In a matter of days, a slew of trades unraveled to expose various forms of soured levered bets at their heart. 
For years, regulators have tried to make the financial system safer by blocking banks from taking on the extreme leverage that almost toppled the industry in 2008. Turns out, the risks just moved.
Citigroup Inc. was among banks that tried to sell off $1.3 billion of risky loans to unwind leveraged wagers by clients. Funds that borrow to load up on mortgage bonds fed a flood of liquidations. Large municipal-bond funds are selling billions of dollars in positions, too.
In 2008, the culprits were real estate speculators, investments banks that fueled the bubble while leveraging books about 40 to 1, and investors who failed to conduct their own due diligence. A wave of defaults caused that system to come crashing down.
This time, another long period of rock-bottom interest rates, most recently cheered on by President Donald Trump, has let companies go into record debt while showering cash on shareholders. The enablers are banks eager to facilitate deals and investors desperate for higher returns. They borrowed to multiply profits on mortgages, junk debt and municipal and government bonds. The leverage means losses are getting amplified too.
Markets
Supercharged Debt Bets Unravel and Expose Wall Street’s Big Risk
By , , and- Low rates spurred bond sales to buyers eager to juice returns
- ‘You have junkier and junkier debt, and it’s super levered up’
Still, there’s scant evidence to suggest the amount of leverage in the system now is as great as it was heading into 2008.
WATCH: This is the greatest dislocation in credit since 2008, says Bruce Richards, Marathon Asset Management’s chairman and chief executive officer.
Source: Bloomberg)
There are few if any public disclosures outlining the magnitude and structures of many leveraged trades. Market insiders and people with knowledge of transactions that unraveled agreed to describe what they have seen on the condition of anonymity.
