A new credit bubble gets ready to burst

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. 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. And even though traditional banks may be making fewer loans to midsize businesses, they’ve been eagerly lending to the hedge funds, private equity firms and business development companies that are making more of those loans.

Source: www.greenwichtime.com