Could Private Credit Markets Cause the Next Financial Crisis?

In mid-2007, the Bear Stearns High-Grade Structured Credit Fund had to be bailed out. Without getting too deep into technical details, the fund had significant exposure to the subprime mortgage market and was highly leveraged, exposing it to major losses as the US housing bubble peaked.

Little did anyone in late June 2007 realize that the downfall of that one fund would eventually lead to the collapse of Bear Stearns in March 2008. And little did anyone know that all of this would eventually result in a major recession and financial crisis that was arguably the worst financial crisis the US experienced since the Great Depression.

Even the father of mortgage-backed securities, when asked in early 2007 if he thought overextension of leverage in MBS markets could lead to a financial crisis, thought that any risk could be contained, and that there was no cataclysmic risk to the financial system.

As we now know, that way of thinking was erroneous. The problems in the subprime mortgage market ended up taking down Bear Stearns, sent Wall Street reeling, and eventually resulted in stock markets falling more than 50% from their previous highs before the crisis was over.

Could we experience another, similar crisis in the future? And if so, what might be the trigger, the Bear Stearns of our era?

The Growth of Private Credit Markets

When you think about borrowing money, you probably imagine borrowing from a bank or other financial institution. Or if you think of companies borrowing money, you think of bonds that are issued and sold in financial markets.

But in recent years the growth of non-bank financial lending has been increasing. This so-called private credit allows companies to bypass the banking sector in order to raise money.

Private credit allows lenders to work directly with borrowers to negotiate bespoke lending deals with customized terms in order to acquire loans that are not publicly traded. Private credit lenders can include private equity firms, insurance companies, or even hedge funds.

The advantage for borrowers is that they can customize the terms of a loan, keep borrowing confidential, and gain quicker access to capital than they might be able to get through getting a loan from a bank or issuing bonds.

The advantage for lenders is that there is a potential for higher yield than there is through purchasing publicly traded debt instruments. The potential downside, however, is greater volatility and less transparency.

Private credit has grown significantly in recent years, from $2 trillion in 2020 to $3 trillion in 2025, and is expected to reach $5 trillion by 2029. But there may be a bump in the road.

Are Private Credit Markets the New Bubble?

Recently BlackRock, the world’s largest asset manager, limited withdrawals from one of its flagship debt funds as worries about private credit markets led to a surge in redemption requests.

Many of these funds limit withdrawals to 5% of the funds’ total value per quarter in order to prevent runs on the funds that could force fund managers to sell off assets at a loss in order to redeem investor redemption requests. In BlackRock’s case, their BCRED fund raised that limit to 7.9% in an attempt to convince people that the fund was safe and had plenty of liquidity to make good on redemption requests.

BlackRock isn’t the only asset manager facing difficulty, either. Cliffwater Corporate Lending Fund was recently hit with redemption requests totaling almost 14% of its net asset value, with the fund deciding to raise its redemption limit to 7% in response.

Overall the market view of private credit has begun to sour, and in the coming months we could see even more funds facing pressure. As with the subprime mortgage crisis, it isn’t private credit markets themselves that are a direct threat to the financial system, it’s the fact that companies exposed to private credit assets that could end up being marked down in value could be at risk of getting caught up in a financial contagion.

Bear Stearns’ hedge funds collapsed because the value of the securities they owned fell, with lenders then demanding extra collateral. That led to additional selling of the securities, which further lowered their value.

Once runs like this get started, and fear becomes contagious, there’s no telling where it might stop. In the case of subprime mortgages, fear and uncertainty surrounding asset valuations essentially froze credit markets, leading to the failure of major investment banks like Bear Stearns, Lehman Brothers, and Merrill Lynch.

Major Wall Street figures today such as Goldman Sachs Chairman Lloyd Blankfein and JPMorgan Chase CEO Jamie Dimon have started to draw parallels to what is going on today and what happened during the 2008 crisis. Could weakness in private credit markets end up becoming the cause of another financial crisis?

Help Protect Yourself With Gold

The 2008 financial crisis saw stock markets fall more than 50% from their peaks, and saw trillions of dollars of wealth wiped away in months. Many people watched in horror as the retirement accounts they had spent years building up withered away.

But there was one glimmer of hope amidst the crisis: gold. Gold prices gained 25% during the same period that stock markets fell more than 50%, and they continued growing in the years after the crisis, hitting all-time highs in 2011.

Many people watched gold take off while their retirement savings languished. And many undoubtedly vowed that the next time around they would buy gold to help protect their assets.

Many Americans have already done just that today, purchasing gold, silver, and other safe haven assets in order to help safeguard their financial well-being ahead of a potential recession that many Americans fear.

Gold has served as a safe haven asset for centuries, and continues to be one of the first safe haven assets people flock to when uncertainty and fear prevail. If you’re looking for a safe haven asset, maybe gold is the right choice for you.

With over $3 billion in precious metals placements and over 8,000 5-star reviews, Goldco has worked hard to become one of the best gold companies in the country. We want all of our customers to benefit from owning precious metals.

If you want to learn more about how buying physical gold can help you, call Goldco and talk to our precious metals specialists today.