Wall Street’s Latest Love Affair with Risky Repackaged Debt

In a speech before the Economic Club of New York in November, Mr. Powell said he thought that investors in C.L.O.s would bear the brunt of an uptick in corporate bankruptcies, rather than the big Wall Street banks. Randal Quarles, who oversees Wall Street supervision and regulation at the Federal Reserve, also highlighted the looming systemic risk to the financial system, if and when C.L.O.s start getting hit by defaults. On the one hand, he told the Council on Foreign Relations in December, he takes comfort from the fact that Wall Street banks are offloading risky loans to investors — when they do, it moves that risk away from the heart of the financial system.

Source: www.nytimes.com