China 's repackaging of toxic loans into asset - backed securities , or bonds , is likely to cause problems in the future , despite the precedent period in 2006 - 2008 that saw returns of 32 % . At that time , loans were recovered during a boom , backed by credit , and investors were paid within two years . However , such results are unlikely to be seen in the current slower growth environment . If they couldn’t work them out when they were on their balance sheets, investors should wonder what will make them be able to when they are packaged in a bond. In addition , oversupply is pushing these bond prices down , and purchase by potential buyers , whether insurers or banks , pose problems for other asset classes and create bad debts within the banking system . Finally , the same banks that managed the toxic loans will manage the new bonds in their repackaged form , an irony that investors should be wary about .
China 's repackaging of toxic loans into asset - backed securities , or bonds , is likely to cause problems in the future , despite the precedent period in 2006 - 2008 that saw returns of 32 % . At that time , loans were recovered during a boom , backed by credit , and investors were paid within two years . However , such results are unlikely to be seen in the current slower growth environment . In addition , oversupply is pushing these bond prices down , and purchase by potential buyers , whether insurers or banks , pose problems for other asset classes and create bad debts within the banking system . Finally , the same banks that managed the toxic loans will manage the new bonds in their repackaged form , an irony that investors should be wary about .