Return of boom-era debt deals raises alarm A New Yorker cartoon once showed a jury foreman declaring the accused not guilty on the grounds that "it is never the obvious one that did it." The same Agatha Christie logic applies to the likely cause of the next financial crisis: by definition, it will be something unexpected. The global turmoil that erupted in 2007 was triggered by a blow-up in securitised US subprime mortgages - loans for homeowners with low credit scores that had been repackaged and redistributed among investors around the world. Given that history, investors and policy makers would be forgiven feeling alarmed at this year's return to prominence of similarly-securitised products. Issuance of collateralised loan obligations, which package up leveraged corporate loans, has reached the highest since 2007. Global sales of commercial mortgage-backed securities are nearing $100bn, almost double last year's total, according to Dealogic. Also making a comeback are collateralised debt obligations, which pool different corporate credits. As the Financial Times has reported, banks are testing interest in "synthetic CDOs," which pool credit default swaps providing insurance when companies go bust. Alphabetic apocalypse Surely, a casual observer might remark, it is blindingly obvious that we are heading towards another alphabetic apocalypse caused by price bubbles in complex markets little understood beyond the world of finance? Anyone who reads popular detective novels, however, would know the main threats to the global financial system are not so easily identified. Despite this year's growth, volumes in structured credit markets remain significantly lower than pre-crisis peaks. Global CDO issuance was more than $520bn in 2006, according to the US-based Securities Industry and Financial Markets Association. CDO issuance this year had reached just $62bn by the end of September. Market dynamics have also changed. Risks in corporate lending are arguably being priced more sensibly, so investors need less leverage to achieve a given return. When turmoil returned to markets on a modest scale in May, after Ben Bernanke, Federal Reserve chairman, hinted at plans to scale back Fed asset purchases, emerging markets fared worse than corporate credit markets. Moreover, investors can hardly claim they are unaware of the dangers of securitisations. Rating agencies argue they have learnt the lessons of the US subprime crisis. Regulators have improved transparency. Indeed, securitisation is actively promoted by European policy makers, including Mario Draghi, European Central Bank president, and Mark Carney, the Bank of England governor, to provide credit to job-creating small businesses when weakened banks are downsizing. When done properly, securitisation should increase the risk absorption capacity of the financial system. But its reputation has been tarnished largely by only one sector - securities backed by US residential mortgages. Elsewhere, performance has been much better. Of all European structure finance notes outstanding in mid-2007, just 1.5 per cent have defaulted, according to a report by Standard & Poor's last week. For collateralised loan obligations to small- and medium-sized enterprises, the default rate was only 0.41 per cent. Distorted relationships All of the above provide reassurance that the vulnerabilities created by securitisation are not comparable with 2007 - it will not be the murderer or even provide the murder weapon. But the growth of securitised products may nevertheless be symptomatic of broader financial dangers. The big question is: what will happen when central bank policies return to something more like normal? A sudden increase in companies" borrowing costs could send default rates sharply higher In an era of ultra-loose central bank policies and historically low official interest rates, investors are searching desperately for yield and relationships between economic growth, default rates and corporate borrowing costs have been badly distorted. Normally, when economic growth is weak, more companies fail. But eurozone default rates actually fell from 2012 even as the region entered a severe recession; the fall in borrowing costs compensated for companies" loss of earnings. A sudden increase in companies" borrowing costs could send default rates sharply higher. Although securitised products may offer some protection to investors, the effects could quickly spread. But it would not be the securitised products themselves at fault, and the effects of higher central bank interest rates would be widely felt across markets and economies. You could argue such dangers are self-evident. But sometimes the obvious is only seen with hindsight.