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U.S. Bank Loan Writeoffs Starting To Hit Danger Zone

June 17, 2017 (EIRNS)—A posting on theindependent.org today by Álvaro Vargas Llosa of the Center for Global Prosperity, is titled "Another Financial Bubble Crash Ahead?" It notes a fact previously only covered through rose-colored glasses in American Banker.

"Capital One, a big lender to subprime borrowers (particularly through credit cards and auto loans), has had to write off a lot of debt lately—for a total of more than 5 percent of its outstanding loans, the level usually considered the threshold of very dangerous territory."

Capital One has $237 billion in deposits and $357 billion in assets. Vargas Llosa suggests it is not the only one.

"These symptoms point to risks not dissimilar in nature to what was happening before the housing-related financial meltdown. Banks are beginning to reduce outstanding corporate lending for the first time since that crisis—total loans at the 15 largest U.S. regional banks in the first quarter of 2017 were $10 billion below the previous quarter, a very significant reversing of the trend. Standard and Poors downgraded 1,088 companies in the United States last year, and analysts are predicting a wave of junk-debt defaults, perhaps encompassing one in every four high-yield debt issuing companies."

That could be one-fourth of $1.6 trillion in high-yield debt defaulting. High-yield is part of the $14 trillion U.S. corporate debt bubble which has ballooned by $7 trillion, or doubled, just since 2010. Besides this Vargas Llosa ticks off credit card debt, over $1 trillion and with even greater signs of distress now; auto loans at an unprecedented $1.2 trillion [with another $350 billion in securities based on them]; and student debt at $1.4 trillion.

"One can never tell exactly when a bubble will burst or which corner of the financial system will be the epicenter of the earthquake. But ... the main culprit will be the irresponsible policies that were supposed to prevent future bubbles, and that created the perfect storm of moral hazard, easy money, and cheap credit once again."