“Wall Street lenders on Friday [Feb. 27] were rocked by the implosion of little-known U.K. mortgage provider Market Financial Solutions Ltd, fueling concerns about wider losses among banks and reviving warnings of more ‘cockroaches’—JPMorgan Chase CEO Jamie Dimon’s term—in the booming private credit industry,” a Reuters wire reported on Feb. 27.
MFS, which “specialized in complex property-backed loans,” applied for bankruptcy protection ("administration,” as it is called in the U.K.) on Feb. 25. Apparently, its complex thievery caught up with the company when various creditors discovered that MFS had been “double pledging” the assets it claimed as collateral for loans it had taken from various banks. That is, it took out multiple loans backed by the same asset, expecting that its Ponzi scheme business model would never end. At this point, it appears that MFS has only $309.5 million of “true value” [sic] at hand to cover over $1.65 billion in debt.
It is too early to tell what the eventual losses will be for creditors of MFS, Reuters wrote, but the shares of the banks known to have loaned to MFS fell on Feb. 27, including U.K.’s Barclays (down 4.2%), the New York-based bank Jefferies (down 10%), Spain-U.K.’s Santander (nearly 5%).
This week it was MFS; last week, it was the financial troubles of Blue Owl Capital, another private credit operation, which set the markets chattering about a “new 2008 crisis” if the entire $4 trillion “private credit” bubble blows out. We repeat again: There is still time to restore an American System credit system, through Glass Steagall.
