Slice and Dicing (and selling) Loans

Hidden Risks in Global Finance

1. Insurance companies have amassed $2.5 trillion in private credit assets and $250 billion in CLOs, posing significant risk similar to shadow banks.
2. Concerns raised by the IMF, BIS, and Bank of England highlight the dangers of slicing and dicing of risk tranches, reminiscent of the 2008 crisis.

Shift in Insurance Strategy

3. Insurance firms have shifted to higher-yielding investment vehicles like private credit and CLOs to align income with liabilities, increasing financial exposure.
4. The Federal Reserve has warned since 2023 about insurance companies’ transformation into shadow banks, indicating a growing and persistent issue.

Systemic Warning Signs

5. The rating industry has misjudged companies like First Brands and TriColor, giving them high ratings despite their failures, signifying systemic risk.
6. Trust erosion is a key marker of the end of a financial cycle, as defaults and risks rise beneath the surface unnoticed.