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BIS Veteran Says Global Credit Excess Worse Than Pre-Lehman
September 17, 2013 • 8:52AM

City of London mouthpiece Ambrose Evans-Pritchard reports that the Bank for International Settlements reports that investors are pouring funds into high-risk instruments, "a phenomenon reminiscent of exuberance prior to the global financial crisis."

"This looks like to me like 2007 all over again, but even worse," said William White, the former BIS chief economist, and who Evans-Pritchard writes was famous for warning against the wild behavior in the debt markets before the crisis hit. "All the previous imbalances are still there. Total public and private debt levels are 30% higher as a share of GDP in the advanced economies than they were then, and we have added a whole new problem with bubbles in emerging markets that are ending in a boom-bust cycle," said White, now chairman of the OECD's Economic Development and Review Committee.

Evans-Pritchard himself writes that "the BIS said in its quarterly review that the issuance of subordinated debt — which leaves lenders exposed to bigger losses if things go wrong — has jumped more than threefold over the last year to $52 billion in Europe, and jumped tenfold to $22 billion in the U.S. The share of 'leveraged loans' used by the weakest borrowers in the syndicated loan market has jumped to an all-time high of 45%, ten percentage points higher than the pre-crisis peak in 2007-2008."

The only thing that prevents a disaster in the making is liquidity, and as that is being tapered anything can happen.


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