"Wealth Effect" = Widening Wealth Inequality

Authored by Charles Hugh Smith via OfTwoMinds blog,

Note that widening wealth and income inequality is a non-partisan trend.

One of the core goals of the Federal Reserve"s monetary policies of the past 9 years is to generate the "wealth effect": by pushing the valuations of stocks and bonds higher, American households will feel wealthier, and hence be more willing to borrow and spend, even if they didn"t actually reap any gains by selling stocks and bonds that gained value.

In other words, the mere perception of rising wealth is supposed to trigger a wave of renewed borrowing and spending.

This perception management only worked on the few households which owned enough of these assets to feel wealthier--the top 5%, the top 6 million out of 120 million households. This chart shows what happened as the Fed ceaselessly goosed financial assets higher over the past 9 years: the gains, real and perceived, only flowed to the top 5% of households earning in excess of $200,000 annually.

Spending by the bottom 95% has at best returned to the levels reached a decade ago in 2007.

By focusing on boosting financial assets to the moon as a means of goosing spending, the Federal Reserve has widened wealth and income inequality to the breaking point. Perception management doesn"t actually boost the inflation-adjusted wages of the bottom 95%, which have stagnated for decades. Nor does boosting assets do much good for the vast majority of households which have modest holdings of stocks and bonds, usually in IRA or 401K retirement accounts they can"t touch without paying steep penalties.

As the charts below illustrate, the Grand Canyon between the top 5% and everyone else is widening. Let"s say a househould has $12,000 in retirement funds and $5,000 in a savings account. (Many households have less than $1,000 in savings, so this example-household is doing pretty well to have $17,000 in cash and financial assets.)

Thanks to the Federal Reserve"s Zero Interest Rate Policy (ZIRP), savers have lost ground after adjustments for inflation. The stock market has more than doubled, and most bond funds have appreciated, but precious metals and other commodities have not performed as well. So let"s say the household"s retirement portfolio rose by a hefty 75%, or $9,000, to a total of $21,000.

Does this modest gain actually change the financial foundation of the household to the point that the household can now afford to buy a new vehicle, college tuition, etc.? The short answer is no; the gains are simply too modest as a percentage of income to make any difference.

Compare this to a top 5% household with hundreds of thousands of dollars of financial assets: gains registered in the hundreds of thousands do indeed move the needle on household wealth and perception management. The top 5% haven"t just reaped outsized gains in Fed-goosed assets; they"ve also reaped the vast majority of any wage gains generated in the past 9 years of "recovery."

As this chart shows, the bottom 90% lost ground, and the really substantial gains have accrued only to the top 1%.

Note that widening wealth and income inequality is a non-partisan trend. The political and financial elites have feathered their own nests while the bottom 95% have lost ground.

The Federal Reserve"s perverse policy of perception management has exacerbated wealth and income inequality: "wealth effect" = widening wealth inequality.

*  *  *

I"m offering my new book Money and Work Unchained at a 10% discount ($8.95 for the Kindle ebook and $18 for the print edition) through December, after which the price goes up to retail ($9.95 and $20). Read the first section for free in PDF format. If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

These PE Firms Are About To Get Crushed By Their Subprime Auto Bets

In the aftermath of the "great recession," private equity firms placed massive bets on subprime auto finance companies with the typical "thesis" going something like this: "well, people have to get to work don"t they?"...genius, if we understand it correctly.

Of course, the "thesis" seemed to be confirmed when auto securitizations performed relatively well throughout the financial crisis, amid a sea of mortgage bonds getting wiped out, and private equity titans were off to the races with wall street titans from Perella Weinberg to Blackstone and KKR scooping stakes in small niche lenders.

Unfortunately, as Bloomberg points out today, the $3 billion bet on subprime auto lenders hasn"t played out precisely to plan as the "well, people have to get to work" thesis has proved to be somewhat less than full proof.

A Perella Weinberg Partners fund has been sitting on an IPO of Flagship Credit Acceptance for two years as bad loan write-offs push it into the red. Blackstone Group LP has struggled to make Exeter Finance profitable, despite sinking almost a half-billion dollars into the lender since 2011 and shaking up the C-suite multiple times. And Wall Street bankers in private say others would love to cash out too, but there’s currently no market for such exits.

 

Since the turn of the decade, buyout firms, hedge funds and other private investors have staked at least $3 billion on non-bank auto lenders, according to Colonnade. Among PE firms, everyone from Blackstone and KKR & Co. to Lee Equity Partners, Altamont Capital and CIVC Partners waded in.

 

Many targeted smaller finance companies that often catered to the least creditworthy borrowers with nowhere else to turn. Overall, subprime car loans -- those extended to people with credit scores of 620 or lower -- have increased 72 percent since 2011. Last year, about 20 percent of all new car loans went to subprime borrowers.

 

“The PE guys sailed into this thing with stars in their eyes. Some of the businesses have done fine and some haven’t,” said Chris Gillock, managing director at Colonnade Advisors, a boutique investment bank. But right now, “it’s about as out-of-favor a sector as I can think of.”

Of course, the turnaround strategy was "simple." Given that subrpime auto collateral held up well during the great recession, private equity investors figured they were sitting on rock solid collateral that would holdup under even the most egregious loosening of underwriting standards.  Therefore, given that there was "no downside", lenders wholeheartedly embraced deteriorating underwriting standards, like stretching out terms so borrowers could "afford" cars they couldn"t really afford, as a way to grow their loans books. 

Alas, it didn"t work out as planned as subprime delinquencies are suddenly soaring and used car prices are tanking...making profits somewhat elusive.

Take Exeter. The company, which is licensed in all 50 states and works with roughly 10,000 dealerships, hasn’t been profitable since 2011, when Blackstone took a majority stake, an S&P Global Ratings report in September showed. That’s after the PE firm invested $472 million to help Exeter expand and cycled through three CEOs at the lender.

 

On a pretax basis, Exeter turned a profit in 2016 and 2017, according to Matthew Anderson, a spokesman at Blackstone. He added the New York-based firm hasn’t tried to sell the lender.

 

Blackstone may look to unload Exeter later next year, said a person familiar with the matter, who asked not to be identified because it’s private.

 

Bad loans remain an issue. This year, a rash of delinquencies in two bonds stuffed with loans that Exeter made in 2015 caused the securities to dip into their extra collateral to keep investors whole.

 

Another example is Flagship, which Perella Weinberg bought in 2010. (Innovatus Capital Partners, which manages the lender on behalf of Perella Weinberg, was formed by former Perella Weinberg managers last year after they split from the firm.)

As it turns out, the "well, people have to get to work" thesis only works to the extent that auto manufacturers maintain some level of discipline and refrain from exploiting their captive finance companies to flood the market with new supply...a move which will eventually lead to crashing used car prices and massive subprime securitization losses.

Unfortunately, as we pointed out last month, a review of the latest Fed data on auto loans underwritten by "Banks and Credit Unions" compared to those loans provided by "Auto Finance" companies prove that the nightmare scenario is playing out for subprime lenders...

First, taking a look at auto loans provided by traditional banks and credit unions, one can see some marginal deterioration in subprime auto loans.  That said, the deterioration is certainly nothing substantial with 90-day delinquencies pretty much in line with 2004/2005 levels and no where near the rates experienced in 2008/2009.

 

 

But, a drastically different picture emerges when looking at just the auto loans originated by America"s auto finance captives.  To our great "shock", auto OEMs in the U.S. seem to have been much more "flexible" on underwriting standards over the past couple of years resulting in delinquency rates that nearly rival those last experienced at the height of the great recession.

 

Of course, we"re sure that GM Financial and Ford Motor Credit just got unlucky with their deteriorating credit portfolios...certainly they would never knowingly attempt to game their own short-term financial success by putting millions of Americans into cars they can"t possibly afford, right?

This Michigan Bank Just Brought Back The Zero-Down Mortgage; They"ll Even Cover Your Closing Costs

A small savings bank in Michigan, Flagstar Bank, has come up with a genius, innovative new mortgage product that they believe is going to be great for their investors and low-income housing buyers: the "zero-down mortgage."  What"s better, Flagstar is even offering to pay the closing costs of their low-income future mortgage debtors.  Here"s more from HousingWire:

Under the program, Flagstar will gift the required 3% down payment to the borrower, plus up to $3,500 to be used for closing costs.

 

According to the bank, there is no obligation for borrowers who qualify to repay the down payment gift.

 

The program is available to only certain low- to moderate-income borrowers and borrowers in low- to moderate-income areas throughout Michigan.

 

Borrowers would not have to repay the down payment or closing costs. But a 1099 form to report the income would be issued to the Internal Revenue Service by the bank. So the gifts could be taxable, depending on the borrower’s financial picture.

 

Flagstar said borrowers who might qualify for its new program typically would have an annual income in the range of $35,000 to $62,000. The sales price of the home -- which must be in qualifying areas -- would tend to be in the range of $80,000 to $175,000.

Think it"s too good to be true?  Lakeshia Wiley of Detroit"s west side begs to differ...she recently went through Flagstar to purchase her new home and only had to come up with $350 of her own money.  Per the Detroit Free Press:

Lakeshia Wiley, 35, said she wouldn"t have been able to buy her first home without the Fifth Third Down Payment Assistance program and two other grants, including one from Southwest Solutions.

 

The brick home, built in 1951, is on Detroit"s west side, needed very little work and was priced at $50,000.

 

"I"m very excited every time I think about it. It"s beautiful. I love it," Wiley said.

 

Wiley never expected to be able to buy a home, though, because she has had a hard time saving for a down payment.

 

"I didn"t think I"d be able to do it," said the single mother who has two sons, ages 17 and 10, and a daughter, age 6. She works at a Detroit pharmacy.

 

Thanks to the down payment assistance and the grants, Wiley was able to buy her home in April. She had to bring less than $350 to the table at closing.

The Flagstar program is available in 18 counties in Michigan, and could be used for certain homes in Detroit and Flint, along with other cities.

Of course, we would highly encourage Flagstar to take a look back into ancient history for case studies on what happened the last time banks started peddling "innovative" mortgage products.  Here"s a summary of the Lehman Brothers case study:

Ironically, South Park also did some fascinating research on the topic:

Yale"s Endowment CIO Has Some Really Bad News For Public Pensions...

Public pensions all around the country like to play a clever little game that allows them to drastically understate the current value of their future liabilities and therefore pretend that their ponzi schemes are something other than insolvent frauds.  Of course, we"re talking about the artificially high discount rates that pension boards consistently use to understate their net underfunding levels...a topic that we"ve written about frequently over the years.

Alas, at least in the opinion of Yale"s Chief Investment Officer David Swensen, those 7.5% annual returns that pensions love to rely on, even if they"ve never managed to actually achieve them, are going to be increasingly difficult to hit over the coming years.  As Swensen told Bloomberg, despite achieving a 13.5% annual return over the past 32 years, he is now preparing university officials for much lower returns averaging around 5% for the foreseeable future.

The investment chief, who was interviewed by former U.S. Treasury Secretary Robert Rubin, also said he’s expecting lower returns for the university’s endowment, which he’s run for 32 years with a 13.5 percent average annual rate of return.

 

For the past 12 to 18 months, Swensen said he has been warning university officials to expect much lower returns in the future, as little as 5 percent annually, which would be down from previous assumptions of 8.25 percent.

 

“It’s not a very popular change,” he said. “We’re victims of our own success.”

Meanwhile, as we pointed out a couple of months ago (see: Pension Ponzi Exposed: Minnesota Underfunding Triples After Tweaking This One Small Assumption...), the state of Minnesota recently provided a beautiful illustration of exactly what happens when public pensions decide to ditch their inflated discount rates for more realistic assumptions...their net underfunding tripled to $50 billion...here"s more

from Bloomberg:

Minnesota’s debt to its workers’ retirement system has soared by $33.4 billion, or $6,000 for every resident, courtesy of accounting rules.

 

The jump caused the finances of Minnesota’s pensions to erode more than any other state’s last year as accounting standards seek to prevent

governments from using overly optimistic assumptions to minimize what they owe public employees decades from now. Because of changes in actuarial math, Minnesota in 2016 reported having just 53 percent of what it needed to cover promised benefits, down from 80 percent a year earlier, transforming it from one of the best funded state systems to the seventh worst, according to data compiled by Bloomberg.

 

The Minnesota’s teachers’ pension fund, which had $19.4 billion in assets as of June 30, 2016, is expected to go broke in 2052. As a result of the latest rules the pension has started using a rate of 4.7 percent to discount its liabilities, down from the 8 percent used previously. As a result, its liabilities increased by $16.7 billion.

Unfortunately, lower returns was only part of the bad news that Swensen had for U.S. investors as he described the current disconnect between "fundamental risks that we see all around the globe with the lack of volatility in our securities markets" as "profoundly troubling."

David Swensen, Yale University’s longtime chief investment officer, said the lack of market volatility in the current geopolitical environment is a major concern and warned that another crash is possible.

 

“When you compare the fundamental risks that we see all around the globe with the lack of volatility in our securities markets, it’s profoundly troubling,” Swensen, 63, said Tuesday during remarks at the Council on Foreign Relations in New York. That “makes me wonder if we’re not setting ourselves up for an ’87, or a ’98 or a 2008-2009,” he said, referring to previous market crises.

 

“The defining moments for portfolio management” came in those years, “and if you ignore that you’re not going to be able to manage your portfolio,” Swensen said.

 

Asked why Yale’s uncorrelated assets are higher now than in 2008, he said, "I’m not worried about the economy so much, what I’m concerned about is valuation."

Of course, we"re sure these warnings will provoke pension managers all around the country to promptly reassess their optimistic return assumptions and adjust future pension benefits accordingly to preserve the solvency of their funds for future generations of pensioners...

Next Phase Of Carmageddon: The Banks

Authored by Wolf Richter via WolfStreet.com,

Banks have started to tighten lending standards for prime and subprime borrowers, and it shows...

Banks are further tightening their lending standards for prime and subprime auto loans. This process started in Q2 2016, when auto lending had reached the apogee of loosey-goosey underwriting that had boosted sales of new and used vehicles to record levels and had ballooned auto loan-balances outstanding to the $1-trillion mark. It also boosted risks for lenders. Inevitably, subprime auto loans started running into trouble in 2016, and it was time to not throw the last trace of prudence into the wind entirely.

The chart below - based on data from the Fed’s Senior Loan Officer Survey on bank lending practices for the third quarter - shows the net percentage of banks tightening lending standards. The negative percentages below the red line signify net easing. It shows how loan officers have gradually, in fits and starts, dialed back their easing before Q2 2016 and ratcheted up their tightening after Q2 2016:

During Q3 2017, 10% of the banks tightened underwriting conditions, compared to the prior quarter, but 0% loosened underwriting conditions. In other words, the tightening is proceeding gradually, on a bank-by-bank basis, and the easing has stopped entirely.

“Banks reportedly tightened most terms surveyed for auto loans,” the report says. Specifically, here are some of the terms the banks tightened in Q3, which adds to the banks that tightening in prior quarters:

• 7% net tightened conditions on minimum required down payments.


• 5% net tightened conditions on credit scores


• 8% net tightened granting loans to customers that did not meet credit scoring thresholds

In a set of special questions, the October survey asked why banks were changing credit standards or terms for prime and subprime borrowers “this year.” The reasons were nearly the same for both prime and subprime borrowers, but subprime is clearly the bigger concern. Here is what banks said about their reasons for tightening lending standards for subprime borrowers:

• Less favorable or more uncertain economic outlook: 50% somewhat important; 30% very important.


• Deterioration or expected deterioration in the quality of your bank’s existing loan portfolio: 30% somewhat important; 40% very important.


• Reduced tolerance for risk: 30% somewhat important; 50% very important.


• Less favorable or more uncertain expectations regarding collateral values [used vehicle values]: 40% somewhat important; 40% very important.


• Lower or more uncertain resale value for these loans in the secondary market: 33% very important; 0% somewhat important.

Some of this tightening is already showing up in the data. For example, the average maturity of new-vehicle loans peaked in Q1 2017 at 67.4 months, according to Federal Reserve data. The data for Q3 is not yet available, but by Q2 the average maturity dropped to 66.5 months, the first major drop since 2011.

Note on the left side of the chart how the average maturity plunged during the Financial Crisis as credit was freezing up and as auto sales collapsed, and it was hard to get anything financed:

But the tightening hasn’t yet shown up in total auto loan balances outstanding, which jumped by $19 billion during the third quarter, likely boosted by the first batch of replacement sales from the hurricanes.

What has shown up is a massive adjustment of the data going back to Q4 2015. Since I keep the old data, I overlaid the prior unadjusted data (red line) and the current adjusted data (blue columns) in the chart below. The adjustment retroactively wiped out $39 billion in auto loan balances in Q4 2015. By Q1 2017, the adjustment had wiped out $41 billion:

Adjustment of data happens all the time. These are estimates that can be off, and occasionally, adjustments are made to try to put them back on track. But it does show that auto loans did not suddenly plunge in Q4 2015, as the chart based on the blue columns alone would have otherwise indicated.

That banks are tightening their auto-lending standards ever so gradually is another headwind the auto industry is facing. The hurricanes, by destroying or damaging a few hundred thousand vehicles, created some temporary replacement demand for new and used vehicles, some of it financed by insurance companies.

This replacement demand is now papering over the underlying problems of the industry that are constraining demand:

• Too much auto debt


• Too much “negative equity” in vehicles after years of loosey-goosey lending, which makes trading difficult


• New vehicle prices that have moved out of reach


• And incomes that have been stagnating for a large part of the population.

And these headwinds will still be there after the replacement demand from the hurricanes settles down.

Carmageddon for Tesla, Fiat Chrysler, Hyundai, and Kia. But not for all automakers. Read…  Pickup Sales Boom, Cars get crushed, Tesla Deliveries Plunge

Will Americans Die Young Enough To Save Pension Plans?

Authored by Doug French via The Mises Institute,

“Pension fund problems worsen in 43 states” says the Bloomberg headline.

Laurie Meisler writes,

New Jersey, Kentucky and Illinois continue to lose ground and now have only about one third of the money they need to pay retirement benefits. And three states had double-digit declines in their pension funding ratios in the past year: Colorado, Oregon and Minnesota - though some of this can be attributed to actuarial changes in the way pension liabilities are calculated.

Nevada PERs is thinking about making a change, from assuming 8% investment returns to 7.5%. The higher the assumed rate, the less future beneficiaries have to contribute.  And, ultimately, Sean Whaley writes for the LVRJ,

The assumptions are used to ensure the solvency of the plan over the long term for the approximately 105,000 active members and 54,000 retired and disabled members. Because the public retirement plan is a defined benefit plan where retirees get a fixed monthly pension, taxpayers are ultimately responsible for its fiscal health.

Nevada PERS Executive Officer Tina Leiss said NvPERs funding ratio of 74.1 could drop if the returns assumption is lowered.

The good news (or maybe it"s bad news) is “Americans are retiring later, dying sooner, and sicker in-between” says Bloomberg. Ben Steverman writes,

Data released last week, reports Bloomberg,  suggest Americans’ health is declining and millions of middle-age workers face the prospect of shorter, and less active, retirements than their parents enjoyed.

The mortality rate increased 1.2% from 2014 to 2015, the first time its increased since 2005 and the first time it"s jumped over 1% since 1980.

Full social security benefits don’t kick in until a person is 66+ now, so,

“Almost one in three Americans age 65 to 69 is still working, along with almost one in five in their early 70s.”

That sounds okay, except, University of Michigan economists HwaJung Choi and Robert Schoeni have studied middle-aged folks and found,

“the number of middle-age Americans with ADL (activity of daily living) limitations has jumped: 12.5 percent of Americans at the current retirement age of 66 had an ADL limitation in their late 50s, up from 8.8 percent for people with a retirement age of 65.”

Then you might say, well, I might not be able to get around, but at least my mind is sharp. Except, “Cognitive skills have also declined over time. For those with a retirement age of 66, 11 percent already had some kind of dementia or other cognitive decline at age 58 to 60, according to the study. That’s up from 9.5 percent of Americans just a few years older, with a retirement age between 65 and 66.”

Maybe that’s why people are either killing themselves quickly - suicide - or slowly with alcohol, drugs, or overeating.  

This is all good news for pension plans...

As life expectancy drops - The Society of Actuaries says a 65-year-old man can expect to live to 85.6 years, and a woman can expect to make it to 87.6.

So - the group calculates a typical pension plan’s obligations could fall by 0.7 percent to 1 percent.

That"s a start but it won’t do much good, in New Jersey, Kentucky and Illinois.

*  *  *

Simply put, we"re gonna need a bigger die-off - or perhaps a few more years of unhealthy living will start to really help.

What Kentucky’s Retirement Rush Says About The Future of State Pensions

Via The Daily Bell

Just because a Ponzi scheme is run by a government doesn’t mean it won’t collapse.

The situation in Kentucky serves as a dire warning about larger pension systems including Social Security.

What Kentucky is currently facing in like a bank run. When people hear that a bank is failing, they all scramble to get their money out before it goes bust. This snowballs and the bank runs out of cash that much quicker.

Kentuckians are retiring in droves, hoping to get a piece of the pension funds they were promised. Worried that the money might not be there in a few years, they are opting to start collecting now, lest they get nothing. But this is causing a run-on-the-bank effect. The pension system is collapsing that much quicker.

Politicians have long kicked the can down the road. The idea is that there will always be a future generation, unborn children to pay for the promises they make today. There will always be new suckers to pay for their unfunded liabilities.

But the bubble bursts. Unless a population grows exponentially, this cannot work. That is why it is a Ponzi scheme. There’s always a bottom layer that holds up the rest of the pyramid.

Of course, the government of Kentucky has assured potential retirees that they don’t need to panic. The state claims that even if the legislation passes to fix the problem, government employees will have time to retire on the old plans if they choose.

But that hasn’t seemed to ease the high retirement numbers. In past months, between 24-64% more people have retired (depending on the sector) compared to 2016. And with officials floating the idea of raising the retirement age, many have a better safe than sorry attitude.

This also shows that people don’t trust the government assurances. And of course, they shouldn’t. After all, the government also told them not to worry, the pensions they promised were funded. After a history of governments at all levels reneging on their promises, it is better to take the money and run.

And it’s the same old story for how they got into the mess. Spend now, worry about funding it later. There’s never enough money for the government, have you ever noticed that? Companies balance their sheets or go bust. Governments keep chugging along despite breaking promises, overspending, and failing to plan.

PFM mostly blames the approach used to fund the systems, one used by most public pension plans across the country, which based the government’s contributions to the plans on a percentage of a growing payroll. It says that’s like a homeowner basing mortgage payments on a percentage of future income he expects, or hopes, will grow.

Translation: it was a Ponzi scheme. And that same scheme is used by most government retirement plans. The money in these accounts is reinvested. But you don’t control where they are putting the money. Turns out Kentucky made some bad decisions on placing retirement money in certain hedge funds that didn’t do so hot after the 2008 recession.

Also, in the 1990s when the pension plans were fully funded, the General Assembly approved benefit increases without funding them — including an expensive cost of living benefit increase for Kentucky Retirement System members in place between 1996 and 2012.

The bottom line is that you never want to be dependent on the government, or even a private company for your pension. The only way to truly safeguard your retirement is to take it into your own hands.

Maybe some of your retirement goes into a hedge fund, but certainly not all of it. But a better plan is to do the research for what kinds of stocks and investments make sense. Spread the risk across different sectors, and maybe even different country’s stock markets. If you can’t do the research for proper investments, at least do the research to find out who the best person or organization is to inform you.

Your plan may be in part a company pension or retirement plan. But it should not stop there. It is always better to diversify savings (foreign accounts, cash, precious metals) and diversify investments (property, foreign and domestic stocks). Then you can also spend what you can afford to lose on riskier, but potentially high yielding, speculations (cryptocurrency, startups).

But you know the old saying about doing the same thing over and over and expecting different results. With their track record, it’s time to stop putting trust in government to take care of your finances.

Equifax Web-Page Goes Offline Amid Reports Of New Breach

Equifax has taken one of its web pages offline as its security team looks into reports of another potential cyber breach, the credit reporting company, which recently disclosed a hack that compromised the sensitive information of 145.5 million people, said on Thursday.

"We are aware of the situation identified on the equifax.com website in the credit report assistance link," Equifax spokesman Wyatt Jefferies said in an email.

"Our IT and security teams are looking into this matter, and out of an abundance of caution have temporarily taken this page offline."

As CBC reports, the move came after an independent security analyst on Wednesday found part of Equifax"s website was under the control of attackers trying to trick visitors into installing fraudulent Adobe Flash updates that could infect computers with malware, the technology news website Ars Technica reported.

When I clicked it (from Gmail on Android) I was redirected to a spam page shortly after seeing the Equifax credit file form.

I thought maybe it was an anomaly because it didn"t happen again. But after reading your article about how sometimes hacks will redirect randomly I tried the link again just now and sure enough I got a spam page again (lucksupply.club saying I won an iPhone X). This is Chrome-in-a-tab from Gmail so i don"t believe there"s any extensions or other malware on my device that could have caused this redirect.

EFX share price is tumbling...

Mauldin: Americans Don't Grasp The Magnitude Of The Looming Pension Tsunami

Authored by John Mauldin via MauldinEconomics.com,

Total unfunded liabilities in state and local pensions have roughly quintupled in the last decade.

You read that right—not doubled, tripled, or quadrupled—quintupled. That’s nice when it happens on a slot machine, not so nice when it’s money you owe.

You will also notice in the chart that much of that change happened in 2008.

Why was that?

That"s when the Fed took interest rates down to nearly zero, meaning it suddenly took more cash to fund future payments.

According to a 2014 Pew study, only 15 states follow policies that have funded at least 100% of their pension needs. And that estimate is based on the aggressive assumptions of pension funds that they will get their predicted rate of returns (the “discount rate”).

Kentucky, for instance, has unfunded pension liabilities of $40 billion or more. This month the state budget director notified local governments that pension costs could jump 50–60% next year.

That’s due to a proposed reduction in the system’s assumed rate of return from 7.5% to 6.25%—a step in the right direction but not nearly enough.

Think About This as an Investor: How Can You Guarantee 6–7% Returns These Days?

Do you know a way to guarantee yourself even 6.25% average annual returns for the next 10–20 years? Of course you don’t. Yes, some strategies have a good shot at doing it, but there’s no guarantee.

And if you believe Jeremy Grantham’s seven-year forecasts (I do: His 2009 growth forecast was spot on), then those pension funds have very little hope of getting their average 7% predicted rate of return, at least for the next seven years.

Now, here is the truth about pension liabilities. Let’s assume you have $1 billion in funding today. If you assume a 7% compound return—about the average for most pension funds—then that means in 30 years that $1 million will have grown to $8 billion (approximately).

Now, what if it’s a 4% return? Using the Rule of 72, the $1 billion grows to around $3.5 billion, or less than half the future assets in 30 years if you assume 7%.

Remember that every dollar that is not funded today means that somewhere between four dollars and eight dollars will not be there in 30 years when somebody who is on a pension is expecting to get it.

Worse, without proper funding, as the fund starts going negative, the funding ratio actually gets worse, sending it into a death spiral. The only way to bring it out of the spiral is huge cuts to other needed services or with massive tax cuts to pension benefits.

The Situation Is Dire Even in the Best-Case Scenario. But What If…

The State of Kentucky’s unusually frank report regarding the state’s public pension liability sums up that state’s plight in one chart:

The news for Kentucky retirees is quite dire, especially considering what returns on investments are realistically likely to be. But there’s a make or break point somewhere.

What if pension plans must either hit that 6% average annual return for 2018–2028 or declare bankruptcy and lose it all?

That’s a much greater problem, and it’s a rough equivalent of what state pension trustees have to do. Failing to generate the target returns doesn’t reduce the liability. It just means taxpayers must make up the difference.

But wait, it gets worse.

The graph we showed earlier stated that unfunded pension liabilities for state and local governments were $2 trillion. But that assumes an average 7% compound return. What if we assume 4% compound returns?

Now the admitted unfunded pension liability is $4 trillion.

But what if we have a recession and the stock market goes down by the past average of more than 40%? Now you have an unfunded liability in the range of $7–8 trillion.

We throw the words a trillion dollars around, not realizing how much that actually is. Combined state and local revenues for the US total around $2.6 trillion.

After the next recession (whenever that is), the unfunded pension liabilities for state and local governments will be roughly three times the revenue they are collecting today, and that’s before a recession reduces their revenues.

Can you see the taxpayer stuck between a rock and a hard place? Two immovable objects meeting? The math just doesn’t work.

We are starting to see cities filing for bankruptcy. That small ripple will be a tsunami within 7–10 years.

It Goes Beyond a Financial Crisis. It’s a Social, Political Catastrophe

Many state and local governments have actually 100% funded their pension plans. Some states and local governments have even overfunded them.

What that really means is that the unfunded liabilities are more concentrated, and they show up in unlikely places. You think Texas is doing well? Look at some of our cities and weep.

Look, too, at other seemingly semi-prosperous cities all over the country. Do you think the suburbs of Dallas will want to see their taxes increased to help out the city? If you do, I may have a bridge to sell you – unless you would rather have oceanfront properties in Arizona.

This issue is going to set neighbor against neighbor and retirees against taxpayers. It will become one of the most heated battles of my lifetime. It will make the Trump-Clinton campaigns look like a school kids’ tiddlywinks smackdown.

I was heavily involved in politics at both the national and local levels in the 80s and 90s and much of the 2000s. Trust me, local politics is far nastier and more vicious. And there is nothing more local than police and fire fighters and teachers seeing their pensions cut because the money isn"t there. Tax increases of up to 100% are going to become commonplace.

But even these new revenues won’t be enough… because we will be acting with too little, too late.

Pension Ponzi Exposed: Minnesota Underfunding Triples After Tweaking This One Small Assumption...

Defined Benefit Pension Plans are, in many cases, a ponzi scheme.  Current assets are used to pay current claims in full despite insufficient funding to pay future liabilities... classic Ponzi.  But unlike wall street and corporate ponzi schemes no one goes to jail here because the establishment is complicit.  Everyone from government officials to union bosses are incentivized to maintain the status quo...public employees get to sleep better at night thinking they have a "retirement plan," public legislators get to be re-elected by union membership while pretending their states are solvent and union bosses get to keep their jobs while hiding the truth from employees.  

So what allows this ponzi to persist?  It all comes down to one simple assumption: Discount Rates.  You see, if you simply discount future liabilities at a high enough discount rate then you can make any massively underfunded pension ponzi look like a stable, healthy retirement gold mine. 

In fact, just over a year ago we took a look at what would happen if we calculated the true underfunded level of America"s public pensions at more reasonable discount rates.  The result showed that the media"s highly referenced underfunding of $2 trillion soared to something closer to $5-$8 trillion when more reasonable discount rates were employed.

We decided to take a look at what would happen if all federal, state and local pension plans decided to heed the advice of Mr. Gross. As one might suspect, the results are not pleasant.  We conservatively assume that public pensions are currently $2.0 trillion underfunded ($4.5 trillion of assets for $6.5 trillion of liabilities) even though we"ve seen estimates that suggest $3.5 trillion or more might be more appropriate.  We then adjusted the return on asset assumption down from the 7.5% used by most pensions to the 4.0% suggested by Mr. Gross and found that true public pension underfunding could be closer to $5.5 trillion, or over 2.5x more than current estimates.  Others have suggested that returns should be closer to risk-free rates which would imply an even more draconian $8.4 trillion underfunding.  

 

Now, the state of Minnesota has gracefully stepped forward to beautifully illustrate our point.  Upon making a few minor "tweaks" to their various funds" discount rates, the state found that their aggregate pension underfunding more than tripled from roughly $16 billion to over $50 billion.  Here"s more from Bloomberg:

Minnesota’s debt to its workers’ retirement system has soared by $33.4 billion, or $6,000 for every resident, courtesy of accounting rules.

The jump caused the finances of Minnesota’s pensions to erode more than any other state’s last year as accounting standards seek to prevent governments from using overly optimistic assumptions to minimize what they owe public employees decades from now. Because of changes in actuarial math, Minnesota in 2016 reported having just 53 percent of what it needed to cover promised benefits, down from 80 percent a year earlier, transforming it from one of the best funded state systems to the seventh worst, according to data compiled by Bloomberg.

The Minnesota’s teachers’ pension fund, which had $19.4 billion in assets as of June 30, 2016, is expected to go broke in 2052. As a result of the latest rules the pension has started using a rate of 4.7 percent to discount its liabilities, down from the 8 percent used previously. As a result, its liabilities increased by $16.7 billion.

But other factors also helped boost Minnesota’s liabilities: Eight of Minnesota’s nine pensions reduced their assumed rate of return on their investments to 7.5 percent from 7.9 percent, while three began factoring in longer life expectancy.

All of which resulted in this:

Of course, Minnesota"s underfunding didn"t just magically "soar by $33.4 billion" as Bloomberg puts it...in reality, the state"s pensions were always underfunded by ~$50 billion...the only difference is that that some pension administrators finally decided to stop lying to their retirees and report reality.

All of which rendered this Bloomberg map from just two months ago showing an 80% funding ratio for Minnesota completely obsolete...

...Sorry, Minnesota teachers but you"re almost as screwed as your counterparts in Illinois...you just didn"t know it until your bosses finally decided to stop lying to you.

Did the Sub-Prime 2.0 Bubble Just Burst?

As you know, we’ve been tracking the sub-prime auto-loan industry closely.

Our view is that this industry represents the worst of the worst excesses of our current credit bubble, much as the subprime mortgage industry represented the worst of the worst in excess for the Housing Bubble.

For this reason, we refer to sub-prime auto-loans as Subprime 2.0.

As you no doubt recall, it was when housing prices rolled over in 2006 that the sub-prime mortgage industry began blowing up. After all, the only reason those loans were being made was because housing prices were going up. So once housing rolled over, it was only a matter of time before the sub-prime mortgage players blew up.

Well, the same thing that happened to housing in 2006 is now happening in automobiles: prices are rolling over. So the value of the underlying assets is now falling.

Even worse, total vehicle sales have ALSO rolled over. And this is happening despite ridiculous offers such as 0% down and interest free financing.

This is a MAJOR warning that the credit cycle is once again turning. The Sub-Prime 2.0 bubble is bursting as we write this.

We all know what comes next.

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Bank Of England Warns Of "Spiral Of Complacency" Over Soaring Consumer Debt

A few weeks ago, we wrote a note about how European auto lenders are becoming just about as ridiculously undisciplined as their counterparts in the United States.  Apparently an ever-growing reliance of European millennials on lease financing has auto ABS investors worried about a potential crash in used car prices at some point in the not so distant future...that sound familiar to anyone?  (See: It"s Not Just Americans, Europe"s New Obsession With Auto Leases Is "Catastrophic For Used Car Prices")

Then came an undercover investigation by the Daily Mail exposing just how "undisciplined" the auto lending market has become in England.  Their undercover reporters visited a total of 22 dealerships and were repeatedly offered cars of various values with no money down and despite reporters admitting that they had no job and no source of income. 

Reporters visited 22 dealerships in England and Scotland, saying they were in their early twenties and either unemployed, on low incomes or trying to buy a car despite having poor credit ratings. Half of the dealerships – including ones selling Audis, Mazdas, Suzukis, Fords, Vauxhalls and Seats – told them they could have a brand new car without paying a penny up front.

In each case they were offered Personal Contract Purchase (PCP) deals – a type of car loan that now makes up nine out of ten car sales bought on finance in Britain.

These deals offer smaller monthly payments than traditional car loans.

A reporter who said he was working part-time on the minimum wage was offered a £15,000 Seat Ibiza without a deposit at a Seat dealership in Manchester.  Another reporter suggested that he had bad credit, but he was offered an £8,600 Vauxhall Corsa in Birmingham.

Kevin Barker, 71, found himself £3,500 in debt when he suffered a heart attack six months into a PCP deal. He said a ‘pushy’ Toyota salesman ‘pressured’ him into taking out a 36-month agreement in November 2014 and he was not told of the repercussions if he fell ill or lost his job.

And while offering $20,000 auto loans to unemployed teenagers may not seem like that big a deal to U.S. consumers, in Britain it apparently has a lot of bankers worried.  As Alex Brazier of the Bank of England put it in a recent Liverpool speech, lenders are "dicing with a spiral of complacency."  Per The Guardian:

“Ten years ago, an unsafe financial system caused financial crisis and economic disaster”, he said. “The western banking system had expanded rapidly. Banks – and their regulators – had been blind to the basic fact that more debt meant greater risk of loss.

“Complacency gave way to crisis. Companies and households were unable to refinance their debts. The result was economic disaster. In this country alone, close to a million jobs were lost and more than 100,000 businesses failed. Too much debt made the financial system, and the economy, unsafe. Too many people paid the price when those risks materialised.”

“Lenders have not entered, but they may be dicing with the spiral of complacency,” Brazier said, noting that as credit became cheaper it was taken up more widely and was serviced more easily.

“The spiral continues, and borrowers rack up more and more debt. Lending standards can go from responsible to reckless very quickly. The sorry fact is that as lenders think the risks they face are falling, the risks they – and the wider economy – face are actually growing,” Brazier said.

“By September we will have assessed whether the rapid growth has created any gap in the line. If it has, we’ll plug it,” Brazier said.

Of course, when lending standards enter their "spiral of complacency" phase, it"s not just a single asset class that"s impacted.  As The Guardian notes, loan terms for everything from credit cards to personal loans to mortgages have all participated in the consumer credit mania...

He added that terms and conditions on credit cards and personal loans had become easier. The average advertised length of 0% credit card balance transfers had doubled to close to 30 months, while advertised interest rates on £10,000 personal loans had fallen from 8% to around 3.8%, even though official interest rates had barely changed.

He added that developments in mortgage debt had been much less striking than those in consumer debt and car finance, with lending for home loans up by just 3% over the past year. “But even here there are some tentative signs of boundaries being pushed,” he said.

Strong competition for business was resulting in more lending at higher loan-to-income (LTI) multiples, with the share at an LTI above 4 increasing from 19% to 26% over the past two years.

...all of which has resulted in a stern warning from the BoE that failure to unilaterally reign in reckless lending standards would inevitably result in a new regulations.

The Bank of England has told banks, credit card companies and car loan providers that they risk fresh action against reckless lending as it warned of a looming “spiral of complacency” about mounting consumer debt.

In its toughest warning yet about the possibility of a rerun of the financial crisis that devastated the economy 10 years ago, Threadneedle Street admitted it was alarmed about the increase in the amount of money being borrowed on easy terms over the past year.

“Household debt – like most things that are good in moderation – can be dangerous in excess”, Alex Brazier, the Bank director for financial stability, said in a speech in Liverpool. “Dangerous to borrowers, lenders and, most importantly from our perspective, everyone else in the economy.”

"Lenders have been the lucky beneficiaries of the benign way the economy has evolved. In expanding the supply of credit, they may be placing undue weight on the recent performance of credit cards and loans in benign conditions,” Brazier said.

Of course, if new regulations fail to materialize then British banks can always do what American banks do...simply package up their toxic consumers loans into a nice securitized product and sell it to taxpayer backed pension funds...it"s a much cleaner way to socialize poor lending standards as opposed to waiting around for more overt "bailouts" later on down the road...

"I'm Concerned For My Friend The President... They Are Going To Find Something"

Authored by Mac Slavo via SHTFplan.com,

Robert Kiyosaki is the well known author of the widely popular Rich Dad, Poor Dad series. As an outside-the-box thinker Kiyosaki has recently suggested that the U.S. economy is under so much pressure that it is in real danger of collapse. He is also a long-time advocate of gold and silver as a way to protect wealth during times of financial calamity. Kiyosaki happens to be a very good friend of President Donald Trump, with whom he has written two books.

In the following interview with Infowars.com, he says that America is not only in serious trouble because of a poor education system, corrupt bureaucrats and socialist-leaning government employees, but that entrenched Deep State elites are feverishly working to take down the President.

In dealing with Donald… he’s straight… he listens… he makes decision quickly…

And I think that’s his Achilles heel… You know, because bureaucrats, all they want is to keep their jobs… they’re not here to get the job done.

So I feel for my friend Donald… he is a great man.. he has the same disease I have… foot and mouth… or Tweet and mouth…

I’m so politically incorrect… that’s what he is… it’s so unfortunate… everybody says ‘well, stop Tweeting.”

Well, it’s Donald… People look at that covfefe he Tweeted… but at the same time he went to NATO and he said to NATO, “pay up… you guys are not paying your bills.”

Then he went to Saudi Arabia and said “let’s kick ISIS’ butt.”

That’s the kind of leader he is… but the press never covers that…

…

Our whole system is suspect right now… it’s all these bureaucrats and people with their hands in pockets… why does a politician go into office poor and leave rich?

How does it happen? That’s corruption… but nobody says anything about that.

…

My concern for my friend the President… they are going to find something… it doesn’t make a difference what they find… they will find something.

Just this week we learned that Democrats in Congress, reportedly with the support of some Republicans, are spearheading a new law that would create an “Oversight Commission on Presidential Capacity.” The committee would be a bi-partisan panel designed specifically to investigate President Trump’s mental health and to oust him under the 25th Amendment of the U.S. Constitution. Considering that non-conformity has now been identified by psychiatrists as a mental disorder, it should be clear, as Robert Kiyosaki warns, that finding a reason, any reason, to get rid of Trump would be a fairly straightforward process with the right people involved in the investigations.

Coupled with a variety of investigations and accusations involving everything from Russian collusion to alleged blackmailing of MSNBC hosts Joe Scarborough and Mika Brzezinski about an Enquirer article, if the Deep State wants to find something, they absolutely will.

Good Luck Getting Out Of That Subprime Auto Loan When Used Car Prices Crash

We"ve written frequently in recent months about the coming subprime auto crisis which will very likely be prompted by a wave of off-lease vehicles that will flood the market with used inventory over the coming years.  In fact, Morgan Stanley recently predicted that the surge in used inventory could result in as much as a 50% crash in used car prices over the next couple of years which would, in turn, put further pressure on the new car market which has already resorted to record incentive spending to maintain volumes.

Here are just a couple of our most recent notes on the topic:

• Signs Of An Auto Bubble: Soaring Delinquencies In These 266 Subprime ABS Deals Can"t Be Good


• New Warning Signs Emerge For Subprime Auto Securitizations


• Auto Lending Update - Someone Please Explain How This Is Not A Bubble

Of course, while pretty much anyone has been able to purchase that brand new BMW of their dreams over the past 5 years...courtesy of a surge in subprime lending volumes....

 

...getting out of those loans once used car prices crash and millions of Americans are left with massive negative equity balances won"t be quite so easy...just ask Yvette Harris who is still making payments on her 1997 Mitsubishi nearly a decade after her car was repossessed.  Per the New York Times:

More than a decade after Yvette Harris’s 1997 Mitsubishi was repossessed, she is still paying off her car loan.

 

She has no choice. Her auto lender took her to court and won the right to seize a portion of her income to cover her debt. The lender has so far been able to garnish $4,133 from her paychecks — a drain that at one point forced Ms. Harris, a single mother who lives in the Bronx, to go on public assistance to support her two sons.

 

“How am I still paying for a car I don’t have?” she asked.

 

For millions of Americans like Ms. Harris who have shaky credit and had to turn to subprime auto loans with high interest rates and hefty fees to buy a car, there is no getting out.

 

Many of these auto loans, it turns out, have a habit of haunting people long after their cars have been repossessed.

And while the aggregate subprime auto credit balances are no where near the trillions in debt that was extended to subprime mortgage borrowers leading up to the great recession, for many low-income Americans the fallout could actually be worse because they can"t simply walk away.

With mortgages, people could turn in the keys to their house and walk away. But with auto debt, there is increasingly no exit. Repossession, rather than being the end, is just the beginning.

 

“Low-income earners are shackled to this debt,” said Shanna Tallarico, a consumer lawyer with the New York Legal Assistance Group.

Meanwhile, with low-income borrowers unable to afford a lawyer in many cases, defendants often skip court dates and don"t even realize they"re still on the hook for payments until debt collectors start to garnish their wages.

"Essentially, the dealers are not selling cars. They are selling bad loans,” said Adam Taub, a lawyer in Detroit who has defended consumers in hundreds of these cases.

 

Many lawyers assisting poor borrowers like Ms. Robinson say they learn about the lawsuits only after a judge has issued a decision in favor of the lender.

 

Most borrowers can’t afford lawyers and don’t show up to court to challenge the lawsuits. That means the collectors win many cases, transforming the debts into judgments they can use to garnish wages.

Of course, if used car prices tank leaving millions of people with negative equity balances and defaults from auto loans they could never afford in the first place...you know what that means for new car prices...

Millennial Mortgage Brokers Are Reviving "The Lost Art" Of Selling People Homes They Cannot Afford

Nearly a decade after the collapse of the subprime mortgage market wrecked the US economy and ushered in one of the worst financial crises in modern history, lenders are once again courting borrows with less-than-ideal credit, the Wall Street Journal reports. And while post-crisis regulations have generally prevented the largest banks from reentering this market, smaller mortgage brokers who work to connect non-bank lenders with borrowers are leveraging their experience in writing these incredibly risky loans – a practice WSJ glibly describes as “a lost art" - to help revive their dying industry.

Fundloans, a mortgage broker that specializes in subprime lending, is building a team of twenty-somethings who were in high school when the crisis struck – a team that includes 25-year-old Brandon Boyd, who left his job as a salesman at a Calvin Klein outlet to join the firm after its founder, Jon Maddux, recruited him off the store’s showroom floor. Here’s WSJ:

Brandon Boyd was a high school junior during the financial crisis. Now, the former Calvin Klein salesman is teaching mortgage brokers how to make subprime loans.

Boyd, a 25-year-old account executive at FundLoans in a beach town outside of San Diego, is at the cusp of effort to bring back an army of salespeople who once powered the mortgage industry and, some say, contributed to the housing crisis.

"I knew a mortgage was a loan for a house,” said Boyd, who was recruited by his boss, Jon Maddux, after selling him a Calvin Klein suit at a local outdoor mall. “I came in just a blank slate.”

Mortgage brokers were vilified during the crisis for their shoddy lending practices, which included falsify loan applications. Today, most banks won"t work with brokers because they"re too difficult to monitor.

Instead of banks, it"s small and midsize independent lenders who are helping to revive the once-moribund mortgage broker industry. Nonbank lenders that typically cater to riskier borrowers say they need brokers to fan out across the country and arrange mortgages to people with lower credit scores, or who can’t prove their income through a typical tax return.

These lenders, a cohort that includes hedge funds and private equity firms that are more lightly regulated, are helping to fill a void left by traditional banks that will only lend to borrowers with stellar credit.

Subprime mortgages are typically made to borrowers with a credit score of around 660 or lower, at interest rates ranging from 6% to 10%. Alternative documentation loans, or Alt-A loans, are made to borrowers with higher credit scores but who use bank statements or other less conventional ways to prove their income, as WSJ dutifully explains. But subprime isn’t the only avenue for growth that mortgage brokerages see: As nonbank lenders comprise a growing share of the market, they’re relying once again on brokers to bring them business of all kinds. During the first quarter, nonbank lenders accounted for about half the mortgages originated in the U.S., according to data from industry publication Inside Mortgage Finance cited by WSJ.

To be sure, the subprime market is still nowhere near its 2005 peak, when lenders underwrote $1 trillion in subprime mortgages. In the first quarter, lenders originated just $6 billion in loans to borrowers with subprime credit or "nonprime" credit. The latter category includes borrowers who must use alternative means - like bank statements - to verify their income, according to Inside Mortgage Finance.  During 2016 as a whole, mortgage brokers originated just $22 billion in subprime loans.

During the first quarter of 2017, the total loan volume to borrowers with both good and subprime credit dropped to $37 billion, down about 34% from the last three months of 2016. But even though the the mortgage broker industry is still well below well its 2003 peak of around $1.1 trillion in loans generated, insiders see the rise in subprime lending as a harbinger of boom times ahead.

Here’s WSJ:

Lenders say there is an untapped market among borrowers with good credit scores like self-employed workers who don’t have proper income documentation, or for responsibly made loans to borrowers with credit problems that have had bankruptcies in the past or had to sell their home for less than it was worth.

If they are successful in recruiting brokers, lenders believe the market potential for both types of loans could reach $200 billion annually.

Steve Arnold, an account executive at Angel Oak Mortgage Solutions, one of the largest nonprime lenders, told WSJ that he is on the phone almost nonstop from 8:30 a.m. to 6 p.m. every day except Sunday coaching brokers on how to make nonprime loans.

“A lot of [the brokers] are timid and scared and don’t know where to start with the nonprime type loans,” said Arnold, who is based in West Palm Beach, Fla.

US real estate prices have continued to climb since the crash. But while housing valuations in certain urban markets appear to have spiraled out of control, real-estate in the US isn"t nearly as dangerously overvalued as Canada and Australia, where valuations have soared thanks in large part to an influx of wealthy Chinese buyers looking to stash their wealth abroad.

Today, subprime auto lending has eclipsed the subprime mortgage market in terms of size, largely thanks to lenders" aggressive sales tactics. These loans, many of which are made to consumers with subprime credit, have been accounting for an increasingly large percentage of car saes across the US.

As of April, approximately $200 billion has been loaned out by auto lenders to consumers with subprime credit. Meanwhile, Morgan Stanley is projecting that used-car prices could crash by up to 50% over the next four to five years.

And with more than one million Americans already behind on their car loans, it’s easy to see the writing on the wall. The subprime debt problem in the US is rearing its ugly head once again.

Collecting $1 Of Student Debt Costs American Taxpayers $38

Your government at work with your tax dollars.

Loan billions to brain dead teenagers so they can pretend to get smart in college. When they fail miserably due to the fact after twelve years of public school government indoctrination they can’t read, write or add, the government pays slimy collection agencies to get these unemployed dolts to pay up.

Not only has $600 billion of your tax dollars been pissed down the drain on loans to dumbasses, you now get to spend billions trying to collect the billions that will never be collected.

Clusterfuck is too kind of a word to use for this program Obama initiated to pump money into the economy and fake the true unemployment rate.

I bet you can’t wait until the government has full control of your healthcare.

While Congress originally approved the IDR plans in the 1990s and 2000s, Obama used executive actions, starting in 2010, to extend the most-generous terms to millions of borrowers which is precisely when loan volumes under the program started to skyrocket.

Congrats, taxpayers...you"ll soon have the privilege of repaying $137 billion worth of debt spent by entitled millennials on binge-drinking trips Cancun and drugs...life, after all, is just a little bit better when we spread the wealth around...

As Bloomberg"s Shahien Nasiripour reports, the federal government has, in recent years, paid debt collectors close to $1 billion annually to help distressed borrowers climb out of default and scrounge up regular monthly payments. New government figures suggest much of that money may have been wasted.

Nearly half of defaulted student-loan borrowers who worked with debt collectors to return to good standing on their loans defaulted again within three years, according to an analysis by the Consumer Financial Protection Bureau. For their work, debt collectors receive up to $1,710 in payment from the U.S. Department of Education each time a borrower makes good on soured debt through a process known as rehabilitation. They keep those funds even if borrowers subsequently default again, contracts show. The department has earmarked more than $4.2 billion for payments to its debt collectors since the start of the 2013 fiscal year, federal spending data show.

The findings, gleaned from the bureau’s analysis of about 600,000 borrower accounts, come as the Trump administration weighs a shakeup of the government’s student loan program. For years, defaults have mounted despite the improving U.S. economy and the money invested in collecting education debt. Education Secretary Betsy DeVos pledged earlier this year to “do a better job” than the Obama administration at managing the department’s loan contractors. Last week, DeVos suggested that the feds should “start afresh.”

Officials at the CFPB say the government should reexamine whether the loan program, and the lucrative contracts it bestows on private firms, is working for the millions of Americans struggling to repay their taxpayer-backed student debt.

“When student loan companies know that nearly half of their highest-risk customers will quickly fail, it’s time to fix the broken system that makes this possible,” said Seth Frotman, the consumer bureau’s top student-loan official.

Debt collectors aggressively angle for new business from the Education Department because the contracts are among the most lucrative in the industry. The government values the latest round at $2.8 billion.

The government often pays debt collectors nearly 40 times what they bring in, federal records show. Take the government’s rehabilitation program, which targets people who have defaulted on their debt—meaning they missed nine months of payments. If a borrower subsequently makes nine on-time monthly payments of as little as $5 during a 10-month period, their loans are returned to good standing and the default is supposed to be wiped from their credit reports. But the CFPB found that more than 40 percent of these borrowers defaulted again within three years.

Even when borrowers don’t default, debt collection efforts often yield little. Close to 80 percent of borrowers who rehabilitate their debt make the minimum $5 monthly payment, according to a 2015 estimate by the National Council of Higher Education Resources, a lobbying group that represents student debt collectors and servicers. That means the Education Department is paying its debt collectors up to $1,710 per borrower to collect around $45, regardless of whether the borrower continues to make her payments.

The arrangement means that debt collectors “have no ‘skin in the game,’” Frotman wrote in an October report.

The consumer bureau estimates that the vast majority of borrowers who rehabilitate their defaulted debt with $5 monthly payments are eligible for $0 payments after they exit default, under an income-based repayment plan. But about 90 percent of debtors who rehabilitated their debt failed to enroll in these programs, according to the CFPB’s analysis. All that’s needed to enroll is some paperwork that enables contracted loan servicers to confirm borrowers’ annual earnings, but experts inside and outside the government say they don’t know why this step isn’t completed, and distressed borrowers are left stuck in debt collectors’ sights. The Education Department, which rewards its loan servicers with more business if the loans they service remain in good standing, excludes rehabilitated loans when grading its servicers’ performance.

The consumer bureau says slipshod loan servicing—the business of counseling borrowers on their options and sending them monthly bills—is largely to blame. NCHER President James Bergeron said the feds need to simplify the various repayment plans they offer and “do a better job” helping previously defaulted borrowers get into repayment plans. Calls and emails to the Education Department weren’t returned.

“I don’t see how anyone wins from this system other than the collection industry,” said Adam S. Minsky, a Boston-based lawyer who represents student debtors.

Sudden Death For Greek Widows' Pensions: New Criteria, Cuts To Push 1000s More Into Poverty

The implementation of the Greek pension reform of 2016, will lead to the sudden death of incomes for widows, and as KeepTalkingGreece reports, will push a large portion of population further into poverty. Widows’ pensions will be cut down to 50% of the deceased’s pension and new more restrictive age-based criteria will go into effect this month.

According to so-called Katrougalos Law, a widow is entitled to receive a pension for the rest of her life, if she was at least 55 years old at the time of the spouse’s death.

• If the surviving spouse was below this age limit, the pension is given initially for three years. Then it is interrupted and is granted again after the surviving spouse reaches the age of 67.


• If the age of 55 in not completed within three years, the pension is cut and never granted again.

The state keeps in its pockets all the pension contribution paid by the deceased.

Exemptions are for widows with underage children until they reach 18th year of age and students until they reach the 14th year of age. Widows receive the pension independently of their age until the children/students reach the age limit.

Provision is for widows or unmarried children with disability over 67%. They receive the pension. However, if the disability occurred after the death of the spouse or father, this does not count as precondition to retirement.

Changes are also implemented to the age of the deceased.

The deceased insured person must have fulfilled completed at the time of death the requirements for pension due to age, invalidity, full or reduced pension.

“Old” insured – i.e. who started to pay social security contributions before 1993 – need to have 1,500 insurance days, 600 of them in the last five years.

A new criterion is the one linked to the length of marriage and the age difference between the deceased and the surviving spouse. Minimum length of marriage is now 5 years, from 3 previously. Exemptions are when the death was caused by an accident, if a child was born during the marriage or the widow was pregnant at the time of death. Unfortunately, I did not see details about the age difference between the spouses and how they can affect the pensions.

At the same time, widow pensions are lowered from 70% of the pension down to 50 percent.

What is interesting is that I read nothing about the old odd Greek regulation that daughters of civil servants, especially daughters of armed forces personnel, were granted the pension of their parents until the end of their life, if they were unmarried.

In times of recession and high unemployment, widows over 50 or 55 should seek a job or sink in poverty in a country without social safety net?

We have gone completely nuts here…

And it appears President Trump agrees.

Trump expressed his true sympathy for the plight in Greece and said that he will reveal his policy for the International Monetary Fund in the next days.

Speaking to a group of conservative US journalists in the West Wing of the White House, Donald Trump reportedly said “Greece!” They are in such a terrible situation there. It’s awful!”