<story><title>America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis</title><url>http://www.wsj.com/articles/americas-fastest-growing-loan-category-has-eerie-echoes-of-subprime-crisis-1484060984</url></story><parent_chain><item><author>John23832</author><text>The title made me think that this was going to be about subprime auto loans, which are definitely in &amp;quot;crisis&amp;quot; territory.&lt;p&gt;This whole mess (subprime auto, renovation, and home loans) comes from the increasingly rent seeking nature of Wall Street. It used to be that fortunes were both made and &lt;i&gt;lost&lt;/i&gt; on Wall Street. Now, for large investors (&amp;quot;whales&amp;quot;), it&amp;#x27;s 3.5% or I take my money to another fund. If I don&amp;#x27;t have a consistent positive return, then it&amp;#x27;s something wrong with the fund&amp;#x2F;firm, not the natural order of things. This behavior encourages siphoning from pensions, the retirement funds of average people and &amp;quot;fudging the numbers&amp;quot; on packaged securities in order to keep up with the expected returns of the &amp;quot;whales&amp;quot;.&lt;p&gt;The sad thing is, I don&amp;#x27;t see a change. We&amp;#x27;re going to keep going from crisis to crisis because banks can&amp;#x27;t say no, and the government(s) deems them too big to fail. This shit is fucked.</text></item></parent_chain><comment><author>smallnamespace</author><text>Marx and other classical economic thinkers speculatively connected the fall in the rate of profit to increases in inequality and long-run economic cycles [1].&lt;p&gt;Essentially, the idea is that since the rate of profit exceeds the rate of growth, rent seekers (capital holders) tend to get richer and richer and own more and more of the wealth. This impoverishes all other parts of the economy and starves it of resources, causing the rate of profit (return on capital) to start declining.&lt;p&gt;The end result is usually a prolonged crisis of some sort which causes the destruction of large amounts of capital, &amp;#x27;resetting&amp;#x27; the economy again so the cycle can repeat anew.&lt;p&gt;For some reason this idea has been rejected by the mainstream for the last 70 years or so, but I think some people are starting to take it up again.&lt;p&gt;[1] &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;en.wikipedia.org&amp;#x2F;wiki&amp;#x2F;Tendency_of_the_rate_of_profit_to_fall&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;en.wikipedia.org&amp;#x2F;wiki&amp;#x2F;Tendency_of_the_rate_of_profit...&lt;/a&gt;</text></comment>
<story><title>America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis</title><url>http://www.wsj.com/articles/americas-fastest-growing-loan-category-has-eerie-echoes-of-subprime-crisis-1484060984</url></story><parent_chain><item><author>John23832</author><text>The title made me think that this was going to be about subprime auto loans, which are definitely in &amp;quot;crisis&amp;quot; territory.&lt;p&gt;This whole mess (subprime auto, renovation, and home loans) comes from the increasingly rent seeking nature of Wall Street. It used to be that fortunes were both made and &lt;i&gt;lost&lt;/i&gt; on Wall Street. Now, for large investors (&amp;quot;whales&amp;quot;), it&amp;#x27;s 3.5% or I take my money to another fund. If I don&amp;#x27;t have a consistent positive return, then it&amp;#x27;s something wrong with the fund&amp;#x2F;firm, not the natural order of things. This behavior encourages siphoning from pensions, the retirement funds of average people and &amp;quot;fudging the numbers&amp;quot; on packaged securities in order to keep up with the expected returns of the &amp;quot;whales&amp;quot;.&lt;p&gt;The sad thing is, I don&amp;#x27;t see a change. We&amp;#x27;re going to keep going from crisis to crisis because banks can&amp;#x27;t say no, and the government(s) deems them too big to fail. This shit is fucked.</text></item></parent_chain><comment><author>roymurdock</author><text>&amp;gt; We&amp;#x27;re going to keep going from crisis to crisis because banks can&amp;#x27;t say no, and the government(s) deems them too big to fail&lt;p&gt;Consumers can say no, and if they had better financial education and&amp;#x2F;or financial prospects, maybe they would.&lt;p&gt;The elderly woman in the article initially refused the $50k renovation to her 5 bedroom home, but then agreed because she thought the government was going to subsidize it for her.&lt;p&gt;The contractor was able to sell her the loan because she needed to reduce heating&amp;#x2F;utilities&amp;#x2F;energy costs in her massive (for one or two people living on SS presumably) home, and she thought the savings from the PACE program would pay for the solar panels, smart lightbulbs, etc.&lt;p&gt;I don&amp;#x27;t know the exact details of her situation, but it seems like perhaps the correct decision would have been to sell the house and move to a  smaller, more efficient house if the current house is too expensive to maintain given the number of occupants and their age&amp;#x2F;level of income. I&amp;#x27;m 24 and currently rent half a large house in the suburbs from a single guy in his 60s who needs the extra income to maintain the house which he bought when he had a larger family.&lt;p&gt;Unfortunately it seems like the loan was misrepresented to her by the contractor when she agreed to go into debt, and obviously many will do anything to avoid moving out of homes&amp;#x2F;communities they&amp;#x27;ve been in for a long time. Others have no family to rely on or go to even if they do want to move.&lt;p&gt;I&amp;#x27;m not a huge fan of Wall St. and big bank loan &amp;amp; derivative making and selling culture, but it&amp;#x27;s not entirely to blame, nor was it entirely to blame during the financial crisis of 2007-08 as many consumers took on home loans they had no intention of ever making good on (maybe there was some fraud&amp;#x2F;misrepresentation on the part of the contractor in this case, maybe not). People have always been greedy since the beginning of time - we are just struggling overall at the moment to raise financial literacy and strengthen altruism: family&amp;#x2F;community&amp;#x2F;country-wide ties (patriotism) due to poor economic conditions for the majority of Americans.</text></comment>