GM wants more subprime buyers; will lender agree? (AP)
Wait a second! Didn't we just finish a major part of a severe economic downdraft inspired by subprime credit? Aren't we still burdened with trillions of dollars of public debt directly related to the excesses of asset-based lenders who overextended themselves in taking on too much leverage in order to serve all debt markets, especially and including subprime? Isn't one of the lessons that should have been learned is that taking on too much debt, whether individual, corporation, or nation, a bad idea? Aren't people at this moment basking in their new-found frugalness, thanking God for the lessons they have learned, and feeling the benefits of increased rationality in their financial lives?
Aside from the normative statements we could make here, there are telltales to note. GM appears to have benefited as much as it can from the past year's recovery in the economy. Strumpf writes: ""There's a real sense of urgency on GM's part to maximize its sales" as it gets closer to the stock offering, said Kirk Ludtke, senior vice president of CRT Capital Group in Stamford, Conn."
Some possible conclusions to draw:
- negotiate hard on price if buying a GM vehicle; they really need the sale
- avoid buying shares of the IPO, if it occurs
- look for bank earnings to level off, as competition increases among lenders to make subprime loans
- in your macroeconomic models (you have one, right?), increase the probability of a new credit crisis occurring in 2010, 2011, or 2012
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