When the chickens of cheap money, low lending standards, no negative credit reporting, forbearance, moratoriums on debt payments, and free stimulus money come back to roost with a roar!
$1,000 car payment and it’s not even a Mercedes! It’s an iceberg and we are on the Titanic, and the collision happened 30 minutes ago.
I warned about the lousy policies of the government, banks, and non-bank lenders. Standards were thrown out of the window to make a quick buck by lending 130 cents on the dollar that itself was borrowed at nearly 0% because one could sell that collateralized bond at 110% to hedge funds, pension funds, and the Fed.
That is basically what happened from mid-2020 to mid-2022 which is worse than what happened in 2008. In 08 the rate spread was smaller but the profits from bond and derivative sales were larger. There is no difference. The speculators saw the short-term margins, forgot about the long-term risk, didn’t bother to qualify buyers (they are irrelevant, it’s the spread from borrowing costs and bond sale that matters), and never conceived of a tightening, liquidity, and default problem.
Today we have a rate (going up), tightening, a brewing liquidity issue, and a mounting default risk problem for a $1000 a month Toyota Camary and a 750k+ home all borrowed at record low rates while inflation is still 400+ bps higher than where the Fed wants it, can manage it or even afford it (yes the Fed is losing money).
Good luck everyone. 2023 is going to be a bumpy ride.