(Business) Youth Unemployment: no country for young men (or women)

Last year the carnage report published an article entitled “the kids are not alright” and detailed the plight facing may students the US and elsewhere and nearly a year on, the trend has continued. While last year’s article focused mostly on the growing student debt crisis in many countries, this article will address the very real problem of youth unemployment which many government have failed or avoided completely to address.

While Greece has many problems that are well documented in the press, the real that could really bring the country to its knees and keep them there for generations is its ridiculously high youth unemployment rate that sits currently at an incredible 64.2%[1] Unemployment rates like these can only spell trouble as the future generation of Greece currently studying and dreaming of a prosperous and secure future may find that their goals are unattainable in their country of birth.

This may lead to a feared “brain drain” that is already happening in Greece as immigration shot up with 40% departing Greece to Germany [2]. The youth unemployment in Greece is just a reflection of what is happening in the Eurozone as a whole as nearly 1 in 4 young adults are currently unemployed with crisis hit countries such as “Spain (56.4%), Portugal (42.5%) and Italy (40.5%)” posting the highest rate of youth unemployment and not surprisingly, political unrest[3].

While the Eurozone crisis has had a large part to play in the fortune of many of the countries directly involved, in the UK it has become clear that the problem of youth unemployment was prevalent “before the recession began”[4]. They have chosen to focus on young people on people who lack skills or the experience required by employers by focusing on “training” despite “mixed results”[5]. This is because other factors that may influence the high level of unemployment are not addressed.

Youth unemployment also has other effect other than the societal as youth unemployment cost Britain nearly £5 billion and the wider economy “in lost output”[6]. If current trends are uninterrupted, it could cost the government “approximately £28 billion”[7]. While this may cost the government only a fraction of it current QE program pumping money into financial institutions, the greater effect is that unemployment will create a generation without faith in its country’s future and may end up living a life deprived of real opportunity.

Any adult who has been unemployed can testify to the crushing feeling accrued through a sustained spell in unemployment and one can only imagine the effects it is having on many young adults across the globe.

In sum, youth unemployment is not issues to avoid as it will not go away and can end up destroying a generation in terms of earning potential and even mental and physical health. Finally, governments must  act now as if they don’t act, a generation will grow poorer and with a clear ambivalence towards a government that ignored them.

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[1] M.Lowen, 2013, Greece’s young: Dreams on hold as fight for jobs looms, http://www.bbc.co.uk/news/business-22702003

[2] Ibid

[3] S. Croucher, 2013, Eurozone Youth Unemployment Rises as Debt Crisis Deepens, http://www.ibtimes.co.uk/articles/473255/20130531/youth-unemployment-eurozone-eu-eurostat.htm

[4] T. Wilson, 2013, Youth Unemployment: Review of Training for Young People with Low Qualifications, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/70226/bis-13-608-youth-unemployment-review-of-training-for-young-people-with-low-qualifications.pdf

[5] Ibid

[6] ACEVO, 2012, Youth Unemployment:the crisis we cannot afford, http://www.bristol.ac.uk/cmpo/publications/other/youthunemployment.pdf

[7] Ibid

(Business) China: Tapering off?

China have long been tipped to overtake the United States as world’s largest economy and premier superpower however of late China has experienced a notable slowdown underlined by the unexpected growth shown by the Philippines as the nation beat into second achieving 7.8 per cent growth to china’s 7.7 in the first quarter[1] . 

This compounds a less than fantastic week for the country as yesterday the IMF reduced it forecast for china’s pointing to the slowdown in exports[2]. While this may appear to represent not much in the way of decline, a trend is clearly developing as while China is at a solid  7.7 percent, it was 7.8 just a year ago which was “its slowest rate for 13 years”[3].

While China’s current slowdown owes largely to the current state of the global economy, China has experienced a slump in its manufacturing, which has been at the heart of China growth over the last three decades as “factory activity had contracted for the first time in seven months”[4].

However while its economy has experienced a slight decline, its growth is still strong in comparison counterparts in the west however China, if not careful, could end up making the mistake many nations, especially in the west, have made in failing to deal a job market  that at once cannot match its demand and favours experience over youth.

China has not escaped the global macro trend of the world becoming no place for young men and women looking to succeed and support themselves as it job market has slowed. Reuters’ Didi Tang chronicles the struggle of chemistry graduate Jiang Wenying who may have consider other options having “sent out more than 1,000 job applications, netting no more than 10 interviews and not a single job offer”[5]. This can only be bad news for China down the road as Jiang is one of the nearly seven million graduates who “are leaving universities and graduate schools to seek their first job” only to find that it may not exist[6].

This trend can have real political implications as it has in numerous countries who have paid no attention to creating a job market that’s friendly to the young as many of the graduates are the sons and daughters of China growing urban middle class which have started to find its voice.

In sum, China may end up becoming the world’s biggest economy as its rate of growth has been one of the highest in the world for two decades straight but as faces a number of problems owing to the state of the global economy and number of problems with labour policy and job market which could have political as well as economic implications, it may have to wait a little bit longer.  

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[1] K.Lema, 2013, Philippines’ surprisingly strong first-quarter growth eclipses China, http://www.reuters.com/article/2013/05/30/us-philippines-economy-gdp-idUSBRE94T06E20130530

[2] BBC News, 2013, China’s growth forecast cut by IMF,

http://www.bbc.co.uk/news/business-22700546

[3] Ibid

[4] Ibid

[5] D.Tang, 2013, China’s biggest graduating class enters what looks to be tightest job market as growth slows, http://www.therecord.com/news/business/article/941611--china-s-biggest-graduating-class-enters-what-looks-to-be-tightest-job-market-as-growth-slows

[6] Ibid

(Politics) “Mansanto protection act” and assault weapons ban abandonment: two examples of why Americans have no faith in their political class

Congress has long been one of the most unpopular political bodies in the free world and in the last few weeks, it has earned it’s status as the body dropped the assault weapons bill and effectively gave a corporation a bye from reprimand should it’s products harm the American public .

There has much made of the fact of how beholden America’s political class is to the interest of big business to the detriment of their fellow citizens, but the actual protection of corporation from reprimand  if it’s products have adverse effects on the public’s health has to be one of the most shocking instances yet.

In an eager rush to get a funding bill passed or face a government shutdown, President Barack Obama signed the bill that had “language” that “effectively bars federal courts from being able to halt the sale or planting of GMO of GE crops and seeds, no matter what the health consequences from the consumption of these products”[1].

Food safety advocacy groups  have made their disgust for this bill clear as it serves as a major “gift to Monsanto Company (NYSE:MON) and other firms that produce genetically modified organisms (GMOs) or genetically engineered (GE) seeds and crops.”[2].They expected their government would be cognizant enough to spot devious ‘language’ buried in legalese but, no surprise to anybody paying attention over the last five years,  the public interest is the last thing on the minds of members of  it’s political class.

It’s safe to say that the US public are aware that their political leaders could care less about the public interest as congress’s approval rating, according to public policy polling, is only a shade more popular than  “Lindsay Lohan, the Ebola virus, the Kardashians and North Korea” and is bested by “Genghis Khan”[3].

Any dissenting doubt of this fact was quashed just several days before the Monsanto debacle as Senate majority leader Harry Reid publicly gave up on the assault weapons ban citing a lack of votes for the measure.  However this should be no shock to anybody as democrats already gave up on passing an assault weapon ban a month in advance.  Contrast the difficulties of getting votes for a assault weapons ban in the wake of multiple mass shooting s including the tragic events that took place in new town and the near consensus in both houses to protect Monsanto form legal reprimand goes to show where congress priorities lie. 

In sum, it has not been a very good week for congress as the body has shown why it is one of the most unpopular democratic bodies in the free world as it dropped the assault weapon ban in the face of  a number of tragic mass shooting and granted immunity for a corporation which goes to show that the political class are beholden to anything but the public interest.

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[1] C. A. Sheets, 2013, Farmers and food safety advocates lead Monsanto blacklash, http://www.salon.com/2013/03/27/farmers_and_food_safety_advocates_lead_monsanto_backlash_partner/

[2] Ibid

[3] J. Stephens, 2013, Congress Approval Rating Lower Than Cockroaches, Genghis Khan And Nickleback, Poll  finds,  http://www.huffingtonpost.com/2013/01/08/congress-approval-rating-nickelback-cockroaches_n_2435601.html

(Politics) Leslie Graham on gun bill: Why Republicans are about to square up against 90% of the country

Republicans have gained a well-earned reputation of  being the ‘party of no’  to its detriment and with South Carolina Senator Lindsey Graham stating his opposition to universal background checks , it may be become terminal.

Graham and indeed the GOP voting or filibustering universal background checks represents bad political strategy and near assured political suicide as according to a poll carried out by CBS and the New York Times, “ninety-two percent of Americans favour background checks for all potential gun buyers”[1]. The support for universal background checks is widespread crossing “party lines” as  “89 percent of Republicans and 93 percent of Democrats and independents were in favor, as well as 93 percent of gun households and 85 percent of those living in a household with a member of the National Rifle Association.”[2]

There is rarely, if ever, this extent of agreement on any issue in American politics or anywhere else in the world but the GOP look set to fight the Democrats and indeed the nation as universal background checks will be part of a gun bill to be introduced to the senate this month a number of Republicans have already stated their intent to oppose.

Graham stated the reason behind his opposition to the widely popular gun control measure on CNN citing that he thought that current laws in place were not being “enforced” thus the introduction of new laws buffering them would be unnecessary[3]. Graham also revealed his preference for further debate regarding “improving the system” but in light of pain still fresh from the sandy hook massacre that took place at the tail end of last year, many feel the time for talk has met the water’s edge of substantial legislative action[4].

While Gun control legislation will grip Washington this month, the larger debate that will have to take place is why a major political party is prepared to take on over ninety percent of Americans and answer is simple, there is a lot of money to be made in the sale and distribution of guns.

With the US gun industry being worth $33 billion and the employer of an incredible 220,000 Americans, Guns are going nowhere anytime soon as along as it has a demand so high the world’s largest gun manufacturer (United States) has to import guns to meet it[5]. If these numbers weren’t enough spell out why the GOP are prepared to stand against the whole country is that guns are more cultural artefact than anything else. It is hard to imagine an America were guns are properly regulated as even supporters of a gun control solution own guns as well as their opponents.

In sum, while Republicans will be committing political suicide by squaring up against the democrats and the majority of the country on universal background checks, The GOP can take solace in the fact that the proliferation of guns in America will continue whether they are against gun control or not.

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[1] S.Dutton et al, 2013,  9 in 10 back universal gun background checks, http://www.cbsnews.com/8301-34222_162-57564386-10391739/9-in-10-back-universal-gun-background-checks/

[2] Ibid

[3] J.Easely, 2013, Graham:senate gun bill ‘going nowhere’,

 http://thehill.com/video/senate/291103-graham-senate-dems-gun-bill-going-nowhere

[4] Ibid

[5] G. Hall, 2013,  Stubborn Facts: The Gun Industry employs twice as many Americans as GM (and that’s just the beginning), http://www.theblaze.com/stories/2013/03/26/nr-draft-how-important-are-guns-to-the-u-s-economy-for-starters-the-firearms-industry-employs-twice-as-many-americans-as-bailed-out-gm/

(Business) HSBC: Despite scandal and record breaking fines, HSBC are still thriving

You have to give it up to HSBC; it’s senior management somehow, incredibly, manage to avoid any jail time and get handed a fine by US regulators that is a minor fraction of their yearly profits despite US officials pointing out that there was a “mountain of evidence against the bank”[1]

Despite all the hoopla and negative spotlight over their charge by US, HSBC still remain profitable even in the face of a profit drop and are in good shape indicated Europe’s biggest bank reaching Basel III capital requirements, one of the major issues behind why banks for the last five years have failed to lend due to the fact many banks didn’t have enough capital reserves to hedge against bad loans[2].

It’s almost as if people have forgotten HSBC’s crime and look to place it in the past but it’s crimes are hard to forget if you have a strong inclination for justice.  

"If you're caught with an ounce of cocaine, the chances are good you're going to jail," said Sen. Elizabeth Warren (D-Mass.). "Evidently, if you launder nearly $1 billion for drug cartels and violate our international sanctions, your company pays a fine and you go home and sleep in your own bed at night." (Elizabeth Warren, Quoted by Mosk)[3]

HSBC reputation took a great hit when it was revealed that the bank had helped launder the ill-gotten gains of Mexican drug lords and terrorist groups , however this is not the real crime as according to a report  in the guardian the bank continued to deal with a business as it’s competitor had wisely “stopped on fears that they were fronts for drug cartel money laundering”[4]. The HSBC effectively funnelled funds from the Cayman Islands for the business (“casas de cambio”) despite the business being a shell company with no “staff or offices” to the tune of 7 bn moving cash “ “to the US from in 2007  and 2008 [5].

HSBC, unperturbed by the United States strict sanction regime on its enemies, flouted “US sanctions on countries including Cuba and Iran” managing to process a whopping “25,000 transactions involving $19.4bn over seven without disclosing the transaction links to Iran”[6]. HSBC’s biggest crime in this whole debacle was, thanks to it less than stringent vetting of clients, providing “US dollars and banking services to banks in Saudia Arabia and Bangladesh despite links to terrorist financing”[7].

Individuals who have committed the same crimes have been buried under jails for laundering or stealing less than HSBC handled yet HSBC got away with a fine simply because the US Justice Department were preoccupied with keeping the markets happy. According to Matthew Mosk of ABC News, US Senators were less than impressed when US Attorney with a straight face and in public stated that:

"It does become difficult for us to prosecute when we are hit with indications that if we do... it will have a negative impact on the national economy, perhaps even the world economy."[8]

HSBC indictable behaviour were not found in the US as thanks to an investigation by the HMRC and a brave whistle-blower, HSBC’s clients in Tax friendly Jersey were published revealing some interesting and telling names such as Daniel Bayes, who according to the Telegraph, is a “drug dealer”[9]. The story only gets better as more names were revealed including Michael Lee “who was convicted for possessing more than 300 weapons at his house…three bankers facing fraud allegations and a man once dubbed London’s “number two computer crook”[10].

HSBC have been caught many times for breaking the rules it’s almost like they do it knowing nothing will happen but a lot of lip service and pen ink expended in critiquing the bank that will be ignored by the next crisis or news cycle and for the large part, they are mostly right to be so complacent. This is only because HSBC are not the only bank at the same game and to punish them all would mean curtains for the British economy which has become way too dependent on it financial sector over the last few decades.  

After all the crimes and rule breaking, HSBC strides across the financial world like the colossus that they are as HSBC report another year of healthy profit and have the temerity to give their CEO Stuart Gulliver, in spite of a year of scandal and embarrassment, a hefty bonus package to the tune of £2m[11]. 

Such galling and unjustified Bonuses in the face of a year full of banking scandal after banking scandal have rightly drawn the ire of critics and the hate of the public but be sure for HSBC to stick around as HSBC as well every other bank knows that in a market, thanks to the Great Recession of 2007-2008, with fewer players and an undying demand, market fearing politicians, regulators and business analyst know that , for the lack of a better phrase, have Britain and the world by the short and curlies.

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[1] M.Mosk, 2013, Senators: ‘Prosecution Free Zone’ for Big Banks, http://abcnews.go.com/Blotter/hsbc-case-senators-prosecution-free-zone-big-banks/story?id=18678686

[2] T. Wallace, 2013,  HSBC meets Basel capital target early, http://www.cityam.com/article/hsbc-meets-basel-capital-target-early

[3] M.Mosk, 2013, Senators: ‘Prosecution Free Zone’ for Big Banks, http://abcnews.go.com/Blotter/hsbc-case-senators-prosecution-free-zone-big-banks/story?id=18678686

[4] D.Rushe, 2012, HSBC fail to act on money laundering, says US Senate, http://www.guardian.co.uk/business/2012/jul/17/hsbc-money-laundering-us-senate

[5] Ibid

[6] Ibid

[7] Ibid

[8] M.Mosk, 2013, Senators: ‘Prosecution Free Zone’ for Big Banks, http://abcnews.go.com/Blotter/hsbc-case-senators-prosecution-free-zone-big-banks/story?id=18678686

[9] H. watt, 2012,  HSBC investigation: Clients of Britain biggest Bank exposed, http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9665741/HSBC-Investigation-clients-of-Britains-biggest-bank-exposed.html

[10] Ibid

[11] N.Pratley, 2013, HSBC: banking to a set of rules reaps dividends and stability, http://www.guardian.co.uk/business/2013/mar/04/hsbc-bonus-shareholder-dividends

(Politics) George Osborne Prediction: Why George Osborne may lose his job as chancellor

We are more and more being measured by the results we produced as workers from productivity to levels of imagination and creativity but politicians remain immune to this focus on performance with George Osborne being a major case in point, with the British heading into yet another recession and having lost its triple A rating (which means that it may cost the country more borrow money), the question is how is George Osborne still chancellor. People across Britain would be justified to ask this question but a better question would be why on earth was he appointed a Chancellor of the exchequer in the first place?.

Osborne would be much more effective as a strategist in the PM office alongside David Cameron instead of facing attack from all quarters every time more dismal economic indicators are publicly published.

His political skill is second to none proved by his ability out do shadow chancellor Ed Balls despite the economic horror show taking place under his watch. He has also done pretty well in making Labour scramble on many of the issues Labour should dominate and have dominated in the past such as the welfare state and pensions. However, for all his skill as a strategist, he cannot manoeuvre his way out of negative economic indicators many have laid at his door.

The Conservative strategy to excuse the lack of economic progress has been to place blame on the Labour government mishandling of the economy but with Labour soaring ahead of the Tories in most polls available, such a strategy is clearly not working.

Labour has issued attack after attack against the Conservatives policy of austerity which has experienced some push back globally with many countries seeing the need to have a growth strategy. Despite this growing need, Osborne, to his and government’s detriment, has stuck doggedly to a programme of deficit first and all else be damned approach which at the same time is not working and is tarnishing any hopes he may have to lead his party.

You always know that a minister is in trouble when his predecessors are coming out the wood work and throwing in their two cents about what needs to happen next and potential rivals for the conservative leadership are urging the minister in question to change his position which has both happened to George Osborn over the last few weeks.It seems that only thing that is keeping him in office is the Prime Minster who has refuse to press the trigger on Osborne in spite of the fact that it may be for the better for Osborne and indeed the economy.

In sum. George Osborne may lose his job but not anytime soon due to the prime mister having ample time to get rid of Osborne but refusing to pull the trigger. However with the economy in bad shape, David Cameron may have no choice but to bring his political ally close to him in the interest of the country and indeed Osborne himself. 

(News) Eurozone Crisis: Misery As Usual

(Opinion) Obama Inauguration: Second term prospects for Obama's policy success

While there is a lot of speculation about what President Obama’s second term will look like, it would be easy to argue is going to look pretty much like his first. Obama will do little about changing the United States drone policy or curbing the war on terror despite its destructive outcomes (and what looks set to escalate in the in light of the hostage tragedy in Algeria) or climate change as he can’t discuss climate change Republican party, who have many members in congress and among the rank and file who don’t believe it’s happening and think it’s a hoax.

Due to the tragedy at took place in Newtown, will have a an ugly fight with NRA and the Republicans in getting legislation through congress telling from the already ugly tone gun control  debate has taken already. The NRA, free of shame, went after the children of the President citing the false discrepancy between the protection his children get and opting not to put armed guards at every at school across the country as if the President and indeed his children are not the best targets for kidnapping or murder for any group looking hurt the country.  

It will be a draining but necessary fight but Obama, if he gets something done, will have some political capital to spend, and it is vital that he spends it trying to get to a jobs bill through congress.

While his election served as the first black swan against the maxim that presidents don’t get a second term in a bad economy, the Obama campaign were really successful at destroying Mitt Romney’s simple message of ‘are you better than you were four years ago’ by launching a successful character assassination against it messenger by portraying him as an aloof and cold-hearted plutocrat who could care less about the plights of working people.

There was no real talk about jobs as Obama has done very little about tackling America’s unemployment rate and in the recent negotiations preceding the media and congress created ‘fiscal cliff’, which would have saw the much despised bush era tax cuts expire, Obama saw to it that the tax cut hated by most of his party are now permanent in exchange for an small rise in the tax rate.

Obama will get somewhere in the almost certain fight about immigration as Republicans have woken up to the reality that the public is to the left on many of the social and cultural issues that plague the country.  He will get a lot of movement in getting the Dream Act passed and getting currently undocumented immigrants on a track leading to citizenship.

In sum, Obama Inauguration will be a joyous occasion as Americans will once again  bears witness to an African American taking the oath of office and also for all who love lofty speeches and the choreography of  American Politics in general. However when the music and the celebrations dampen, there is a great chance of Obama proving once and for all the trends of all politics is continuity, not change. 

(Video) Joe Stiglitz and Paul Krugman: two heavyweights talk economics

(Video) Paul Krugman interview: Paul Krugman interview on RT

(Opinion) EU 2012 Nobel Peace Prize: A Prize Deserved?

                                                            

There are many things you can say about Nobel peace prize and its awarding committee, among them would be that they sure know how to pick their winners. From awarding the peace prize to Henry Kissinger despite his well-documented involvement at the tail end of the Vietnam War to Barack Obama winning the award in the midst of two protracted wars, the noble peace prize has a history of awarding public figures with a lot of blood on their hands.

However one of its strangest awards to date was giving the Nobel Peace Prize to the European Union. While it’s not unusual for political organisations to win the prize such as Amnesty International and the UN, it is quite strange that a political project has won in what is probably its most trying period.

Recent years may have tested the EU as political and economic project, but what is not up for debate is the EU is the most successful political project in the history of international politics. For centuries Europe had been rife with “divisions, tensions and conflicts” borne out of competition and imperial ambition[1].

These two factors made sure Europe would remain a Hobbesian nightmare halfway through the 20^th century as the continent experienced two world wars and several failed attempts at diplomacy in-between, notably with the League of Nations. However, Influenced by the brutality and death that characterised the Second World War, leaders across Europe realised the need for a united Europe ensuring that war will never break out in Europe ever again.

The fact that the peace has held in Europe for so long after centuries of conflict and competition owes much to the process of integration between the economies of EU member states and laws strengthening human rights legislation. The success of the EU has been that it has meant greater cooperation between nations in Europe, particularly the big three, Britain, France and Germany, key players in both world wars. In recent years the EU has expanded eastward with the accession of former soviet states to full membership.

However, the process of integration and cooperation mediated by the EU has led to developments that have been met with less than other endeavours. The establishment of the single currency was seen by some as the most ambitious development in uniting Europe even further and seen as a major threat to national sovereignty by others.

The Euro was seen by supporters as the most audacious statement of intent by EU member states to unify Europe by tying their fates together by establishing the European Monetary Union (EMU). While the language of the EMU was economic, it was motivated purely by politics as the EMU remarkably took  many of the controls traditionally handled by member states and put them in the hands of technocrats in Brussels. This was accomplished through the rather strict monetary requirements aspiring EMU members had to meet to join the single currency[2].

While the idea of uniting Europe in the interest of peace and prosperity has been a success, the undemocratic nature of the political project has been the source of bickering among member states and the economic stagnation of many members of the EMU, Greece being the most prominent example

The EU’s response to the Eurozone crisis has been poor to say the least as the troika of the EU, IMF and ECB has forced upon Greece’s strict austerity measures and heavily conditioned bailouts in an attempt to keep Greece in the EMU despite default being a painful but viable option. The fact that the EU has partnered with the IMF leads to questions of it lack of accountability due to the IMF’s use of notorious structural adjustment programs recommended to countries of the global south.    

These polices that  have caused instability in many nations in the global south have now been imposed on Greece and has led to frequent, often violent protest by ordinary Greek citizens against strict austerity measures used by its government and the EU itself. 

The search for consensus by EU leaders from EU member states has led to creation of the fiscal pact, which will impose tough fiscal measures to make sure its members keep financially sound budgets, mostly through measures that have failed miserably in Greece.On this evidence it is quite strange that the Nobel peace prize has been awarded to the EU this year as its polices have caused instability in Greece and it ideological preference for an united Europe has weakened significantly it member states ability to react to economic and political crisis

In conclusion, the EU is the most successful political project in the history of international politics and should be recognised for playing a large role in why there has been no war in Europe from Second World War onwards. However, to award the EU the Nobel Peace Prize when its policies have caused instability in Greece and threatened the future of the Eurozone is bizarre to say the least

  

  

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[1] N. Nugent, 2006, The Government and Politics of the European Union, Hampshire, Palgrave Macmillan

[2] S. G. McGiffen, 2001, The European Union: A Critical Guide, London, Pluto Press (p.60)

(Opinion) Auto Loans: A crisis in waiting?

You would have thought the events of the last five years would have taught banks (Ok, not so much) rating agencies and insurance companies that dabbling in subprime loan debt is an unwise decision to say the least, but with the news of the boom in sub-prime auto loans, not much has been heeded. 

 Auto loan lenders, apparently not privy to the cause of the crisis five years ago are dropping barriers in the way of borrowers with bad credit reports taking on debt to buy cars to the chagrin of analysts and the joy of car dealers[1]. This may be a key factor in the current recovery and growth of the auto industry as there is, thanks to subprime auto loans, “more demand for new cars and more money available to finance them”[2] .

However these loans are toxic as dealers who sell them have an almost non-existent moral incentive to tell the truth about what they’re selling with lenders predicting that “auto loan delinquencies will go up”[3] . The current Boom in Subprime auto loans and the auto industry is largely down to the fundamental problems at the crux of why the crisis happened in the first have not really been addressed.  This is because these problems are more historic than they are financial or even economic.

Wages for ordinary people have been on the decline for the last 30 years which saw an explosion in credit as a response to their wages failing to cover expenses (rent, food, holiday etc). the bottom fell out of this process in 2007 when deals made by American banks went bad leaving the global economy has been reeling ever since as politicians have spent more time trying to shore up the financial system than solve the main problem, the lack of well-paying jobs and the less than honest business ethics of credit card and loan providers.  

The effects of defaulting on Auto loans are damaging as it can seriously affect credit history of borrowers, their ability to get loans in the future, and the car bought with the loan can be repossessed as the car is usually considered ‘collateral’[4]. Most people who have taken out auto loans are likely to be subject to the consequences of default as “more than half of… (Auto loans) default” due to astronomical interest rates[5]

However there appear to be some good news as Marketwatch reported a drop in May this year was the “lowest in its (the Auto loan default rate) 8+ year history” with another decrease a month later[6].

In sum, while the subprime auto loan market may be booming and the rate of default declining slightly, the systemic problems that underlined the 2007-2008 crisis still exists and can send the auto loan default into record figures of debt at any time as families still find it hard to cover expenses without credit and the job market offering jobs that are weak in wage and benefits. Lenders have not learned from the mistakes of 2007-2008 but , hopefully, for their sakes, they do not get a second lesson.

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[1] M C. White, 2012, Is Subprime Lending Fueling the Auto Surge?,

 http://moneyland.time.com/2012/07/12/is-subprime-lending-fueling-the-auto-surge/

[2] Ibid

[3] Ibid

[4] Carsdirect.com, 2009 Defaulting on a car loan: the effects of Car Loan Default, http://www.carsdirect.com/auto-loans/what-happens-if-you-default-on-a-car-loan

[5] L. Picker, 2012, Why subprime Auto loans default,

http://www.nber.org/digest/dec07/w13067.html

[6] Marketwatch, 2012, ConsumerCredit Default Rates Decreased for the Sixth Consecutive Month According to the S&P/Experian Credit Default Indices,

http://www.marketwatch.com/story/consumer-credit-default-rates-decreased-for-the-sixth-consecutive-month-according-to-the-spexperian-credit-default-indices-2012-07-17