The auto finance sector has largely been left in the shadows of the mortgage sector when it comes to regulatory reform in this post-credit-crisis era.
Until today.
In an aggressive speech in the wake of meeting CEOs of the nation’s 12 largest banks, President Barack Obama did what hasn’t been done to date: equated auto lending with mortgage lending when it comes to purported “misleading and dishonest practices.” He said:
Since when do auto loan origination practices deserve to be in the same sentence as mortgage or payday loan making?
Mark your calendars, folks. The tide has turned today.
Indeed. That’s why the FDIC has imposed rate caps for institutions that are not well-capitalized.
I think your seriously misguided if you don’t believe that over regulation, the CRA and Frank contributed a great deal to the MAC mess. Banks found creative ways to finance those that otherwise would not qualify to passify Washington. Now they want the banks to do that which got them into this situation. Help stimulate the economy regarless of the impact to profitability.
Over regulation? Who was regulating AIG? The CRA? Have you ever read the Act? It was enacted to prohibit “red lining” by lenders and insurance companies. It had NO force of law to compel banks to makes risky loans. Risky mortgages were made because they could immediately be sold to Wall Street who would packed them up into an ABS, “insure” it with a CDO, and sell it as a AAA rated bond. Doesn’t this sound as if the regulators were asleep? Repeal of Glass Steagall made no difference? It opened the door to this entire debacle.
Fannie and Freddie were buying mortgages in competition with Wall Street. If you check out the resource I provided rather than watching FOX you will find out this is true.
The impact of Barney Frank and the CRA is negligible at best.
What I might agree with is the fact that the administration seemingly wants lenders to do what got them into trouble in the first place. The banks have their own reasons to sit tight. They are sitting on billions of potential losses. Many are holding Mortgage Backed Securities or mortgages themselves. The collateral does not support the money loaned against it. If this house of cards starts to crumble there won’t be anywhere near enough cash to save these banks. Everyone is holding their breath on this.
And even financially solvent small businesses aren’t borrowing. They mostly aren’t looking to expand and many are just treading water. Many of the small businesses looking for loans need the money to hang on, a risk lenders aren’t willing to take on at the moment.
Toxic assets and the associated deflation of home values are the proverbial “Sword of Damocles” hanging above our heads..
Without the pressure of the CRA and Frank, without pressure to increase mix in previously undesirable profiles and demographics there would have been no need for the regulation on the back end. Leave the lenders to do what they know how to do and do well. As usual, political intervention with no consideration of the unintended consequences. I’ll tune in to MSNBC for a few days so that I can understand your point of view.
Forget MSNBC. The facts don’t bear out your assertions. Are you saying that certain minorities and demographics are undesirables? Do you think “red lining” has a place in the U.S.? Have you read the CRA? Are you saying that AIG didn’t invent CDO’s, a disguised insurance product, and that they played no part in the debacle?
Of course not. I’m suggesting government intervention with good intentions often fails to identify the potential consequences. It is obvious that we will not agree on this issue. Your note and my response from the 14th identify where we align ourselves regarding government intervention vs bank responsibility.