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

Steve Carell and Ryan Gosling in “The Big Short.”
Jaap Buitendijk/Paramount

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

Just after the film about the 2008financial 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 in the past few years tossed around the idea that car loans could be the next balloon to burst.

But according to Bloomberg’s Matt Scully:

Many banks, including Bank of America Corp. and Morgan Stanley, are notinterested in making the bet happen for clients, according torepresentatives of the firms. Some said they fear that helpingclients wager against car loans would be bad for theirreputation, and that new capital rules and other post-crisisregulations would make the transactions difficult or evenimpossible 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 whether 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.