Business Standard

2008 recap? World is still blind to risks of these financial instruments

Built into this speculative episode, like its predecessors, is a euphoric flight from reality and a blindness to risks that continue to rise

financial risks
Premium

Photo: Shutterstock

Satyajit Das | Bloomberg
Financial markets have short memories. Of late, they’ve convinced themselves that collateralized loan obligations (CLOs) are much safer instruments than the collateralized debt obligations, or CDOs, on which they’re based and which helped precipitate the 2008 crisis. They’re wrong -- and dangerously so.

Current CLOs outstanding globally total around $700 billion, with annual new issues of over $100 billion. That’s broadly comparable to subprime CDO volumes in 2008. Both Bank of England Governor Mark Carney and former Fed Chair Janet Yellen have warned about potential risks; regulators in Japan, where banks have been big CLO buyers, are particularly concerned.

The structure of

What you get on BS Premium?

  • Unlock 30+ premium stories daily hand-picked by our editors, across devices on browser and app.
  • Pick your 5 favourite companies, get a daily email with all news updates on them.
  • Full access to our intuitive epaper - clip, save, share articles from any device; newspaper archives from 2006.
  • Preferential invites to Business Standard events.
  • Curated newsletters on markets, personal finance, policy & politics, start-ups, technology, and more.
VIEW ALL FAQs

Need More Information - write to us at assist@bsmail.in