January 31, 2020
Do Subprime Auto Loans Threaten the U.S. Economy?
In a new op-ed in RealClearPolicy, AAF President Douglas Holtz-Eakin and the Progressive Policy Institute’s chief economic strategist Michael Mandel argue that subprime auto loans do not threaten the economy, contrary to recent claims. Their op-ed is based on new research of theirs on subprime auto loans and the economy.
With partisan divisions as deep as ever, both sides can agree on one thing: Everybody wants to avoid another financial crisis. And forecasters have recently identified subprime auto loans as an existential threat to the economy.
The headlines are eye-catching and scary: “A $45,000 Loan for a $27,000 Ride: More Borrowers Are Going Underwater on Car Loans,” “Underwater: Consumers Are Treating Cars A Lot Like Houses During The Subprime Mortgage Crisis,” and more of the same. But is it true? Are subprime auto loans the new financial cancer threatening households and the economy, much like the subprime mortgage crisis did in 2007?
Worries about subprime auto loans — which offer higher interest loans to riskier borrowers — are ill-founded and based on misleading data and faulty analogies, our new research finds.
Read the rest of the op-ed at RealClearPolicy.