\n First, a subprime auto lender and dealer went bust<\/a> last month in a crash fueled by plenty of risky loans and, allegedly<\/a>, \u201cpervasive fraud\u201d of \u201cextraordinary proportion,\u201d a lawyer said in court.\n <\/p>\n \n Then First Brands, an auto-parts supplier built on complex and hidden loans, blinded Wall Street<\/a> with a bankruptcy that financial firms are highly exposed to.\n <\/p>\n \n \u201cMy antenna goes up when things like that happen,\u201d Dimon told analysts during a call on Tuesday. \u201cAnd I probably shouldn\u2019t say this, but when you see one cockroach, there are probably more\u2026 Everyone should be forewarned on this.\u201d\n <\/p>\n \n It\u2019s entirely possible the recent bankruptcies were fueled by company-specific problems, not systemic issues. And yet, as the 2008 financial crisis showed, trouble on Main Street can start in obscure corners of Wall Street.\n <\/p>\n \n Here\u2019s what\u2019s going on now.\n <\/p>\n \n Subprime loans were at the heart of Bear Stearns\u2019 demise. The focus today is not on toxic mortgages but on subprime auto loans.\n <\/p>\n \n Tricolor Holdings, a Dallas-based auto lender specializing in loans to borrowers with weak credit scores, went bankrupt in September.\n <\/p>\n \n The bankruptcy shines a spotlight on how millions of Americans are hurting from the high cost of living and sluggish job market. Cars are more expensive than ever<\/a>, and more and more people are falling behind on their car loans<\/a>.\n <\/p>\n \n Even JPMorgan, which prides itself on what Dimon has dubbed a \u201cfortress balance sheet,\u201d suffered $170 million in losses linked to the Tricolor bankruptcy, according to the company\u2019s earnings call on Tuesday.\n <\/p>\n \n Just a few weeks later, First Brands, a privately owned auto-parts supplier, filed for Chapter 11 bankruptcy. The heart of its demise appears to be an opaque borrowing scheme, which the Department of Justice has reportedly opened a criminal investigation<\/a> into.\n <\/p>\n \n First Brands turned to the private credit market for help acquiring competitors. In a recent court filing, newly appointed directors of First Brands revealed as much as $2.3 billion in unpaid loans. They refer to this as \u201coff-balance sheet financing\u201d because the company borrowed money without officially disclosing it on the books.\n <\/p>\n \n Creditors allege First Brands got access to the funds by promising repayments when one of its customers paid their outstanding balance. This so-called third-party factoring is quite common. But creditors allege that First Brands essentially used the same invoice multiple times to access funds from private lenders unaware of the double dipping.\n <\/p>\n \n Eventually, lenders believed they were overleveraged and started asking questions.\n <\/p>\n \n The situation shares many similarities with investment bank Lehman Brothers<\/a>, which went under during the Great Recession after it used an accounting scheme to conceal how debt-reliant it was.\n <\/p>\n \n First Brands declined to comment, instead referring CNN to a late September motion<\/a> filed by Charles Moore, who became the company\u2019s chief restructuring officer when it filed for bankruptcy. This week, Moore became interim CEO after Patrick James resigned from the position.\n <\/p>\n![\"The](\"https:\/\/www.newsbeep.com\/nz\/wp-content\/uploads\/2025\/10\/gettyimages-2236768501.jpg\")
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