AuthorTopic: Connís Game: Subprime Loans, Subhuman Lenders  (Read 897 times)

Thomas Lewis

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Connís Game: Subprime Loans, Subhuman Lenders
« on: December 16, 2014, 02:27:45 AM »

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One of the stores built by a Connís game, based on junk bonds and subprime loans, in Houston Texas.

One of the stores built by a Connís game, based on junk bonds and subprime loans, in Houston Texas.





First published at†The Daily Impact††December 12, 2014


After some rant or another about the combined greed and stupidity of the industrial Masters of the Universe, I frequently get this response: ďLook, they couldnít be that stupid or they wouldnít be in charge. They know what theyíre doing, and we just donít understand it.Ē Seriously. I get that. If a quick refresher on the Enron Bubble and the Dot-com Bubble and the Housing Bubble are not enough to put this turkey of an argument into the deep fryer for once and for all, then consider the true story of Connís, a Texas-based 90-store retailer who came up with the Business Plan to End All Business Plans. And it did.


Aesop could not have fashioned a better cautionary tale of greed and stupidity, and now he doesnít have to. (Iím grateful to Wolf Richter for laying all this out on his blog Wolf Street)


Connís game was at first a pretty standard one. It sold furniture, appliances and electronics to people who didnít have a lot of money. And, to increase the take on each sale, they lent the customer the money to make the purchase. So far, so good. You get an increase in sales from the convenience of in-store financing, and you get additional profit in the form of interest collected on the loan. Lots of companies do it, often successfully. GMAC comes to mind.


But when youíre running a Connís game, you are not content to do as well as everybody else. You want to be number one, and Connís gamers came up with the answer. Subprime lending. They would finance anybody, without regard for credit score or credit record or assets or ability to repay the loan. That way, they would sell lots of stuff, and become number one in retail. That apparently is where their thinking stopped. If we had asked any of the obvious questions, they would have said, ďWe know what weíre doing. You just donít understand.Ē


And their plan worked. Lord, did it work. People who couldnít afford to buy a candy bar flocked to Connís and walked out with couches, TVs, and double-door refrigerators. Sales went through the roof. In the third quarter of this year Connís retail revenue hit $370 million, up 20% from last yearís third quarter. Six new stores were up and running, and gross retail margin was over 40% (Connís is no discounter; people who canít buy anything anywhere else will pay just about any price Conn asks, when thereís no down payment). Retail profits were up 12%.


Another American success story, another bunch of self-made millionaires made billionaires by their own hard work and initiative. They really did know what they were doing, just like the Enron guys and the Countrywide mortgage guys and the shale-oil fracking guys ó as long as you did not look at the rest of the picture. As long as you looked only at the retail P&L, Connís game is doing fine. Howíre they doing over in the finance office?


Lots of paper ó $1.25 billion in loans outstanding at the end of September, with an increasing number of them standing out pretty far, as in 10 per cent of them delinquent for 60 days or more. The unit lost $33 million in just three †months, which meant that overall, Connís game lost more than $3 million for the quarter. The company explained to its shareholders:


ďDelinquency increased year-over-year across credit quality levels, customer groups, product categories, geographic regions, and years of originationÖ losses are occurring at a faster pace than previously anticipated, due to the continued deterioration in the customerís ability to resolve delinquency.Ē


Damn those customers, and their inability to resolve delinquency! Theyíve gone and ruined a perfectly good business plan! Connís stock has lost 73% of its value in a year. If you are unlucky enough to be the owner of one of the $250 million worth of junk bonds Connís sold in June to finance its operations, you might sell it for 60 cents on the dollar if you can find a rich idiot ó better move fast ó and you can expect 10 cents on the dollar when they default.


Set aside the fact that usury, which used to be a sin, is now a standard business practice (but only when youíre dealing with poor people); never mind that what Connís did is not illegal, and not widely regarded as immoral (although it is clearly unethical); and ignore the fact that the business plan is being replicated at full speed in the auto industry, and in the real estate industry (again!); ignore all that and explain to me in what universe, under what laws of mathematics, a sentient human being can be convinced that lending money to people who do not have the ability to pay it back is a profitable enterprise.


If you do I will agree that in that universe, these people are not that stupid, and may know what they are doing. But they still have no business on this planet.



 


***



 


Thomas Lewis is a nationally recognized and reviewed author of six books, a broadcaster, public speaker and advocate of sustainable living. He also is Editor of†The Daily Impact†website, and former artist-in-residence at Frostburg State University. He has written several books about collapse issues, including†Brace for Impact†and†Tribulation. Learn more about them†here.


 


 



« Last Edit: December 16, 2014, 03:02:41 AM by Surly1 »

Offline azozeo

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Re: Connís Game: Subprime Loans, Subhuman Lenders
« Reply #1 on: December 16, 2014, 03:43:54 AM »
I'd love to know the demographics on these customers.
What race, neighborhood & level of education do these
customers come from ? And here's the BIGGEE !
Are they "AVID" fans of the boob tube ?
I know exactly what you mean. Let me tell you why youíre here. Youíre here because you know something. What you know you canít explain, but you feel it. Youíve felt it your entire life, that thereís something wrong with the world.
You donít know what it is but its there, like a splinter in your mind

Offline Surly1

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Re: Connís Game: Subprime Loans, Subhuman Lenders
« Reply #2 on: December 16, 2014, 03:55:24 AM »
I'd love to know the demographics on these customers.
What race, neighborhood & level of education do these
customers come from ? And here's the BIGGEE !
Are they "AVID" fans of the boob tube ?

Unfortunately, the woods are full of them. There are companies in my end of the world that cater to young enlisted, whose business model is that of the repo man. car sellers as well.

Unfortunately, the schools continue to churn out generations of near illiterate babes in the woods.
"It is difficult to write a paradiso when all the superficial indications are that you ought to write an apocalypse." -Ezra Pound

Offline MKing

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Re: Connís Game: Subprime Loans, Subhuman Lenders
« Reply #3 on: December 16, 2014, 12:02:34 PM »
Is "subhuman lender" an oblique reference to anti-Semite tendencies?
Sometimes one creates a dynamic impression by saying something, and sometimes one creates as significant an impression by remaining silent.
-Dalai Lama

 

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