23 July 2010

Subprime lending for car loans

The wire services yesterday carried a story about General Motors and how it is "getting into the subprime lending business."

That's a story worth telling chiefly because "subprime" is such a scary word. And "subprime" is a scary word because the subprime housing bubble of 2004-07 was a factor in the credit crunch and then the general financial crisis of 2007-08.

But it need not be too scary. Take a deep breath, everybody.

All "subprime" means by definition is "more risky than prime." Some loans have to be subprime! They cannot all be prime, just as it is strictly impossible for all the children in Lake Woebegone or elsewhere to be above average.

The problem with the last subprime housing bubble and its disastrous collapse was that the inflationary credit policy of the Fed enabled the lending to go much further than it could have gone had there been a responsible monetary policy in place. That is the nature of central banking. 'Tis ever been thus.

So let's direct our anger at the right place in such a situation.

Anyway: GM is acquiring AmeriCredit Inc., a Fort Worth-based company that has already been working with it on subprime auto loans, which are now 4% of GM's sales.

Frankly, I find nothing alarming in that. Predictably, politicians have started their posturing. THAT annoys me. But that our political system is "subprime" is by now obvious to the least discerning.

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Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.