by Wolf Richter, Wolf Street:
Murk everywhere. There isn’t even an agreement what “leveraged loans” are. No, banks are not off the hook. They hold 57% of these instruments, the Bank of England found.
Leveraged loans are risky. They’ve been issued by junk-rated overleveraged companies that are often owned by private equity firms. These loans are often packaged into highly rated Collateralized Loan Obligations (CLOs). The Fed, the Bank of England, and other central banks are fretting about them publicly in their Financial Stability Reports. Leveraged loans are traded in slices like securities, but they’re loans, and not securities, and so securities regulators don’t regulate them, and no one regulates them. No one knows into whose balance sheets they can blow holes. And there is not even any agreement what exactly leveraged loans are.