It’s Prime Time for Subprime Again
And that should make you concerned.
The 2019 version of those “foreclosure” signs from the previous crisis.
Photographer: Justin Sullivan/Getty Images North AmericaThey say it’s a bad idea to fight the last war, but then they also say there’s no education in the second kick of a mule. When it comes to bad debt crushing the economy, we might be better off listening to the second adage.
It almost feels ridiculous, just 10 years after a financial crisis sparked by subprime debt, to warn that it’s becoming a problem again, but here we are. At least this time it’s not bad mortgage debt, but corporate “leveraged” loans – those to companies with bad credit ratings or a bunch of debt. This lending has doubled since the crisis, Bloomberg’s editorial board warns, and standards are weakening, to help meet ravenous investor demand for collateralized bundles of these loans. But it’s cool: These CLOs are highly rated, and anyway who ever heard of a bunch of corporate debts going bad all at once?