Meet the New Scam
Same as the old scam. I've been catching up on reading about the current markets, and as usual I'm left shaking my head. First I see that collateralized loan obligations (CLOs) are taking off. CLOs are basically securities backed by bundles of loans to low-rated companies that the companies have given collateral for. Effectively securities backed by "secured" junk bonds. But this time it's different! Unlike the pre-crash CLOs, these new CLOs have more financial support from the issuing banks and stricter collateral requirements. Says who? Says the folks selling them, that's who. Which is exactly whose word we took before. Think I'm being cynical? Think again. The new commercial mortgage-backed securities, which also supposedly have these new safeguards built in, are showing increasing defaults. The only improvement over last time is that the ratings agencies don't seem to be going along. Nevertheless, the usual suspects (such as Citigroup and Goldman Sachs) are cranking these messes out, often utilizing methods that leave you wondering just when you fell down that rabbit hole. We're going to crash it all again folks. It will be soon, and it will be worse.