The U.S. is seeking to galvanize an economy wounded by $2.1 trillion in global writedowns and credit losses from the financial crisis that began in 2007. The U.S., in a lawsuit filed Feb. 4 in federal court in Los Angeles, is alleging that S&P defrauded investors by failing to accurately reflect the risk on mortgage-backed securities and CDOs because it was afraid of losing business.
There were about $54 billion of CLOs created last year, quadrupling the $12.3 billion formed in 2011, according to S&P’s Capital IQ Leveraged Commentary & Data. Wells Fargo & Co. is forecasting as much as $70 billion in CLO origination this year.
Of the $925 billion of junk bonds outstanding, 55 percent are trading above the price at which issuers can repurchase them later, according to a Morgan Stanley analysis using the Citi High Yield Market Index.
“The idea here is to keep rates low enough for a long enough time that the economy builds up enough steam,” Tawil said. “I don’t know if our economy is capable of picking up the steam necessary.”