Are the Banks Already Orchestrating Another Meltdown?
Tad Phillips, a commercial real estate analyst at Moody’s rating agency, told the Times: “The players in the business are generally the same as they were before. … Because it’s the old players, they know how to push the boundaries.”
The Times reported that banks have issued $26 billion in new collateralized loan obligations, or loans pooled and given to poorly rated companies, in just 2013 alone — more than what they issued in all of 2007. The Times stated, “Demand for the loan pools has been so brisk that banks have been able to loosen underwriting standards on the underlying loans and bonds. This provoked the Federal Reserve to release guidance last month warning that “prudent underwriting practices have deteriorated.”
The Times also reported that “57 percent of the outstanding money in commercial mortgage-backed securities” was in risky, interest-only loans before the crisis. It has now reached 34 percent — 11 percent more than two years ago.
Though bonds linked to home mortgages (a major cause of the financial crisis) have been slow to reappear on the Wall St. scene, JPMorgan issued one last month, becoming the first major American bank to do so. The Times stated other banks are also discussing doing the same.
We can demand that banks act more responsibly, and we can surely push our Congressmembers to do the same. But when our economic system is based on inequality and risking investment bets on the backs of others, it’s tough to expect more from Wall Street — which is why we must always analyze the existence of Wall Street itself.