"Most of the private credit loans were floating rate and tied to the federal funds rate, which has persisted at a high level over the past three years. Fitch pointed to this as a catalyst for last year's defaults."
I guess it is fair to say the federal funds rate has persisted at a high level over the past three years now isn't it?
https://www.macrotrends.net/2015/fed-funds-rate-historical-c...
Also interesting to note, "Fitch recorded NO defaults in the software sector last year. The rating agency noted it categorizes software issuers into their main target market sectors when applicable."
i dont think the inflationary seventies and eighties are great lodestar
low interest rates are historically a sign of a stable polity and economy. so if anything, we want the conditions for prolonged low interest rates, rather than prolonged high interest rate.
For example, we decided to keep our vehicle for another 4-5 years instead of buying a new one. The same Hyundai vehicle of the same model, but different year (2026 v.s. 2020), has gone up 8,000 CAD (10K CAD considering tax), with a much higher rate (5.99% v.s. 0%). There is no way I'm buying another car in the foreseeable future. We can definitely afford it, but we won't.
The whole world has pushed up prices of food, housing and pretty much everything higher. This is the real problem -- although I wouldn't say it is the root problem.
If your business is light on free cash flow (ie everyone in AI at the moment) buckle up as there are storm clouds ahead. If you’re running a business that relies on external cash (VCs, loans/bonds, etc) to keep things going things will get very ugly.
It’s not an either/or, it’s just a question of who was participating in the boom while preparing for storms ahead vs those all in on the boom.
What implodes in the period ahead are things that are massively over leveraged and can’t absorb a hit without doubling down again with more funding/loans and such. These are the folks and companies that get wiped out.
Just make sure you can unpark it, else you're SVB.
In actuality, the CPI is lower than inflation because technological advancement, automation, and economies of scale (due to globalization etc) are driving consumer prices low. In other words, if factories are still producing things like they were 20 years ago, the CPI would have been much higher, and that higher number is closer to what should have been the inflation number.
This is an impossible counterfactual to test. In reality, tracking value across time requires adjusting for immeasurable preferences. This is why inflation is really only a useful measure for personal purposes across periods of years. It’s only macro economically interesting across a generation and close to meaningless longer than a human lifespan.
The thing is one really needs to understand what "real yields" mean when investing in bonds, i.e. it means your purchasing power with respect to cheap commodities tracked by the CPI is preserved, but it doesn't necessarily mean "value" (whatever that means in the abstract) is retained.
CPI isn't a measure of commodities. And "CPI" is a bit of shorthand, given there are pretty much as many measures of consumer and producer prices as there are economists.
> it doesn't necessarily mean "value" (whatever that means in the abstract) is retained
This is what any measure of inflation ultimately seeks to measure. Purchasing power is intrinsically tied to the basket of goods and services its measuring. That basket varies across people and time as preferences vary.
I.e. you started out with 2e-20 % of the total money, and after 5 years you now have 1e-20 % of the total money, then whatever happened to CPI, you've been diluted and you would probably have been better off investing in something else other than cash.
That makes sense in theory, but in reality what "total money supply" is is a complete can of worms and basically impossible to measure
Banks bailed out the hedge funds in '98, then the taxpayer bailed out the banks in '08, then the government bailed out the taxpayer in '20... now monetary policy from the fed has to prevent the government from defaulting.
Honestly thrilled to hear it. The AI bubble needs to burst so we can find out what's actually useful, start requiring real business models again, and get rid of all the noise and waste.
Well, the good news is that's what good public policy is for, to blunt the impact of the damage with strong anti-trust enforcement and careful cash injections to weak-but-critical areas of the economy to help stabilize in rough times.
Now, hang on for just one moment while I crawl out from under this rock and take a look at who we have entrusted to set our public policy.
The game that all the AI companies are playing is to be the last dog standing at all costs, because that kind of dominance is a money printer.
It’s like hoping for the apocalypse thinking you’re of course the hardcore survivalist. When in reality you’ll get eaten first.
Don't let anyone who bought into this way of life get away with robbing the rest of us.
And don't let anyone who brought children into this cruelty hear the end of it: what they did was evil.
I'm sure someone somewhere could make a trade off of this article and this signal is definitely for them.
If you are the manager of a mutual fund you can take useful action on signals like this if you can figure out what they mean. Most people don't have enough money to be worth trying to take action.
Don't get me wrong, if you don't have a job things are bad. If you have a job but it isn't giving good raises, or it is a worse job than you are qualified for things are bad. However things are not hopeless for the majority of people even when things are really bad, and you can get through it.
I have been actively trading in the market for a little over a year now, and while winning on a short position is probably the most satisfying trade for me, the overwhelming majority of those trades are losses and at this point I mostly treat them as hedges. I suspect that is true for most market participants as well.
- position has significant negative carry (what you're talking about there)
- stock/bond prices are nominal and the government constantly prints the denominator so prices tend to go up even if there's no actual growth
- for equities there is a genuine long term positive drift over time even if the denominator doesn't change
So yes, it's hard to make money going short and timing is everything
This is, however, one of many indicators of an overall wobbling system. It would be a good time, not make the line go up, but to look for ways to stabilize the economy as a whole.
Which is unfortunately a hard question. One could theorize that we should do different things than the thing we've been doing for the past year or so, but of course there will be many who say that we just haven't done it hard enough yet.
Definitely think we’re in for a rough year financial prospects wise, and doesn’t even feel like we recovered from the 2008 crash properly.
Between the latter and the former I believe the former was a much smarter choice in the medium to long term.
So that govt money went to the wealthy to buy up houses (Californians bought real estate in the Midwest as investments and it drove up housing prices along with small immigration to these states)
Farmers etc benefited from bailouts when they were doing very well. It was a large blunder.
> Obama promised to do it
The legislative produced Frank-Dodd...which Trump and Republicans later scaled back...
Instead everyone hates on Goldman Sachs. Sure, Goldman Sachs deserves hate, but of the big banks they were the _least_ guilty of the crash in 2008. Not saying they were saints, but in 2008 they were the least bad.
0: This list only covers banks, not non-banks like Countrywide Financial: https://en.wikipedia.org/wiki/List_of_bank_failures_in_the_U...
The internet working didn't make the Dotcom bubble not happen. Investors don't know anything about the new investment space and most of them are going to get hosed eventually. It's going to happen, and it'll be bad for people who are betting on it not happening.
> A box of matmuls isnt going to solve any real problems, so far, as you point out- is can barely write software
Code monkey cope.
^ Encase the link also responds with this for you:
Access Denied
You don't have permission to access "http://www.marketscreener.com/news/us-private-credit-defaults-hit-record-9-2-in-2025-fitch-says-ce7e5fd8df8fff2d" on this server.Of course this is going to increase prices, but then they can blame China / Russia / Iran whoever is the scapegoat at that time.
“Pay” is doing a lot of work there. My house is half equity half debt. The debt gets to be paid off with inflated dollars. And I pay no capital gains on the appreciation. I can, however, tap it for liquidity if I need it.
Classically, yes, particularly when that wealth is closer to productive capital. In modern economies, the rich also hold a lot of debt, which lets them benefit from inflation.
> The default rate among U.S. corporate borrowers of private credit rose to a record 9.2% in 2025
Emphasis added. Headline makes it sound like retail credit, not corporate specifically.
*Edit: Not misleading, just an unfamiliar term/usage from my perspective. I'm not a finance guy so didn't know the difference and assumed others wouldn't either. Mea culpa.
someone not knowing the definition != misleading title
I’m coming at this loaded with jargon, so excuse my blind spot, but why would the term private credit bring to mind anything to do with retail specifically?
(The term private credit in American—and, I believe, European—finance refers to “debt financing provided by non-bank lenders directly to companies or projects through privately negotiated agreements” [1].)
[1] https://corporatefinanceinstitute.com/resources/capital_mark...
A lot of the datacenter buildout has been financed with private credit [1].
> financial blackpilling
?
[1] https://www.bloomberg.com/news/articles/2026-02-02/the-3-tri...
Any idea as to the etymology? What was the black pill? Is it a Matrix reference?
Meta: why are incel neologisms so catchy?
Out of curiosity where do you primarily get your news?
Yes.
It surprises me that most people would read "private credit" to mean "retail credit" by default, but I also come to this loaded with jargon so I guess would defer to others on this. But to be clear, the title is not misleading to anyone who has any familiarity with the financial markets.
If a layman is unfamiliar that "private credit" is about business debts, and therefore only has intuition via previous exposure to "private X" to guess what it might mean, it's not unreasonable to assume it's about consumer loans.
"private insurance" can be about retail consumer purchased health insurance outside of employer-sponsored group health plans
"private banking" is retail banking (for UHNW individuals)
But "private credit" ... doesn't fit the pattern above because "private" is an overloaded word.
Makes sense. Thanks. Private here is as in private versus public companies.
I'm not saying they are right. But it's like if you posted an article called "Python Is Eating the World" on a non-tech side and people got mad because they thought the article was about a wildlife emergency. Fair for them to be confused, but maybe not fair to accuse the title of being misleading (at least not intentionally).
Page 22 (French but it's just numbers, you can read it). <https://www.eib.org/files/publications/thematic/gems_default...>
And it is especially so when money given is not their own, but instead they get to take cut. Which these funds can do. They might even just take promises that you will pay in future and even allow adding the interest on top of loan amount. Numbers look good, bonuses look good.
Fundamentally this can only last so long and now is the time it starts to blow up.
Things will stay the way they are for as long as people want them to. The economy and money is fundamentally made up. It’s so funny when these types come out and start talking about made up fundamentals as if they are physics.
That's the scenario in which unemployment goes to 10%, home prices crash by 33%, the stock market halves and Treasuries trade at zero percent yield [2].
[1] https://www.mfaalts.org/industry-research/2025-fed-stress-te...
[2] https://www.federalreserve.gov/publications/2025-june-dodd-f...
The Fed is measuring the loss on bank loans to the private-credit lenders. A 10% portfolio loss shouldn't result in those lenders defaulting to their banks.
By my rough estimate, one can halve the portfolio loss rate to get the NFBI-to-bank loss rate. So a 10% portfolio loss means we're around a 5% expected long-run loss to the banks. Which is still weirdly high, so I feel like I must be missing something...
> Private credit refers to loans provided to businesses by non-bank institutions—such as private equity firms, hedge funds, and alternative asset managers—rather than traditional banks .
Is that correct?
So if these companies go under does anyone care? If they go under are they a systemic risk to the economy like the banks in 2008 that got a taxpayer bailout?
Banks have lend to these institutions as they couldn't lend themselves. Might be systematic risk.
Lot of pension capital is tied to these vehicles. So they go under. Many people won't be getting their pensions in short or long term...
This is nowhere near as bad as the 2008 crisis, no. The banks don't really use the checking/savings account money for this. If you've invested in something that either invests in Private Credit or is reliant on Private Credit, then it'll suck for you personally.
...
One teeny tiny extremely important detail: Private Credit is bankrolling the AI industry's datacenter construction. If anything happens to significantly increase interest rates, several datacenter companies and Oracle go bankrupt. The other big tech firms have taken on lots of debt as well so expect spending cuts there too, even if they survive.
The systemic risk isn't in "bankers fucked it up again", it's in the AI bubble.
From that newseltter:
> At the Financial Times, Jill Shah and Eric Platt report:
>JPMorgan Chase ... informed private credit lenders that it had marked down the value of certain loans in their portfolios, which serve as the collateral the funds use to borrow from the bank, according to people familiar with the matter. >...
>The loans that have been devalued are to software companies, which are seen as particularly vulnerable to the onset of AI. ...
From what i can tell the problem isn't that an individual who had cash to invest in a private (tech in this case) company goes down
the problem is that a company "private credit firms run retail-focused funds (“business development companies” or BDCs)" which took out a bunch of loans to invest in private tech companies is now having the underlying assets that they got those loans against (long term investments in private tech companies) valued lower.
the link im missing is what happens when people who also invested in BDCs want their money back, where their actual money is locked up in long term investments made to private tech companies, and their ability to get loans is now valued lower. I think this is called a "run" where if someone starts pulling money out, and ultimately you cant, then its a race to get your money out before others do, which applies to both the individuals and the institutional loans.
Note: my quotes are from the bloomberg newsletter i mention, which helped me, not the OP article. And i am writing as much to clarify my own thinking as from a place of understanding. I welcome clarification.
Banks needs to disclose the % of non-performing home, auto, business loans to rating agencies and regulatory bodies so their credit risk is known, and so regulators they can set rules on how loose or tight lending criteria should be in the industry. With 'financial innovation' like tranched mortgage bonds rolling up thousands of mortgages at various levels of credit risk into one, they can be traded without anyone actually knowing what the default risk is.
With private credit, there is no disclosure requirement because the lenders are not banks. PC is financing the entire AI datacenter boom, without which GDP growth in the US is effectively zero. If PC defaults rise, the bottom could rapidly fall out of the S&P 500, which is already being hit by the oil price crisis, and affect people's 401Ks and retirement savings.
Mostly, no, which is exactly why private credit has become so big in recent years: they are making the loans the banks can't or don't want to make, because the banks are subject to a bunch of additional regulations, which are designed to reduce the probability of banks going bust and having to be bailed out.
But it can be difficult to judge second order effects in finance. It's possible that a lot of private credit houses going bust would indirectly and perhaps unexpectedly hurt the broader economy. An obvious one being companies that are reliant on private credit going bust because their financing needs can no longer be met.
Also, with this administration in the US I wouldn't entirely rule out bailouts for some of the more politically connected private lenders.
tick-tock, tick-tock, tick-tock...
"Private credit" is an idea that has been hot in finance for the last several years, originating from the great financial crisis (GFC). After the GFC, regulations made it very hard for banks to make business loans with any kind of risk anymore. So instead, new non-bank institutions stepped in to make loans to businesses. These "private credit" institutions raise money from investors, and lend it to businesses.
The investors are usually institutions who are OK with locking up their money long-term, like insurance companies and pension funds. This all seems a lot safer than having banks making loans: banks get their funding from depositors, who are allowed to withdraw their deposit any time they want. So a bank really needs to hold liquid assets so they are prepared for a run on the bank, and corporate borrowing is not very liquid. Insurance companies and pension funds have much more predictability as to when they actually will need their money back, so can safely put it in private credit with long horizons.
It's not quite so clean, though.
It's actually common for banks to lend money directly to private credit lenders, who then lend it out to companies. But when this happens, typically the bank is only lending a fraction of the total and arranges that they get paid back first, so it's significantly less risky than if they were loaning directly to the companies. Of course, the non-bank investors get higher returns on their riskier investment.
And the returns have been pretty good. Or were. With the banks suddenly retreating from this space, there was a lot of money to be made filling the gap, and so private credit got a reputation for paying back really good returns while being more predictable than the stock market.
But this meant it got hot. Really hot.
It got so hot that there were more people wanting to lend money than there were qualified borrowers. When that happens, naturally standards start to degrade.
And then interest rates went up, after having been near-zero for a very long time.
And now a lot of borrowers are struggling to pay back their loans on time. And the lenders need to pay back investors, so sometimes they are compromising by getting new investors to pay back the old ones, and stuff. It's getting precarious.
Meanwhile a lot of private credit institutions are hoping to start accepting retail investors. Not because retail investors have a lot of money and are gullible, no no no. 401(k) plans are by definition locked up for many years, so obviously should be perfect for making private credit investments! Also those 401(k)s today are all being dumped into index funds which have almost zero fees, whereas private credit funds have high fees. Wait, that's not the reason though!
But just as they are getting to the point of finding ways to accept retail investors, it's looking like the returns might not be so great anymore. Could be a crisis brewing. Even if the banks are pretty safe, it's not great if pensions and insurance companies lose a lot of money...
FrustratedMonky•2h ago
2008 Financial Crisis was triggered by Oil prices. There were lots of problematic structural elements that were fine if nobody looked close. Oil was just the sideway hit on the building to knock it over.
Just takes a nudge to collapse. And here we go again.
reliabilityguy•1h ago
Not by the subprime mortgages given to anyone with a pulse?
alphawhisky•1h ago
floatrock•1h ago
JumpCrisscross•1h ago
It was interconnected derivatives and structured products linked to banks that caused a liquidity crisis in the former to cause a crisis of confidence in the latter.
Meanwhile: "In the letter, Morgan Stanley said the fund wasn’t designed to offer full liquidity because of the nature of its investments, and that credit fundamentals across the underlying portfolio have been broadly stable. The bank's shares fell 2% in premarket trading Thursday" [1].
[1] https://www.wsj.com/livecoverage/stock-market-today-dow-sp-5...
kryogen1c•1h ago
Wait what? Your thesis is the GFC was caused by a liquidity crunch/bank run? Isn't that... not true?
Isn't the proximal to distal chain of events government encouraged subprime loans -> inaacurately valued MBS -> exponential, unregulated derivative instruments -> leveraged contagion. What does market confidence have to do with any of that?
JumpCrisscross•1h ago
It's absolutely proximally true and it's not just my thesis. From Wikipedia: "The first phase of the crisis was the subprime mortgage crisis, which began in early 2007, as mortgage-backed securities (MBS) tied to U.S. real estate, and a vast web of derivatives linked to those MBS, collapsed in value. A liquidity crisis spread to global institutions by mid-2007 and climaxed with the bankruptcy of Lehman Brothers in September 2008, which triggered a stock market crash and bank runs in several countries" [1].
> government encouraged subprime loans -> inaacurately valued MBS -> exponential, unregulated derivative instruments -> leveraged contagion
The subprime crisis shouldn't have been bigger than the S&L crisis [2]. What turned it into a financial crisis was the credit crunch that followed. That crunch was caused by folks running on banks that had sponsored these products.
On "inaccurately valued MBS," note that the paper marked AAA mostly paid out like a AAA security. It would be like if you were perfectly good for your word and I lent you money, but then I wanted to sell on that debt to a third party who didn't trust you at a 50% discount. What does "properly valued" mean in that context? It's ambiguous in a dangerous way. (In this analogy, you wind up paying back the debt at face value. But years later, albeit on schedule.)
[1] https://en.wikipedia.org/wiki/2008_financial_crisis
[2] https://en.wikipedia.org/wiki/Savings_and_loan_crisis
FrustratedMonky•1h ago
Oil was more of the outside force that put a shock to that weak system.
FrustratedMonky•1h ago
But it was swept under the rug, it was hidden by market constantly going up.
Ponzi schemes can hide in a market going up, because nobody is trying to pull money back out.
Suddenly everyone wanting their money, and the shortfall suddenly become apparent.
Oil prices suddenly made everyone try to pull money out, and 'woops there is nothing here'.
floatrock•1h ago
m0llusk•1h ago
marcosdumay•1h ago
I don't remember oil getting expensive back then, but it's a long time ago.
naijaboiler•39m ago
jacquesm•1h ago
fabian2k•1h ago
ToucanLoucan•1h ago
Every industry’s leadership is full of trumps, many more palatable personally, many far better spoken, many even with better politics but none fundamentally are any actually better for society. They don’t understand their company, the products it makes, they have utterly no care for anything besides the quarterly stock price and their lack of care costs real people their jobs and ruins the products we use every day.
And, they are why every company is ripping the copper out of its own walls instead of actually building a business that will last.