Worthy of note: our credit union made us buy a $500 appraisal before they'd give us $72k on a house appraised at $190k (at 7%)... but a corporate bank gave us $350k unsecured at 3.5%.
- Loans… are often “covenant-lite” leveraged loans, a type of junk bond that offers fewer safeguards for investors. Given the desperation for higher yields, investors foolishly accept higher risk to get their hands on low-grade corporate debt. So under the terms of these loans, investors do not get informed when the underlying companies run into financial trouble, making it harder to avoid losses…
Smaller and smaller firms were the beneficiaries of these loans, like Learfield Communications, a media group with $40 million in annual revenues that received an incredible $330 million in covenant-lite loans last October. It’s correct to call this the “subprime of the corporate world.”
I mean... I'll take it. But I also know I wrote one hell of a business plan that made one hell of a business case (thanks veen). But at the same time, I was a little freaked out by the amount of money they gave us, considering we were asking for like $100k.
Kind of like when Washington Mutual offered me a $200k line of credit just for having a business license. They were gone 9 months later.
Sounds so familiar. The pattern seems to be that if no one is sure how bad it is, it is worse than most expect. I'm just glad I can actually trade the downside without doing real shorts. ETFs on derivatives might be an evil, but IMO they would be even moreso if only 'qualified investors' could play with them. It's nice to have another option besides cash. I don't think we are going to end this cycle without global financial regulation, and that most likely won't be an improvement.For starters, a lot of this debt was securitized, packaged into collateralized loan obligations that were privately traded, so we have no clue of the level of risk. Many CLOs were synthetic, too, and a good number of hedge funds bought CLOs with borrowed money. So Third Avenue, and like-minded distressed-debt specialists, are one thing. The real question is how the CLO holders hedged themselves, and who else has a piece of this crap.
I'm curious as to your proposed framework for "global financial regulation." We've got trade agreements but those aren't quite the same. Meanwhile, the parties that most need regulation are the most international ones, and they'll just skate from haven to haven.