Fallout From The SubPrime Loan Game

I couldn’t quite figure out why General Motors said a couple of days ago that SubPrime problems might be affecting them too. Huh?

They make a lot of car loans (oh yes and cars too), but real estate loans gone sour having an impact on their business?

Hmm, I realize that GM is constantly in the news justifying why they are no longer the big dog, why they are having this or that problem, why their cars are inferior to others and most recently, why they’re issuing a weak outlook.
It wasn’t until I read ‘Tuesday Tidbits’ at Random Roger’s blog that it started to make sense. He brings up an important point by saying that if people are in financial trouble, they will let other debt lapse first before their mortgage.

That most certainly would apply to SubPrime borrowers who, by definition, are financially disadvantaged. If the heat is on, they could file bankruptcy and get most of their consumer debt dismissed, except their mortgage loan. That’s why consumer advocates are trying to get the law changed—to include debt of mortgages as I mentioned in a previous post.

Once they let the mortgage go, it’s pretty much a sure thing that other debt already has reached delinquent status. Could GM be right this time?

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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