Shades of the '08 Financial Crisis?

“Even I wouldn’t make a loan to me at this point,” says Annette Alejandro. Ms. Alejandro recently emerged from bankruptcy, her car was repossessed last year and she has no job.

But her mailbox is stuffed with offers for credit cards and car loans.

We begin today’s episode with “deja vu”-induced vertigo this morning. Three items flitted into our inbox in the last 24 hours. By themselves, the items might not mean much. Coagulated, they give us the same queasy feeling we had in 2007-08.

Credit card lenders issued 1.1 million new cards to subprime borrowers last month — up 12.3% from a year ago, according to the credit-reporting outfit Equifax.

“As financial institutions recover from the losses on loans made to troubled borrowers,” reports The New York Times, “some of the largest lenders to the less than creditworthy, including Capital One and GM Financial, are trying to woo them back, while HSBC and JPMorgan Chase are among those tiptoeing again into subprime lending.”

Plotted on a chart, it looks like this…

Issuance of Subprime Credit Cards

Not exactly 2007 levels, we concede. But the trend is enough to move a former Federal Reserve bank examiner to say, “It’s clear that we are returning to business as usual.”

“Business as usual” meaning…spending more than we earn.

The second item in our 2007-08 trifecta: Like Blackstone a few years back, Carlyle Group — the second-biggest US private equity firm — is going public.

But Carlyle isn’t just any private-equity outfit. It’s based not on Wall Street, but in Washington — the better to connect its umbilical cord to the belly of the beast. The first President Bush was a senior adviser. Clinton White House Chief of Staff Mack McLarty is still one.

“Carlyle plans to sell a stake of about 10% in the IPO,” Bloomberg News reports, “and will start marketing the deal to investors as early as next week.” The valuation it’s seeking: $7.5-8 million.

Undoubtedly, Carlyle’s principals have concluded they’ve made the easy money and now it’s time to draw in the suckers. Just like Blackstone Group, which went public in — drumroll, please — 2007. That worked out very nicely… for Blackstone’s bigwigs, if not for retail investors.

Blackstone Group's Performance as a Private Company

“Contacts in many districts commented on rising transportation costs due to higher fuel prices,” reads a recurring theme throughout the Federal Reserve’s latest Lily White, er… we mean, “Beige” Book — compiling anecdotal reports about the state of the economy.

“Manufacturers in many districts,” reads another passage, “expressed optimism about near-term growth prospects, but they are somewhat concerned about rising petroleum prices.” (Emphasis added.)

There are plenty more such tidbits collected from the 12 Federal Reserve regions…

  • Minneapolis and Dallas: Airlines raising fares to cover fuel costs
  • Richmond: Rising fuel costs a problem for both land and ocean shippers
  • Cleveland, Chicago, San Francisco: Rising fuel costs becoming hard to pass on to consumers

Shades of 2008, when oil started its trend toward $147 a barrel.

Currently, Brent crude — the price most of the world pays — has traded above $100 a barrel for 191 straight days. In 2008, that run lasted 170 days.

This morning, Brent is $120.38.

But don’t get the wrong impression: Just because subprime credit is growing like a weed, a major private equity outfit needs public participation to keep the good times rolling, and oil prices being persistently high doesn’t mean another “Lehman moment” is right around the corner.

Not at all. But we do see it on the horizon once agian.

Addison Wiggin
for The Daily Reckoning