The Race to the Bottom

It's often said that the worst of loans are made in the best of times. This is something that can't happen when people are smarting from recent losses and afraid of experiencing more. In bull markets, investors feel sure of gains and disregard the possibility of loss. But putting more debt on investments made at high prices late in the up cycle is no formula for success. When times turn bad, leverage turns disadvantageous. And when investment banks issue late cycle debt that they can't place with buyers, they're stuck with it.