On paper, America's bailed-out banks learned their lessons from the crash of 2008 and got rid of their exposure to subprime debt, especially "deep subprime" loans to people who are so broke that it's basically impossible that they'll ever pay their loans back.
In reality, the banks have extended billions in loans and lines of credit to "nonbank lenders" -- bankerese for subprime lenders, payday lenders, and other issuers of credit to risky borrowers.
Did I say billions? I meant tens of billions. Er, make that hundreds of billions.
Last week, the Wall Street Journal rounded up the financial picture a decade after the 2008 crash and specifically identified credit bubbles (including the now-bursted subprime auto bubble and student debt bubbles) as a systemic risk.
How much banks are exposed in this manner to subprime loans – not just auto loans, but also subprime mortgages, and subprime consumer loans – is somewhat of a mystery. But some clues are percolating to the surface. According to an analysis by the Wall Street Journal of regulatory filings, bank loans to nonbanks lenders have surged sixfold since the Financial Crisis to nearly $345 billion at the end of 2017. Here are the top contenders:
1. Wells Fargo: $81 billion, up from $14 billion in 2010
2. Citigroup: $30 billion
3. Bank of America: $30 billion
4. JP Morgan: $28 billion
5. Goldman Sachs: $22 billion
6. Morgan Stanley: $16 billion.
Banks extend these loans at relatively low interest rates because the loans are collateralized and don’t expose the banks directly to the risks of lending to subprime consumers. Nonbank lenders make money off the spread between the relatively low cost of money and the often double-digit rates they charge consumers. The spread is so sweet and enticing that it caused a boom in the sector and attracted private equity firms.
How Much Are Banks Exposed to Subprime? More than we Think [Wolf Richter/Wolf Street]
(via Naked Capitalism)
(Image: Andrew McGill, Cjohnson7, CC-BY; Steve Morgan CC-BY-SA)
Public companies are legally required to disclose their risks to investors, but it's a rare company that incorporates climate change into those mandatory disclosures; under a new presidential campaign platform proposal from Elizabeth Warren (disclosure: I am a donor to both Warren and Sanders's campaigns), the SEC would require public companies to incorporate two kinds […]
Ten years ago, Chase was forced to withdraw the binding arbitration clauses in its credit card agreements as part of a settlement in a class-action suit (the company was accused of conspiring with other banks to force all credit-card customers to accept binding arbitration) (one of the things binding arbitration does is deprive you of […]
In all but a few of the most expensive cities in the USA, median rents on one- and two-bedroom apartments have fallen, sometimes quite sharply (for example, in NYC median asking rents on a one bedroom are down to $2940, a 12.8%/$430 decline from their peak in March 2016; while in Honolulu, rents are down […]
With the rising temperatures on tap this summer, the climate is going to be a frequent topic of conversation, and those conversations won’t be happy ones. Luckily, there’s a way to do a little climate change of your own – in a safe and sustainable way. When it comes to personal air conditioners, EvaPolar is […]
Whether you’re using them for next-level selfies or steady tracking shots, gimbals are a must for anyone who wants to maximize the potential of these powerful smartphone cameras we’re all carrying around. But those smartphones are also supposed to be portable, and let’s face it: Gimbals tend to offset that advantage. Weighing in at just […]
It’s too hot for yard sales, but hey: The internet is here for you. Here are the top ten deals on some of the Boing Boing Store’s best gear, just in time for summer. It’s everything from grills to security cameras to MacBook Pros, and they might be as low as they’re ever going to […]