The Next Credit Crisis: Banks Aren't Disclosing All of Their Risky Debt

Despite all the love for the new Citi deal with an Abu Dhabi government investment firm, some are warning that the next credit crisis is looming.

Why?

Because the deal doesn't fix one of the problems that the financial sector seems to have: disclosure.

Fortune Magazine (via CNN Money) is reporting that financial sector stocks are in trouble for the future due to the fact that investors are getting nasty surprises in the form of underdisclosed CDOs. But that's not all. The credit crisis could up the ante with problems regarding conduits:

Now, conduits could trigger a similar process at many big banks. Since demand for certain types of conduit debt has shrunk dramatically and bad loan numbers on subprime debt are soaring, banks could well end up absorbing large amounts of conduit debt.

This means that while the financial sector may be recovering right now, it may have problems in the future. Is it time to sell, now that financial stocks are seeing a bounce? Only you can truly decide. But the good news is that over time, the stock market tends to earn money, and your investments will probably yield gains. Just be aware of how soon you might need those gains, since further volatility seems certain in the short-term.

Disclaimer: I am not an investment professional. I am an enthusiastic amateur. Before you invest, consult an investment professional, or do your own research. All investment, no matter the advice you get, comes with the risk of loss.

Tags: CDOs, personal finance, personal finance blog, next credit crisis,
investment, risky debt, financial sector