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US private credit defaults hit record 9.2% in 2025, Fitch says

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Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#211

Post by AnimalMuppet »

irishcoffee wrote: post #188
AnimalMuppet wrote: post #186

Earlier quoted context omitted.

> We bailed them out by printing a lot of money. We did. We created about $4 trillion. That just about neutralized the $4 trillion that evaporated in the crash, and the result was that we did not go through a deflationary collapse. You know that they did not create too much, because inflation was basically nothing for the next decade . It was flat until Covid. Covid... yeah, that was inflationary.

I appreciate your posts generally, you have a lot of good insights. Do you think replacing that 4T was a good call? I'm struggling to see how it was the right play.

I think it was a good call, yes. A deflationary collapse is incredibly damaging to the economy. The Great Depression was such a collapse, but there are others. The Panic of 1857, 1873, 1907... there's a long history of these.

The Fed avoided that. And they also avoided causing inflation. It was an amazing job of threading the needle. (One could argue that they caused a decade of stagnation, but in my view that was minor compared to the other options.)

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#212

Post by lokar »

JumpCrisscross wrote: post #207
lokar wrote: post #164

Earlier quoted context omitted.

No. There are kind of 3 types of loans: - bonds. Loans interned to be bought by a range if investors and traded over time. Arranged and unwritten by investment banks. - bank loans. The classic loan. The bank takes depositor money (that the depositor can take back anytime!) and loans it to someone or some company. The bank holds the loan - private credit. Like a bank loan, but they get their money from long term inves…

> The bank holds the loan These are mostly syndicated. The traditional difference between loans and bonds was bank versus investment bank. The modern difference is in underwriting technique, degree of syndication/securitisation and loans mostly being floating and bonds mostly being fixed.

I mean the classic “it’s a wonderful life” model

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#213

Post by derf_ »

NoboruWataya wrote: post #138
lizknope wrote: post #102

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?

> 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? 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…

> But it can be difficult to judge second order effects in finance.

Another obvious question to ask is who is providing the money that is being lent? Those are the people who now won't be paid back. The assumption is that these are people with predictable, long-term obligations who can lock up their cash for a long time: pensions, insurance companies, endowments, etc. Hopefully they are allocating a responsible amount of their portfolio to something as risky as private credit, but as the details are private, it can be really hard to know.

There has also been a big push over the past year to put private credit assets into retail 401k's (which, in theory, also should be okay with locking up funds for a long time, but in practice, maybe less so), most insidiously by having private credit assets held in target date funds (which are the default funds for many plans).

Many private credit funds also increase their leverage by borrowing from actual banks.

All of that should pose less systemic risk than if banks subject to bank runs were lending all of the money. But that has to be balanced by the fact that these are unregulated entities taking more risks than banks would. Long-term average default rates on high-yield bonds are around 4%, so 9.2% is high, but not in panic-inducing territory yet. Who knows what they will look like in the event of an actual recession.

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#214

Post by JumpCrisscross »

NoboruWataya wrote: post #203

The concern here seems to be that the credit risk on the underlying borrowers is being transferred to banks through the loans made by the banks to the private credit firms. But the banks' lending to the private credit firms is subject to the same regulations and constraints as their lending to other borrowers (the same regulations and constraints that led them not to lend to the underlying borrowers in the first plac…

> the banks' lending to the private credit firms is subject to the same regulations and constraints as their lending to other borrowers

Yes.

> the same regulations and constraints that led them not to lend to the underlying borrowers in the first place

No. Non-bank financial institutions (NBFIs a/k/a shadow banks) compete with banks. They also borrow from banks.

> When banks lend to private credit funds/firms, it tends to be through senior, secured loans which will be less risky than the underlying loans

Correct. Assuming 1.5x leverage and 60% recovery, you'd expect no more than half of portfolio losses to transmit to their lenders.

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#215

Post by NoboruWataya »

JumpCrisscross wrote: post #214
NoboruWataya wrote: post #203

The concern here seems to be that the credit risk on the underlying borrowers is being transferred to banks through the loans made by the banks to the private credit firms. But the banks' lending to the private credit firms is subject to the same regulations and constraints as their lending to other borrowers (the same regulations and constraints that led them not to lend to the underlying borrowers in the first plac…

> the banks' lending to the private credit firms is subject to the same regulations and constraints as their lending to other borrowers Yes. > the same regulations and constraints that led them not to lend to the underlying borrowers in the first place No. Non-bank financial institutions (NBFIs a/k/a shadow banks) compete with banks. They also borrow from banks. > When banks lend to private credit funds/firms, it ten…

> No. Non-bank financial institutions (NBFIs a/k/a shadow banks) compete with banks. They also borrow from banks.

How is this inconsistent with what I said? I was just making the point that the reason for the rise of private credit is that banks are less willing / able to lend, particularly to riskier borrowers, as a result of post-2008 banking regulations. So private lenders have stepped in to fill that gap.

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#216

Post by CharlieDigital »

fragmede wrote: post #208
CharlieDigital wrote: post #91

Earlier quoted context omitted.

> Obama promised to do it Do you know how the three branches of government work and who writes the laws? The legislative produced Frank-Dodd...which Trump and Republicans later scaled back...

Do we still have three separate branches?

We sure did when Frank-Dodd was written by the legislative and then signed into law by the executive.

GP's comment is about the aftermath of 2008, entirely missing the fact that the legislative did in fact create laws which were signed by the executive and then later, in 2018, dismantled under a different administration.

It's a matter of simple facts here.

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#217

Post by metrix »

boringg wrote: post #187
cs702 wrote: post #116

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] tick-tock, tick-tock, tick-tock... --- [a] https://news.ycombinator.com/item?id=47351462

There are limited ways to short these positions which would probably add some fuel to the fire.

I don't see it as adding fuel to the fire. I see it as helping the market price companies correctly

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#219

Post by JumpCrisscross »

lokar wrote: post #212
JumpCrisscross wrote: post #207

Earlier quoted context omitted.

> The bank holds the loan These are mostly syndicated. The traditional difference between loans and bonds was bank versus investment bank. The modern difference is in underwriting technique, degree of syndication/securitisation and loans mostly being floating and bonds mostly being fixed.

I mean the classic “it’s a wonderful life” model

Convergent evolution in finance is actually a pet interest of mine. It seems like it's mostly driven by regulation. But the more you stare, the more the regulation appears like a canyon wall and the hydrology customs and connections. I'm not sure what the underlying geology is, however. Something bigger than customs or laws, but not so grand that it becomes ethereal.

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#220

Post by strangattractor »

cs702 wrote: post #116

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] tick-tock, tick-tock, tick-tock... --- [a] https://news.ycombinator.com/item?id=47351462

You can always tell when there is a problem. When things are fine the companies keep the profits to themselves. When things start to get dicey - foist it off onto retail investers.

Private equity (PE) is increasingly being introduced into 401(k) plans, driven by a 2025 executive order encouraging "democratization" of alternative assets. - Google AI

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