LFM: I am infatuated with linkages and interconnected issues. When I see a story like this, there are the obvious takeaways and heads up warnings: late payments on utilities, increase in bad checks, thefts, bad decisions and many more.

But the most intriguing ones to me go a level deeper: grumbling public, complaints about just about everything. Also, unhappy employees. Signs of frustration, unhappy about this and that. Alcoholism. 

All of those are symbols of an underlying problem with personal financial problems, both real and perceived. Real inflation is here. That's not the City's, employees' or public's fault.

But there are some things the public and employees many have gotten trapped by.

If you have an employee living paycheck to paycheck (and is that not a very high percentage?), they are not and have not been living within their means. There's a tightening or even a deep recession on a cycle that varies in time, but nobody is likely to go many years without experiencing one. With a certain amount of reserves, some can live through tough times just like a city does. Rarely is there a reason why a city should panic and start drastically laying off employees when things get tight. Nor should the individual employee or member of the public if they have prepared for the "normal" economic and life events. Yes, I am talking about inflation, recessions and even health setbacks. Ouch. I know. Stay in your lane, McLain.

So what is a city to do? It should have started several years ago with perhaps training on personal finances. Those should include real scenarios of the probabilities of all kinds of setbacks and squeezes.

Living within one's means actually puts the definition of wealth on an entire different level. Not owing anybody, except maybe for a house and car, brings forth a worry-free and secure scenario that is superior to someone else who "owns" $1 million in assets but also owes $1 million (or more) in debt.

I was raised in a blue-color home where three kids and two parents shared an 880 sf home with one bathroom. And my parents were always scrapping by and never being out of debt.

And most of my 54 years of marriage, although 10x better, have seen many times we crosses back and forth over the line of financial freedom.

I know what I'm talking about.

So, here we are being squeezed and likely to be squeezed much more in the next 12-18 months.

My advice is to bring this conversation to the employees with both some help as well as encouragement. The reason more money in pay is never a permanent solution is because many, if not most people, will take the raise and buy more instead of paying down debt or increasing their savings. They have likely never enjoyed a moment of financial freedom.

This topic is actually late in some ways and right on time in others. You have the attention of your employees right now! Kick off a "get out of debt" campaign knowing sticking faithfully to a plan could still mean many years before the goal is set.

And, yes, that means shedding some burdens. Things seldom used any longer, like boats, RVs and second homes would hurt but be worth it. Sensitive, I know. But I'm wanting to push buttons and encourage you to hold up the mirror to you, your employees and even the citizens.

Get some stats from your local banks. They see early signs of financial problems way before most of us do. The storm isn't in the distance, we are on the edge of it.

Have your PIO pull together a campaign much like you would to save water or electricity. Deputize your HOA's to communicate a message of financial freedom, including hosting seminars and talking up some success stories. Take a fresh look at the "quality of life" spending and tell me what is more important with lifelong benefits and a community living within their means?

Counsel with unhappy employees to determine any part of their complaint has to do with personal financial pressures. We are talking about the top one or two reasons for divorces and broken families. Work crime and disgruntled employee issues backward and you will see all of those massive amounts or city services are rooted in money management. I know. Again, sensitive. But our culture of "I'm going to get in trouble and expect you to bail me out" has gone too far.

And obviously, set the example. Involve the spouses of employees. Transform a get-rich society to a get-wealthy world for some people: live within your means. Give people the urging to redefine "keeping up with the Jones'" Many people work their entire lives trying to get back to being as happy as they were in college or early marriage days when all of your influential friends were poor. Describe that freedom and encourage your sphere of influence to pursue it.

Lewis
 

What high car repo rates mean for the economy

Vehicle repossessions are up even among buyers with good credit. That may signal economic problems ahead.

It’s been a wild ride for the car market over the past two years as supply shortages and inflation have driven the cost of vehicles up sharply. Prospective buyers have been met with empty dealership lots and long waitlists as they shop for vehicles.

Now a troubling economic trend is taking shape in the auto market, among those who did manage to get cars: the number of repossessions are rising, even among borrowers with good credit scores. That could signal hard economic times on the horizon, experts warn.

Lisa Beilfuss covers markets and the economy for Barron’s and spoke with the Standard about what’s driving car repossessions up, and whether the used car bubble is finally bursting. Listen to the interview above or read the transcript below.

This transcript has been edited lightly for clarity:

Texas Standard: Put this into some perspective for us. What exactly is going on with car repos right now? And is there a way you can sort of compare with what we’re seeing now with, say, a couple of years ago?

Lisa Belifuss: Sure. So some experts have been warning for quite some time going back before the pandemic that there was a bubble building in the car market. And fast forward through some of the events over the past two years, and now it seems like that bubble might be about to burst. That’s according to some of my recent reporting. It’s anecdotal by design because some of the data is hard to get from banks, and once you see it, it’s dated.

So I’ll tell you a little bit about what I recently heard from a car dealer. He is in the business of buying repossessed cars from banks, and he says that recently repossessed cars have been surging. And some common characteristics are that those loans were extended between 2020 and 2021. And that’s unusual because usually people fall on hard times at different times. So the fact that it’s all happening at once is noticeable.

The other thing is that people took on more debt. There’s a metric in the business called loan to value, LTV, and those have been very elevated, meaning people are underwater on their loans. And the last thing is that this broker told me that he’s seeing a lot of the repossessed cars they were given, the loans were given to people who had temporary pops in income. And that is explained by some of the pandemic programs, such as debt forbearance and enhanced unemployment benefits, stimulus checks that may have made people look like better borrowers for a brief time than they actually were.

So they were receiving extra income during the pandemic for a number of reasons: unemployment benefits, pandemic stimulus, debt forbearance, that sort of thing. And so it increased, at least temporarily, their bottom line, which made them look better as borrowers. And we should point out, this has led to a large number of car repossessions, primarily for vehicles with loans from 2020 and newer. Right?

That’s right. That’s right. And what I have heard from this person that I mentioned, as well as consumers out there, banks normally do income verification, meaning they would not just look at the current earnings, which was propped up by these pandemic programs that we mentioned. They would normally look back further in time and that wasn’t happening. So banks, they kind of helped contribute to what this bubble is seeming to, you know, the bubble that’s shaping up. And also what happened is it sort of become this cycle where, as cars became more expensive because there was more demand, it became a self-fulfilling prophecy where people had to take on more loans in order to get their hands on something.

I’ve heard in some places like D.C., nearly one in two of all cars that were purchased since 2020 are in default. That’s incredible. But still, even if you look nationwide, it’s more like up about 2% or something like that. That doesn’t sound too bad on the surface.

It doesn’t. And that’s why I approached this story with anecdotal reporting. There are some signs that subprime borrowers, not just in autos, but in in other types of loans, are running into some trouble, as you’ve got a lot of crosscurrents. You’ve got the situation we’re talking about specifically in autos but economy wide you have inflation hitting a new 40 year high in June with overall prices up over 9%. And that says there are some signs of slowdown in the economy. More people are starting to lose their jobs. Concerns about recessions are rising. And so, it’s not altogether surprising that people who have lower credit scores are starting to have a harder time paying their loans. But what I discovered in the course of reporting this story is that even prime borrowers, even though the repossession rates for cars, is rising in that group, and those are people, of course, you have more solid credit scores.

The last time I heard about subprime loans cratering and people with better credit scores having difficulty carrying their loans was back during the housing crisis of 2007, 2008. A car is the second biggest purchase after a house. What sort of ripple effects could this have?

That is the question I’ve been asking too. Some people have made comparisons to the housing bubble that you referenced. And as as you say, it’s a big purchase for many families. I think more people own a car than a house. But then, I also hear that people are more likely to pay their car payments before many other payments because you need your car more than other things. So you might be late on a credit card before you’ll be late on your car. So sometimes is as there is building trouble in the auto loan market it is a bigger red flag that things are going south in the economy. But how that ripples out, I think we just don’t know yet.

I don’t reckon silver lining is something that we should talk about, and yet I suppose it should be pointed out with all these repos, some of those used car lots are going to start filling up again.

That’s right. What I have heard is that the repos are greatest on the West Coast and in the middle of the country. And what’s happening is that those cars are then being shipped out, say, to the East Coast and other places where demand still remains strongest for used cars. And as the volume the quantity of used cars rises, it should hopefully help cool prices at least a little bit.