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This is the key phrase in the story: "packaged into securities and sold to investors". This is exactly like the mortgage crisis. Back then banks knew many of the borrowers are not being truthful in their loan applications but lent to them any way (look up "liar loans"). Banks didn't care because they packaged these mortgages into securities and sold them to investors as "mortgage-backed securities", so defaults are someone else's problem. Banks are back at it again.

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A public company is just packaged up its equity into securities and sold them to investors.

The mortgages of 2008 were to the real problems, the sudden lack of liquidity in the markets for trading them was. Sure, some mortgages were hurt, and the housing market went down, but the problems with those securities were illiquidity brought on by the difficulty in valuing the derivatives. Corporate debt is somewhat easier to price, because disclosure is better/easier.

Still. I am not rushing out to invest in these securities now...

> the problems with those securities were illiquidity brought on by the difficulty in valuing the derivatives

Can you please elaborate and/or provide a source? I’d like to learn more.

Timothy Geithner's book "Stress Test" does a great job of explaining this, IMO. The trouble with derivatives is that they are contractually bound to reflect some price that is locked to the price of a primary asset. If the derivatives are linked to the price of a security, which is in itself linked to a certain risk-bundle of assets (e.g. the AAA rated CDO with the most senior debt) then it was not exactly clear what happened to the derivative, because it wasn't clear whether people were going to make their payments on their mortgages, or whether the derivative counterparties could pay. The market responses was to try to sell all the derivatives, rather than wait to see what they'd be worth. Effectively, the liquidity which those derivatives and CDOs had prior to the crisis disappeared entirely, which meant that their true value fell much faster than it really should of since people were selling at a discount just to get them off their balance sheets.

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