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Sep 8, 2016

DealBook | Today's News - September 8, 2016: The Tech Reformation, Low Caliber Credit, China’s Debt Burden

The New York Times

By Amie Tsang

Thursday, September 8, 2016

The cloud is looming and the technology industry is scrambling for cover.
In just one day:
• Dell completed its giant merger with EMC
• Hewlett Packard Enterprise, or H.P.E., announced that it would hew off another part of its once-mighty empire, and
Intel said it had offloaded a stake in McAfee.
Why the rush?
For one, businesses are not buying computers anymore. They can rent them on the cheap and instead rely on cloud computing services, which have dominated growth in the industry, leaving little for the old guard. Intel is still reeling from the shift away from PCs — it has struggled to drum up business in chips for cloud-type data centers.
At the same time, the many smartphones, tablets and laptops reliant on the cloud all need one feature: security. Traditional virus scans are insufficient for modern threats. McAfee has said it will refocus on identifying potential threats on cloud networks.
Dell and H.P.E. can, however, take some solace in the fact that they make some of the infrastructure necessary for the cloud-connected world. But it’s hard to make money from selling that.
The results of their bets will be interesting — is the response to a changing market a huge merger (à la Dell), or whittling down (like H.P.E. and Intel)?
Embracing Low Credit Histories
Mortgages are increasingly being given to borrowers with spotty credit histories by Caliber Home Loans, a mortgage business owned by the private equity giant Lone Star Funds.
For the most part, these include “legacy” loans issued before the housing bust. But as banks have stuck to issuing loans to customers with more pristine histories, Caliber and other lenders are beginning to issue mortgages afresh to people with less-than-stellar records.
Mortgages to borrowers with shaky credit histories account for nearly a fifth of the $93 billion in mortgages that Caliber manages.
It’s hardly a redux of the financial crisis. But when Fitch reviewed the first securitization of nonprime mortgages Lone Star brought to market, it noted that the “credit quality of the borrowers is weaker than prime.” Lone Star will not, however, be deterred. It is planning an even larger bond offering, backed mainly by nonprime mortgages written by Caliber.
China’s Debt Burden
We should keep an eye on borrowing in other parts of the world too. In one country, a mountain of debt has even the International Monetary Fund and George Soros worried.
China’s borrowing binge has pushed up its debt load to about $26.6 trillion, stoking fears of a crisis that could spill across borders and affect the rest of the world.
The country’s borrowing is mostly done by companies that will have to hold back on investing and hiring in an effort to pay it back. This could create a vicious cycle if the whole economy slows, and debt becomes harder to pay off.
In a vision of the debt apocalypse, banks would then stop lending, leading to a full-fledged crisis and pulling down the rest of the world as China slams the brakes on global growth.
Of course, not everyone is a doomsayer and China has defied predictions of a crash so far. But Beijing has to limit the increase in its debt load and maintain growth, or it will become a worry for all the world, as well.
Coming Up
• All eyes will be on the European Central Bank. It is expected to maintain its benchmark interest rate at zero, but it could extend its stimulus program.
Contact amie.tsang@nytimes.com

 
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For the latest updates:
Go to NYTimes.com/DealBook
 
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Sandy Huffaker for The New York Times
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