
$1.2T in risky corporate debt showing similar warning signs to subprime crisis - prostoalex
https://www.latimes.com/business/la-fi-corporate-debt-risks-20190120-story.html#nws=mcnewsletter
======
arawde
At last year's World Economic Forum, there was a panel titled "The Next
Financial Crisis", and while many different potential causes were considered,
the most prominent one is definitely corporate debt, especially emerging
market debt that is dollar-denominated. [0]

Much of the concern in markets right now seems to stem from the idea that as
the Federal Reserve tightens credit, both through raising interest rates and
through unwinding its previous QE programs, there will be a significant impact
on companies that have borrowed at lower interest rates. Debt that is going to
come due in the next few years is going to have to be refinanced, or is going
to default.

If you're a country which borrowed in dollars, the tightening of US monetary
policy will often lead to a change in exchange rates that makes it more
expensive to pay back debt. Coupled with a global economic slowdown resulting
from a trade war, and things start to look nasty wherever you look.

[0]:
[https://www.youtube.com/watch?v=1WOs6S0VrlA](https://www.youtube.com/watch?v=1WOs6S0VrlA)

~~~
pmorici
Thinking about this reminded me of the line from the movie "The Big Short"
where Michael Burry says one of the indicators of the coming crisis was an
increase in the rate of fraud. Juxtapose that with what feels like an uptick
in white collar fraud these past couple years. ie: Theranos, Fyre, 1MDB,
numerous crypto token related scams.

~~~
darawk
That's interesting though i'm not sure that's the right kind of fraud. The
fraud Bury was referring to was related to mortgage lending, both on the part
of the borrowers (fraudulent documents supporting income, etc.) and on the
part of the immediate lenders (the banks / lead generators for mortgages). The
comparable type of fraud here would be businesses inflating their assets or
income streams to acquire bank loans that they couldn't otherwise qualify for.
It may be that that kind of fraud is on the rise, but I don't think the
examples you cited (with the notable exception of 1MDB) are instances of it.

~~~
zippy5
It's not causal, it's symptomatic. People tend take bigger risks, even
criminal ones, when they have less to lose or less to gain. It's an
interesting proxy for economic desperation.

~~~
darawk
That's an interesting perspective that I hadn't considered. I'm not sure if
it's right though. You think it's symptomatic of desperation? I don't think of
the lead-up to the 2007 financial crisis as a particularly desperate time for
most people.

~~~
danans
One interpretation is that for many who took on debt they couldn't support, it
was a desperate attempt to continue a lifestyle that wasn't possible for them
any more due to changes in both the global and local economies, aided by
technology, which resulted in the reduced value of their labor.

------
raiyu
This article is a bit misleading. The subprime crisis occurred because of the
leverage on packaged debt that was held by big banks. Where by an original
loan amount of say $1MM had an outstanding obligation perhaps 100x that.

The issue was that the banks held this debt, which means when there was an
issue, they would become insolvent, which would lead to a financial crisis
like the great depression, which is why government intervention was needed.

$1.2T of outstanding debt is high, however, not very relevant without knowing
who the debt holders are. And as the article states, the primary big banks
aren't overly exposed to this debt.

Additionally if the debt isn't leveraged on top of the outstanding loan
amounts, again the damage from a potential crisis in this area will be very
contained.

As the article states a lot of this exposure sits with private equity funds
and hedge funds, which would result in very little impact to the average
citizen if there were an issue.

In regards to the Michael Burry comments about fraud, that was specifically
related to a bubble. That one of the surest signs of a bubble is out right and
rampant fraud. This is critical because when a bubble occurs it means that
mass hysteria sets over the general population as neighbors see people
"dumber" than them making money. This leads to rampant speculation across the
board, which then leads to bad actors committing fraud. They commit fraud
because the incentives are high to make a quick buck.

A loosening of debt requirements, while a bad idea, doesn't qualify as fraud.
There also isn't general speculation that is associated with a bubble, which
was one of the main ingredients for the housing mortgage crash as well.

So while there maybe an issue here if defaults occur those issues will be very
contained. There maybe some hit to the general financial markets, but nothing
even remotely close to what occurred with the housing crisis.

This is basically the equivalent of saying that any debt that shows loosening
guidelines and floating APR is the same thing as the housing crisis, which
isn't accurate.

~~~
RestlessMind
> That one of the surest signs of a bubble is out right and rampant fraud.
> This is critical because when a bubble occurs it means that mass hysteria
> sets over the general population as neighbors see people "dumber" than them
> making money. This leads to rampant speculation across the board, which then
> leads to bad actors committing fraud. They commit fraud because the
> incentives are high to make a quick buck.

That reads like a description of SV. Mass hysteria - check (eg. BTC, shitty
startups)! "dumber" people making money - check! rampant speculation - check
(eg. Uber IPO valuation of 120B, bay area shacks going for millions)! Actors
committing fraud - check (eg. Theranos, Zenefits)!

So can we say that SV is in a bubble, maybe confined to the tech sector?

~~~
raiyu
SV doesn't really fit the criteria of a bubble.

Bubbles gain steam by being accessible. The more people that get involved, the
larger the bubble becomes. It isn't a ponzi scheme, but acts like one in many
ways.

ICOs were well on their way to becoming a bubble, but being pegged to the
price of cryptocurrencies, the bitcoin bubble popped before the ICO bubble
really took off.

But if you look at the ICOs there was rampant fraud. Basically people writing
white papers, with no real companies or products, and then raising millions of
dollars. Very similar to the dot com bubble.

SV in and of itself creates a tremendous amount of value. Sure there are some
spectacular failures, and some questionable investments, but overall there is
value that is created. Without getting into any morality discussions, but
purely looking at revenue, profitability, return to investors, companies like
Uber, Facebook, Twitter, Airbnb, Tesla, and so forth have created tremendous
shareholder value.

When you some a "stupid" app raise $5MM it really isn't much considering how
much these other companies have raised, the revenue they generated and so
forth.

So SV is definitely not a bubble per say. You could make the case that some
valuations are inflated, but that is a sign of the macro market where SaaS
companies are enjoying their largest revenue multiples ever, but if that
corrects there will be a rest of perhaps 30-50% in market cap, but no where
near total collapse.

Additionally these companies do have underlying products, services, benefits,
and revenue.

You could say there is hype, over valuation, and so forth, but we aren't
anywhere near bubble territory.

~~~
lmm
> Without getting into any morality discussions, but purely looking at
> revenue, profitability, return to investors, companies like Uber, Facebook,
> Twitter, Airbnb, Tesla, and so forth have created tremendous shareholder
> value.

Facebook yes, but how many of the others have paid any dividends to
shareholders? Even these "success stories" seem to have valuations that are
based mostly on speculation; plenty of investors have made money but they
could have just been selling to "greater fools".

------
heifetz
no it's not.

The subprime crisis was precipitated by a lot of people taking out mortgages
with either blatantly or coerced false income information in their mortgage
applications on homes that had inflated values. Once home prices stopped going
up as much and interest rates started increasing, these people were no longer
able to make their mortgage payments.

Leveraged loans at 7x ebitda are still less leverage than someone taking out
90% LTV mortgage (90% LTV can be thought of as 9x leverage against your
equity). Companies usually also have more flexibility to increase their
income, or decrease their expenses compared to an average person. And
mortgages have required amortization where as most levered loans to my
knowledge are interest only.

All in all, unless a significant % of companies taking out levered loans are
submitting fraudulent financial filings, this is nothing like the subprime
crisis.

~~~
unclebucknasty
> _a lot of people taking out mortgages with either blatantly or coerced false
> income information_

Money flowed freely b/c the mortgages didn't matter. It was the ability to
bundle the mortgages and leverage them that fueled low-standards and drove
much of the lending frenzy.

> _The subprime crisis was precipitated by a lot of people taking out
> mortgages...these people were no longer able to make their mortgage
> payments_

No. Again, mortgage debt alone was a mere fraction of the problem. Those loans
were levered up many multiples through CDOs and other exotic instruments,
which was the real problem.

In 2008 there was a lot of effort made to blame poor people/subprime debtors.
But, it's been covered ad nauseam since then, so it's kind of surprising to
hear someone still making those claims in 2019.

~~~
heifetz
The derivatives were created and rated on the assumption that the borrower's
default rates were consistent with historical default rates. Of course that
was not the case, and losses became multiples higher, and blew up derivatives
that were highly levered. However, derivatives didn't cause the losses,
borrowers defaulted!

~~~
DeonPenny
Derivatives did cause the loses basically for what you said above.

>derivatives were created and rated on the assumption that the borrower's
default rates were consistent with historical default rates.

The historical information was wrong because the issuer of the subprime loans
hid bad loans given to people with thin credit histories.

------
steve_gh
A lot of the problem isn't in the debt as such, it is in the
collateralization. When you bundle the debt and sell it on in slices with
different risk profiles (i.e. separating out who gets paid first (least risky)
to last (most risky) then it becomes really hard to understand how risky the
debt slices are (which dictates how much they are worth).

People assume that the least risky debt (sometimes called super-senior) is
worth its face value. The problem is that when things go wrong, investors lose
confidence in the valuation of the debt. And suddenly a bank with say $1T of
super-senior debt finds it is only worth $100B on the open market. And that
means that the bank doesn't have the assets to back the loans it has made - so
has to raise money by selling things. Selling things when you are in trouble
is never a good idea, as you are forced to accept a discount. So you now have
the market flooding with cheap assets (say securities), which then drops the
value of the securities that other banks hold - which gives them problems in
backing the loans they have made. Then they have to start selling.

And that's how a financial earthquake begins...

------
shiftpgdn
I run a small SAS company and consult for another medium sized O&G company.
The amount of debt I am offered to take on every day is staggering. The O&G
company recently took a $200k loan with little to no proof of income,
collateral, or anything else. I know of some other small companies with
MILLIONS in debt and absolutely 0 collateral to back it up. In the event of
insolvency the lender will just soak the loss.

~~~
elliotec
I work for a fintech company that is in the business of small/medium business
credit and financing, and this is a very surprising thing to hear. My
understanding is the majority of our customers are struggling to establish
business credit and get decent financing, especially if they haven't been in
business long and/or don't have high revenue streams.

Do the companies you mention have decent revenue, even if they also have
debt?? Your situation is one many of our customers would love to be in.

~~~
rfc
Echo this. We have collateral, revenue, decent profit margins, and significant
YOY growth (over 500%) and it's been difficult to get a loan or LOC due to how
young we are. We finally got one for a small $10k LOC which is funny because
our company credit card is many times larger than that. Gotta start somewhere
though...

~~~
duxup
Struggling to get a 10k loan... like just as an individual that should be
pretty easy for me to get at the drop of a hat.

Odd a business would struggle to get something that small.

~~~
moccachino
A company can go under in two seconds with all the assets gone and the lenders
will have to suck it up. An individual has to struggle with bankruptcy laws
for a decade or more to get rid of the debt.

So if I've got 10k to loan, I'd rather loan it to some poor sucker that I then
own, rather than to a business that might disappear tomorrow.

~~~
duxup
Yeah good point, businesses can effectively evaporate into nothing.

People, you can hassle them forever.

Kinda sad how that is.

------
travisoneill1
The difference is that everybody knows that leveraged loans are risky. The
mortgage crisis wasn't triggered by the fact that complex mortgage backed
securities were risky, but by the fact that people thought they were pretty
much risk free and were blindsided.

~~~
interlocutor
Whoever is determining credit worthiness needs to have skin in the game. This
is what Dodd-Frank did. It required security bankers retain 5% of the overall
risk of the security. Known as the Volcker Rule, it is now being rolled back:
[https://www.washingtonpost.com/business/economy/trump-
signs-...](https://www.washingtonpost.com/business/economy/trump-signs-law-
rolling-back-post-financial-crisis-banking-
rules/2018/05/24/077e3aa8-5f6c-11e8-a4a4-c070ef53f315_story.html)

------
interlocutor
This is the key phrase in the story: "packaged into securities and sold to
investors". This is exactly like the mortgage crisis. Back then banks knew
many of the borrowers are not being truthful in their loan applications but
lent to them any way (look up "liar loans"). Banks didn't care because they
packaged these mortgages into securities and sold them to investors as
"mortgage-backed securities", so defaults are someone else's problem. Banks
are back at it again.

~~~
abakker
A public company is just packaged up its equity into securities and sold them
to investors.

The mortgages of 2008 were to the real problems, the sudden lack of liquidity
in the markets for trading them was. Sure, some mortgages were hurt, and the
housing market went down, but the problems with those securities were
illiquidity brought on by the difficulty in valuing the derivatives. Corporate
debt is somewhat easier to price, because disclosure is better/easier.

Still. I am not rushing out to invest in these securities now...

~~~
abrichr
_> the problems with those securities were illiquidity brought on by the
difficulty in valuing the derivatives_

Can you please elaborate and/or provide a source? I’d like to learn more.

~~~
abakker
Timothy Geithner's book "Stress Test" does a great job of explaining this,
IMO. The trouble with derivatives is that they are contractually bound to
reflect some price that is locked to the price of a primary asset. If the
derivatives are linked to the price of a security, which is in itself linked
to a certain risk-bundle of assets (e.g. the AAA rated CDO with the most
senior debt) then it was not exactly clear what happened to the derivative,
because it wasn't clear whether people were going to make their payments on
their mortgages, or whether the derivative counterparties could pay. The
market responses was to try to sell all the derivatives, rather than wait to
see what they'd be worth. Effectively, the liquidity which those derivatives
and CDOs had prior to the crisis disappeared entirely, which meant that their
true value fell much faster than it really should of since people were selling
at a discount just to get them off their balance sheets.

------
magila
The FED certainly still remembers the mortgage mess, considering they still
hold some $1.6 trillion in mortgage backed securities on their books. One
wonders what they will do when the next debt crisis hits. Will they take on
another trillion in corporate debt? Clearly this can't go on forever, but
there seems to be little political will to let credit markets normalize.

For me the whole situation is really scary.

~~~
hn_throwaway_99
That's the scary thing that makes it so difficult to argue invest in my
opinion, in that really ever since the late 90s Asian financial crisis we've
been on these huge boom/bust/boom/bust cycles, all fueled by the Fed
encouraging people to take more risk to lessen the blow of the bust.

~~~
twblalock
We've been on large boom and bust cycles since the 19th century at least. This
isn't new.

------
paxys
The economy is always in one of two states - recession, or people predicting
that the next recession is just around the corner.

~~~
marcrosoft
Here are two more things lurking behind the corner that can drastically effect
the economy:

Inflation Deflation

------
rayvy
Have also been reading about this [3-6]. With some believing the economy is
slowing[1] (i.e., lower corp profits), and with the Fed believed to be pausing
rate hikes[2] (i.e., no interest payment increases), I'm curious to see if
this turns into a sizeable problem (i.e., quasi '08 bad)

[1] [https://www.cnbc.com/2018/12/10/goldman-sachs-warns-of-a-
sha...](https://www.cnbc.com/2018/12/10/goldman-sachs-warns-of-a-sharp-us-
economic-slowdown-next-year.html)

[2] [https://www.reuters.com/article/uk-global-forex/dollar-
falte...](https://www.reuters.com/article/uk-global-forex/dollar-falters-on-
bets-fed-will-pause-u-s-rate-hikes-idUSKCN1P112U)

[3] [https://www.zerohedge.com/news/2018-10-30/corporate-debt-
bub...](https://www.zerohedge.com/news/2018-10-30/corporate-debt-bubble)

[4]
[https://www.bloomberg.com/news/articles/2018-11-19/corporate...](https://www.bloomberg.com/news/articles/2018-11-19/corporate-
america-s-debt-boom-looks-like-a-bust-for-the-economy)

[5] [https://www.forbes.com/sites/jessecolombo/2018/08/29/the-
u-s...](https://www.forbes.com/sites/jessecolombo/2018/08/29/the-u-s-is-
experiencing-a-dangerous-corporate-debt-bubble/)

[6] [https://seekingalpha.com/article/4225847-corporate-bond-
mark...](https://seekingalpha.com/article/4225847-corporate-bond-market-
getting-junkier)

------
zjaffee
People have been saying this since 2015. While the conditions for debt
refinancing have certainly changed, it's not clear by any means that this is
the sort of problem that would cause any sort of cascading recession all at
once.

~~~
orblivion
Peter Schiff and Ron Paul have been saying this since 2008. I used to believe
them. I stopped when the fed ended QE and started raising rates despite
Schiff's predictions.

~~~
UncleEntity
Some might say the end of QE and the forced budget cuts due to the Tea Party
shenanigans is the reason the predictions didn't come true...

\--edit--

I also find it amusing, in an ironic sort of way, how the Austrians get a
bunch of flack for not accurately predicting future events when large parts of
their economic theory is based upon not being able to predict future events.

------
acd
The current financial system does not price taking care of the environment.
Tragedy of the commons, air co2, oceans pollution. Further it is unstable
there is always credit booms and busts in cyclical fashion. Further besides
thrashing the planet it sends wealth from the middle class up to the top of
the pyramid. I am curious why the middle class tolerates it? Could it be that
most people do not understand the financial system?

~~~
collyw
I am sure that it is made deliberately complicated so that only those in the
know can make money from it. I don't doubt that I could make money from it
myself, but I don't have the time to learn all the intricacies of the system.
Well that's my excuse.

------
alexnewman
I called this when we moved from basel 2->3 . It changed the reserve
requirements to 0 for these type of loans.

------
sdinsn
Misleading. They show the amount that debt has increased, but they don't show
how corporate assets have increased. If they did, you'd see that the
wealth/debt ratio is NOT alarming.

------
caublestone
When markets crash they tend to crash fast after seeming to be in a slow
motion. I wonder what the kickoff will be?

If it’s this week it will go something like this:

1\. People realize that they aren’t getting their tax returns because of the
shutdown and it has an outsized effect because consumer savings rates are low.
Market wobbles.

2\. Treasury issues short term debt at high yields and long term debt at low
yield yields Thursday, market crumbles Friday.

3\. Fed meets next week to discuss the debt window and if they need to slow
down QT or go back to QE. They don’t know. Market goes volatile.

4\. Government shutdown ends at first sending stocks up. Then key economic
data releases showing consumer spending is going to be weak because real wages
were down.

Anyways, it’s more likely we’d have to see a couple of blue chips go bankrupt
first like a big state utility company or a classic old American tech company.

~~~
umeshunni
Your first statement (People realize that they aren’t getting their tax
returns because of the shutdown) is incorrect:
[https://www.bloomberg.com/news/articles/2019-01-07/irs-
will-...](https://www.bloomberg.com/news/articles/2019-01-07/irs-will-pay-
refunds-during-government-shutdown-official-says)

------
WheelsAtLarge
You have to take all these gloom and doom articles with a grain of salt. And
take them as a reminder that all economic booms reverse. Yes, some are right.
Yet, most are not. Question is which and when? We can't know and won't know
until after the next financial disaster happens. Even as we go through one we
won't know until months after it starts.

The last recession started at the end of 2007 yet we didn't really start
feeling it until well into 2008.

Financial collapses are more like earthquakes. You never know when they will
happen. But by the time they happen, it's too late to get ready so you better
be ready to avoid a major disaster beforehand.

------
tcbawo
Beware financial analysis and economic forecasts. Confirmation bias is
rampant.

------
everybodyknows
"Leveraged loan", defined:

[https://www.nasdaq.com/investing/glossary/l/leveraged-
loan](https://www.nasdaq.com/investing/glossary/l/leveraged-loan)

FT offers a more technical view of the phenomenon. Yesterday:

[https://www.ft.com/content/64c9665e-1814-11e9-9e64-d150b3105...](https://www.ft.com/content/64c9665e-1814-11e9-9e64-d150b3105d21)

------
swampthinker
How would one go about shorting this debt?

~~~
technofiend
First, watch The Big Short and decide how you'll manage being on the right end
of a winning bet with the incumbents doing everything they can to screw you
out of payment.

~~~
rosege
Read the book - a couple of great scenes that weren't included in the movie.

------
ngngngng
Who profits off of people worrying about another economic crisis? I'm pretty
knowledgeable on my local real estate market, and people are constantly
telling me we're in a bubble (we're not) and it's all going to come crashing
down this year (it won't). It seems very common these days for people with
next to no economic expertise to be certain of a coming crash. I don't think
it can be credited to everyone watching the Big Short.

Edit: Explanation because i'm getting downvoted. I live in Utah. Our prices
have increased quite a bit in the past couple years. The first bit of increase
was justified by the increase in high paying tech jobs, but then sellers got
greedy. We're currently in a stalemate where nothing is selling because
sellers want unrealistic prices. That's not a bubble, that's a market
correction.

~~~
UncleEntity
When prices reach a point where you can't pay your mortgage by renting out the
property then you can pretty much guarantee that prices are on the (too) high
side.

> ...but then sellers got greedy. We're currently in a stalemate where nothing
> is selling because sellers want unrealistic prices.

Technically...buyers make the market. Without a willing buyer it's all just
wistful thinking.

The real question is if the prices are truly unrealistic or are they necessary
to ensure the seller isn't losing money on the deal?

~~~
ngngngng
It was really interesting to watch. Prices kept going up until spring of 2018
when they crossed the threshold into too high territory. This is where we were
kind of in a bubble because there were some willing buyers paying more than
they could rent for. There weren't very many buyers that could afford those
prices though, Salaries in Utah are historically lower than they would be in
similar markets else where. If you're in Utah there's usually good reason to
be stuck here. Religion, family, obsession with skiing, etc.

So now sellers are wanting the prices that houses sold for in the spring, but
there just aren't enough buyers out there that can stomach that. And certainly
not enough salaries out there that can stomach that.

------
m3kw9
Are these debt misclassified as AAA, I don’t think so because of what happened
before at Moody’s, I think they changed some rules

~~~
abakker
No, they’re junk bonds, I.e. not investment grade.

------
platz
does that mean VCSH (Short term investment grade debt) is a good or bad play?

[https://investor.vanguard.com/etf/profile/VCSH](https://investor.vanguard.com/etf/profile/VCSH)

------
api
Seems to be a similar theme: there is a ridiculous amount of money at the top
that has nowhere to go and nothing to do but inflate debt and asset bubbles.

~~~
dba7dba
The irony and tragedy of modern capitalism.

Everyone wants to get paid, but no one wants to pay.

Since ones in power have more control, the top end up keep getting paid more,
while the lower ends keep getting paid less.

One example would be equity firms.

They buy a firm with borrowed money, and in order to pay back the loan,
interest on the loan, AND make a profit, they apply the expensive knowledge
learned from fancy MBA schools (that charge bucks) and lower cost and increase
profit. And lowering cost always means paying less to employees. And
increasing profit means charging more.

Little do the super rich realize, that soon enough there will be no middle
class to buy their stuff/services. And eventually the rich/superrich can only
sell stuff to each other, while us peasants watch on smartphones from our
slums using youtube service and enduring all the ads since we can't afford the
$20/month to hide the ads...

~~~
pjmorris
Marriner Eccles, after whom the Federal Reserve building is named, said
something very similar to your last paragraph. I need to dig up the quote.

Edit: Not the quote I was looking for, but maybe pithier: "The United States
economy is like a poker game where the chips have become concentrated in fewer
and fewer hands, and where the other fellows can stay in the game only by
borrowing. When their credit runs out the game will stop." Beckoning
Frontiers, Marriner Eccles

Edit: Here's the one I had in mind, written by Fed Chair Eccles in 1933:

"It is utterly impossible, as this country has demonstrated again and again,
for the rich to save as much as they have been trying to save, and save
anything that is worth saving. They can save idle factories and useless
railroad coaches; they can save empty office buildings and closed banks; they
can save paper evidences of foreign loans; but as a class they can not save
anything that is worth saving, above and beyond the amount that is made
profitable by the increase of consumer buying. It is for the interests of the
well to do – to protect them from the results of their own folly – that we
should take from them a sufficient amount of their surplus to enable consumers
to consume and business to operate at a profit. This is not “soaking the
rich”; it is saving the rich. Incidentally, it is the only way to assure them
the serenity and security which they do not have at the present moment."

\- [https://www.nakedcapitalism.com/2011/09/marriner-eccles-
on-t...](https://www.nakedcapitalism.com/2011/09/marriner-eccles-on-the-need-
to-save-the-rich-from-themselves.html)

~~~
sudosteph
That quote reminds me of something Huey Long said not much after that (1935)
after people were accusing his "Share our Wealth" program of being communist
despite it having explicit protections for private property.

> "Communism? Hell no! ... This plan is the only defense this country's got
> against communism."

His was less of a "using poor people is helpful to the rich" argument than an
"abusing the poor is going to create violent revolution", but both arguments
stem from the same source. The cynic in me says that lines like these were
easier to sell back when the idea of automating most of workforce wasn't quite
so real. If the rich people of the future can get everything they need and
want by owning technology - through patents, tech investments and physical
technology for self-defense, why would they care if the rest of the country
can play the poker game with them? If they have enough chips, why not just
trade them among themselves forever? There will be nothing left to gain from
letting other people buy-in significantly and there is no significant risk
from refusing them.

~~~
pjmorris
I think Eccles refers to the 'violent revolution' argument with 'Incidentally,
it is the only way to assure them the serenity and security which they do not
have at the present moment.' I think (hopefully or cynically?) the answer to
'why would they care if the rest of the country can play the poker game with
them?' is, to quote economist Mark Blyth, 'The Hamptons are not a defensible
position.' IMO, it's a stable society that enables wealth, and wealth can't
survive as an island in an unstable society.

------
presidents
I think what’s really happening is social media is “going dark” in the wake of
Facebook and Trump, and predictions that were previously possible, will now
expire.

All of this ties into candidacy announcements for 2020 presidential elections,
and people are doomsday prepping for that one, since the ground is going to
shake no matter the outcome, this time around.

~~~
marcrosoft
Nope, the economy goes in fairly predictable cycles and it doesn't care who's
president.

Stocks are currently over valued: see Nobel prize winning economist's CAPE
ratio.

------
fromthestart
I imagine economic bubbles are not independent. I wonder if this in sum with
the student loan 'bubble' could make things worse than in part.

------
guntars
The article doesn’t mention who’s buying the debt. As long as it’s private
investors using their own money, I don’t see a problem with this.

~~~
TravisLS
You'll recall the financial crisis in 2008, where many of us taxpayers paid
massively to bail out these private investors using their own money.

~~~
guntars
The taxpayers made $96B on those loans [1]. The issue then was that everyone
was buying those CDOs because they were AAA rated, things like the pension
funds and the banks themselves. I'm saying that if only individual investors
are buying the corporate debt, it's not a systematic risk.

[1]
[https://projects.propublica.org/bailout/](https://projects.propublica.org/bailout/)

~~~
TravisLS
That's a fair point given the way I phrased my reply, but TARP is far from the
extent of the cost of the financial crisis. The resulting market crash, credit
crunch, unemployment all play a role in making this much more than a private
issue. The fed estimated the cost to each American at $20-80K. [1] Also TARP
could have very easily _not_ made money, and bailouts are certainly not
guaranteed to make money the next time around.

[1] [https://www.nytimes.com/2014/01/22/business/economy/the-
cost...](https://www.nytimes.com/2014/01/22/business/economy/the-cost-of-the-
financial-crisis-is-still-being-tallied.html)

~~~
guntars
That's fair too, though it's easy to blame all of the recession on the
subprime bubble bursting while I think it would have happened anyway,
eventually. And I'm advocating for letting banks, funds and investors fail if
they lose at the game of musical chairs. For this to work though they need to
be kept separate from rest of the finance system and use their own money.

~~~
TravisLS
I'm agreed with you on that point. I wish we lived in that world and I think
we should work harder to get there. As long as we don't, though, I'm resigned
to recognizing the public costs of these private failures.

------
nspattak
How much is 1.2 terabyte of debt? :P

~~~
avehn
1,228.8 gigabytes (in binary)

