The amount of commercial paper in the United States has grown to $2.2 trillion, according to Lehman Brothers, with about $1.2 trillion backed by residential mortgages, credit card receivables, car loans and other bonds.
About $1.2 trillion, or roughly 53percentt of commercial paper, is backed by pools of assets like home mortgages, credit card receivables and car loans.
Issuance of ABSs (securities underpinned by car-loan receivables, credit-card debt and the like) are at double their 2010 nadir.
At the top, the risks and returns are much smaller unless there is a systemic failure.CDOs grew out of the market for asset-backed securities which took off in the 1970s and encompassed mortgages, credit-card receivables, car loans and even recording royalties.
VW received a 10% boost in net income under IAS from a rule allowing it to capitalize its development costs for new cars and an 18% increase in profits for treating car leases as receivables.
They pooled assets that yielded a regular flow of payments (mortgages, car loans, credit-card receivables, etc).
But as news spread about rising default rates for subprime mortgages, the prices of those bonds plummeted as the spreads blew out:(Source)Understandably, investors reacted by questioning the value of all the other non-government assets previously regarded as safe, including student loans, car loans, and credit-card receivables.
Fires, floods, suppliers not performing, employee screw-ups, your own screw-ups, machine failures, leaking roofs, car accidents, recessions, great recessions, bad checks, bad receivables, bad people, market shifts, workers compensation claims, more of your own screw-ups, health insurance increases, new competition, theft, more screw-ups.
Likewise, GE Capital will buy buildings and cars and lease them to GE And GE will sell GE Capital its receivables.
He tells me when I can lease a car, when it would not be prudent, when my accounts receivable are too large, and when I am on task.
