Printing a Recovery

[Crewleader]

An Emerging Bubble Alert

January 6, 2011

By MIKE WHITNEY

Counterfeiting is an effective way to stimulate the economy, but the costs can be quite high. For example, if trillions of dollars in fake cash was injected into the financial system (undetected), we'd probably see the same type of thing that we see when a credit bubble is inflating; asset prices would rise, unemployment would fall, economic activity would increase, and GDP would soar. But when people figured out what was going on, investors would panic, the markets would crash, and the economy would go into a deflationary nosedive.

So here's the point: Deregulation allows the banks to create as much bogus money as they want in the form of credit. When a bank issues a loan to someone who can't repay the debt, it's counterfeiting, which is the same as stealing. This is what the banks did in the lead-up to the Market Meltdown of '08; they issued trillions of dollars of mortgages to people who had no job, no income, no collateral, and a bad credit history. The banks abandoned all the standard criteria for issuing loans, so they could increase the quantity of loans they produced. Why? Because bankers get paid on the front-end of the transaction, which means that when they make a loan, they mark it as a credit on their books so they can draw a hefty salary and a fat bonus at the end of the year. In other words, there are powerful incentives for bankers to do the wrong thing, which is why they act the way they do.

Now that the economy has begun to stabilize, there are signs that the whole process is starting over again and another bubble is already emerging. Check out this clip from an article in The Tennessean titled "Auto lenders approve more subprime borrowers":

"As the auto industry continues to make a slow recovery from tough times of the past two years, lenders are finally loosening credit restrictions and approving car loans for customers with less than prime credit ratings. In the third quarter last year, for instance, the share of new vehicle loans to "credit-challenged" consumers rose 12.7 percent compared with the same period in 2009, said Experian, one of the nation's major credit reporting agencies.

Loans to borrowers with subprime credit scores as low as 550 were among categories that grew the most....Credit restrictions were the biggest reason people stopped buying new cars during the recession, but "that's not a problem anymore," said Marty Horn, sales manager at Nashville's Crown Ford.

"We're not having any trouble finding financing for anyone with a score in the 600s," he said. "We can get most people financed through Ford Credit, and if that's not available, we have other lenders ready to step in."...

"We're seeing loans of up to 140 percent of value from some lenders, and Capital One is by far our best lender for the subprime customer, which is below a 620 score," said Michael Creque, general manager of Alexander Chevrolet-Cadillac in Murfreesboro." ("Auto lenders approve more subprime borrowers", The Tennessean)

Can you believe it? Auto finance companies are lending up to "140 percent of value" of the loan to "credit-challenged" consumers? And this is going on just two years after the biggest meltdown since the Great Depression.

http://www.counterpunch.org/whitney01062011.html

[Speck Tater]

1. Watch in disbelief as "Too Big to Fail" turns into "Too Stupid to Survive." nt

[appal_jack]

2. k&r n/t