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Do you remember the collateralized debt obligations (CDOs)? Welcome today's CLOs

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  • Do you remember the collateralized debt obligations (CDOs)? Welcome today's CLOs

    https://www.nytimes.com/2018/10/19/b...gtype=Homepage


    Wall Street Loves These Risky Loans. The Rest of Us Should Be Wary.


    ...

    While it isnít necessarily destined to end in a 2008-style collapse, the situation today is eerily familiar. Even top Federal Reserve policymakers cited the surging growth of this market as a reason to ďremain mindful of vulnerabilitiesĒ and possible risks to the financial system.

    ...

    The process of issuing loans, packaging them together and carving them into investments has many names: securitization, structured finance, even shadow banking.

    The last shadow-banking frenzy on Wall Street centered on home loans, which were repackaged into investments used to build collateralized debt obligations, or C.D.O.s.

    Banks pooled millions of mortgages ó some of them to borrowers with a shaky ability to repay ó to create C.D.O.s. They kept some, and the rest they sold off to a slew of other investors: in-house hedge funds, European banks, large American pension plans and more.

    The investments at play now are C.L.O.s, for collateralized loan obligations. But this time, the underlying loans arenít going to high-risk homeowners. Theyíre going to high-risk companies.

    These C.L.O.s are made up of loans to between 100 and 300 already indebted corporate borrowers. Sears, which filed for bankruptcy this week, was among the companies that took what are called leveraged loans.

    Such loans to companies with junk-level credit ratings hit a record of more than $550 billion last year, eclipsing levels in the last years before the financial panic.




    My most dangerous mission: I landed in the middle of an enemy tank battalion and I immediately, started spraying bullets killing everybody around me having fun up until my computer froze...

  • #2
    The next bubble due to burst. Frankly, I blame the investors, without whom these shaky debt programs would be worthless.
    Quis Custodiet Ipsos Custodes? Who is watching the watchers?

    Comment


    • #3
      CLO are a very old financial instrument, nothing contemporary about them.
      Zhitomir-Berdichev, West of Kiev: 24 Dec 1943-31 Jan 1944
      Stalin's Favorite: The Combat History of the 2nd Guards Tank Army
      Barbarossa Derailed I & II
      Battle of Kalinin October 1941

      Comment


      • #4
        Originally posted by Cult Icon View Post
        CLO are a very old financial instrument, nothing contemporary about them.
        .
        Predatory loaning is also an old gadget off the financial industry. But when such loans were used in derivatives like the Credit Default Swaps, we ended up with the 2008 collapse. Something similar may happen with the CLOs. Recently, I posted a nice video which described the development of the modern financial market and how the modern practices defer from similar ones in the past.



        Between around 7:45 and 12:00 one can hear the historical development of the modern financial industry.
        My most dangerous mission: I landed in the middle of an enemy tank battalion and I immediately, started spraying bullets killing everybody around me having fun up until my computer froze...

        Comment


        • #5
          Did you hear Trump criticize the Federal Reserve Board for raising the Fed Funds Rate?

          By breaking with a 25-year tradition and criticizing Federal Reserve officials for raising interest rates, President Donald Trump has put Fed policymakers in a no-win position that could jeopardize the economic expansion, at least one Fed scholar says. . . .



          In a CNBC interview scheduled to air Friday morning, Trump said, ďIím not thrilledĒ with the Fedís rate hikes. ďBecause we go up, and every time you go up they want to raise rates again. I donít really Ė Iím not happy about it. At the same time Iím letting them do what they feel is best.Ē

          The Fedís policymaking committee has raised rates twice in 2018 and forecast two more bumps this year and three in 2019. The Fed boosts rates to tamp down economic activity and head off a spike in inflation. But the strategy can make stocks less attractive, and lifting rates too rapidly can trigger a recession. . . . .

          https://www.usatoday.com/story/money...ent/803667002/
          Low rates make borrowing attractive. Raise rates, people and other entities borrow less. Trump wants rates at rock bottom levels: more borrowing means more economic activity, more building, more expansion -- more employment. The risk is that increased borrowing can precipitate inflation, or investment bubbles. Like any elected official, Trump is willing to risk a bubble so he can take credit for increased activity and increased employment. If you want to forestall or prevent bubbles in questionable instruments, do the opposite of what Trump wants: increase interest rates. Very simple, no new legislation or regulatory authority needed.

          Keynes' General Theory of Employment, Interest, and Money is eighty years old. It's a good start on the subject.
          I was married for two ******* years! Hell would be like Club Med! - Sam Kinison

          Comment


          • #6
            When the U.S. was founded only properly owners could vote and stock trading was considered a dishonorable profession. It was more or less the English tradition of landed aristocracy expanded to the middle class. The industrial revolution shifted social norms substantially including making trading an essential industry and traders respectable businessmen as long as they were honorable. The old honor system worked more or less because it was based on character. If a land owner for example abused his slaves he wasn't welcome in polite society. Reputation was and remains an important part of banking and stock trading but it is no longer tied closely to character and reputation has a different meaning. In earlier times the landed gentry lived within the community but today community is abstract and professionally based. What is considered dishonorable is a matter of peer pressure not the interests of the wider society.
            We hunt the hunters

            Comment


            • #7
              Originally posted by wolfhnd View Post
              When the U.S. was founded only properly owners could vote and stock trading was considered a dishonorable profession. It was more or less the English tradition of landed aristocracy expanded to the middle class. The industrial revolution shifted social norms substantially including making trading an essential industry and traders respectable businessmen as long as they were honorable. The old honor system worked more or less because it was based on character. If a land owner for example abused his slaves he wasn't welcome in polite society. Reputation was and remains an important part of banking and stock trading but it is no longer tied closely to character and reputation has a different meaning. In earlier times the landed gentry lived within the community but today community is abstract and professionally based. What is considered dishonorable is a matter of peer pressure not the interests of the wider society.
              It takes a buyer to create a predatory seller.
              Quis Custodiet Ipsos Custodes? Who is watching the watchers?

              Comment


              • #8
                Originally posted by slick_miester View Post
                Did you hear Trump criticize the Federal Reserve Board for raising the Fed Funds Rate?



                Low rates make borrowing attractive. Raise rates, people and other entities borrow less. Trump wants rates at rock bottom levels: more borrowing means more economic activity, more building, more expansion -- more employment. The risk is that increased borrowing can precipitate inflation, or investment bubbles. Like any elected official, Trump is willing to risk a bubble so he can take credit for increased activity and increased employment. If you want to forestall or prevent bubbles in questionable instruments, do the opposite of what Trump wants: increase interest rates. Very simple, no new legislation or regulatory authority needed.

                Keynes' General Theory of Employment, Interest, and Money is eighty years old. It's a good start on the subject.
                Not sure trump is smart enough to realize he risking a bubble. He not very good at the basics or has some very unique views on them.

                Comment


                • #9
                  Originally posted by Mountain Man View Post

                  It takes a buyer to create a predatory seller.
                  My point was how insulated our classes are. Every group of professionals live in their own bubble the AMA being one example Bankers and investors being other examples. It's a kind of tribalism but more importantly it effectively established a culture that lacks the diversity to stay in touch with reality.
                  We hunt the hunters

                  Comment


                  • #10
                    Originally posted by craven View Post

                    Not sure trump is smart enough to realize he risking a bubble. He not very good at the basics or has some very unique views on them.
                    The one dimensional view of Trump is self delusion. The idea that he is stupid is fairly absurd. His IQ is probably in the mid 130s but he also has good animal instincts from years of "street fighting" in the real estate business in NY.

                    It seems that many people cling to convention as the world around them changes. The experts were wrong about Trump's chances for election, the wizards on wall street made colossal errors in judgment leading to their failure to predict the timing of the subprime bubble burst, Obama said that Trump couldn't bring jobs back and 4 percent GDP would never happen, the federal reserve chairman broke down in tears admitting that his life long philosophy was wrong, an empirical examination of the evidence suggests Trump is smarter than the experts. BTW what is your IQ?

                    Of course Trump knows he is risking a bubble. He's a risk taker by trade which makes him dangerous. On the other hand we just had eight years of establishment sober and judicious, well spoken ivy league presidential, multicultural, anti patriot wisdom that left the world a more dangerous place.

                    If you think you are smart because you can eloquently opine conventional wisdom you are always going to be behind the curve.

                    What really makes Trump so offensive to many is that they thought they were the end of history. Hillary was a given, socialism was inevitable, globalism was insurmountable, the culture war had been won, nationalism was confined to the dust bin of history, global warming would force the energy sector into submission to environmental regulation, family values would forever be equated with bigotry, that the tech giants represent an end to the industrial revolution, and that they were always going to be immune from the consequences of leftist policies.

                    The real problem with Trump is that like most business people he has no long term plan. The great thing about Trump is he represents a pause in the slow spiral into dystopian left wing hell.
                    We hunt the hunters

                    Comment


                    • #11
                      Originally posted by craven View Post

                      Not sure trump is smart enough to realize he risking a bubble. He not very good at the basics or has some very unique views on them.
                      Remember, Trump was a real estate developer. To him, low interest rates are like candy. Conversely, high interest rates are as broccoli. Guess which one Trump likes more, even if too much of it causes diabetes.
                      I was married for two ******* years! Hell would be like Club Med! - Sam Kinison

                      Comment


                      • #12
                        Originally posted by wolfhnd View Post

                        The one dimensional view of Trump is self delusion. The idea that he is stupid is fairly absurd. His IQ is probably in the mid 130s but he also has good animal instincts from years of "street fighting" in the real estate business in NY.

                        It seems that many people cling to convention as the world around them changes. The experts were wrong about Trump's chances for election, the wizards on wall street made colossal errors in judgment leading to their failure to predict the timing of the subprime bubble burst, Obama said that Trump couldn't bring jobs back and 4 percent GDP would never happen, the federal reserve chairman broke down in tears admitting that his life long philosophy was wrong, an empirical examination of the evidence suggests Trump is smarter than the experts. BTW what is your IQ?

                        Of course Trump knows he is risking a bubble. He's a risk taker by trade which makes him dangerous. On the other hand we just had eight years of establishment sober and judicious, well spoken ivy league presidential, multicultural, anti patriot wisdom that left the world a more dangerous place.

                        If you think you are smart because you can eloquently opine conventional wisdom you are always going to be behind the curve.

                        What really makes Trump so offensive to many is that they thought they were the end of history. Hillary was a given, socialism was inevitable, globalism was insurmountable, the culture war had been won, nationalism was confined to the dust bin of history, global warming would force the energy sector into submission to environmental regulation, family values would forever be equated with bigotry, that the tech giants represent an end to the industrial revolution, and that they were always going to be immune from the consequences of leftist policies.

                        The real problem with Trump is that like most business people he has no long term plan. The great thing about Trump is he represents a pause in the slow spiral into dystopian left wing hell.
                        Ahhh the dumb leftist are stupid argument when argueing with a conservative. Oh and when has iq had anything with being dumb.

                        If you cant see that Trump is fairly ignorant on various issues then that a reflection on you. Trump does have the skills to be a great con man and though I do appreciate that skill in him. For example where he going with the IBM treaty could be fairly interesting.

                        fyi go back look at the numbers pre trump and you will notice that the numbers would be where they are now in the economy even if Hillary would of been in office.

                        Comment


                        • #13
                          The argument that the Trump economy is simply a continuation of what it was under Obama is destroyed by Obama's own words. He didn't just say that Trump would ruin the economy but that we would never see the current rate of growth again. The man is either lying or horribly misinformed. Keep in mind that Trump's economy is performing well despite a hostile federal reserve, congress and press. If the press had pilloried Obama as they have Trump the necessary confidence for a recovery would never have existed.
                          We hunt the hunters

                          Comment


                          • #14
                            Originally posted by wolfhnd View Post
                            The argument that the Trump economy is simply a continuation of what it was under Obama is destroyed by Obama's own words. He didn't just say that Trump would ruin the economy but that we would never see the current rate of growth again. The man is either lying or horribly misinformed. Keep in mind that Trump's economy is performing well despite a hostile federal reserve, congress and press. If the press had pilloried Obama as they have Trump the necessary confidence for a recovery would never have existed.

                            You are actually misinformed! You confuse quarterly results which sometimes can give very high numbers with annual growth

                            https://www.cbsnews.com/news/us-gdp-...ally-standard/

                            While Mr. Trump praised the 4.1 percent annual growth rate in the second quarter, the economy exceeded that level four times during the Obama presidency: in 2009, 2011 and twice in 2014.


                            But quarterly figures are volatile, and strength in one quarter can be reversed in the next. President Obama never achieved the 3 percent annual growth that President Trump hopes to see, though he came close. The economy grew 2.9 percent in 2015.


                            The facts show less impressive numbers

                            http://www.latimes.com/business/hilt...126-story.html

                            Trump didn't get his 3%-plus economic growth for 2017, after all

                            For the whole year, the increase in real GDP is 2.3%. That's better than the 1.5% growth rate in 2016, the last year of Barack Obama's second term, but only a tiny hair better than the average over Obama's full second term.

                            My most dangerous mission: I landed in the middle of an enemy tank battalion and I immediately, started spraying bullets killing everybody around me having fun up until my computer froze...

                            Comment


                            • #15
                              but it gets even worse...

                              https://www.nytimes.com/2018/10/15/u...-tax-cuts.html

                              Budget Deficit Jumps Nearly 17% in 2018


                              WASHINGTON ó The federal budget deficit swelled to $779 billion in fiscal year 2018, the Treasury Department said on Monday, driven in large part by a sharp decline in corporate tax revenues after the Trump tax cuts took effect.

                              The deficit rose nearly 17 percent year over year, from $666 billion in 2017. It is now on pace to top $1 trillion a year before the next presidential election, according to forecasts from the Trump administration and outside analysts. The deficit for the 2018 fiscal year, which ended Sept. 30, was the largest since 2012, when the economy and federal revenues were still recovering from the depths of the recession.

                              My most dangerous mission: I landed in the middle of an enemy tank battalion and I immediately, started spraying bullets killing everybody around me having fun up until my computer froze...

                              Comment

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