. Einstein would be amused.

The McKinsey Group put out a report a couple weeks ago analyzing the amount of American household debt and optimistically concluding that it could be back on a sustainable path by 2013. Mike Shedlock pointed out that sustainable is in the eye of the beholder. It seems the bright fellows at McKinsey haven’t grasped the concept of regression to the mean. First of all their analysis is flawed because real disposable personal income is actually declining and Ben Bernanke’s master scam is working and Americans are now adding to their household debt. The little blue line has turned upwards since they gathered their data. Secondly, as Mish so accurately points out, the sustainable level of household debt is really at the levels prior to the debt bubble that began in the early 1980s. That is a debt level of approximately 70% of disposable personal income, as opposed to the current level of 110%.

The implications of household debt levels regressing to their long-term mean would be catastrophic to the 1%. Their kingdom of debt would come crashing down. Their power and wealth would be swept away. This is why it is so vital for them to create the illusion of recovery. Their confidence game is built upon an ever increasing flow of credit expansion. It will not work. There is no avoiding the final collapse of a boom created solely by credit expansion. Those in power will never voluntarily relinquish their grand game of pillaging the wealth of the nation, so economic collapse will be the ultimate result. They will continue to use propaganda, printing presses, and half-truths to further their agenda. But those who examine the facts will come to a logical conclusion that we are being sold a great lie.

“Half the truth is often a great lie.” – Benjamin Franklin