Earlier today, on the way to presenting data from the NY Fed which shows that auto loan rejection rates hit an all-time low of just 3.3% in June, we said that if one wanted to understand the circumstances that led to the housing bubble in the US, a good place to start would be the modern day auto loan market where the "originate to sell" model that characterized pre-crisis mortgage lending is alive and well. We also recommended reading a bit about the history of the GSEs, and taking "a hard look at Blythe Masters and the wizards who created the credit default swap."

We’re not exaggerating when we say that just minutes after we penned those words - which drew an explicit link between the dynamics driving the auto loan market, the "originate to sell model" that fed Wall Street’s pre-crisis securitization machine, and the financial weapons of mass destruction that Blythe Masters helped to create - the following headline hit the wires: 

• BLYTHE MASTERS NAMED CHAIRMAN OF SANTANDER CONSUMER USA HOLDING

That’s right, dear readers. The mother of the credit default swap is now the chairman (er,  chairwoman) of Santander Consumer, the largest subprime auto lender in the country.

You cannot make this stuff up. 

For those unfamiliar with Santander Consumer, they are the lender who, as of Q4 2014, accounted for 60% of the subprime auto market. Here’s a peek into the company's recent trials and travails:

Santander Consumer — a unit of one of only two banks to receive the dubious honor of failing the Fed’s stress tests yesterday and the market leader in subprime auto lending — allegedly ignored a law that requires lenders to obtain a court order before repossessing cars from members of the military and will now pay $9.35 million to settle the issue with the government. Apparently, Santander illegally repoed nearly 800 vehicles from active service members over the course of 5 years and then attempted to extract fees from some 350 additional soldiers in connection with repossessions the bank didn’t even execute. 

This is the same Santander Consumer that was subpoenaed last year by the Justice Department in connection with its packaging of subprime auto loans into ABS and whose lending practices also got the attention of the New York Dept. of Consumer Affairs. 

Don’t think for a second that any of this is slowing down the Santander Consumer subprime auto securitization machine though. The company, which leads all other lenders when it comes to the total amount of subprime auto loan debt outstanding, has already done a deal this year worth $1.2 billion which accounts for nearly 25% of all subprime auto ABS issuance YTD.

 

That’s from March. 

And for those unfamiliar with Masters, we encourage you to simply Google her name along with "credit default swap" and "JP Morgan" (and throw in "Boca Raton", "BISTRO", and "Demchak" if you really want to take a trip down the "shit that sounded good in principle but almost destroyed the financial universe" rabbit hole), but that’s ancient history now, so here’s a useful summary of Masters' more recent activities:

About a year ago we wrote that the "farce is complete" when we learned that the former head of JPM's commodities group - Blythe Masters - the person caught red-handed in trying to pull off Enron 2.0, and responsible for manipulating electricity prices in California - was about to join the CFTC: yes, the person who created perhaps the most important derivative product of the pre-crash period, the massively levered Credit Default Swaps, was about to become an advisor to the very agency tasked with regulating all derivatives. Just 24 hours later, following a furious public backlash against what is perhaps the most corrupt regulators in the US, the CFTC, Masters withdrew her candidacy from the CFTC. Not surprisingly, following the humiliating CFTC episode, Blythe disappeared completely from the public radar. Now, with a one year delay, she has finally reappeared. That's not the surprising part. What is shocking is the capacity in which she has reappeared. According to the FT, the former JPM commodities head has re-emerged as chief executive of the Bitcoin startup, Digital Asset Holdings.

That’s also from March. 

Finally, here's The NY Times on Santander Consumer's "curious choice": 

Facing regulatory pressure related to its governance and lending practices, the subprime auto lender Santander Consumer USA has appointed Blythe Masters, a former longtime executive at JPMorgan Chase, its chairwoman.

Ms. Masters, 46, who left JPMorgan last year and now heads a Bitcoin-related start-up, joins the board of Santander Consumer less than two weeks after it announced abruptly that its chief executive had resigned.

Santander Consumer — a unit of the Spanish giant Banco Santander that is based in Dallas — has faced questions about its oversight after regulatory stumbles with the Federal Reserve and an investigation into its securitization of its auto loans.

One of the company’s founders, Thomas Dundon, stepped down as chairman and chief executive at the start of the month, taking home more than $900 million as part of his exit.

Masters is credited with helping to pioneer credit default swaps, financial instruments that contributed to the 2008 financial crisis. Most recently, Ms. Masters ran JPMorgan’s giant commodities unit. She left the bank in April 2014 among struggles in the commodities business broadly.

While known for her stellar financial acumen and innovative thinking, in some ways Ms. Masters seems a curious choice for chairwoman of Santander Consumer USA, which, like Santander Holdings USA, its parent company, is seeking to improve its regulatory status. Santander Holdings has failed the Federal Reserve’s annual stress test for two consecutive years.

While running the commodities business at JPMorgan, Ms. Masters came under regulatory scrutiny from the Federal Energy Regulatory Commission in 2013 for statements she made about some problematic trading activity. At the time, the bank disputed that Ms. Masters had acted inappropriately.

For now, we'll refrain from speculating on what it says about Masters' career that she has gone from capo in the "Morgan Mafia" to bitcoin CEO and chairman of a subprime auto lender, but we would note that this unholy alliance between the king of a subprime prime auto market that's driven by Wall Street's ABS machine and the mother of the credit default swap may not be as "curious" as The NY Times believes.