Lately, I’ve been covering the growing strain in private credit. In my two most recent Friday Economic Reviews with Ed Dowd and Andy Schectman, both identified this as a key pressure point in today’s economy. Above is a clip from my discussion with Ed Dowd, with full details for both shows below.
Below is a clear breakdown of what’s happening—and why private credit is starting to resemble the hidden, systemic risks in mortgage-backed securities that triggered the 2008 collapse.
Warning… this gets pretty finance-heavy, but I know most of you can handle it—and it’s critical to understand what’s really going on.
Today’s issues in private lending are, in many ways, the outcome of the 2008 financial crisis—a problem that was never fully resolved.
After 2008, bank lending became much stricter, and interest rates were pushed to extremely low levels.
As a result, government bonds began paying out just 1–2%, and in some cases even negative yields.
This combination forced pension funds, insurance companies, and retirement systems to look beyond government bonds, corporate bonds, and bank loans. They didn’t have much choice. Their business models require returns of 5–8% (often more), yet traditional bonds and loans were offering only 1–3%.
In simple terms, they needed 7% but were getting 2%. Without higher returns, they could not meet their long-term obligations - i.e., their business model would collapse.
This pushed them into private lending, where returns of 7–12% or more were available.
At the same time, low interest rates fueled economic activity and increased demand for capital. Companies expanded, took on more debt, and needed financing to keep up with growth.
But because bank lending standards were tighter, many of these companies could not access traditional loans and were forced to turn to private lenders.
The result was a system that fueled both sides of the private lending pipeline—
both supply (investors seeking higher returns) and demand (companies needing capital).
This is where the system is spiraling out of control. Private lending has more risk. Less regulation, riskier buyers, weaker underwriting standards and more:
Why Private Lending Carries More Risk?
Less regulation than traditional banks
Limited transparency—loans are not publicly disclosed or easily tracked
Hard to price accurately—no active market to determine real value
Illiquid assets—loans can’t be easily sold if conditions worsen
Riskier borrowers—often companies that couldn’t qualify for bank loans
Weaker underwriting standards in competitive, high-yield environments
Higher leverage—both at the borrower level and sometimes within funds
Delayed recognition of losses (loans are extended or restructured instead of written down)
Mismatch between investor expectations and asset liquidity
Heavy reliance on continued cash flow—less margin for error when rates rise
Connected to broader system (pensions, insurance, retirement funds)
Rapid growth outpaced oversight and risk controls
Much like in 2008, a large part of our economy is tied to private credit—it’s deeply embedded in pensions, insurance systems, retirement accounts, and major investment funds.
In 2008, it was mortgages that started to crack. Today, it’s over leveraged businesses—loaded with cheap debt from the low-rate era—now struggling to survive as interest costs rise.
Because this risk is deeply embedded across pensions, insurance, and retirement systems, any sustained stress in private credit has the potential to spread across the entire financial system.
The risk didn’t disappear after 2008—it was pushed out of sight. Now it’s coming back into view.
Recent show with financial analyst Ed Dowd:
Title and Video Link: Private Credit Is the Warning—Just Like 2008 | Ed Dowd
Listen on Audio:
My next show is with Andy Schectman, where we dive deeper into the cracks forming in the private credit markets. We also discuss the ongoing rationing now widely occurring in Europe and the high levels of deliveries coming from the COMEX. He explains how the surge in COMEX deliveries is akin to a bank run.
Title and Video Link: Private Credit Is Cracking—Rationing Begins & COMEX Stress Rises | Andy Schectman
Listen on audio:
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