It was the invention and subsequent abuse of sub-prime mortgage securities that crashed our economy. Now these idiots are trading sub-prime auto loan securities.
Private equity firms are investing in chains of used-car lots, and auto loans are being packaged into securities much like subprime mortgages. They're attracted by the industry's average profit of 38% for each car sold. [...]
Subprime auto loan issues now represent a larger percentage of all auto-loan securitizations than at any time since 2006, according to Moody's. [...]
The returns on subprime auto-loan securities vary, but one offering sold late last year paid 3.5% annually on A-rated bonds maturing in three years — about six times the yield on comparable U.S. Treasury notes. On a $1-million investment, an investor would expect a return of $105,000, plus the principal, over the three years.
This spring, Moody's warned that the market for subprime auto-loan securities could get overheated. "New market entrants lured by profits and low-cost financing are susceptible to expanding 'too much too fast,'" the ratings firm wrote.
Yeah, nothing could ever go wrong with such a thing. There's no way this will ever lead to exploiting poor people. Oh. Wait. It already does:
Many require customers to return to the lot to make their loan payments — that's why they're called Buy Here Pay Here dealerships.
If buyers default, as about 1 in 4 do, the dealer repossesses the cars and in many cases sells them again.
The dealerships make an average profit of 38% on each sale, according to the National Alliance of Buy Here Pay Here Dealers. That's more than double the profit margin of conventional retail car chains like AutoNation Inc.
"The amount of return from these loans you can't get on Wall Street. You can't get it anywhere," said Michael Diaz, national sales manager for Small Dealers Assistance Inc. in Atlanta, which buys loans originated by Buy Here Pay Here dealers. "It's the gift that keeps giving." [...]
Jeff Williams, chief financial officer of America's Car-Mart, one of the largest Buy Here Pay Here chains, said his company fills a pressing need for millions of Americans who can't qualify for conventional auto loans.
"Our customers live paycheck to paycheck, and we work with them," Williams said. "We consider ourselves to be the good guy of the industry."
Good guys. Right. Greedy, exploitive bankers and corporations is what they are. They are the 1%.
Cross-posted from Eclectablog.