I don't for a minute believe that the SEO folks outsmarted Google's engineers.
Financial engineering refers to the creation of complex financial products (usually derivatives) using techniques from financial mathematics[1].
Predatory lending is just lending to people who can’t afford to borrow. No engineering of any kind involved.
[1] https://corporatefinanceinstitute.com/resources/financial-mo...
It happened with sub-prime lending that ended with the 1008 crash. I do not know whether it is a significant factor with private credit now.
Although people have tried to make the financial system more resilient since the 2008 crisis, it’s really impossible to say how well those measures will hold up until they are really tested, which isn’t a very comforting thought. It’s very unlikely (in my opinion) that things melt down in exactly the same way as last time, but there’s nothing to say they won’t find a new and exciting (slightly) different way to melt down. Financial engineering isn’t the only thing that can cause a financial crisis.
It's not like the government has been carefully introducing new, strict regulations on the things they were doing that got us into the crash once we've recovered from it. We just...let things stay as they are. Because half of Congress is white-knuckle gripping the steering wheel trying doggedly to keep us pointed toward the cliff, and the other half is dithering about wondering if it's too rude and partisan to gently take the wheel and try to turn it away from certain doom.
> In the November collapse of home improvement firm Renovo, for instance, BlackRock and other private lenders deemed its debt to be worth 100 cents on the dollar until shortly before marking it down to zero.
The piece that I sell off is 100% money good until my equity tranche is wiped out, so prior to that point there is little to suggest it’s not worth face value (100). However there is a real problem with that, which is observability. We don’t get to see the creditworthiness of a loan on a tick by tick basis like we see the price of a stock. We see John Does 1-100 were all current on their car loan up to December, and then nothing until the next month when the next payment is due. This means they can jump straight from being current to being totally delinquent in one or two data points. This makes it very hard to accurately estimate default correlation. Like say your loan portfolio is in a particular metro area. You could easily have 50 of those John Does working in the same industry and their loans live or die together. If one is current they’re all current but if one defaults (because a local factory has shut down or something) all of them suddenly default together. The holders of the debt don’t see a gradual decline and there is no data for them to estimate how the default of one loan affects the default of another. They just go to bed one day and the debt is worth 100 and the next day it’s completely wiped out.
The protection against this is supposed to be the spreads on the loans and the capital of the NBFI that issued the loans, but they seem to have been sailing pretty close to the wind. Moves to cap consumer credit rates will probably make this situation worse because responsible players will be driven out of the market (because they can’t price consumer loans in an economically sane way given the level of risk) so only unscrupulous and/or incompetent players will be left.
zerosizedweasle•1w ago
Redemptions by individual investors in funds soared at end of 2025 after performance declined, reviving questions about suitability
https://www.wsj.com/finance/investing/private-credit-investo...
notherhack•1w ago