Securities-based loans are scaring fiscal experts
Forget subprime mortgages -- one of Wall Street's biggest risks doesn't even show up on most banks' balance sheets. Financial insiders are getting increasingly worried over the popularity of securities-based loans, or SBLs -- a risky form of debt marketed to wealthy investors who typically use it to buy big assets like houses.
The loans, which are taken against pools of stocks and bonds, offer borrowers cheap money fast without having to sell their underlying securities -- an attractive option when the Dow is rising. But if markets crash, brokers can unload their clients' holdings at fire-sale prices -- and go after the house to cover the the vig.
It's not clear how much debt has been taken out in the form of SBLs, and a lack of regulatory oversight is partly to blame... However, several advisers surveyed by The Post estimated there is between $100 billion and $250 billion in outstanding SBLs among all brokerages.
At least one concerned financial executive is in talks with lawyers to file a whistleblower case over the issue against a major bank with the Securities and Exchange Commission, The Post has learned. "When the market does turn, and it will at some point, it will be a major disaster," said the exec, who requested confidentiality in exchange for speaking on the issue with The Post.