Thursday, February 23, 2017

On car payments......................

Will the next financial crisis come from a bubble in auto lending? Ehh, I don't know, I think it would be a little too cute to have two U.S. financial crises in a row that are both precipitated by securitized loans to consumers to finance durable-goods purchases. Financial crises usually show more creativity than that. The next crisis will probably be in something weird, like clearinghouse collateral or bond market illiquidity. But "the country’s auto debt hit a record in the fourth quarter of 2016, according to the Federal Reserve Bank of New York, when a rush of year-end car shopping pushed vehicle loans to a dubious peak of $1.16 trillion," and "delinquencies among lower-rated borrowers have risen to the highest level since 2009," so if you want to worry about it go ahead.
While I have you here, though, I should say that a reader pointed out a glaring omission in my discussion of auto lending and smart contracts yesterday: self-driving cars! In the fairly near future, if you borrow money to buy a car, and you miss a payment, the car will just tootle on back to the dealer's lot. There'll be no GPS tracking or ignition override or anything messy like that; the car will just execute the contract itself. The future will be amazing, but also kind of tough.

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