Turkey’s opposition is under siege

0:03Good morning from the Financial Times. Today is Monday, September 15th, and this is your FT News Briefing. Political instability is leading to unusual activity in France's financial markets. And Turkey's main opposition party is under attack by President Recep Tayyip Erdogan's government. Plus, why the collapse of a little-known subprime auto lender left big U.S. banks on the hook. Yes, it does on the surface look a little bit like 2008, even though it's unclear what the endgame year is. I'm Victoria Craig, and here's the news you need to start your day.

0:44The political crisis in France is ricocheting through the country's financial markets. Borrowing costs for companies like L 'Oreal and Airbus are now lower than borrowing costs for the French government. It's a sign that investors see French corporate debt as a safer bet than government debt. It's also a highly unusual situation in capital markets. The moves come a week after Francois Beirut was ousted as prime minister. It's the second time in less than a year that a premier has fallen trying to fix the country's widening budget deficit. And on Friday, ratings agency Fitch downgraded France's sovereign credit rating, due in part to political polarization.

1:27President Erdogan's long-simmering crackdown on Turkey's opposition is accelerating. Today, a Turkish court could decide whether to remove the opposition leader from his post. The case against Özgür Özel, the chair of the Republican People's Party, or CHP, is the latest sign of worsening political instability in Turkey. Back in March, Erdogan's government jailed Ekrem İmamoğlu, the mayor of Istanbul, who was widely seen as the opposition's most important leader and most credible contender to the president in the next election. Here to talk with us about it now is the FT's Middle East editor, Andrew England.

2:03Hi, Andrew. Hi, Victoria. So why has the push to try to dismantle the opposition accelerated in recent weeks? To be honest with you, I don't think that's really clear. Erdogan's party, the AK Party, in 2024 did very badly at municipal elections. That's after he won a national vote in 2023 to regain the presidency. So, you know, is it a reaction to the results in the municipal elections? You know, there is speculation that Oroon wants to extend his presidency beyond the current two terms. So does he believe that weakening the CHP smooths the path to that? It's kind of quite extraordinary that he's gone so hard on the CHP party.

2:47I mean, it's a 102-year-old party. It's the party of Ataturk, the founding father of Turkey. You know, Turkey's been on a sort of more increasingly autocratic pathway for some time. But Erdogan's never gone this hard on Turkey. So how is the CHP responding to all of this? And do we know what happens if Ozel is removed from his post? Where does the CHP go from there? You know, the CHP is clearly under a lot of pressure. They have said that they're going to call for strikes and protests, but the crackdown has been pretty withering. If Ozel is replaced, I think the fear is that the government, through state institutions, through the courts would seek to replace him with a kind of pro-government figure, or perhaps even a dissident CHP.

3:39You know, some talk that the leader who led the party into the national elections in 2023, Kilic Dirolu, could come back, which would be seen as, you know, a huge blow to the CHP because, you know, he's in his 70s, he's not charismatic. If Ozel is replaced, then it's a very difficult situation for the CHP. You mentioned charisma, which has always helped propel Erdogan to victory in the 20 years that he's been in power in Turkey. It's interesting because polls have shown that if an election were held today, Erdogan's Justice and Development Party, or AKP, would lose. And that would be a marked shift from recent years when the president has enjoyed very widespread support.

4:20But how reliable are these public opinion polls? Polls are never reliable. The AKP party, its support has been dwindling over the years. Like I said, it did very badly in the municipal elections in 2024. In parliament, it relies on a nationalist party, the MHP, for its majority. I think the thing about Erdogan, if we think about the presidential elections, you know, he's a very wily politician. He's a ruthless politician. And he has defied sceptics before. So you never rule him out in a presidential election. I mean, you kind of separate between Erdogan and the AK Party a little bit. I lived in Turkey for the last two years, and the thing that I was struck by every time we had an election was the lines at voting stations.

5:07It's this commitment from people to engage what Erdogan himself refers to as a festival of democracy. And I think the big question now is if this crackdown is successful, continues to be successful, does it signal the end of opposition in Turkish politics and potentially the real end of democracy in Turkey? I think we'd have to wait and see to answer that question. I think, you know, as you say, you know, Turks are very proud of their democracy. And despite Turkey becoming more autocratic, you know, people take the elections very seriously. And I think, you know, the jury is still out on just how Turks will react to this.

5:46And obviously, if the CHP is in a weakened, divided and splintered state, then that weakens the political options for Turks. because, you know, Turkish democracy would be in a far weaker place. The FT's Middle East editor, Andrew England, thanks so much for your time. Thank you.

6:09Chinese export controls on the metal germanium, critical to the defense industry, have created a, quote, desperate supply crunch, according to traders. Beijing originally imposed the measures in 2023 in response to restrictions on Western semiconductors and chip-making technology. As imports to the U.S. dropped this year, prices have soared. As of last week, the global price of germanium jumped to almost$5 ,000 per kilo from$1 ,000 at the start of 2023. That is, the highest since price tracking began in 2011. Germanium is also hard to live without. It's essential to the production of thermal imaging systems used in military equipment, including fighter jets.

6:50Though China dominates production of the metal, buyers are now looking elsewhere. In August, U.S. defense group Lockheed Martin announced a germanium supply agreement with Seoul-based producer Korea Zinc.

7:08Stop me if you've heard this one before. Subprime loans, bundled into complex financial instruments, given AAA credit ratings, trading at distressed levels, leading to collapse. We are not talking about the 2008 subprime mortgage crisis. We're talking about a present-day failure of a subprime auto lender called Tricolor Holdings. The FT's Wall Street editor, Sujit Indap, joins me to break down what's happening. Hi, Sujit. Great to be here. Thanks for having me. So just explain what Tricolor is and what it's been up to. Sure. So Tricolor is a used car retailer and lender. So they sell cars mostly in Texas, typically to Hispanic customers.

7:52Subprime, as you mentioned, so relatively risky. Many customers of Tricolor didn't have a credit score, but it is a place you just buy a used car and they happen to make you a loan to buy the used car too. And so then how did we get to this, to the danger zone, really? What happened to these loans that Tricolor was making? So early last week, a big Midwestern bank called Fifth Third said it was going to have a$200 million hit to its books from a bad loan it had made. And then quickly from that information, it was learned that the bad loan was to Tricolor. It is because there is potential fraud and just losses coming from the Tricolor auto loan book.

8:39And essentially what Fifth Third Bank and others like J.P. Morgan and Barclays do is they would lend money to Tricolor, who would then take that money from the big bank and make thousands of loans to people who want to buy a used car. It'll take those loans, Tricolor, and it will bundle it into asset-backed securities. It will sell those and then repay J.P. Morgan and then have more money to make loans. So now all of this is coming unraveled. The Justice Department has launched an investigation into fraud allegations. Tricolor has now filed for bankruptcy. What do we know about how all of this is proceeding now?

9:14So there's a lot of questions to be answered. The bankruptcy was very sudden. It is a Chapter 7 bankruptcy, which is a liquidation. And to do that on day one is very serious. So everyone's trying to figure out what the exposure is. The people who own the asset-backed securities, certainly they're wondering if they're going to be repaid. People are trying to understand the collateral, which are the cars, where are the borrowers. So this is like an inferno right now. If our listeners had any kind of reaction similar to mine, it's that this has the echoes of the 08 subprime mortgage crisis that preceded the wider financial crisis.

9:48How does this tricolor case really compare and scale to what happened in 08? Sure. So there's a couple of things. First, there's the issue of potential fraud, and that is relatively serious. And I would say probably an aberration. The more interesting question is, is there actual stress amongst low-income and subprime borrowers? Obviously, car prices are very high. And so if there are some kind of mass distress amongst low-income borrowers and they're having trouble keeping up with payments, that is something that applies across the economy. And, you know, will there be risk in these securities across auto lending?

10:28Yes, it does on the surface look a little bit like 2008, even though it's unclear what the end game here is. If it was a potential tipping point into a wider crisis, are there better protections in place now for systemically important banks and institutions in this country? Basically, how likely is it that we might see a sort of 2008 repeat? Yeah. So the first thing I'd say is Tricolor is what's called like a non-bank lender. It's not a bank and that does not take deposits and then make loans. It borrows money from a bank that does take deposits. And that's like a really big trend in modern Wall Street and finance, this idea that banks themselves are not the primary touchpoint with consumers.

11:12So this trend is really important. It's the basis of like private credit. And so the worry is could this like chain of complexity, is this going to unravel in the same way? There is, to your point, a big difference between 2008 and now. One, banks just have more capital, which means losses that they do incur are likely to be less painful. Yes, the financial engineering is a real thing, and it always seems to accelerate faster than regulators or others can pick up. Sajid Indap, the FT's Wall Street editor. Thanks so much. Thank you. You can read more on all of these stories for free when you click the links in our show notes.

11:52This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

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