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The man who steered Goldman Sachs through the last financial crisis thinks the next one may already be taking shape — and this time, your 401(k) could be caught in the crossfire.
Lloyd Blankfein, who ran Goldman Sachs from 2006 to 2018, recently sounded the alarm on the $1.8 trillion U.S. private credit market on a Bloomberg News podcast (1). These are direct loans outside public markets made by non-bank lenders — like asset managers, private equity firms and debt funds — to companies that can’t or won’t borrow from traditional banks.
The sector exploded after 2008, when tighter bank regulations created a lending vacuum. Fast-forward nearly 18 years later and it’s become one of Wall Street’s favorite products. Blankfein, however, says the signs of excess are hard to ignore.
“It sort of smells like that kind of a moment again,” he said in a separate interview with Citadel, referring to the run-up to the 2008 crisis. “I don’t feel the storm, but the horses are starting to whinny in the corral.”
Blankfein sharpened the warning in his interview with Bloomberg, stating we’re “due for a kind of a reckoning.”
“Everyone says, ‘Oh, the world’s not leveraged,’” he told Citadel. “That’s exactly what everybody said in the mortgage crisis, until you suddenly discover that there was a lot of mortgage risk in Iceland.”
Private credit has long been the domain of sophisticated institutional investors — think pension funds, endowments and sovereign wealth funds. They understood the risks: These loans are hard to value, rarely marked to market and often nearly impossible to sell in a downturn.
Losses don’t materialize overnight the way they did with Lehman Brothers, an American financial services firm that fell victim to the 2008 financial crisis and filed for bankruptcy that year (2). Instead, losses gradually surface and erode returns, hitting pension funds, insurers and retirement accounts slowly, over months or years.
The problem now is who’s holding the bag. In fact, Blankfein specifically called out Wall Street firms for pushing private credit toward everyday investors at exactly the wrong moment.