Trump and the Black Jelly Bean Theory: CLOs Echo the MBS Fiasco from the GFC.

The New York Fed released a troubling report detailing the risk of Collateralized Loan Obligation (CLO) exposure in the insurance industry. Over the past several years, private equity has taken larger and larger stakes in insurers who are historically risk averse. But now they’re acting more like hedge funds in their investment strategies and have more than $2 trillion in corporate debt exposure and nearly $300 billion of it is in mezzanine financing packaged much in the way mortgage backed securities (MBS) were in the run up to the Global Financial Crisis (GFC). Against the backdrop of persistent inflation, a renewed round of tariffs, elevated oil prices, the war in Iran and historic consumer debt, the economy is like a tinderbox. The jelly bean theory holds that you can only reach into the jar so many times before you eventually pick the black jelly bean. Apologies in advance to all those who like black licorice flavored jelly beans.

Resources

Bloomberg: Oil Takes Out $100 to Hit Two-Month High as Iran War Expands

Reuters: Trump to impose ‘forced labor’ duties on Friday as temporary 10% US tariffs expire

The New York Times: What to Know About Trump’s Tariffs on Canada, and What’s Next

Brookings: Macroeconomic implications of immigration flows in 2025 and 2026: January 2026 update

Bloomberg: The US Is Flirting With Its First-Ever Population Decline

The New York Times: Alphabet Quadruples Profit to $112 Billion, Fueled by A.I. Investments

CNBC: See how much prices have increased since 2020 — in one chart

Bloomberg: Long Bonds Are Ringing a 2008 Alarm Bell

New York Fed: Insurance Companies and the Growth of Corporate Loans’ Securitization

Investopedia: Nationally Recognized Statistical Ratings Organization (NRSRO) Definition

The DESK: Rules & Ratings: Ratings agencies spar in private ratings legitimacy debacle

UNFTR Resources

Video: Trump is Running Us Off a Cliff | CLOs Echo the Global Financial Crisis.

Episode: Is Private Credit the Pin That Pops the Bubble?

Essay: Trump and the Black Jelly Bean Theory.

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