Posts Tagged ‘loans’

Leveraged Loans defined:

“…arranged by a syndicate of banks, to companies that are heavily indebted or have weak credit ratings.” -IMF

“…are effectively provided to companies already swimming in debt.” -Nomi Prins

“That was all good and well when interest rates were super low, making it easier for companies to borrow oodles of money,”

“This year, leveraged loan issuance reached an annual rate of $745 billion. That’s nearly the same as the prior record of $762 billion in 2007 before the financial crisis and just a bit less than last year’s record of $788 billion globally.”

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“Contrary to popular belief (and most economics textbooks), when banks make loans, they don’t dip into cash in their vaults… or into other customers’ deposits…  Instead, they loan new money into existence.” -Chris Lowe

Serious Loans

Posted: January 26, 2017 in Money Matters
Tags: , , , ,

As a financial guy, I take loans seriously.  If you borrow, then you owe.” -David Eifrig

“At more than $1.4 trillion in loans outstanding, student loan debt is nearly four times bigger than all the debts of Greece.  And it’s still growing at nearly 20% a year… multiple times faster than the official rate of inflation.  Worse, the government’s own data has showed as much as 30% of this debt – nearly one out of every three loans – isn’t being paid or is already in default….

At more than 1,000 schools – representing about one-quarter of all U.S. colleges and trade schools – more than half of students have already defaulted or failed to pay even one dollar toward these loans within seven years of leaving school.  Across all schools, the data show as many as 40% of borrowers haven’t paid a single dollar toward these loans within seven years.  Looking at just the past three years, this number jumps to more than half – 54% – suggesting this problem is only getting worse, not better.

In other words, according to the government’s own data, at least 40% of this debt – representing more than $500 BILLION that has been packaged up, ‘securitized’, and sold to investors as ‘money good’ – will likely never be paid back at all.” -Porter Stansberry

“…the world has been binging on debt like never before.

The International Monetary Fund reported last month that total nonfinancial-sector debt has ballooned to an all-time record of $152 trillion… while the global debt-to-GDP ratio has also soared to an all-time high of 225%, up from 200% just 14 years ago.

Worse, we’re seeing record debt at the government level, the corporate level, and the consumer level (via auto and student loans, in particular). The boom in corporate borrowing is especially concerning…

U.S. companies have already borrowed $1.4 trillion this year to date, according to data firm Dealogic. This is on pace to shatter last year’s previous all-time record of $1.5 trillion.

Unfortunately, most are using this money to refinance existing loans… buy back stock and pay dividends… and finance expensive (and often questionable) mergers and acquisitions. This will do little to help the economy. But it greatly increases leverage… and risk.” -Justin Brill

The situation in auto loans is dangerous.  But the situation developing in student loans is much worse.  Here, loan totals have grown enormously – with wild abandon – over the past decade.  The total amount of student loans has doubled since 2009, to more than $1.3 trillion.  And why shouldn’t students borrow money like mad?  Much like subprime car buyers, they have no intention to ever pay it back….  The U.S. Department of Education reports that 51% of students are currently not servicing their debts.  That’s from data compiled last year.  Since then, the number of students getting deferments has soared, thanks to aggressive marketing of Obama’s various college-loan programs.  Not surprisingly, students who take deferments are much more likely to eventually default.” -Porter Stansberry

For the first time ever, Americans collectively hold more auto loans than mortgages.  Who is borrowing all of this money? Anyone who can fog a mirror…. 40% of all car loans being made this year are to subprime borrowers.  These loans typically have interest rates as high as 20% annually.


What kind of a person borrows money at 20% annually for more than five years to pay for a used car?  Someone who has no incentive to repay the loan.  Calling that deal a “loan” is a misnomer.  It’s a lease with zero residual value.  The borrower will never have any equity – nothing is at stake for him.  He doesn’t even have to return the car… they’ll send a tow truck.” -Porter Stansberry