Original author: Jeff Park
Chopper, Foresight News
In finance, each generation invents a new tool to package its worst impulses as seemingly prudent products.
The 1980s saw junk bonds, cloaked in the guise of "capital democratization"; the 1990s brought emerging market debt, packaged as a noble cause to integrate developing nations into the global economy; the 2000s witnessed structured credit, so complexly layered that even its creators didn’t understand it until it collapsed.
These "innovations" share a common trait: they create artificial solutions—such as liquidity transformation—to real problems like insufficient growth, ultimately leading to disaster due to oversaturation.
Private credit is the latest—and perhaps most insidious—version of this story. Unlike its predecessors, it was deliberately designed to make liquidations before risk materializes completely invisible, so that by the time they are discovered, the damage is already irreversible.
Recently, BlackRock directly wrote down the face value of two private credit loans from 100% to 0 in a single step, with one loan being written down in less than a month. This does not appear to be a technical error in valuation, but rather an admission of misaligned incentives.
How did we get here?
The crisis is not the root cause—it is the result of concealing the truth.
The industry's dominant narrative is this: After the 2008 financial crisis, banks, constrained by Basel III, became reluctant to lend, so non-bank institutions stepped in to fill the gap by serving small and medium-sized enterprises—an inevitable market response.
The more accurate reality is that the regulatory framework after 2008 did not truly eliminate risk, but instead actively fostered a shadow system that assumed the same underlying risks while evading the regulations originally designed to constrain them.
The private credit market has grown from $46 billion in 2000 to approximately $2 trillion today. This capital did not appear out of nowhere or flow randomly into pensions and insurance companies—it was deliberately channeled to institutions with large capital bases, long-term investment horizons, and a willingness to accept opaque valuations.
Its structure is identical to that of the 2008 financial crisis, with one significant difference. In 2008, the subprime collapse resulted in losses primarily concentrated among reckless borrowers and lending banks; but when private credit collapses, the losses have no boundaries—the money comes from life insurance policyholders and pension beneficiaries, i.e., ordinary people.
In 2008, the socialization of losses that angered the public was at least preceded by a period of private gains. But with private credit: the gains go into the pockets of fund managers, while the losses are socialized into the retirement accounts of teachers, nurses, and civil servants—people who never agreed to bear that burden.
Worse still, the industry is no longer content with just targeting institutions—it has now set its sights on retail investors. Since 2025, private credit ETFs have surged in popularity, but the problem has only worsened: illiquid assets do not become liquid simply by being packaged into ETFs. Instead, the bomb of “a rush to redeem but no buyers for the assets” has been transferred from professional institutions to the brokerage accounts of ordinary investors.
This is the reality that is unfolding.
Asset allocators who dislike Bitcoin reveal everything.
Over the past few years, while recommending Bitcoin to institutions everywhere, I noticed a striking pattern: those who reject Bitcoin often passionately embrace private credit. These aren’t two different viewpoints—they stem from the same mindset.
Their objections to Bitcoin sound "prudent": too volatile, drawdowns are unexplainable, and it has no cash flow to value.
But the underlying message is: Bitcoin’s price is too honest—real-time, public, visible to everyone; if it’s wrong, it’s wrong, and there’s no hiding it.
In contrast, private credit:
- Valuation changes occur very slowly and are "smoothed" by the fund manager on a quarterly basis.
- There is no liquid market to expose the lies.
- The lock-up period is long enough for the people who made the decision that year to get promoted, switch jobs, or retire.
所谓的“专属项目渠道”，不过是缺乏有效定价竞争的借口。
True fiduciaries seek the truth, but these configurators seek to avoid confronting it. This is not risk management—it is the opposite of risk management, dressed in a professional facade and completely disregarding the beneficiaries' interests.
The AI hype could turn it into a systemic risk.
Morgan Stanley estimates that global data centers will require $2.9 trillion in capital expenditures between 2025 and 2028, with approximately $800 billion needing to be funded through private credit. This has transformed private credit from merely a lending market into a critical infrastructure for the most significant technological transformations over the coming decades.
Typical case: In October 2025, Meta completed a $27 billion data center financing deal with Blue Owl, the largest private credit transaction in history. The funds came from PIMCO and BlackRock, ultimately originating from pension funds and insurance companies.
The cruelty of this cycle: the pensions of ordinary workers are used to fund automation and AI, which in turn replace the workers’ own jobs. Private credit distorts the cost of capital and suppresses the value of labor. Currently, nearly $50 billion in private credit flows into the AI sector each quarter.
The financialization of AI infrastructure and the replacement of the workers who sustain it form a closed loop: cutting off one's own left hand with the right.
Liquidity conversion is theft of time.
I’m not saying credit itself is evil, nor that all private credit institutions are bad. Credit has always been a game of probabilities—bad debts and mismatches have existed in every era.
The key difference is: who actually bears the loss?
- Banks hold non-performing loans on their balance sheets, are subject to regulation, and face real financial risks from bank runs and equity wipeouts;
- Private credit managers earn performance-based commissions, which incentivize you to take risks, not to win responsibly.
By the time the loan reaches zero, the manager has already made enough money.
Every financial engineering effort ultimately boils down to one question: Who will bear the costs that no one wants?
The brilliance of private credit lies in its exceptionally elegant solution to this problem:
Returns flow upward and backward: to older, retired, and long-term capital beneficiaries.
Costs flow downward and forward: suppressing wages, freezing hiring, and delaying investments, distorting the cost of capital across the entire economy.
Private credit is stealing time.
This is the long-standing financial practice of maturity transformation, stripped of its disguise.
They are exposed to risks they did not need to take, at prices they could not foresee, using tools they could not choose.
The lock-up period ensures they cannot exit, the lack of public valuation ensures they cannot protest, and the quarterly valuation smoothing mechanism ensures that when the final bill arrives, no one can be held accountable.
It didn’t look like theft—it looked like “steady returns,” and the two were nearly indistinguishable until the moment of collapse. Although this story is not new, what’s striking is its unprecedented scale, lack of transparency, and the remarkable success of an asset class built on the illusion of safety, which managed to convince even the most cautious capital managers in the world.
No class of asset in the world has ever consistently appreciated by 100% for three consecutive months, only to vanish overnight.
If this isn't theft, then I don't know what is.