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Sancho Panza

Risky Financial Crisis Derivatives Return In New Form

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AFP/Yahoo 21/8/13

'Collateralized debt obligations, the complex financial instruments that cratered disastrously in the financial crisis, are back.

The market for the instruments, which were based on subprime mortgages, shrank from $520 billion in 2006 to just $4.3 billion in 2009 after the housing bust. Warren Buffett once called CDOs "financial weapons of mass destruction" because of their riskiness.

This time around, the investment has shifted from a mortgage-based CDO into a "collateralized loan obligation," a cash-generating asset structured similarly to CDOs, but consisting of loans to businesses.

Financial institutions (NasdaqGS: FISI - news) have issued $50 billion in CLOs in the US in 2013, estimates the Loan Syndication and Trading Association, a trade group. The LSTA estimates the industry will issue $70 billion-worth in the US overall in 2013 and $100 billion worldwide.

Buyers of the current batch of CLOs have hired independent specialists to analyze the instruments and no longer rely on credit-rating agencies, said the analyst.'

With all this corporate wealth abounding,there had to be a way to share the love with the taxpayer.

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