Financial Crisis-Era Derivatives Are Making A Comeback

[jakeXT]

Collateralized debt obligations, the complex financial instruments that cratered disastrously in the financial crisis, are back.

The market for the instruments, which were based on subprime mortgages, shrank from $520 billion in 2006 to just $4.3 billion in 2009 after the housing bust. Warren Buffett once called CDOs "financial weapons of mass destruction" because of their riskiness.

This time around, the investment has shifted from a mortgage-based CDO into a "collateralized loan obligation," a cash-generating asset structured similarly to CDOs, but consisting of loans to businesses.

Financial institutions have issued $50 billion in CLOs in the US in 2013, estimates the Loan Syndication and Trading Association, a trade group. The LSTA estimates the industry will issue $70 billion-worth in the US overall in 2013 and $100 billion worldwide.

Goldman Sachs, Morgan Stanley, Barclays and Citigroup are among the banks most active in structuring CLOs in 2013. Citigroup alone has sold about 20 of the instruments this year.

Read more: http://www.businessinsider.com/financial-crisis-era-derivatives-are-making-a-comeback-2013-8

[Warpy]

1. I don't think they ever went away

They just got relabeled and are now CDOs based on student loans and other paper instead of mortgages.

That's what happens when you don't tighten things up with regulation and oversight. The thieves just set up shop under new names.