CDOs driving leveraged-loan industry
Two-thirds of all leveraged loans issued in the
U.S. are packaged as collateralized debt obligations, according to Standard
& Poor's. CDOs, as they are called, are created by packaging assets and
using income on debt to repay investors.
Once more we are confronted with how ingrown the
leverage debt is in this country, with debt serving as the fertilizer for more
debt, and so on ad
infinitum. It is the interconnectedness of
debt, the fact that payments of debts are routinely use to pay off other debts,
like a giant snake feeding off itself, that puts the economy in danger of a
catastrophic deflation. A jolt big enough to break the chain of debt payment
could set off a panic that shrinks the money supply before anyone at the Fed or
the Treasury can do anything about it. Hence the threat of deflation, despite
the immense increase in the money supply in recent years, cannot be dismissed
out of hand.
Posted: Fri - November 12, 2004 at 06:16 PM