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New technology makes subprime auto lending usury easy and profitable

1 October 2014

Summary: Reading news about trends and events without explanations of why provides entertainment, but seldom gives actionable insights — whether for individual action or public policy initiatives. Now  we have the explanation for the boom in what seemed like unsustainable subprime auto lending: new technology makes it profitable.

“When I was sixteen, I went to work for a newspaper in Hong Kong. It was a rag, but the editor taught me one important lesson. The key to a great story is not who, or what, or when, but why.”
— Elliot Carver, in Tomorrow Never Dies (1997)

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The increase in auto lending to subprime borrowers — on mad terms — has boosted auto sales (25% of loans have durations of 82-84 months; the average loan-to-value is 0ver 100%). The combination of high levels of subprime borrowing and easy terms is odd — especially so soon after the massive consumer defaults of 2008-09.

Subprime auto loans

NYT, 24 September 2014. Click to enlarge.

Many articles that describe this situation imply that lenders have become imprudent or even mad. I’ve done so (see the posts listed in the last section below). That’s sloppy analysis. “Why” is usually the vital question to ask, although often the most difficult to answer. What has changed to make lenders comfortable making such loans?

The New York Times provides the answer: it’s new technology:

Miss a Payment? Good Luck Moving That Car

24 September 2014 — Opening:

The thermometer showed a 103.5-degree fever, and her 10-year-old’s asthma was flaring up. Mary Bolender, who lives in Las Vegas, needed to get her daughter to an emergency room, but her 2005 Chrysler van would not start. The cause was not a mechanical problem — it was her lender.

Ms. Bolender was 3 days behind on her monthly car payment. Her lender, C.A.G. Acceptance of Mesa, Ariz., remotely activated a device in her car’s dashboard that prevented her car from starting. Before she could get back on the road, she had to pay more than $389, money she did not have that morning in March.

“I felt absolutely helpless,” said Ms. Bolender, a single mother who stopped working to care for her daughter. It was not the only time this happened: Her car was shut down that March, once in April and again in June.

This new technology is bringing auto loans — and Wall Street’s version of Big Brother — into the lives of people with credit scores battered by the financial downturn.

Auto loans to borrowers considered subprime, those with credit scores at or below 640, have spiked in the last five years. The jump has been driven in large part by the demand among investors for securities backed by the loans, which offer high returns at a time of low interest rates. Roughly 25 percent of all new auto loans made last year were subprime, and the volume of subprime auto loans reached more than $145 billion in the first three months of this year.

But before they can drive off the lot, many subprime borrowers like Ms. Bolender must have their car outfitted with a so-called starter interrupt device, which allows lenders to remotely disable the ignition. Using the GPS technology on the devices, the lenders can also track the cars’ location and movements.

Read more…

“The Lone Ranger” shows Hollywood’s new paradigm, since films were too deep for us

28 September 2014

Summary:  Today we have another guest post by film critic Locke Peterseim, reviewing The Lone Ranger. He explains that it shows a new paradigm: go to the theater to see a spectacle. It works for us in New America, since even simple films were too deep for us — with plots, character development, and so forth. Now we watch big set-pieces loosely strong together, with some slapstick humor filler. Hollywood gives us what we want. It’s a bad sign that we want this. Post your comments about the film — and this review!

Lone Ranger

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The Lone Ranger: Embrace the New Dominant Paradigm!

By Locke Peterseim

Posted at the film blog of Open Letters Monthly
11 July 2013

Reposted here with his generous permission

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So, The Lone Ranger, yeah… Pirates of the Old West

Johnny Depp, Buster Keaton, old-age make up… and so forth… a mystic loon with a dead bird on head, etc… Armie Hammer, “what’s with the mask?”, yes, that’s his real name and his real jaw… blah blah… ‘30s radio show, ‘50s TV show, Clayton Moore, Jay Silverheels… yeah yeah…and so on…

Pirates producer Jerry Bruckheimer, Pirates director Gore Verbinski, Pirates writers Ted Elliott and Terry Rossio (plus newbie Justin Haythe)… blah blah… Tonto-centric tale… revisionist reverence… blah blah…

Monument Valley, Once Upon a Time in the West, Little Big Man, Rango… blah blah blah… railroad, civilization, progress, future, justice, the law, corrupt American empire … and so on… bad guy eats a human heart… whatevs… anti-Native American racism, genocide, noble savage slapstick, buddy cop shtick… and all that… light comedy and tragical history, tonal and thematic incongruities… deeply offensive, exploitative… truth, legend, stories, fact… blah blah blah… big stunts, sloppy storytelling… too long… Silver steals the show… blah blah… Helena Bonham Carter, whore with an ivory leg… same old, same old, on and on…

All right, stop. Collaborate and listen. We’ve been going at this all wrong.

Read more…

A new world comes, probably one with no place for our “lords of finance”

25 September 2014

Summary:  The world changes as new great powers arise. The rules of international law and commerce will evolve to meet their standards of what’s right and proper. That new world order might have no place for the financial privateers, like hedge fund manager George Soros, who loot the world under the protection of the USA and other western powers. I suspect that future generations will look back on these men as colorful outlaws, wondering why we were too weak to restrain them.

Skull and Crossbones

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The Sting of Betrayal: George Soros & Cristina Kirchner

Bianca Fernet, at The Balloon

23 September 2014

This article is worth reading in full, with a hat tip for it to Wolf Street., who provides this introduction to the author: a “stilettos-on-the-ground American economist in Buenos Aires, antidote to economists who act like economics is too complicated to understand and who spout off buzzwords that make you feel inadequate. Her website The Bubble covers pop and econ topics in Argentina. “

Excerpt:

And if you ever choose to study the modern history of economic crises, you will learn that in this tale George Soros is not so much a guest appearance, he is practically Evita’s Che Guevara (in the musical, not real life). This ever-present, vocal and proud force, bolding acting, taking strokes that in the short term brutally crush developing economy currencies and systems with the guiding principal that he was expediting market corrections and bringing to the fore economic dislocations that, if left to fester, would produce far more detrimental effects than the crisis and forced rapid correction. George Soros didn’t invent shorting and speculatively attacking weak currencies, but he certainly made it an art.

To understand how rich indeed is Mr. Soro’s relationship with economic crises, lake a look at some of the greatest hits from the 90s:

  1. 1992:  George Soros breaks the Bank of England by short selling US $10 billion worth of GBP (pounds)
  2. May 1997: Soros’s Quantum Fund takes short positions in Thai baht, betting the dollar peg was unsustainable
  3. July 1997:  George Soros attempts to “double play” the Malaysian economy by simultaneously shorting the pressured ringitt and the Malaysian Stock Market.
  4. October 1997:  Soros’s Quantum Fund borrows in Hong Kong dollars and shorts the Heng Seng index futures, positioning itself to gain if the HK dollar depreciated and putting pressure on the market to make this happen

In addition to these noteworthy showstoppers, Soros is also suspected of having a hand in the 1997 collapses of the Indonesian rupiah, the Filipino peso, the South Korean won, and the Singapore dollar.

This is well-known history, which we in the West consider unremarkable — perhaps not commendable, but routine commerce. Others see it differently. To them Soros and his fellow hedge fund managers are modern privateers, pillaging under the flags (hegemonic power) of the western nations. It’s war, as described in Unrestricted Warfare (超限战, literally “warfare beyond bounds”), one of the great texts of 4GW. It was written in 1999 by two Colonels in the China’s Air Force, Qiao Liang and Wang Xiangsui.  They describe the 1997 attack by western hedge funds on the currencies of Southeast Asia as the first example of this form of warfare in our age.

Read more…

Listen to the slowing US economy, hear echoes of Japan

24 September 2014

Summary: Now in its sixth year, this sorry excuse for an expansion is ready to boom — accelerating to “escape velocity” — according to many economists. Or perhaps the boom grows old, even sclerotic, so we should start watching for the next recession. The consensus of economists never sees a recession until it begins, so we’ll have to find other ways to look ahead. This post describes one such: the economy slowing to its “stall speed”. This alarm might be flashing yellow, or even red, now.

Recession

A warning. AP Photo/Mark Lennihan

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Contents

  1. Echoes of Japan
  2. What is “stall speed”?
  3. One reason we don’t grow
  4. For More Information

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(1) Echoes of Japan

Economic Cycle Research Institute (ECRI), 22 September 2014 — Opening:

In 2011 the Fed published a study aimed at identifying “particular values for output growth and other variables, such that when these values are reached during an expansion, the economy has tended to move into a recession within a fairly short time span.”

The study concluded that Gross Domestic Income (GDI) – which, while income-based, is theoretically identical to Gross Domestic Product (GDP) – “provides a better measure of output growth than GDP,” and identified a two-quarter annualized real GDI growth rate of 2% to be the “stall speed” threshold.

… this GDI growth measure (see chart) has now stayed below the 2% “stall speed” threshold for three straight quarters starting in Q4 2013, which is much longer than the duration of the harsh winter weather. …

Real GDI crashed below 2% SAAR in Q2 2006. Before this cycle, since 1947 real GDI had fallen below 2% only once in a period not associated with a recession – in Q1 1993. Real GDI is now below 2% YoY. For the past 3 quarters (and 4 of past 5 quarters) it’s been below 2% SAAR on a QoQ basis.

(2)  What is stall speed?

The concept of a “stall speed” is that the economy slows in the year before falling into a recession, and there is a critical speed below which the economy is likely to fall into recession.

The idea of a “stall speed” became know after a 2011 Fed paper by Jeremy J. Nalewaik, who showed that it predicted recessions better than other methods — and better than the Blue Chip Economists’ Forecast.  It appears seldom in Fed research after several other articles in 2011, such as these by the Cleveland Fed and the Atlanta Fed).

On the other hand, several studies have been skeptical about the concept, such as this 2012 BIS working paper which questioned even the aeronautical analogy.

Read more…

Is the profession of science broken (a possible cause of the great stagnation)?

24 September 2014

The rate of technological progress has slowed, broadly speaking since the 1960’s. The most commonly cited example is the speed of flight. The astronauts of Apollo 10 traveled at 25,000 in 1969, the same year the first and only successful supersonic commercial airliner flew. Now we have neither.

Worse there are indications that the basic machinery of science has decayed. In recent years scientists have become aware that a too-large fraction of research studies fail when others attempt to replicate them (see this in the Economist). Confirming the rot are the increasing number of retractions, including some of high-profile papers (see this in the NYT).

These might be symptoms of deeper structural problems in the vast science research apparatus that’s grown in the US since WW2. The best analysis I’ve seen in this from the always-interesting The Baffler. Here is an excerpt; it should be read in full (I recommend subscribing).

The Baffler #19

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Of Flying Cars and the Declining Rate of Profit

By David Graeber
Prof Anthropology, London School of Economics (Wikipedia bio)

The Baffler, issue #19 (2012)
“The journal that blunts the cutting edge”
Excerpt

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What has changed is the bureaucratic culture. The increasing interpenetration of government, university, and private firms has led everyone to adopt the language, sensibilities, and organizational forms that originated in the corporate world. Although this might have helped in creating marketable products, since that is what corporate bureaucracies are designed to do, in terms of fostering original research, the results have been catastrophic.

My own knowledge comes from universities, both in the United States and Britain. In both countries, the last thirty years have seen a veritable explosion of the proportion of working hours spent on administrative tasks at the expense of pretty much everything else. In my own university, for instance, we have more administrators than faculty members, and the faculty members, too, are expected to spend at least as much time on administration as on teaching and research combined. The same is true, more or less, at universities worldwide.

The growth of administrative work has directly resulted from introducing corporate management techniques. Invariably, these are justified as ways of increasing efficiency and introducing competition at every level. What they end up meaning in practice is that everyone winds up spending most of their time trying to sell things: grant proposals; book proposals; assessments of students’ jobs and grant applications; assessments of our colleagues; prospectuses for new interdisciplinary majors; institutes; conference workshops; universities themselves (which have now become brands to be marketed to prospective students or contributors); and so on.

Read more…

Chuck Spinney asks why we choose to lose at 4GW

23 September 2014

Summary: 25 years ago 5 men published one of the seminal articles in modern military theory, introducing the concept of 4th generation war. They did so at the start of a new cycle of conflicts for America. America would be much stronger today had we listened. As we start new wars, it’s vital that we understand (better late than never) what is now the dominate form of war, why we failed to listen, how we (and other nations) fail fighting foreign 4GW foes, and how we can do better. We’ll be running articles on this theme during the next month.

Kicking off this series is a note by Chuck Spinney, one of our most acute observers of the US military.

4GW

Source: Syed Zaid Zaman Hamid

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Is the Nation State Obsolete?

Franklin “Chuck” Spinney

From his website, The Blaster
21 September 2104

Posted with his generous permission

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Uri Avnery’s thoughtful essay Scotland on the Euphrates questions the future viability of the nation-state as a form of social organization.  His concerns are not new, although as Avnery noted, recent events certainly make them more believable — or less unbelievable to those who opine for the comforting stasis predicted by Fukyama’s silly postulation of the “end of history.”  The Israeli military historian, Martin van Creveld, has been making arguments along these lines for years (e.g., The Rise and Decline of the State, 1999).  And van Creveld was not the only one to address the emerging problems of sustaining the nation state in the emerging world.

Twenty-five years ago, in October 1989, four active duty military officers (2 marines and 2 army) and one civilian military historian wrote a prescient article in the Marine Corps Gazette, entitled “The Changing Face of War: Into the Fourth Generation”.  At that time, the Gazette was edited by Colonel John Greenwood (USMC Ret.); and thanks to him, the Gazette was by far the most stimulating, vibrant, and spunky of the professional military journals.  The article initially attracted a lot of attention, but unfortunately 4GW became a buzzword in some overly enthusiastic circles.  To make matters worse, the buzz triggered sharp resistance in traditional circles.  In my view, the authors’ warning became diluted by the intersection of uncritical enthusiasm with hardening resistance, and was missed entirely.

But their warning was timeless and is particularly appropriate for today. For example, they predicted the general outlines of why the drone war — the apotheosis of what the traditionalists call the military-technical revolution —  is failing so miserably in the face of the kind of adversaries these authors identified.  Some might argue that their paper is written from the narrow confines of European military history and variations of what they call 4GW have always been around, particularly in the East.  But this is a red herring; a careful reading shows that they accounted for and agreed with both these points.

Read more…

Mark Twain gives us advice about our wars

22 September 2014

Summary: Most of America’s wars have been counterinsurgencies, fought before Mao brought 4GW to maturity after WW2. As we start a new war, let’s take advice from wise men of our past about such conflicts. Such as Mark Twain (1835-1910), who lived during America’s golden age of counterinsurgency. Today we have two of his articles. One gives advice. The other is something to shock us into sense.

Mark Twain

Contents

  1. Mark Twain’s advice about Counterinsurgency
  2. The War Prayer
  3. Other notes from the past

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(1) Advice

Mark Twain on Counterinsurgency

by Mike Few at the Small Wars Journal
16 November 2010
Reposted with his generous permission

In a month when we’re asking the experts hard questions on the need to reform FM 3-24 Counterinsurgency and rethinking the colonial methods, Mark Twain, the quintessential American writer, decided to chime in. Nearly 100 years after his death, Mark Twain is finally publishing his autobiography. In his political views, Twain was decidedly anti-imperialist. Twain wrote in “Returning Home” (interview in the New York World, 4 October 1900):

You ask me about what is called imperialism. Well, I have formed views about that question. I am at the disadvantage of not knowing whether our people are for or against spreading themselves over the face of the globe. I should be sorry if they are, for I don’t think that it is wise or a necessary development.

As to China, I quite approve of our Government’s action in getting free of that complication. They are withdrawing, I understand, having done what they wanted. That is quite right. We have no more business in China than in any other country that is not ours.

There is the case of the Philippines. I have tried hard, and yet I cannot for the life of me comprehend how we got into that mess. Perhaps we could not have avoided it — perhaps it was inevitable that we should come to be fighting the natives of those islands — but I cannot understand it, and have never been able to get at the bottom of the origin of our antagonism to the natives. I thought we should act as their protector — not try to get them under our heel.

We were to relieve them from Spanish tyranny to enable them to set up a government of their own, and we were to stand by and see that it got a fair trial. It was not to be a government according to our ideas, but a government that represented the feeling of the majority of the Filipinos, a government according to Filipino ideas. That would have been a worthy mission for the United States. But now — why, we have got into a mess, a quagmire from which each fresh step renders the difficulty of extrication immensely greater. I’m sure I wish I could see what we were getting out of it, and all it means to us as a nation.

Read more…

Elysium Shouts Big, Loud Messages About Health Care & Immigration Reform. Gun Control, Not so Much

21 September 2014

Summary:  Today we have another guest post by film critic Locke Peterseim, reviewing Elysium. He shows how it provides a mirror into which we can see our politics, 21st C American weirdness in all its glory. Post your comments about the film — and this review!

Elysium poster

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Contents

  1. The review
  2. About the author
  3. For More Information
  4. The trailer

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Elysium Shouts Big, Loud Messages
About Health Care & Immigration Reform
… Gun Control, Not so Much

By Locke Peterseim
Posted at the film blog of Open Letters Monthly
9 August 2013
Reposted here with his generous permission

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Us older sci-fi fans are always bitchin’ and moanin’ about how no one makes science fiction movies about ideas anymore. How it’s all special effects and big stars and non-stop action. Which is why fan-boys and –girls of a certain age got very excited (probably too excited) about South African writer-director Neill Blomkamp’s debut District 9 four years ago this month.

A (very) thinly veiled Apartheid parable–only with aliens and giant alien weapons — Blomkamp’s DIY-feeling, R-rated District 9 showed a lot of visual verve and a willingness to gritty itself up with the sort of social messages usually flushed out of mainstream PG-13 teenage Cineplex fare. At least until it’s last act, when it slipped into yet another “oh cool, shit blowin’ up!” mindlessly “cool” action flick.

So elder-geek hopes were understandably riding high for Blomkamp’s follow up, this weekend’s Elysium. All the pieces were there: a teen-free R rating; timely and resonant themes about the haves and have nots; and the same dusty, down-and-dirty visuals from District 9 cinematographer Trent Opaloch.

Except Elysium has a higher budget, better-known stars (Matt Damon! Jodi Foster!), a wider scope (the action wings its way between a used-up Earth and the titular giant “gated space station” in orbit), and more impressive CGI. It’s all-around larger and louder with more action, more awesome weaponry, and a lot more ass getting kicked on all sides.

All of which makes Elysium twice as big, half as smart, and considerably more muddled, misguided, and flat-out disheartening than District 9.

Read more…

As we start a new war, have we learned from our wars in Iraq and Afghanistan?

20 September 2014

Summary: As we start a new war, will we remember the lessons of our last wars? Most importantly, will we continue to run like hamsters on the wheel? We kill our foes, and nearby citizens. As infidel foreign invaders, the locals consider our actions illegitimate. The insurgents gain support and members. So we ratchet up our effort.  Oddly, we’ve known this for over a decade but repeat our actions.

Albert Einstein

He’s sad about our inability to learn from experience

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“Insanity is repeating the same mistakes and expecting different results.”

— A warming from Albert Einstein.

By Alcoholics Anonymous, people who know about dysfunctionality.

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(1)  Quotes from those who learned from our wars

These are but a few of the many warnings about our mad tactics. I suspect there are many more stamped SECRET in DoD’s files.

John Kerry, 2 August 2004. This reads differently a decade later, since the Obama administration has continued most of these policies:

“The policies of this administration, I believe and others believe very deeply, have resulted in an increase of animosity and anger focused on the United States of America. The people who are training terror are using our actions as a means of recruitment.”

Trends in Global Terrorism: Implications for the United States”, National Intelligence Estimate (NIE 2006-02R), April 2006

We assess that the Iraq jihad is shaping a new generation of terrorist leaders and operatives; perceived jihadist success there would inspire more fighters to continue the struggle elsewhere. The Iraq conflict has become the “cause celebre” for jihadists, breeding a deep resentment of US involvement in the Muslim world and cultivating supporters for the global jihadist movement.

… The jihadists replay images of Muslim civilians under attack by the West to justify their actions to Muslim audiences.

Guantanamo’s Shadow“, The Atlantic, 1 October 2007 — “The Atlantic recently asked a group of foreign policy authorities about the U.S. detention center at Guantanamo Bay, Cuba”

“The Guantanamo system has hurt the U.S. and our fight against Al Qaeda. We have abandoned the moral high ground and, through our actions, have become one of the principle recruiting agents for Islamic extremism.”

“Our strongest asset internationally was our reputation and credibility on human rights. We have squandered that.”

“Hurt, on balance, because it has severely damaged our moral case in the world, which we have to have in order to rally support for combating Al Qaeda.”

“Both in the obvious public relations way, worldwide, and quite directly, in showing Al Qaeda that we can very easily and quickly be seduced into wild overreactions. That is just what Osama Bin Laden hoped. Since it worked so well, he has an incentive to repeat.”

“It has done enormous damage to our reputation and soft power.”

Read more…

America and the Islamic State both hope to change the world with rivers of blood

19 September 2014

Summary: We have learned something from our wars; in weeks the case for war has been debunked to a degree that took years after 9/11. Many have questioned the logic of our strategy and its odds of success. But few have asked about our methods, and their similarity to those of ISIS. We have a large lead in the body count since 9/11; time will tell if adding to it brings us victory.

River of Blood

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“Wars are measured in body counts. The news carries a running tally. You change the world with rivers of blood.”

— Terrorist leader Saleem Ulman, from the NCIS-LA episode “Truth or Consequences”

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ISIS (aka ISIL and IS) and America have something in common: a belief in the efficacy of kidnapping and killing foes (and nearby civilians). Not just killing, but high-profile killing. The kind that sears memories into the minds of one’s foes. the kind both they and us believe will shape a new world. Making rivers of blood.

Perhaps we — America and ISIS — are correct, and all that matters is who wins. No how. Or perhaps we’re both wrong, and we — both of us — are the problem.

“Secretary Kerry will now travel to the region to continue building the broad-based coalition that will enable us to degrade and ultimately destroy ISIL. … You can’t contain an organization that is running roughshod through that much territory, causing that much havoc, displacing that many people, killing that many innocents, enslaving that many women. The goal has to be to dismantle them.

Obama revealing his plans for ISIS, 5 September 2014. Obama has forgotten that we successfully contained the Soviet Union until it collapsed.

We send special operations troops to snatch men from their homes, or kill them. We send drones assassins to kill from the sky. We use artillery for collective punishment of entire villages. We kill, then double-tap (kill) the rescuers.

Read more…

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