There is little doubt that banks are some of the most hated institutions. Bankers rank up there (or down) with used car salespeople. To say they didnt deserve the reputation would be inaccurate. Certainly, bankers are known for their antics, obliterating the lines of ethical along with legal.
Within the wordl of cryptocurrency, the feels are magnified. One of the main attractions of this new technology is the ability to replace much of what the bankers do. This is not something that is going to happen anytime soon. However, like most disruptions, we can see how the banks are ultimately cooked.
This is an idea that makes a lot of people very happy. We know banks tend to indulge in excess. The major banks are even turning to the idea of privatizing profits while socializing losses. Many still have a bad taste in their mouths over the bailouts from a decade ago.
To say that people hate the banks, or more accurately the bankers, is an understatement.
Of course, that distaste tends change when banks stop lending.
People often discuss how much excess risk is undertaken by the banks. This is not always accurate as risk isn't always the main issue. Nevertheless, the confusion put out by central banks only makes things more difficult.
Nevertheless, we are about to see one industry cut off.
Over the last few years, the automotive sector was a roller coaster. The lockdown during the pandemic caused a flood of car sales. Since people could not spend on services plus had checks coming in from fiscal stimulus, they went car shopping.
The banks were caught up in the foolishness. They gave some insane loan-to-value ratios. They were going 130% or more on the value of cars.
Fast forward a couple years and things are completely different. The first quarter of 2023 saw an enormous jump in defaults. That means repos are increasing. Banks are having to look closer at loan portfolios.
I watched a video of a guy who I follow is seems to have a vast understanding of the car business. He was forecasting that bank lending would get tighter going into this year. He foresaw it last year.
He is now hearing of many banks starting to pull back from their lending. This means that customers are going to have a tougher time getting car loans.
Here we have a situation where people are going to be extremely upset. After all, few like to spend the time looking for a car only to be told they cannot have it. As banks pull out, the options for dealers starts to dwindle.
To be blunt, banks have to take this step. This is an unfortunate part of the business cycle. When things pass the peak and start to head towards the trough, money supplies always tighten up. This is regardless of what form of money is used. Things get very tight and quickly.
When dealership paper goes to hell, this becomes an industry-wide problem. Word spreads as to those dealerships that are questionable.
Of course, this ends up reducing selection. Auto dealerships were under pressure even before this. Tesla was able to garner more than 5% market car in the United States during 2022. That means we had 5% of the cars that were not sold through car dealerships. That is a fair bit of money pulled out.
What happens if Tesla pushes its market share to 7% this year? That is another couple points that is removed from the automobile dealer network. Of course, when we think about it in dollar terms, it is into the billions.
It doesn't matter what industry you are in, the removal of billions in revenues is going to have an impact.
People complain when the banks lend recklessly and ignore lending standards. Of course, when the belts are tightened, people also start taking to the Internet and posting how unfair it is.
The reality is that all pepole love easy money. This is another misnomer. Cheap money does not mean accessible money. The reality is that, for most, lending was difficult to acquire. Automobile loans was the one market where the average person could count on being given some cash.
Not anymore.
This is going to have a rippling effect. And people are not going to like it.
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