Do you recall the initial collapse of the stock market in 2008 was caused by “securitized mortgage-backed securities?”  A bunch of mortgage loans were assigned to a bundle, and pieces of that bundle would be sold to bond investors.  It was ideal for the banks making loans, because those newly-made loans would not stay on their books, thereby restricting their capital.  Turnover of mortgage loans is very profitable.  It was ideal for bond investors, because the interest earned on mortgages was greater than interest earned on corporate bonds.  It was even thought to be safer than corporate bonds, because each mortgage had a piece of physical security — collateral called “somebody’s home.”  What could go wrong?

Recently, I needed some expensive dental work, where the front desk suggested I get an interest-free loan for one year.  Obviously, they were getting paid a commission for anybody who got an interest-free loan, so it was good for them.  To a financial advisor, that meant I could keep my money invested in the stock market for another year.  As an economist, I knew the lender was making money somewhere, somehow, from somebody.  As a financial planner, I knew a devil was hiding in the details somewhere, so I studied those details and found that the lender has a “gotcha” interest policy, i.e., one day late on anything, and the interest rate immediately jumps from 0% to 25% on the original balance.

You guessed it — in order to make more health care loans, plans are now being made to securitize them, or put them into a bundle that bond investors can buy.  All that penalty interest would provide a better return to the bond investors than they can get elsewhere.  Of course there is no physical security or collateral.  Plus, health care debt can be discharged or wiped out when the borrower files for personal bankruptcy.  What could possibly go wrong?

It is probably a year before these “neutron-bonds” become available and should be treated like the plague — avoid all contact — RUN!