Via Zero Hedge and the WSJ:
The $604 million issue from consumer lender Springleaf Financial, the former American General Finance, will bundle together about $662 million of loans secured by assets such as cars, boats, furniture and jewelry into ABS, according to a term sheet. Some loans have no collateral.
Personal loans haven't been a part of the mainstream ABS market since securitizations from Conseco Finance Corp. in the late 1990s, according to Michael Dean, co-head of Fitch Ratings' ABS group. That market dried up as the recession hit and, under the weight of bad subprime loans, Conseco filed for bankruptcy in 2002.
Springleaf's issue comes as prices on traditional issues backed by auto loans, credit cards and student loans have soared as investors pile into debt with extra yield over Treasurys. As those yields fall, ABS investors have been giving unusual assets that were previously shunned a second look....
The 190,627 loans in the Springleaf deal have an average FICO credit score of 602, in line with many subprime auto ABS. But the average coupon of 25% on Springleaf's personal loans is above that on even "deep subprime" auto loans, probably because there is no collateral for 10% of the issue, an analyst said.
Bonus points for AIG's involvement in this offering (btw, now that AIG has repaid obligations to taxpayer, expect a corporate name change in 3..2..1..)
We had a credit bubble in part where the market likely under-priced certain risks. Bubble bursts and risks take their toll. Economy floundered. The Fed reduced interest rates to zero. Frustrated with low interest rates, investors have begun seeking out risk, likely driving down the price of risky investment. Repeat.
Via Zero Hedge
today, in a unanimous vote, "The U.S. futures regulator approved on Monday a rule that puts tighter limits on how brokerage firms can use customer funds, a measure that the now-bankrupt MF Global had encouraged the agency to delay." In other words, while before commingling client accounts was assumed to be a clear violation of every logical fiduciary imperative, now it is set in stone. For real. The CFTC means it.
In the past, I believed that a lot of financial regulations were honest (though often misguided) attempts to create transparent and trustworthy markets. I am increasingly being pushed to the cynical conclusion that financial regulations, like, say, licensing of funeral homes, are mainly aimed at making it impossible for small competitors to survive, while larger competitors either have the scale to pay for compliance departments, or in the case of MF Global, have the political muscle to get themselves exempted (by Administrations of both parties, I should be clear, though the current one certainly gets a hypocrisy award for standing beside OWS while handing out finance and health care law exceptions to the powerful).
MF Global is far worse in my mind than, say, Enron. In Enron's case, the management was at least mostly pursuing the activities and investments that they were supposed to be pursuing. They were making bets of the type shareholders expected, though they were likely masking the cost and risk of these bets by aggressive pushes at the margins of accounting rules.
MF Global was doing exactly what everyone supposedly knew to be an absolute no-no, ie using client funds to make leveraged bets for their own account. If Joe Schmoe in Florida did the same thing, he would already be incarcerated. In the case of MF Global, no one even seems to be interviewing Corzine and so far the bankruptcy committee has put a higher priority on repaying JP Morgan and Goldman for Corzine's bad bets than on getting investors' money back.