$1.2T in risky corporate debt showing similar warning signs to subprime crisis
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.<p>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.<p>$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&#x27;t overly exposed to this debt.<p>Additionally if the debt isn&#x27;t leveraged on top of the outstanding loan amounts, again the damage from a potential crisis in this area will be very contained.<p>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.<p>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 &quot;dumber&quot; 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.<p>A loosening of debt requirements, while a bad idea, doesn&#x27;t qualify as fraud. There also isn&#x27;t general speculation that is associated with a bubble, which was one of the main ingredients for the housing mortgage crash as well.<p>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.<p>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&#x27;t accurate.