What Happened to Tricolor Auto (Subprime)

A guy I know just had his truck repossessed. He claims he was current on his payments and because I used to be in the auto remarketing many years ago, he called (texted) me for assistance. He bought the truck and financed it with Tricolor.

Forget the loan mess.

Tricolor went bankrupt and has not paid their employees, some going back to late July.

The problem is at the top of the company, not the US citizens scratching out a living. Very few (if any) illegals working at the DFW branches, but about 40% were "cash" cars, and they definitely sold to the unbanked.

“If I understand correctly, Tricolor “pledged” the loan portfolio to multiple banks.”

If I understand correctly this is called fractional reserve banking /s

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Perhaps you’re familiar with the term hypothecation. Perhaps not. Or perhaps you’ve heard it but aren’t quite sure what it is.

As a precious metals investor, you need to understand it.

The Bottom Line

Hypothecation, generally, is when an asset is used as collateral for a loan.

If you take out a margin loan against your stock investments, for example, or an equity loan using your gold, you’ve “hypothecated” that asset. Which means you now own a legal claim in an asset but that you do not own that asset outright.

For example, if you have a mortgage, you have the title to the property, but if you do not pay your mortgage, the bank, as actual owner of the property through hypothecation, can take it away.

Rehypothecation is when the institution with whom you’re storing your gold (the gold that you supposedly own outright) lends out that gold, sometimes to more than one borrower at a time, often in exchange for a smaller or no storage fee.

This is an important distinction and a serious risk most gold investors should avoid.

This threat played out during the 2008 financial crisis, when banks who were engaged in gold rehypothecation failed, resulting in a nightmare for those with hypothecation claims on that gold.

I feel more informed today. Thank you.

I won’t engage in any asset I don’t outright own and control because I have seen enough of this fraud over the years. I had a friend, current on his car payments, who had his car repossessed in an incident similar to this one. If I can’t pay cash, I don’t buy. I guess I have a trust issue.

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