Thursday, December 5, 2013

Today's Links

1---Subprime Auto loans: U.S. car buyers borrow more as rates fall and standards loosen, Reuters
(Beyond crazy)

U.S. consumers buyers are taking out bigger car loans with longer pay-back periods as lenders offer lower interest rates and accept borrowers with weaker credit ratings, a report released on Wednesday showed.
The average loan on a new car climbed to $26,719 in the third quarter, up by $756 from a year earlier, and the most in at least five years, according to data collected by Experian Plc...

Lenders made 26.04 percent of their loans on new cars to buyers with subprime credit scores, up from 24.84 percent a year earlier, said Experian, which collects car title and financing information to compile its reports. For loans on used cars, the portion to subprime borrowers rose to 54.95 percent from 54.43 percent.
As the lenders made bigger loans, they also extended credit further beyond the value of the vehicles. The average loan-to-value on new cars rose to 110.6 percent, up by 1.17 percentage points. On used cars it rose to 133.2 percent, up by 2.18 percentage points.
Auto lenders often provide loans that exceed the value of cars they are financing because borrowers want cash to pay sales taxes and fees.

2---WOW!: Third-quarter growth revised up to 3.6 percent, Reuters
(All inventory buildup. Zero personal consumption)

Gross domestic product grew at a 3.6 percent annual rate instead of the 2.8 percent pace reported earlier, the Commerce Department said on Thursday. Economists polled by Reuters had expected output would be revised up to only a 3.0 percent rate.
The third-quarter pace is the fastest since the first quarter of 2012 and marked an acceleration from the April-June period's 2.5 percent rate.

Businesses accumulated $116.5 billion worth of inventories, the largest increase since the first quarter of 1998. That compared to prior estimates of only $86 billion.
Inventories accounted for a massive 1.68 percentage points of the advance made in the July-September quarter, the largest contribution since the fourth quarter of 2011.
The contribution from inventories had previously been estimated at 0.8 percentage point. Stripping out inventories, the economy grew at a 1.9 percent rate rather than the 2.0 percent pace estimated last month.
A gauge of domestic demand rose at just a 1.8 percent rate....

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised down to a 1.4 percent rate, the lowest since the fourth quarter of 2009. Spending had previously been estimated to have increased at 1.5 percent pace.
Consumer spending grew at a 1.8 percent rate in the April-June period.

3---Subprime auto loans, Testosterone Pit

....used-car LTV rose by 2.18 percentage points to 133.2

So even strung-out consumers who were upside down in their trade-ins, didn’t have the money for tag and taxes, and needed cash-back to go Christmas shopping with kept splurging, and subprime loans kept creeping up: 26.0% of all new cars loans (up from 24.8% a year ago) and a troubling 54.9% of all used car loans (up from 54.4%) were subprime or deep subprime.

People need their cars. If you can’t keep up with mortgage payments, you stop making them and live in your home for free until you get kicked out. Then you rent a home. It’s not a bad deal. But when the repo man tows your car into the sunset, you’re on foot. You might not even be able to go to work. And try financing another car with a fresh repo on your credit! So you try to make payments to hang on to your car, even if things get tough. And that has been happening. Loans that were 30 days delinquent edged down to 2.58% in Q3, from 2.67% a year ago. But....

Signs of problems are piling up. The repossession rate in Q3 jumped 54.4%, to 0.62% of all loans, up from 0.40% – according to an earlier report by Experian Automotive. They were concentrated in the riskiest part of the market, at finance companies that fund subprime loans often for used car. There, repossessions more than doubled to 2.66% in Q3, up from 1.18% a year ago. And the average write-off jumped 10.6% to $7,770, up from $7,026 a year ago – yes, the ballooning loan-to-value ratio.

So how crazy is the auto financing frenzy? Loan balances in Q3 soared by 15% to hit an all-time high of $782.9 billion, according to Experian. That’s $103 billion more in 12 months! Sizzling states: up 29.3% in California, 26.3% in Texas, 26.0% in Nevada. Michigan was at the bottom with an increase of 6.8%, which would be a large uptick in normal times, but during these crazy times of ours, it’s the worst performer!

4---Wages Relative To Profits Drop To All Time Low, zero hedge

5--Eurozone slides towards deflation, Pritchard, Telegraph

6---Hard Times for the middle class, economist view

  1. More than half of families in the United States earn $60,000 or less per year.
  2. Nearly half of families in the United States live below 250 percent of the federal poverty level.
  3. Struggling lower-middle-class families are almost equally headed by single parents and married couples.
  4. Nearly one out of two families in the struggling lower-middle class is headed by an adult who has attended college.
  5. Nearly one-third of struggling lower-middle-class families rely on income support from a government program.
  6. Roughly 40 percent of children in the struggling lower-middle class experience food insecurity or obesity, or both.
  7. More than one in five children faces food insecurity in thirty-seven states and the District of Columbia.
  8. Nearly 90 percent of Supplemental Nutritional Assistance Program (SNAP) recipients live in a household with at least one child, one disabled individual, or one elderly individual.
  9. America’s tax and transfer system expands the middle class.
  10. Struggling lower-middle-class families depend on an array of tax and transfer benefits.
  11. A low-income, single parent can face a marginal tax rate as high as 95 percent.
  12. The highest marginal tax rates tend to fall on the struggling lower-middle class.
7---A plan to save the euro, Joseph Stiglitz, project syndicate

8---Obama Misrepresents Role of Government: It Has Promoted Inequality, Dean Baker

9---Treasuries plunge on good news, Bloomberg

Treasuries fell for a second day after the U.S. economy grew in the third quarter at a faster pace than initially reported, adding to speculation the Federal Reserve will reduce its bond purchases as soon as this month.
Yields on the benchmark 10-year note rose to the highest since Sept. 18 after the Commerce Department reported gross domestic product climbed at a 3.6 percent annualized rate, up from an initial estimate of 2.8 percent and the strongest since the first quarter of 2012. A U.S. employment report tomorrow will show growth in the labor market last month, economists in a Bloomberg survey forecast.

“People are thinking that that maybe tomorrow’s November payroll report might be strong,” said Piet Lammens, head of research at KBC Bank NV in Brussels. “And if there are strong payrolls, then one of the important conditions for the Fed to start tapering bond purchase is fulfilled.”

10---Propaganda about "test scores", Diane Ravitch

.(There's) relationship between a nation's economic productivity and its test scores. Nor did the test scores bear any relationship to quality of life or democratic institutions. And when it came to creativity, the U.S. "clobbered the world," with more patents per million people than any other nation.....

The myth persists that once our nation led the world on international tests, but we have fallen from that exalted position in recent years.
Wrong, wrong, wrong.
Here is the background history that you need to know to interpret the PISA score release, as well as Secretary Duncan's calculated effort to whip up national hysteria about our standing in the international league tables.
The U.S. has never been first in the world, nor even near the top, on international tests.
Over the past half century, our students have typically scored at or near the median, or even in the bottom quartile.

11---Banks as Payday Lenders, NYT

Last month, banking regulators put the finishing touches on rules designed to rein in short-term consumer loans from banks that are as dangerous to consumers as the predatory loans made by so-called payday lenders.

Payday lenders have notoriously marketed themselves as a harmless option for people who need small loans they hope to repay quickly, usually in two weeks. In truth, the industry earns considerable profits from borrowers who cannot afford to repay the original loan as agreed and must renew the loan again and again for an average fee of about $50 each time. These borrowers end up in debt for months, saddled with loans that can carry an interest rate of 400 percent or more.
The banking industry, which cannot resist such easy profits, offers “deposit advance” loans that work the same way. There is no fixed date for repayment, but the bank repays itself from an electronic deposit that comes into the borrower’s account. A study earlier this year from the Consumer Financial Protection Bureau found that these transactions were eating customers alive. Overdraft fees drain the borrower’s account, forcing him or her to borrow again and again. Moreover, three-quarters of the loan fees came from consumers who borrowed more than 10 times within 12 months.
New guidelines issued by the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency for banks they oversee stop short of completely disallowing deposit advances. But the guidelines should reduce the banks’ profits while making the loans less onerous to borrowers. Banks will have to determine if the borrower has the ability to repay without having to borrow over and over again to meet expenses.
Banks will also be barred from making more than one loan per monthly statement cycle, and from extending a new loan before the previous one has been repaid in full. In addition, the banks will have to furnish the borrower with clear and accurate disclosure of terms.
12---Payday profits, NYT 2012

16---Two-faced Obama excoriates "inequality" while boosting wealth of financial elite, wsws

The most remarkable aspect of the speech was the contempt for the intelligence of the American people it expressed.
That this multimillionaire can mouth such a string of clich├ęs with a straight face, when “our way of life” has become a celebration of avarice for the few and a nightmare for the many, only demonstrates his unlimited capacity for hypocrisy.
One statistic he omitted is the fact that during his administration, 95 percent of income gains have gone to the richest 1 percent of Americans....

Since taking office, Obama has focused his efforts on preserving and increasing the wealth of the corporate-financial elite at the expense of the vast majority of the population. Over this period, median household income has dropped 4.2 percent, while America’s billionaires have doubled their wealth.
Obama has worked to pump trillions of dollars into the financial system by expanding the bank bailout and supporting the Federal Reserve’s near-zero percent interest rate policy and money-printing operation, all of which have combined to drive the stock market to record heights in the midst of an ongoing slump in the real economy.

In 2009, he intervened to scuttle legislation to block $165 million in executive bonuses at the insurance giant AIG and limit the compensation of executives at bailed-out banks and corporations.
The White House’s 2009 restructuring of the auto industry made the imposition of sweeping wage and benefit cuts a precondition for the provision of federal funds to bail out General Motors and Chrysler, setting the stage for wage-cutting throughout the economy.

The administration rejected federal assistance to states and municipalities facing budget crises, leading to the elimination of over 600,000 state and local government jobs since Obama took office. The White House helped organize and intervened in court to defend the bankruptcy of Detroit, setting a precedent for the destruction of the pensions of millions of public employees across the country.
The Affordable Care Act, which Obama cited in his speech as a democratic and egalitarian measure, has already been exposed as a scheme to cut medical care and increase out-of-pocket costs for working people.

17---Trotsky's injunction, wsws ,
  "All talk to the effect that historical conditions have not yet “ripened” for socialism is the product of ignorance or conscious deception. The objective prerequisites for the proletarian revolution have not only “ripened”; they have begun to get somewhat rotten. Without a socialist revolution, in the next historical period at that, a catastrophe threatens the whole culture of mankind. It is now the turn of the proletariat, i.e., chiefly of its revolutionary vanguard. The historical crisis of mankind is reduced to the crisis of the revolutionary leadership."

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