Remember 2007? Yeah, that year when everyone thought housing prices only went up and Bear Stearns was still a thing. Well, Mohamed El-Erian—the guy who used to run PIMCO and has a habit of being annoyingly right about financial disasters—thinks he’s seeing some familiar warning signs. This time, it’s all about private credit.
Here’s what happened: Blue Owl Capital, one of the big players in private credit, just permanently froze withdrawals on one of their funds that regular people could invest in. Think of it like a bank suddenly saying “Sorry, you can’t get your money back. Ever.” Not exactly the kind of customer service that builds confidence.
El-Erian is getting major déjà vu vibes. Back in August 2007, BNP Paribas froze three of their funds because they couldn’t figure out what their assets were actually worth. Spoiler alert: that was basically the opening act for the 2008 financial crisis. Lehman Brothers collapsed about a year later, and we all learned new phrases like “too big to fail” and “quantitative easing.”
So what’s the deal with private credit? Think of it as lending money, but instead of going through traditional banks, you’re dealing with private firms that don’t have to tell anyone what they’re doing. It’s like the speakeasy version of finance—exclusive, less regulated, and potentially more dangerous.
The numbers are pretty wild: private credit assets have ballooned to $2.2 trillion last year, up 86% from five years ago. That’s a lot of money flowing into investments that are basically the financial equivalent of a black box. You can’t easily sell them, the companies don’t have to publish their financials, and good luck figuring out what they’re actually worth on any given day.
El-Erian thinks this whole private credit boom has “gone too far overall.” He’s worried about what economists call the “market for lemons” problem—basically, when you can’t tell the good stuff from the garbage, everything gets priced like garbage, and the good players leave the game.
He’s not the only one sounding the alarm. Jamie Dimon from JPMorgan famously said there are probably more “cockroaches” lurking in private credit after a couple of high-profile blowups last year. And Lloyd Blankfein, who steered Goldman Sachs through the last financial crisis, thinks credit markets could be where the next big economic problem starts.
Now, El-Erian isn’t saying we’re headed for another 2008-level meltdown. But he is saying there’s an “elephant in the room” when it comes to systemic risk, and some assets are probably due for a reality check on their valuations.
The takeaway? When the guy who called the last financial crisis starts making 2007 comparisons, it might be time to pay attention. Private credit has been the cool kid at the investment party for years, but every party eventually ends—and someone always has to clean up the mess.