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 .
China's repackaging of toxic loans into asset-backed securities, or bonds, is likely to cause problems in the future, despite the precedent set in 2006-2008 that saw yields of 32%. At that time, assets were recovered during a boom, fueled 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 keep bad debts within the banking system. Finally, the same banks that managed the toxic loans will manage the new securities in their repackaged form, an irony that investors should be wary about.