The shadow banks are back with another big bad credit bubble

The rise of the shadow banking system began in the 1980s with “junk” bonds, which for the first time allowed companies with less than blue-chip credit ratings to borrow more easily and cheaply from investors in the bond market than from banks on which they had always relied. Then, beginning in the 1990s, shadow banks moved aggressively into home mortgages and other consumer debt — auto loans, student loans, credit card debt — which they bought from banks and other lenders, packaged together and sold to investors as bond-like securities. To fund all this loan-making, the shadow banks have turned to insurance companies, pension funds, university endowments and wealthy investors, offering them a chance to buy into a diversified pool of loans that offer returns ranging from 6 percent to 13 percent, depending on the level of risk they are willing to assume.

Source: www.washingtonpost.com