Monday, July 30, 2012

Tales from Bailout Nation (cont.)


At our very first tea party rally in the spring of 2009, someone stuck a mic in our face and asked us why we were there. We had nothing prepared but it didn't take any deep thinking to know that what was being sold to the American public as a response to the recession was not going to work as it was simply more of the same:

"We're here because we were told that we got into this mess because we borrowed and spent beyond our means and now we are being told in order to get out of this mess we need to borrow and spend beyond our means".

This isn't 2007 and it doesn't appear people have learned anything from what got us into this debacle starting 4-5 years ago.

From Investors Business Daily:

President Obama has touted General Motors (GM) as a successful example of his administration's policies. Yet GM's recovery is built, at least in part, on the increasing use of subprime loans.

The Obama administration in 2009 bailed out GM to the tune of $50 billion as it went into a managed bankruptcy.

Near the end of 2010, GM acquired a new captive lending arm, subprime specialist AmeriCredit. Renamed GM Financial, it has played a significant role in GM's growth .

The automaker is relying increasingly on subprime loans, 10-Q financial reports shows.

Potential borrowers of car loans are rated on FICO scores that range from 300 to 850. Anything under 660 is generally deemed subprime.

GM Financial auto loans to customers with FICO scores below 660 rose from 87% of total loans in Q4 2010 to 93% in Q1 2012.

The worse the FICO score, the bigger the increase. From Q4 2010 to Q1 2012, GM Financial loans to customers with the worst FICO scores — below 540 — shot up 79% to more than $2.3 billion. The second worst category, 540-599, rose 28% from about $3.4 billion to $4.3 billion.

To be fair, we would like to know what other auto lenders are doing such as those affiliated with Toyota and Ford, companies that did not receive bailouts.

Is is it possible that subprime loans are being made simply because the recession has cut so deeply that not many people's credit has been able to be restored?

As it stands, a company in which we have sunk billions with scant hope of ever getting it back is engaging in the same risky practices that sunk our economic house of cards 4 years ago.

1 comment:

W.C. Varones said...

Government Motors stocks continues to slide.

Now worth about half what Obama paid for it.