Elizabeth Warren and Others Warn That Pandemic is Exposing Underbelly of Corrupt Financial System

Only people who have studied securitization understand the fact that securitization as practiced creates an existential threat to our society, our laws and the individual hopes and dreams of anyone who is not in on the game.

But more and more people are coming off the fence about speaking out. The fear has always been that if you blow the whistle too loud the whole system might collapse. That fear is based upon the hope or assumption that not speaking out will somehow allow the system to correct itself. This is “free market” theory at is worst because in finance there is no free market, and there are no opposing free market forces; therefore correction is impossible.

So now Senator Warren, now that she is off the campaign trail, is sounding an alarm and is being joined by many experts in challenging the notion that financial oversight is even happening. She understands, like some of us, that pretending to lend money is far more dangerous than actually lending money. She understands that if you are only pretending, then all you want is a signature and that performance of the loan becomes a distant consideration.

“Similar to the subprime mortgage market prior to 2008, the securitization of these loans and the growth of CLOs has allowed the exposure and risks associated with this lending to spread throughout the economy to multiple investors and industries,” Warren wrote. “Now, as we are on the verge of another, potentially deeper, economic crisis, regulators still have not taken meaningful action to mitigate these risks.”

Behind the letter are fears that the coronavirus pandemic could unearth record levels of risky debt, industry experts have argued, rarely held by banks because of post-2008 financial crisis regulations and often offloaded into complicated securities. Because the risk isn’t held by banks, these leveraged loans fall into a regulatory silo, allowing risk in the financial system that has gone unchecked for years. 


One Response

  1. Good point Neil – “The fear has always been that if you blow the whistle too loud the whole system might collapse.”

    The problem cited is – “spread throughout the economy to multiple investors and industries.”

    Why are the multiple investors and industries the only concern? What about the real victims? – the “targets?” Warren did not, and has not, furthered consumer protection beyond the very limited efforts of the CFPB.

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