I just went down a massive rabbit hole on Private Credit, and honestly, it’s giving some major 2008 vibes. While everyone is busy with the war and oil prices, there’s a $1.7 trillion "ghost" industry quietly cracking under the surface
Background:
Big firms like BlackRock, Apollo, and Blackstone have been acting like banks but without the oversight. They’ve lent out a ton of money to businesses that can’t get normal loans. Now, with interest rates staying high and the world on edge, those loans are starting to fail at rates we haven't seen since 2008.
The Breakdown:
- Basically, it’s a "bank that isn't a bank." These firms lend money to businesses that can't get traditional loans. It’s been a massive gold mine for the last decade while interest rates were zero.
- The housing market broke in 2008 when mortgage defaults hit 8%. Right now, private credit defaults are hovering around 9%, and some analysts at UBS think they could rocket to 15%.
- These firms package their bad loans into called CLOs (Collateralized Loan Obligations) and sell them to each other. and then, they even own the insurance companies that are supposed to cover the losses. If one domino falls, the whole row is coming down because they're all "insuring" each other’s bad bets.
- Jerome Powell is on his way out, and Kevin Warsh is set to take over. Meanwhile, the war in the Middle East has spiked oil prices, making it almost impossible for the Fed to cut interest rates. Higher for longer = more businesses going bust.
What will happen:
- These big funds own massive amounts of single-family homes (Blackstone’s BREIT is a huge player here). If they need cash fast to cover loan losses, they might "dump" thousands of homes onto the market. Great if you’re a buyer, but it could wipe out the equity of every homeowner in the neighborhood overnight.
- If you have a 401k or a pension, there is a very high chance your fund has been chasing "high returns" by investing in these private credit deals. If they crash, your retirement takes the hit.
- These "shadow banks" fund the medium-sized businesses that employ millions. If the credit drys up, the hiring freezes begin.
The Bottom Line:
The government says the "big banks" are safe, but they’re mostly ignoring this "shadow" side of the economy. It’s a $1 trillion+ industry that is currently showing some pretty deep cracks.
Anyone else tracking this? Are we looking at a "soft landing" or should I start looking for a bunker? lol.
Posted by Song-Potential
16 Comments
No way
On reddit everything is always a bubble. the only actual bubble is reddit
This is well documented at this point
Your AI slop is not welcome here.
I do actually believe you and have noticed, however, I’m unsure how to monetize the finding. Let me know if you have any ideas.
Hoping some non-trolls actually comment. Sadly, a lot will just mock you. I do agree with you it’s a bubble and will eventually burst.
The exit plan is to shove this shit into 401ks
This whole thing is a distraction from the true shadow economy that only I know about.
“those loans are starting to fail at rates we haven’t seen since 2008.” lol bullshit. Defaults are very low in the sector and no where close to 2008. Source?
The only safe investments right now are gold and short term treasuries
Thanks ChatGPT
There are a lot of variables here. A $1.7 trillion industry has a lot of variety, including loan structures and seniority, rating regimes, industries served, underwriting criteria, etc.
I suspect there will be a lot of variety in outcomes as well. But remember, if private credit begins failing, it means businesses are going under and private credit isn’t recovering enough value from their collateral. If that’s widespread enough to affect ALL of that $1.7 trillion then we’re in for catastrophic unemployment, business failures, etc.
You just figured this out?
You HAVE to mention in a post like this that they can also offer non-tradition credit and loan structures. This does not mean that the party they loan to can’t get a loan, it means that PE can offer more tailored loan structures.
Much of what you say is correct or at least has validity, but you seem to lack a pretty severe understanding based on the information and facts you left out
This entire post is a lot of “vibes and feel”. The blanket statement that your 401k fund is chasing higher returns through private credit is so delusional lmao. The bottom must be here given the scare tactics here
The top BDCs (MAIN, ARCC) are down 25% from their peaks a few months ago. They went up today, but lagged the general market. Both pay big dividends…ARCC up to 11%. MAIN “only” 6%. Getting tempting but they might just be getting started. The first to go was OWL, now down over 50% with no end in sight.
Sorry 2008 was a systemic problem. Private credit is not even close to it. Already correcting.