Want a troubling sign of how great the economy is doing? Banks are feeling confident enough to lend money to people with bad credit. What could possibly go wrong?
According to The New York Times' Jessica Silver-Greenberg and Tara Siegel Bernard, financial giants have started to recover, which has led lenders like Capital One and GM Financial to try and make money off of bad borrowers again while HSBC and JPMorgan Chase are "tiptoeing" back into subprime lending by diving into auto loans that "were largely untouched by many of the new regulations." And financial institutions aren't just handing out loans: They're also giving away credit cards. Citing an Experian report, Silver-Greenberg and Siegel Bernard add, "Credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3 percent from the same month a year earlier... These borrowers accounted for 23 percent of new auto loans in the fourth quarter of 2011, up from 17 percent in the same period of 2009."
The Times notes that last year, "investors scooped up $11.7 billion in auto loan securities, up from $2.17 billion in 2008." The growth is kind of scary when you recall what happened with subprime mortgages a few years ago. Though, the risk manager for GM told The Times that unlike mortgage lenders, auto lenders understand how to manage risk while still making loans to borrowers with poor credit.