Wallace to the Auto Bubble!

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Wallace to the Auto Bubble!

by T.E.C. - Iowa

Jan 9, 2017

This is from Henry A Wallace's "New Frontier" (1934) - more specifically, the chapter titled "Millionaires, Booms, Chaos." Two points! First, notice the repudiation of the belief that markets should not be regulated. Then and now, failing to regulate has produced the same problems. The second in a moment, but first a description of 1934 and today!

(Quote)

Instead of the intelligent manipulations of forces for the general welfare, we had a great striving for individual accumulation. Instead of an equitable distribution of the products of industry, we had growth of cash reserves and surpluses in the hands of the stockholders who used them to fan the flames of speculation. Instead of coordinated advance in all sections of the industry and agriculture that might have made for stability, we have distortions that clogged our industrial blood. The building industry had over-reached itself in 1925; the automobile industry by 1928; the wheat farmers were pi...See MoreThis is from Henry A Wallace's "New Frontier" (1934) - more specifically, the chapter titled "Millionaires, Booms, Chaos." Two points! First, notice the repudiation of the belief that markets should not be regulated. Then and now, failing to regulate has produced the same problems. The second in a moment, but first a description of 1934 and today!

(Quote)

Instead of the intelligent manipulations of forces for the general welfare, we had a great striving for individual accumulation. Instead of an equitable distribution of the products of industry, we had growth of cash reserves and surpluses in the hands of the stockholders who used them to fan the flames of speculation. Instead of coordinated advance in all sections of the industry and agriculture that might have made for stability, we have distortions that clogged our industrial blood. The building industry had over-reached itself in 1925; the automobile industry by 1928; the wheat farmers were piling up surpluses that kept them poor. But none of these mad unbalanced situations was visible to the eyes glued on daily advances in the speculative markets. Truly it is madness, when the writing-up of paper values is taken for real substance.

(End quote)

This time around housing blew up in 2008! We are now entering the automobile over-reach - as auto loans now total $1.1 trillion. I realize this over-reach was happening when I heard people were getting seven (7) year car loans. This will leave you "under water" and many will have to roll over the balance of the loan when they buy a new (used) car. Simply put, the auto industry is killing that goose so they can get tomorrow's golden egg today.

Then of course, these loans are being bundled like the housing loans and sold as "subprime auto asset-backed securities" (ABS). Hey, remember how, in the housing bubble, they loaned money to people who could not pay it back. Well, Bloomberg News says,

(Quote from Bloomberg News)

What's drawn particular attention: auto loans to people with credit scores below 620—borrowers with the poorest credit—have increased more than 150 percent from the market bottom six years ago, compared with a 98 percent rise in overall auto lending in that period. Loans made to those borrowers still comprised a relatively small share of all originations last quarter at about 22 percent, up from 17 percent in 2009.

(End quote)

Love that, "still . . .relatively small share!" They do not get it. It is only a matter of time, and this is not the government or Barney Frank doing this! Wallace's thinking is a billion miles from today's world and it will take another crash or two for us to get there.

PS: The above is not the biggest waste, Wallace also says, "It is said that more brains have been wastefully put into the pursuit of easy stock market profits than into any other single American enterprise."

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