Private Credit Is Entering Its Musical Chairs Phase

Every financial crisis has a moment — usually identified only in retrospect — when an obscure product intended to mitigate risk spreads through what author Rick Bookstaber called “tightly coupled” interconnections to cause widespread damage. The first sign is lots of hard-to-understand stories that seem unrelated except that they all involve a single sector.

Think of all the stories in 2006 and early 2007 about subprime mortgages, underwriting fraud, Bear Stearns hedge funds, collateralized bond obligations, mark-to-market accounting and other technical-sounding events that seemed far removed from the real economy and retail investors — until they weren’t.