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Business & Financer

Are Subprime Auto Loans Forming a New Consumer Lending Bubble?

The 2008 financial crisis was the single worst economic crisis in recent memory. There were a variety of interrelated factors that led to its development, but most people identify the first domino as deregulation in the financial industry that led to higher availability of subprime mortgages.

Put simply, banks were issuing mortgages at ridiculously low rates to subprime borrowers (those with limited or poor credit) to engage in hedge fund trading of derivatives (a newly available strategy, thanks to said deregulation). When Fed interest rates rose at a time when subprime interest rates were starting to reset, there was a cascade of homeowners who could no longer afford to keep their homes. Banks, simultaneously, suffered and stopped lending to each other, and the combination of financial industry and consumer economic woes caused global markets to spiral out of control.