Fate of $1 trillion in risky U.S. loans may be in Japan’s hands
“Years of low yields spurred investors to pour money into leveraged loans – credit extended to companies with the weakest balance sheets. Such assets were pitched as a haven for those worried about the prospect of rising interest rates, and were often repackaged into so-called collateralized loan obligations, or CLOs, with credit enhancements to protect investors.”
USAGOLD note: More on the dangerous CLO situation Janet Yellen brought to public attention earlier in the week. Now we learn that the counter-party risks go beyond the United States to Japan, and no doubt to banks in other countries that chose to push aside the risks in the pursuit of greater short-term returns. Yellen warned that the CLO had structural similarities to subprime loan portfolios at the root of the 2007-2008 credit crisis. (See repost below.) It all sounds very familiar. . . . . . .