Everyone focuses on economic and technical indicators. One indicator is often overlooked and thats the creation of new products.
Im specifically talking about synthetic risk transfers (SRTs). WSJ recently had a story that showed big banks are offloading a portion of their shit loans to hedge funds and private equity firms to free up capital because they are getting hosed by tighter regulations set by the FED and bonds they bought before 2023. “In most risk transfers, investors pay cash for credit-linked notes or credit derivatives issued by the banks…Investors collect interest in exchange for shouldering losses if borrowers of up to 10% of the pooled loans default.” You can start to see the correlation already from the housing crash in 2008 instead this time its commercial loans. Instead of personal mortgage backed bonds its commercial backed bonds.
Now these SRTs are not new but they have been regulated heavily, until recently. The FED has loosened these regulations and banks are offloading roughly 10% of their worst loans. Is this good for the banks? Yes, but as with the 2008 crash, if these start to go tits up the contagion spreads because like it or not everyone’s money is tied together in some shape or form.
With all the economic and other indicators pointing towards recession, i believe this is the final nail in the coffin that its coming sooner than later.
TL:DR – Banks are using a product that was seldom used until now to offload shit loans. Product is similar to what caused 2008 housing crash.
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