Inspired by 'The Big Short,' some investors are trying to bet against subprime auto loans

The Big Short Jaap Buitendijk ParamountJaap Buitendijk/ParamountSteve Carell and Ryan Gosling in ‘The Big Short’

Apparently inspired by “The Big Short,” some investors are trying to bet against subprime car loans.

Just after the film about the 2008 financial crisis debuted in December, banks began receiving an influx of calls from money managers expressing interest in making trades against auto loans, Bloomberg reported.

The loans have exhibited some of the same bad signs shown by mortgages in the years leading up to the 2008 crisis, including loosening lending terms, greater loan volume, and higher delinquency rates.

Investors have tossed around the idea that car loans could be the next balloon to burst for the past few years.

But according to Bloomberg’s Matt Scully:

[M]any banks, including Bank of America Corp. and Morgan Stanley, are not interested in making the bet happen for clients, according to representatives of the firms. Some said they fear that helping clients wager against car loans would be bad for their reputation, and that new capital rules and other post-crisis regulations would make the transactions difficult or even impossible to put together.

Banks are recommending that their clients do not make such trades, though several firms have managed to find someone willing to do the deal.

If there is a bubble, the challenge is knowing when it will burst and if car loans, which are a much smaller market than mortgages, really make for a lucrative opportunity.

The Bloomberg article goes deep into the complexities of such trades and is worth a read.

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