1. According to a report from WSJ, investors are gobbling upauto loans extended to the riskiest borrowers, looking past marketwarning signs as they reach further for returns. In 2018, investorshave been buying subprime auto securitization deals that offerslices with single-B credit ratings, well into junk territory andthe lowest grade offered when such bonds are sold. Auto lendershave issued $318 million worth of single-B debt in 2018, more thanall prior years combined, according to data from Finsight. Subprimeauto deals, often bought by large money managers and otherinstitutional investors, are typically backed by loans to borrowerswith FICO scores below the mid-600s. Because these borrowers are athigher risk of default, the bonds tied to their loans can offerhigher yields. Typically such bonds are subdivided into variouslayers, each with a different level of risk and return based on theorder in which they receive payments.

Should investors be concerned that the amount issued in 2018exceeds the amount issued in all prior years combined? Shouldgovernment regulators be concerned? Why or why not? Given thatborrowers tended to pay car loans even as they defaulted on theirmortgages, do the single-B ratings overstate the risk of investingin the bonds? Why or why not?