All Articles Finance While You Were Working - March 21

While You Were Working – March 21

Auto lenders set to crash, HFT set to crash, China set to crash and remembering when Duke didn't crash

5 min read


Christian Laettner

25 years ago: HFT didn't exist, China was quaint and we all hated Christian Laettner - Photo credit: Al Bello/Getty Images

Auto lenders kept their eyes off the road

Trouble is afoot in the auto-lending industry and the puns about lenders crashing, veering off the road, etcetera are seemingly endless.

The auto-lending industry always knew targeting sub-prime borrowers was a risky proposition. Many in the industry watched as sub-prime mortgage lending wreaked havoc on the global economy and paid close attention to the way the mortgage lending industry bounced back after the Great Financial Crisis. Auto lenders figured they would always enjoy the same bounce back. But what appears to have been lost on them is that cars are not houses. No matter what, people need somewhere to live. And whether they own the roof over their head or rent it, someone is paying a mortgage on it.

Society has shifted away from cars; or to be more precise: individually owned cars. Urban (and even some suburban Americans) are riding bikes and using ride-sharing networks like never before. City planners far and wide are making streets more bike-friendly. If forward-thinking companies like Lyft have anything to say about it, the car-sharing trend is never going to reverse. People will always need a roof over their head. But they won’t always need a car in their driveway.

Michael Lewis almost started his victory dance

No one on Wall Street is ever going to credit the publishing of Michael Lewis’ Flash Boys book with bringing about the death of the high-frequency trading industry. However, more and more firms are getting out of the game or attempting to consolidate. And it is hard not to notice how Flash Boys and the actions of Brad Katsuyama and IEX raised the profile of HFT in all the kind of places where it probably didn’t want to have a high profile. To put it more succinctly, has HFT enjoyed any kind of sustained wind in its sails since March 31, 2014?

China bailed out some of its banks

The PBOC stepped in to cover missed interbank payments by some of the country’s smaller lenders. The injections, totaling hundreds of billions of yuan, are seen by some as an effort by the central bank to wean banks off of the easy money available during recent years.

“The PBOC wants to warn the smaller lenders not to play the leverage game excessively,” said Xia Le, chief economist at BBVA in Hong Kong.

Although I am not sure if covering the banks’ payments can really be called a warning. It sounds more like a bailout. It seems like letting the banks miss the payments would be a more effective deterrent.

But don’t worry, China’s corporate leaders said everything is fine

While China’s central bank might be nervous about the fragility of the country’s financial markets, China’s bankers and other business leaders say everything is ship-shape. A quarterly PBOC survey of about 3,200 banks and 5,000 enterprises found leaders are more confident about the state of the economy than at any point since 2014.

Mixed signals like the two stories above remind me of a conversation I had with my uncle on a Sunday afternoon at the beginning of last year. He was talking about how he has a lot of investments in China and how his financial advisor, a Chinese native, was traveling over there to gather more information about the state of things. When he asked me what I thought, I told him China was no place for retail investors. When he asked why, I gave a wry smile and said with a thick dose of sarcasm, “Chinese businesses are still too opaque. I mean, I think they have accounting standards over there.” The very next day China’s markets had multiple intimate encounters with a little thing called a circuit-breaker.

The OCC said KYC doesn’t mean KYCC

In a seemingly unrelated, yet very timely follow-up to yesterday’s “Global Laundromat” story out of the UK, the Office of the Comptroller of the Currency has been telling US banks they shouldn’t be hasty when it comes to cutting ties with foreign lenders. The OCC thinks US banks should wait for concrete concerns before severing ties. On the topic of “know your customer” rules, OCC chief Thomas Curry offered strangely liberal advice: “There is no general requirement to know your customers’ customer.” Wow. As we continue to see in the UK, I guess the definition of “concrete” when it comes to concerns about money-laundering is in the eye of the beholder.

Should we still hate Christian Laettner?

In what was probably intended to be a well-timed Elite 8 throwback, ESPN has ended up perhaps rubbing some salt in the wounds of Duke fans far and wide. This oral history of Christian Laettner’s legendary game against Kentucky 25 years ago is excellent. Like watching the ESPN 30 for 30 documentary, reminds you of how much you hated Laettner … and also makes realize you probably shouldn’t have.

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