Corrected—Next Big Short? Warnings Mountain For Leveraged-Loan Market

Correction: Someone (hmmm) linked to the incorrect FTAV post, regret the error, etc.
Good now.

We've looked at the practise of bundling garbage inwards a bright, shiny wrapper in addition to calling it Christmas many times, ordinarily inwards the context of CDOs in addition to CLOs in addition to CCOs:

As Carnegie Mellon Financial Engineering prof. Dogbert explains, nosotros are dealing amongst aggregates here:

Dilbert.com

This, however, leads to a whole novel railroad train of problems that come upwards from physically bundling the cows into the Collateralized Cow Obligation wrapper.

The cows inquire questions similar "Does this CCO brand my butt expect big" in addition to seriously, how tin you lot response that without incriminating yourself?
For this argue roughly practitioners prefer to stick amongst synthetic livestock, non to travel confused with....ummm..., where was I?...

The transformative might of a brilliant shiny wrapper existence used inwards the leveraged loan concern is the latest "product" from the structured production crowd.

From FT Alphaville:

At the most recent meeting of the Federal Open Market Committee inwards September, Federal Reserve officials debated the park topics. Is inflation running hot? How tight is the labour market? And of course, what's the futurity path of involvement rates? This fourth dimension around, however, policy makers raised concerns almost something else equally well: leveraged loans.

It was non the get-go railroad train of coming together minutes inwards which Fed officials accept devoted fourth dimension to talking almost leveraged loans, those extended to heavily-indebted companies in addition to individuals at floating rates. In August in addition to June, the Fed mentioned that issuance was picking up. It was the get-go time, however, that the Fed has flagged leveraged loans equally a potential run a jeopardy to fiscal stability.

The alert comes at a fourth dimension when multiple agencies in addition to international organisations accept issued their ain almost the ballooning $1trn-plus leveraged-loan market. This week, the Bank of England (BoE) drew parallels to the increment of sub-prime mortgages inwards 2006 that triggered the global fiscal crisis. MUCH MORE

See too July's "Structured Products Are Back Baby!" wherein Alphaville's Dan McCrum introduces us to the

"Auto-Callable Contingent Coupon Barrier Notes Linked to the Lesser Performing of Four Equity Securities, Due July 1, 2021."

As noted at the time: "How tin anyone expect upon this in addition to non call tears of joy?"