The US Ponzi scheme coming to an end. It works great while everything is going up.
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.
"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 wanted to dismiss that and say ... but it's not really historically high. I suppose it really is not IF you look WAY back. It actually has persisted at a relatively high level if you look back to 2009, which is more than a short time now.
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?
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."
Private credit is cracking and lending standards are tightening behind the scenes. If you’re not building cash reserves right now you’re going to wish you had. The distressed opportunities ahead go to whoever kept dry powder while everyone else was chasing growth.
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.
This is not my field of expertise, but I modeled keeping cash reserves to buy distressed assets. Unless I was able to perfectly predict the crash, the outcome was still better to not time the market.
Employers will never be able to pay a living wage, because the real problem is a lack of housing. Rents and mortgages will always outrun wage increases in the current market.
People have cried wolf or been wrong about incoming crashes and bubble pops so many times that this signal -- whether it's a good signal or not -- simply won't change anything I do.
I'm sure someone somewhere could make a trade off of this article and this signal is definitely for them.
Luckily debt will be solved by the power of AGI, right? Just one more data centre! One more GPU! It can nearly write a basic three tier application with only 10 critical security vulnerabilities all by itself!
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.
Luckily debt will be solved by the power of AGI, right? Just one more data centre! One more GPU! It can nearly write a basic three tier application with only 10 critical security vulnerabilities all by itself!
If you read the article, it says the default is directly related to the sell off of software stocks, which are heavy private credit borrowers.
What caused the SaaS apocalypse? Gen AI.
I'm long on AI hardware companies for this reason.
^ 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.
Pretty sure the solution that US politicians will find will be to create new dollars out of thin air, so instead of increasing taxes they increase the money supply.
Of course this is going to increase prices, but then they can blame China / Russia / Iran whoever is the scapegoat at that time.
> 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.
I'm not surprised. Weren't we getting signals like 3 or 4 months ago that used car repossessions were ticking up? That's a breaking point for folks. The economic boulder keeps rolling and I'm not wearing any shoes. Spiking the price of oil is definitely going to help. This too shall pass?
Yeah, I'm going down a bit of a rabbit hole this morning. Turns out Wells Fargo's $59.7bn of private-credit lending is equal to 44% of its CE Tier 1 capital [1]. Meanwhile, Deutsche Bank got back to being Deutsche Bank while I was not looking [2].
With the current concentration of wealth and banking, it almost seems like there is an incentive for banks to ruin themselves when they end up in a little trouble.
If the bank has trouble, shareholders/executives lose - if the banking system has trouble... then QE will solve the bank trouble.
IMHO, if QE solves the trouble, the Fed or treasury should be taking a bigger bite of ownership from the bailed out companies in exchange specifically to disincentivize taking risks with a bailout backstop.
Are you saying that they're using their private-credit portfolio as a Tier 1 capitalization to meet their regulatory demands (not sure if the ~10-15 something% rule has come back yet?)
DB's fall has been glorious. I shorted them back in January when I learned they were delivering 1.3% of their market cap in gold to the COMEX. No bank gives up that much of a hard asset unless something is wrong. Things are also looking bleak for Scotia Capital, BofA, Barclays, and UBS. JPMorgan seems to be doing fine. However Citigroup appears to be making out like a bandit. https://www.cmegroup.com/delivery_reports/MetalsIssuesAndSto...
Reason this number caught my eye: last year the Fed's stress tests found "loss rates from [non-bank financial institution] exposures (i.e., the percentage of loans that are uncollectible) were estimated at 7%, under a severe recession in scenario one" [1].
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].
What's odd is according to the article, this index estimated an ~8% default rate in 2024. So maybe the stress test was measuring something different? It's weird to think the stress test would find a lower loss rate during a severe recession than in the most recent year with data available.
The categorization the Fed uses for NBFI is broader than private credit. E.g. if a hedge fund gives a loan to a private company, that's not private credit because hedge funds seem to have their own category. And lending backed by securities is also in a different category, it seems.
So I guess the Fed expects these other kinds of lending to be safer than private credit?
I've never heard the term private credit so I googled it.
> 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?
Trouble has been brewing in private credit for quite a while, but lenders and investors have been reluctant to write anything down, resorting to all kinds of "extend and pretend" games to avoid write-downs.[a]
Unless I'm misunderstanding something, this isn't that big of a number in the larger scale of US banking; According to the numbers in the article that's only about 2.5% of all bank lending (300B/1.2T, with the 1.2T being ~10%)
Yeah but don’t major problems usually take the form of debt chains being forcibly unwound? Like default happens somewhere, expected money doesn’t land, that next entity who was receiving the debt money that defaulted defaults on something because now they can’t pay, expected debt payment money from them doesn’t land, that next entity etc.
So I think it’s not about how much of the debt is this, it would be about how intertwined it is with other things.
I’m not claiming it’s major btw, I’m just clarifying that in my understanding it could be a small percent but still end up causing default cascades, or it could be a large percent and not, depending on the debt graph.
Trouble has been brewing in private credit for quite a while, but lenders and investors have been reluctant to write anything down, resorting to all kinds of "extend and pretend" games to avoid write-downs.
61 comments
[ 3.1 ms ] story [ 75.6 ms ] thread2008 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.
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."
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.
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.
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.
What caused the SaaS apocalypse? Gen AI.
I'm long on AI hardware companies for this reason.
^ Encase the link also responds with this for you:
Of course this is going to increase prices, but then they can blame China / Russia / Iran whoever is the scapegoat at that time.
> 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.
Page 22 (French but it's just numbers, you can read it). <https://www.eib.org/files/publications/thematic/gems_default...>
[1] https://www.sec.gov/Archives/edgar/data/72971/00000729712500...
[2] https://www.reuters.com/business/finance/deutsche-bank-highl...
If the bank has trouble, shareholders/executives lose - if the banking system has trouble... then QE will solve the bank trouble.
Been a bit out of the finance game
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...
So I guess the Fed expects these other kinds of lending to be safer than private credit?
> 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?
tick-tock, tick-tock, tick-tock...
---
[a] https://news.ycombinator.com/item?id=47351462
So I think it’s not about how much of the debt is this, it would be about how intertwined it is with other things.
I’m not claiming it’s major btw, I’m just clarifying that in my understanding it could be a small percent but still end up causing default cascades, or it could be a large percent and not, depending on the debt graph.
tick-tock, tick-tock, tick-tock...