Tuesday, June 27, 2017

USA: Bankruptcy guru Edward Altman sees similarities to 2007 in the credit market today


Altman, the creator of the financial-distress sniffing Altman Z-Score, warned in mid-2007 of a “Great Credit Bubble” and that there was going to be trouble in the market.

Times of Ahmad | News Watch | US Desk
Source/Credit: Yahoo Finance
By  Julia La Roche | June 25, 2017

Legendary bankruptcy expert Dr. Edward Altman cautioned that this benign credit cycle — characterized by low default rates, low yields, low spreads, and lots of liquidity — could come to an abrupt end.

“It’s been a terrific market for investors for quite a long time and if anything is concerning it’s that we now are more than eight years into a benign credit cycle,” Altman, a professor at NYU Stern School of Business, told Yahoo Finance. “We’ve never had such a long benign cycle. And just that one little fact is something that we should be concerned about because if it comes to one and it could come to an end very dramatically.”

Altman, the creator of the financial-distress sniffing Altman Z-Score, warned in mid-2007 of a “Great Credit Bubble” and that there was going to be trouble in the market. He predicted that a meltdown would stem from corporate defaults. While the primary culprit of the financial crisis turned out to be mortgage-backed securities, investors who heeded Altman’s warning nevertheless avoided a lot of grief.

So, how does today’s market compare to the market in 2007.

“There are some similarities, yes, although the situation back in the great financial crisis was pre-meditated by the mortgage-backed securities and we don’t have that problem now,” he said.

Troublingly, Altman sees the reckless behavior of 2007 surfacing again.

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