Private-credit funds are courting borrowers of all sorts; QE 2008
In 2005-2008, much of the hidden risk and excess leverage in the system was located in banks and mortgages.
Steve Diggle said: “In 2025, financial markets are riddled with several fault lines but now the bubble and the dangerous leverage is centered on private equity and private credit.”
First, given the enormous budget deficits and huge debts incurred by a decade of QE and then the global pandemic,
Diggle says “central banks are simply not in a position to implement similarly accommodative monetary policy again.”
MarketWatch 30 May 2025
No dead institution looms larger over the financial system than Drexel Burnham Lambert. The investment bank, which collapsed in 1990
Drexel’s great innovation under Michael Milken was introducing risky borrowers to bond markets;
its junk bonds fuelled private equity’s leveraged-buy-out boom during the 1980s.
Regulators and some bankers are sceptical. They see private debt as an exuberant and dangerous form of regulatory arbitrage, bound to blow up when defaults rise—as they surely would during a recession.
Expanding private credit to include new sorts of assets and investors will only compound the folly, they assume, with potentially systemic consequences.
Banks are falling over themselves to supply them with debt.
They are striking partnerships with asset managers, shifting debt from heavily regulated balance-sheets to insurers and funds.
The Economist 23 May 2025
https://www.economist.com/special-report/2025/05/23/the-debt-barons-who-are-taking-on-the-banks
US bank lending to buyout firms and private credit groups has helped fuel a steep rise in loans to non-bank financial institutions,
https://englundmacro.blogspot.com/2025/05/rise-in-loans-to-us-non-bank-financial.html
Drexel Burnham Lambert
https://en.wikipedia.org/wiki/Drexel_Burnham_Lambert
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