In line with your note on the disgusting practice, my conversations with several credit analysts also indicate extremely loose credit conditions.
We are not in a bubble, yet, but are headed in that direction.
I expect asset prices to continue to rise for the near future, but it will not end well, as it never does.
Once upon a time, I worked for a sub-prime financing company that who's parent company was owned by one of the big 3 automakers. This finance company had a great track record of doing the following:
Finance a used Cadillac Escalade to a customer who has previously filed for bankruptcy, and charge them 19-20% interest on their $50k+ purchase. (Not kidding here.) The customer usually manages to make 6-9 payments before it is repossessed due to non-payment.
Finance company sells the vehicle at auction, writes off the immediate loss of the financed principal, interest, and associated fees for tax purposes.
Finance company then takes customer to bankruptcy court. As they cannot file for bankruptcy again due to being a recent bankruptcy, they garnish wages on the difference of the total owed minus the auction sale for the remainder of the bankruptcy period, typically at 1/5 or so of the original car note. That vehicle that was sold at auction might go through this process a few more times during its life. Rinse and repeat.
These loans, combined with the sub-prime mortgages that the parent company had a large hand in, would be securitized into packages to be sold to potential investors, while charging a service fee for each account that they maintained on the investor's behalf within that package. There were some "quality" guarantees within the packages, so occasionally some bad accounts would be rolled out of the package and some "good" ones would be rolled in to replace them.
This was 2006. We all know what happened in 2008...
The inherent problem with these security packages are that they remove the immediate hazard for those issuing the loans. Those buying the securities should not take the originators for their word that the customers contained within the packages are actually what they say they are. A lot of it is smoke and mirrors, with people lying on income and assets, and the originating underwriters not verifying because they know they will wash their hands of it in 2-3 months when it gets rolled into a package.
Loose credit is hazardous for sure, but when you allow the original underwriters to roll the loans into packages to sell to investors, that's where things go completely awry, and in my opinion, shouldn't be legal beyond a certain amount. Yes, we will see another 2008 drop in the future if creditors continue to play fast/loose with sub-prime credit.
