Former Federal Reserve Chair Janet Yellen is worried about excessive leveraged lending and the level of corporate debt across Wall Street.
“Corporate indebtedness is now quite high and I think it’s a danger that if there’s something else that causes a downturn, that high levels of corporate leverage could prolong the downturn and lead to lots of bankruptcies in the non-financial corporate sector,” Yellen told economist and New York Times columnist Paul Krugman at the City University of New York on Monday.
“I think a lot of the underwriting of that debt is weak. I think investors hold it in packages like the subprime packages … the same thing has happened. It’s called CLOs, or collateralized loan obligations,” she added.
The comparison to the infamous practice of securitizing large amounts of subprime mortgage loans into bundles may spook some investors who recall the consequences of the housing crisis between 2007 and 2010…