Addison Wiggin

“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

Addison Wiggin

Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He's the creator and editorial director of Agora Financial's daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar, and Why it's Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.

  • c.shanon

    we certainly seem to have run out of original ways to ruin the economy and are resorting to merely repeating the same damaging behaviors.

    how can we possibly fall for the same trick again? is it because we have little choice given the mess we already find ourselves in?

    where is the mogambo guru when you need him – or is he already in the bunker pouring himself a stiff drink?

  • Borealis

    Tuesday Never Comes
    This is Bill Gross’ May article title. Worth a read. $1,000 trillion outstanding debt worldwide. Divided by 7 billion human beings. That’s about $145,000 per individual (my own estimate if I get the numbers right). There’s still room to grow according to your article. I wonder for how long.

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