What I Learned This Week

December revealed the serious threat leveraged loans pose to the financial system. Why are investors still not listening?

In recent months, the warnings have come one after another. They’ve come from institutions: the IMF, Moody’s, S&P Global, the Bank for International Settlements, the Fed, the Bank of England (BoE), and the Reserve Bank of Australia. They’ve come from market leaders: JP Morgan’s Jamie Dimon, Baupost’s Seth Klarman, Barclay’s Jes Staley, and KKR’s Henry McVey, to name just a few. In October, former Fed chair Janet Yellen summed up the concern about leveraged loans shared by so many: “If we have a downturn in the economy, there are a lot of firms that will go bankrupt…because of this debt.” Time and again in these pages, we have warned about the dangerous divergence between corporate debt…

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