Sen. Elizabeth Warren is warning that 'the odds of another economic downturn are high — and growing”
“But the people with the power to stop the crisis didn’t listen — not enough of them anyway. Not the banks, not Alan Greenspan or other federal regulators, not Congress,” she wrote in her Medium post.Sign Up
Instead of housing and mortgages, Warren pointed to leveraged corporate loans — lending to companies with high levels of debt — as a potential area of systemic risk. “These high-risk loans now make up a quarter of all American business loans, and they look a lot like the pre-2008 subprime mortgages: poorly underwritten loans with minimal protections that are then packaged and sold to investors,” she wrote.
Warren’s concern is shared by others. Former chair of the Federal Reserve Janet Yellen has been warning about these loans for the last several months. She told thethat “[t]here has been a huge deterioration in standards; covenants have been loosened in leveraged lending...I am worried about the systemic risks associated with these loans.”
Warren also argued that high levels of household and corporate debt could also make any economic turmoil spread quickly and could be mitigated by enacting her agenda on items like raising the minimum wage and canceling student loans — bringing down the level of household debt. “The country’s economic foundation is fragile. A single shock could bring it all down,” she writes. “And the Trump Administration’s reckless behavior is increasing the odds of just such a shock.
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