The New CS Board

[jumanji0881]

More rotting assets are lurking in the shadows of the financial system
https://www.msn.com/en-us/money/markets/more-rotting-assets-are-lurking-in-the-shadows-of-the-financial-system/ar-AA16wyat?ocid=msedgntp&cvid=eb9773aa36bc44a88c0d8b24ac057a76

Excerpts:
Nonbanks, firms that are not traditional insured depositories, lie at the heart of a system that has created a $5 trillion debt load on companies in the U.S. alone, according to a new study by my organization, Americans for Financial Reform.

This mix of leveraged loans securitized into collateralized loan obligations, high-yield debt, and private credit have played a critical role in the private-equity industry’s leveraged buyout machine that has taken over tens of thousands of companies.

Corporate indebtedness is now higher than it was before the 2008 financial crisis.

We will find little positive left over from this lending. Our research suggests that only a tiny fraction—3%—went for identifiable corporate purposes. Instead, the debt supports further consolidation in an economy that already has a problem with monopoly power, and it allowed owners to draw cash out of companies, or refinance.

The hangover from this subprime corporate lending will amplify any future downturn as companies struggling to service their debt laypeople off and reduce their capital investments amid a global economic slowdown. It will also test the financial system, daring central bankers to veer away from higher rates.

Much of this subprime corporate debt reflects questionable accounting practices that allow borrowers to overestimate future earnings, thus downplaying leverage levels something private-equity owners shrug off because of their own short time horizons. It’s an echo of how Wall Street’s originate-and-distribute model of mortgage lending led to crisis in 2008 because it divorces decision-making from liability.