And they are:

• Opaque markets where ask and bid prices are not known by the participants.
• Opaque financial instruments that seem to generate return and safety at the same time.
• Minimal disclosures.
• Promises from the sellers that they will take care of clients without regulation.

So we see all of this in so-called structured notes:

Wall Street banks are creating the “next investment bubble” by selling opaque and unregulated structured notes to investors hunting for yield, according to Christopher Whalen, managing director of Institutional Risk Analytics.

Using the same “loophole” that allowed over-the-counter sales of collateralized debt obligations and auction-rate securities, firms are pitching illiquid structured notes whose value is partly derived from bets on interest rates, Whalen wrote today in a report.

What’s even worse:

Individual investors, who “love the higher yields” on structured notes, will lose money when benchmark interest rates climb, according to Whalen.

“We already know of two hedge funds that are being established specifically to buy this crap from distressed retail investors as and when rates start to rise,” said Whalen, a former Federal Reserve Bank of New York official and co-founder of the Torrance, California-based research firm.

What this means is that when the economy starts to recover, and interest rates rise, we will see another bubble pop and push us down.

Lovely.