Worries Grow That Asset Managers Could Trigger Next Financial Crisis

Thursday, 07 Aug 2014 09:18 PM

By Dan Weil

  Comment  |
   Contact  |
  Print   |
    A   A  
  Copy Shortlink
Asset managers have grown to the point that they may spark the next financial crisis, experts say.

The concern is that multiple asset managers might make an identical mistake, leading a number of them to sell the same asset class at once, as occurred with mortgage securities in 2008, according to The Economist.

Problems could arise with exchange-traded funds, which now control $2.45 trillion of assets, or with bonds, which are less liquid and trade in a more decentralized manner than stocks.

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

"Corporate bond funds are popular at the moment, thanks to the extra yield they offer in a world where cash pays next to nothing," The Economist states.

"But it is easy to imagine a scenario in which prices start to fall, prompting redemptions by clients, leaving asset managers to sell into an illiquid market. . . . Prices could plunge, forcing the corporate bond market to close."

Regulators face a conundrum, according to the publication. Asset managers may well be the next source of trouble, but it's hard to crack down a sector that hasn't yet caused any problems.

Meanwhile the bevy of regulations imposed on banks since the 2008 financial crisis has weakened them to the point that another banking crisis is inevitable, says private equity star J. Christopher Flowers, CEO of J.C. Flowers.

"All the stuff that has happened, and all the rules we’ve introduced have depressed profitability. And that is a real vulnerability," he tells the Financial Times. "Nobody is going to invest in an industry with returns of 5 percent."

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

Related Articles:

© 2014 Moneynews. All rights reserved.

  Comment  |
   Contact  |
  Print   |
  Copy Shortlink
Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Country
Zip Code:
Privacy: We never share your email.
 
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
You May Also Like

T. Boone Pickens: OPEC Is Down, Now Let's Finish Them Off

Friday, 19 Dec 2014 10:14 AM

Energy billionaire T. Boone Pickens says the United States should take advantage of the global oil price plunge to kill  . . .

Tom Lee: S&P 500 Will Hit 2,325 By End of 2015 Amid Strong Earnings

Friday, 19 Dec 2014 09:45 AM

The S&P 500 index has jumped 4.5 percent in the past two days, its best performance since 2011. And Tom Lee, head of res . . .

Yellen’s Inflation Lessons: Targets Matter, Oil Shocks Dissipate

Friday, 19 Dec 2014 09:15 AM

Janet Yellen isn't likely to change monetary policy because of transitory influences on prices coming from abroad. . . .

Most Commented
Top Stories

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

 
NEWSMAX.COM
America's News Page
©  Newsmax Media, Inc.
All Rights Reserved