Manhattan financiers are once again bundling questionable corporate bonds and bank loans into investment securities -- collateralized debt obligations -- for sale to wealthy individuals and retirees through hedge funds and unethical brokers.

When the losses on shaky bonds and loans come, big banks, bless their generosity, will spread the headaches around. Wrecked personal finances and broken dreams will follow, and consumer spending will slow, taking the economic recovery into the drink.

Not to be out-done by their predecessors, today's modern bankers are also writing lots of "synthetic securities." Those generate returns to investors, not from the cash flow on loan repayments, but rather from bets made by third parties about whether loans will succeed or fail. Those have as much place in sound banking as nepotism does in government employment.

As in pre-crisis days, the total value of derivatives outstanding is many multiples of the actual value of the U.S. economy. When the loans and derivatives fail, many who have made promises to pay up won't have the cash -- just like 2008.

Look for bank balance sheets to be rocked, lots of wealthy folks to file for bankruptcy, and the economy to suffer another migraine.

Depressing? They don't call economics the dismal science for nothing.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.

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