{"id":39581,"date":"2018-10-23T05:58:33","date_gmt":"2018-10-23T10:58:33","guid":{"rendered":"http:\/\/olduvai.ca\/?p=39581"},"modified":"2018-10-23T05:58:33","modified_gmt":"2018-10-23T10:58:33","slug":"looking-for-the-next-crisis-the-not-very-scary-world-of-clos","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=39581","title":{"rendered":"Looking for the Next Crisis: the Not Very Scary World of CLOs"},"content":{"rendered":"<h3 class=\"headline\"><a href=\"https:\/\/www.counterpunch.org\/2018\/10\/23\/looking-for-the-next-crisis-the-not-very-scary-world-of-clos\/\" rel=\"bookmark\">Looking for the Next Crisis: the Not Very Scary World of CLOs<\/a><\/h3>\n<div class=\"post_content\">\n<p>We\u2019re still in financial crisis mania, as the business press eagerly tries to tell us how little they learned from the last crisis by trying to identify the source of the next one. The NYT\u2019s latest contribution to the effort is a <a href=\"https:\/\/www.nytimes.com\/2018\/10\/19\/business\/economy\/clo-corporate-loans.html?rref=collection%2Fsectioncollection%2Fbusiness&amp;action=click&amp;contentCollection=business&amp;region=stream&amp;module=stream_unit&amp;version=latest&amp;contentPlacement=1&amp;pgtype=sectionfront\">piece<\/a> on C.L.O.s, or collateralized loan obligations.<\/p>\n<p>The piece tells us that these are like the C.D.O.s of the last decade, debt instruments in which banks bundled many loans of questionable quality and sold them off to unsuspecting buyers. It warns that banks have little incentive to ensure their quality, since they don\u2019t hold a stake, and therefore there is a risk of large-scale defaults.<\/p>\n<p>There are two big problems with the scare story here. First, the growth in these risky instruments is not quite what the piece might have readers believe. The piece includes a chart which shows the amount of junk bonds and C.L.O.s outstanding since 2014. While the point of the chart is to show that volume C.L.O.s has passed the volume of outstanding junk bond debt, a more serious analysis would combine the two together to get a gage of the amount of high-risk corporate debt in the economy.<\/p>\n<p>This combined measure does not tell much of a story. Eyeballing the chart, we go from a combined total of roughly $1.95 trillion in 2014 to $2.5 trillion in the middle of 2018. Since this is a period in which the economy has grown by roughly 20 percent in nominal terms, this indicates only a modest rise in the ratio of risky corporate debt to GDP. This is not the sort of stuff that need keep us awake at night.<\/p>\n<p>\u2026click on the above link to read the rest of the article\u2026<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Looking for the Next Crisis: the Not Very Scary World of CLOs We\u2019re still in financial crisis mania, as the business press eagerly tries to tell us how little they learned from the last crisis by trying to identify the source of the next one. The NYT\u2019s latest contribution to the effort is a piece [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[11515,17093,17094,8898,5493,19338,312,22529,488],"class_list":["post-39581","post","type-post","status-publish","format-standard","hentry","category-economics","tag-cdo","tag-clo","tag-collateralized-loan-obligations","tag-corporate-debt","tag-counterpunch","tag-dean-baker","tag-financial-crisis","tag-junk-bond-debt","tag-loans"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/39581","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=39581"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/39581\/revisions"}],"predecessor-version":[{"id":39582,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/39581\/revisions\/39582"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=39581"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=39581"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=39581"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}