Walking Into the Bubble:
Private Credit, the Ghost of 1929,
and the Price Nobody Can Name

The Quiet Is the Tell

There is a particular kind of silence that precedes financial reckoning. Not the silence of calm markets or considered risk — the silence of a conversation that peaked, then stopped. When Wall Street begins asking "who is the cockroach among us?" in hushed tones rather than conference keynotes, that is not a sign the concern has gone away.

Private credit is that conversation right now. Eighteen months ago, it was the hottest topic at every macro roundtable: a $2 trillion shadow lending market,¹ largely exempt from public disclosure, growing at a pace that would have been unthinkable in the regulated banking world. Now the conversation has shifted — not resolved. And that distinction matters more than almost anything else I can write today.

My view is blunt: we are walking, with a kind of confident blindness, toward the same destination we have visited before. Not the same zip code, not the same instruments, but the same structural failure — a market that priced assets based on trust in names rather than verifiable underlying value. In 1929, those names were investment trusts. In 2026, they are private credit funds. And the SEC, much like the regulators of a century ago, finds itself watching from outside a fence it was never given the tools to climb.

A Market That Priced Itself Into Existence

Private credit — direct lending, business development companies (BDCs), mezzanine debt, asset-backed lending outside the regulated banking channel — did not arrive from nowhere. It was a rational response to a regulatory environment that, after 2008, made banks structurally reluctant to hold leveraged loans on their balance sheets. The Dodd-Frank Wall Street Reform and Consumer Protection Act³ — Congress's sweeping regulatory overhaul enacted in 2010 in direct response to the 2008 financial crisis — tightened capital requirements on banks. Banks retreated. Yield-starved institutional capital surged into the vacuum.

The asset class compounded accordingly. From roughly $500 billion in assets under management in 2015, the market grew to over $2 trillion globally by 2024¹ — with the IMF flagging it in April of that year as a systemic concern, and JPMorgan's own estimates running as high as $3.14 trillion² depending on how you define the perimeter. The biggest names in finance — Apollo, Ares, Blackstone, Blue Owl, HPS — built enormous franchises in this space. Returns were exceptional during the low-rate era. The pitch was simple: private credit offered yield, diversification, and low volatility. What was not said aloud was that the low volatility was partly structural. When you mark your own book, the volatility disappears by definition.

That is the first thing to understand. Unlike a publicly-traded bond, which prices every second the market is open, private credit loans carry marks that are self-reported, audited infrequently, and in many cases updated quarterly — if that. The fund manager determines what the loan is worth. In a rising rate environment where borrowers were suddenly paying 10–12% on leveraged loans they took out when rates were near zero, the real question was never whether stress existed. It was whether the marks reflected it.

When the Numbers Say One Thing and Reality Says Another

The mechanism hiding the stress is called PIK — payment in kind. Rather than a borrower making a cash interest payment, PIK structures allow the interest to be rolled into the principal balance. The loan does not default. The fund does not record an impairment. The quarterly NAV is maintained. And the borrower, who cannot service its debt in cash, quietly accumulates a larger and larger principal balance it will eventually have to repay or refinance.

Valuation firm Lincoln International tracks what they call the "shadow default rate" — instances where PIK escalation suggests a borrower in distress that is not formally classified as defaulted. That rate was 2% in 2021. By their most recent data, it sat at 6%.⁴ Fitch Ratings, using a broader methodology, reported a private credit default rate of 5.7% on a trailing twelve-month basis.⁵ The headline numbers reported by most fund managers remained well below those figures. The gap between self-reported distress and independently observed distress is not a rounding error. It is an opacity premium being priced into a market that investors are still buying.

The IMF's 2025 Global Financial Stability Report⁶ added further dimension: over 40% of borrowers in the direct lending universe were running negative free cash flow. Average interest coverage ratios — the multiple by which a company's earnings cover its interest expense — had fallen from 3.2x in 2021 to approximately 1.5x. Nearly half of all borrowers in the space now operate below 1.5x interest coverage, up from just 7% in Q4 of 2020. These are not the fundamentals of a stable asset class quietly generating steady returns. These are the fundamentals of a market hoping rates ease before the balance sheet reality forces a mark.

Record redemption requests are beginning to tell the same story from the investor side. In Q4 2025, across the largest non-traded private credit vehicles, redemptions averaged approximately 5% of NAV — and at least one Blackstone private credit vehicle was forced to raise its repurchase cap to meet nearly $2 billion in withdrawal requests.⁷ When sophisticated, institutional LPs begin seeking exits with that kind of urgency, the question is not whether they know something. The question is what they know that the stated NAV does not yet show.

The Ghost of 1929: You Have Seen This Before

Andrew Ross Sorkin⁸ — financial journalist, CNBC anchor, and creator of The New York Times' DealBook Summit — observed at a 2025 conference that things happening in 1929 "felt very 2025ish," pointing specifically to private credit and growing leverage risk. He was not being provocative. He was being precise.

In the 1920s, the financial innovation that captured retail and institutional imagination alike was the investment trust — a vehicle that, in its American variant, allowed managers to purchase securities on margin and embed leverage several layers deep. Goldman Sachs Trading Corporation was among the most notable⁹ — a levered investment trust that bought other levered investment trusts, with limited investor visibility into the underlying assets or the true leverage ratio of the overall structure. The pitch, like private credit's pitch today, centered on returns and diversification. What it omitted was the recursive opacity of the pricing: the trust was worth what the trust said it was worth, and the trust was backed by assets whose values were determined by the same dynamics that had inflated the trust's own price.

The deeper parallel, though, is the one this analysis returns to most precisely. Investors in 1929 were, in many documented cases, buying names. Listed investment companies with no audited financials, no verifiable portfolio disclosure, no third-party valuation of their underlying holdings. You were investing in a reputation, an association with successful men, a track record assembled during an uninterrupted bull market. The moment trust in those names was withdrawn — not gradually, but suddenly, the way trust always exits — there was nothing beneath the price to arrest its fall. Because the price had never been tethered to anything verifiable to begin with.

This is my analysis of what happened a century ago, and it is uncomfortably close to the condition we have engineered in private credit today. The assets exist. The loans are real. But the prices attached to them are, in many cases, theoretical constructs maintained by the parties with the greatest financial incentive to keep them elevated — until a wave of redemptions or a credit event forces a mark to reality.

The SEC's Dilemma, and the Fence It Was Never Given

The Securities and Exchange Commission, created precisely because the 1929 crash demonstrated the dangers of unregulated financial markets, has been attempting to close the private credit transparency gap for years. In August 2023, the SEC adopted the Private Fund Adviser rules¹⁰ — requiring registered advisers to provide quarterly performance and fee statements, annual audited financials, and disclosures around preferential treatment of certain investors. It was an imperfect but meaningful step toward making private credit legible.

On June 5, 2024, the U.S. Court of Appeals for the Fifth Circuit vacated those rules in their entirety,¹¹ ruling 3-0 that the SEC had exceeded its statutory authority. The rules were gone before most funds had even begun complying with them.

The result is a market that has grown past $2 trillion, that represents a meaningful portion of corporate credit in the United States, that holds loans to companies employing tens of thousands of workers — and that is subject to substantially less public disclosure than a $50 million small-cap stock trading on a regional exchange. If a credit event propagates through this system, the SEC's ability to intervene, sequence the unwind, or even understand in real time what is happening is, by design, limited. One suspects the agency is acutely aware of how that will look in hindsight.

The Fix: Publish the Price

I want to be deliberate about what I am and am not arguing here. I am not arguing that private credit should be dismantled, democratized, or opened to retail investors who do not understand what they are buying. The accredited investor and qualified institutional buyer frameworks exist for a reason — illiquid, complex, leveraged credit instruments are not appropriate for every portfolio. The sophisticated investor requirements around private markets should be maintained and, where they have been eroded by the proliferation of non-traded BDC structures marketed to semi-retail buyers, probably tightened.

What I am arguing is simpler and more structurally important: publish the pricing. Specifically, the methodologies and assumptions underlying the marks. Specifically, the derivative structures and CLO tranches that reference private credit assets and that do, in fact, trade in public markets — often held by pension funds, insurance companies, and institutions whose own liabilities are public in nature. The problem is not that sophisticated investors are taking on illiquidity risk in private markets. The problem is that the pricing chains linking those private assets to public capital markets are opaque enough that a repricing event in private credit cannot be absorbed gradually, mapped, or sequenced. It can only be discovered.

Discovery, in financial markets, is not a gentle process.

Markets Are Not Mathematical. They Are Human.

I want to close with something that I think gets lost in the data — the IMF reports, the interest coverage ratios, the redemption percentages. Numbers do not move each other. A 6% shadow default rate does not automatically cause anything. A 47% share of borrowers below 1.5x coverage does not trigger a crisis by its own arithmetic weight.

What triggers a crisis is the moment a sufficient number of actors simultaneously withdraw trust from the pricing framework. When enough people decide that the stated NAV is not the real NAV, the gap between perception and reality closes — violently, because it has been allowed to widen for years with no mechanism for gradual correction.

This is what happened in 1929. This is what happened in 2008. The instruments were different. The opacity was different in its details. But the mechanism was identical: a financial structure that had been pricing assets based on sustained belief rather than verifiable evidence, confronted by a withdrawal of that belief faster than the structure could adapt. The Great Depression was not simply a market crash. It was a trust crash. And trust, once broken at that scale, does not return on a timeline that governments or central banks can fully control.

The private credit market is large enough, interconnected enough, and opaque enough that a similar trust event would ripple far beyond the hedge funds and institutional allocators who hold the paper directly. The fix is not catastrophism. It is transparency. Publish the methodology. Name the price. Let the market decide if it agrees. That is what markets are for.

The cockroach does not go away because you stop looking for it. It just gets more comfortable in the dark.