Thursday, December 3, 2009

Double Bubble (Or, Make That a Triple! Oh, I've Lost Count)

An E-journal I receive (Eurointelligence, free sign-up required) had this today:

Credit derivatives are back in force

The FT has a nice report from New York according to which dangerous credit derivates with weak obligations on the debtors are back in force, as if the credit crisis had never happened. With interest rates close to zero, it is not surprising that company are once again plugging the seedier side of the credit market,with instruments such covenant light (in which collateral and other rules are watered down), or instruments where a debtor can make payments in kind, instead of cash. Another form are dividend caps which allows investors receive excessive dividend, while the company gets over-indebted.

It would appear that bubblenomics is back. All courtesy of Maestro II, Dr. Ben Bernanke and allies, and the bailed-out ones.

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