Posted on 03/01/2025 1:32:51 PM PST by E. Pluribus Unum
Wall Street expects to sell more than $335 billion in asset-backed debt this year. Remember that conference in ‘The Big Short’? It just drew a record 10,000.
The convention halls at the Aria Resort & Casino on the Las Vegas Strip were packed for four days this past week with bankers and their clients, in uniforms of Italian sportscoats and office sneakers. They fist bumped greetings as they strode to their next meetings, giving off the feel of a joyous reunion.
The hotel’s sky suites were booked. Citigroup bankers set up more than 900 meetings. A panel on data centers was so popular, attendees sat on the floor. Bank of America arrived with clients it had just taken on a ski trip to Park City, Utah.
At 10,000 people, it was the biggest ever SFVegas—the annual gathering for the structured-finance industry. The last time it boomed like this was 2006 and 2007. Mortgage bonds were selling like crazy, and this crowd was flying high.
Then these financiers crashed the U.S. economy and sent the global financial system to the brink.
Now, structured finance is back.
Wall Street is once again creating and selling securities backed by everything—the more creative the better—including corporate loans and consumer credit-card debt, lease payments on cars, airplanes and golf carts, and payments to data centers. Once dominated by bonds backed by home mortgages, deals now reach into nearly every cranny of the economy.
“It’s amazing to me,” said Lesley Goldwasser, a managing partner with GreensLedge, a boutique investment bank that focuses on structured credit. “I have watched this with absolute wonder.”
New U.S. issuance of some of the most popular flavors of publicly traded structured credit hit record levels in 2024 and are expected to surpass those tallies this year, according to S&P...
(Excerpt) Read more at wsj.com ...
Nothing wrong with them if they are rated correctly as junk credit. Bundling them together as CDOs and rating tranches of them as AAA is what went wrong.
And they would NEVER do that again, would they?
Let’s see this time how “They” can deal with tar, feathers, pitchforks, torches...and more modernly analogous...techniquies.
Money always starts chasing lower-grade higher risk propositions when the higher-grade investments have gotten too crowded. The opportunities that follow the ensuing blowout are fabulous for those familiar with the cycle.
One of the problems of 2008 is the too big to fail attitude. If some of the larger banks had been allowed to fail with FDIC money used to save the depositors instead of the CEOs, the banksters might have learned a lesson. Instead just Lehman Bothers and Bear Stearns were allowed to go bankrupt.
Nah. Lol.
The 2008 crash was due to lending going to people with bad credit to make it more “equitable”. When the values started to fall, people walked out on their mortgages because they were “losing money”.
bttt
I was selling them. We called them “foreclosures of the future”. I was selling a listing, waiting at the closing table. Hispanic buyer didn’t speak any English, just sat there. His agent was late. She finally flew into the room, said, “Sorry, I have 8 closings today.” She said something to her buyer in Spanish and he started signing papers. They would close, move in 4 guys and charge them rent. They would never make a single payment. It would take the mortgage company 2-3 years to foreclose and they would just live there paying minimal utilities.
Then they would strip out the appliances, light fixtures, toilets, etc. and finally move out.
The 2008 financial crisis wasn’t just about subprime loans—it was about how they were bundled, rated, and leveraged across the financial system, with the repo market playing a central role in the collapse.
Subprime loans alone wouldn’t have tanked the economy, but they were securitized into mortgage-backed securities (MBS) and collateralized debt obligations (CDOs)—often mixed with prime loans and given investment-grade ratings. This created a false sense of security, leading financial institutions to hold, trade, and use these securities as collateral in short-term funding markets.
When mortgage defaults rose, confidence in these securities plummeted. Firms had to write down their portfolios, which weakened their balance sheets and triggered massive devaluations. This hit the repo market hard, where firms borrowed short-term cash by pledging MBS as collateral. As MBS values dropped, haircuts increased, meaning firms had to post more collateral to borrow the same amount of cash. Lenders pulled back, liquidity dried up, and funding froze.
Financial institutions like Bear Stearns and Lehman Brothers, which relied heavily on repo funding, suddenly couldn’t roll over their short-term debt. With their collateral heavily discounted and no one willing to lend, they collapsed, spreading panic throughout the system.
In short, the crisis wasn’t just about bad loans—it was about how those loans were packaged, rated, and used as collateral in a highly leveraged financial system. When confidence in that collateral disappeared, the repo market froze, liquidity evaporated, and the entire financial system unraveled.
Forced on the banks by the federal government.
Loaning money to people that can’t qualify was moronic. Goes back to Clinton and Janet Reno attacking “red lining”.
Idiots.
“ and given investment-grade ratings. ”
Yep, the ratings companies gave them inaccurate ratings .
Had the risk been rated correctly, it would have made a big difference
Exactly what I am doing now. With money market funds paying less than 4%, I am getting into high yield funds paying 6.5%.
Good, I’m in some high dividend stocks, and T-Bills due to no state tax on them here. Allocation, allocation, allocation. It changes as we age.
“Goes back to Clinton and Janet Reno attacking “red lining”.”
George Bush didn’t help either. He wanted that homeownership percentage record and he got it. Temporarily. The crash that followed hurt a lot of people who bought, then got laid off, etc. The boom that followed that was awesome though.
Thanks, you are telling the part of the story the media liked to ignore.
The whole point of being “creative” and “diversified” is to bury the junk where the sellers thinks it will not be found.
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