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"Junk In The Trunk" ?" Investors Get "Comfortable" With Subprime Auto Loan

• https://www.zerohedge.com, by Tyler Durden

That may seem like a baseless assertion, but it's actually just simple math. Early in recoveries, borrowers and lenders are both shell-shocked by the last recession, so only high-quality deals get done. But as time passes, all the good borrowers get their loans and if banks want to keep the deals flowing, lower-quality borrowers must be found and financed. Eventually the deals become shockingly speculative and start blowing up en masse, bringing on the next downturn.

For a more sophisticated explanation of this process, see the work of the late/great Hyman Minsky, as described here:

Hyman Minsky has become famous in the aftermath of the financial crisis for his characterization of the three phases of markets – hedge finance, where the borrower can repay interest and principal out of cash flows; speculative finance, where cash flows can repay interest but not principal, and therefore need to roll over any financing; and Ponzi finance, where cash flows cannot pay either principal or interest and therefore must either borrow more or sell assets to support those costs.

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