A former CEO of Goldman Sachs, who steered the Wall Street giant through the 2008 financial crisis, has issued a warning about the opaque and leveraged nature of private credit, joining a chorus of veteran analysts expressing significant concerns at a pivotal moment for the industry. The former Goldman Sachs CEO cautioned that hidden risks within the private credit market could plunge the U.S. into another financial crisis, drawing parallels between the current $1.8 trillion private credit market and the subprime mortgage crisis that preceded the 2008 meltdown. He emphasized that concealed leverage and liquidity risks cannot be overlooked.
Recent weeks have brought a series of negative developments in the U.S. private credit sector. Blue Owl restricted redemptions from its retail credit fund and began disposing of assets, fueling broader industry worries about valuation transparency and liquidity pressures. Simultaneously, fears are growing that artificial intelligence could disrupt the software industry’s balance sheets, potentially undermining the quality of private credit assets tied to the sector—a phenomenon some are calling the "AI disrupts everything" panic.
Data further underscores the strain. Fitch reported in late February that the U.S. private credit default rate climbed to 5.8% by January 2026, while Morningstar DBRS maintained a negative outlook on the industry. In essence, the recent wave of bad news stems from simultaneous pressure on three fronts: liquidity, valuation, and exposure to certain vulnerable sectors.
"This feels like one of those moments again," remarked Lloyd Blankfein, former CEO of Goldman Sachs, in a discussion with Citadel co-CIO Pablo Salame, referring to the global financial crisis. "I don’t sense a superstorm, but the horses in the barn are getting restless," Blankfein added. Blankfein led the Wall Street titan from 2006 to 2018.
A number of seasoned Wall Street figures have recently voiced unease over risky lending and hidden leverage in private credit. Late last year, two companies linked to private credit abruptly declared bankruptcy, forcing several Wall Street commercial banks to report substantial write-downs and amplifying concerns that serious issues in the sector could spill over into global financial markets. The mortgage market’s collapse had previously triggered a financial crisis that sent global stock markets plunging and pushed the U.S. economy into its worst recession since the Great Depression. Some Wall Street bankers now worry that the private credit market, comparable in size to the subprime market in 2008, could pose a similar risk of rapid contagion.
**Dimon’s Cockroach Theory**
Some industry leaders have publicly expressed their concerns. JPMorgan Chase CEO Jamie Dimon warned last year that after several private credit-related bankruptcies, spotting one "cockroach" often suggests more are lurking unseen. Late last month, Dimon noted that some top experts in the financial industry are "doing some stupid things," reminiscent of the years leading up to 2008. Blankfein echoed Dimon in a recent interview, cautioning against reckless behavior in the sector. "The market has been very good for a very long time," he said on The Big Take podcast. "When everything is good, when there’s no cost, no adverse consequences, you lose discipline gradually."
He warned that financial risks are mounting rapidly as Wall Street banks and the Trump administration push to open private markets to ordinary Americans. Proponents argue that allowing private equity into 401(k) plans could boost retirement account returns and help savers achieve a more comfortable retirement. Opponents, however, warn that private assets’ illiquidity, opacity, and complexity make them unsuitable for most investors, and including them in 401(k) plans could expose retirement savers to disproportionate risks.
Blankfein commented, "I would say the consequences of getting it wrong, or having a major problem in retirees’ accounts—that is, average people, taxpayers, voters—are more severe than credit losses affecting the portfolios of sophisticated institutional investors and wealthy high-net-worth accredited investors."
More recently, worries about private credit have converged with another hot-button issue: artificial intelligence. Software stocks have faced unusual pressure this year amid growing fears that AI could disrupt entire industries. This has intensified valuation stress on the long-standing alliance between private credit and software companies, with private asset managers like Blackstone, KKR, and Blue Owl Capital holding significant exposure to software firms.
**Private Credit Market Jolted by Shockwaves**
Some investors are now rushing for the exits, raising liquidity concerns. Last month, Blue Owl limited investors’ ability to withdraw from its private credit fund. Earlier this week, Blackstone allowed investors to redeem only about 8% of its flagship private credit fund. The firm and its employees reportedly committed around $400 million of their own capital to meet $3.8 billion in redemption requests.
On Thursday, reports indicated that BlackRock, the world’s largest asset manager, marked down the value of a private loan from 100% of face value to zero—just three months after it was valued at par. This marks the second recent instance of a sudden write-down to zero within BlackRock’s private credit division. According to a Q4 filing from BlackRock’s TCP Capital Corp., a roughly $25 million loan to Infinite Commerce Holdings—an "Amazon aggregator" that acquires online sellers offering products from spa items to light bulbs—is now worthless. The subordinated debt had been valued at 100% of face value as recently as Q3 last year.
These moves have heightened market anxiety over defaults and underwriting standards in the $1.8 trillion private credit market. The industry’s heavy bets on software companies now threatened by AI have triggered unprecedented redemption requests from nervous investors.
Over the past decade, the global private credit industry expanded rapidly to around $2 trillion in assets but now faces multiple challenges: inflated valuations and lack of transparency have drawn skepticism; unconventional measures by firms like Blue Owl, such as using "payment-in-kind" commitments in lieu of client redemptions, have deepened a crisis of confidence; and last year’s concentrated bankruptcies among U.S. auto parts suppliers and subprime auto lenders revealed significant exposures for some participants.
Blackstone President Jon Gray suggested in a Tuesday interview that the withdrawal trend stems from a "recurring news cycle" making investors anxious. "There’s a disconnect right now between what’s actually happening in the underlying portfolio and what’s happening in the news cycle," he stated. Gray added that institutional investors continue to allocate substantial resources to private credit and emphasized that companies within its loan portfolio remain fundamentally strong.
He acknowledged that not every loan will succeed and that non-investment-grade credit carries inherent risks. "But the overall low-leveraged nature and substantive performance of these loans are what will stand the test of time," he concluded.
From a market behavior and structural stress perspective, several large private credit funds have shown signs of redemption limits, cash flow strain, and asset sales. For instance, Blue Owl Capital permanently restricted redemptions for certain funds and sold assets to repay investors, raising concerns over liquidity mismatches and valuation transparency. These actions have weighed on the share prices of related asset managers, indicating heightened market sensitivity to structural risks.
Recent liquidity issues, redemption pressures, and underperformance of loans exposed to high-leverage sectors like software have become focal points for the market. From a systemic risk standpoint, although these developments have prompted warnings from regulators, investors, and experts, they do not necessarily signal a full-scale financial collapse akin to 2008. Unlike the complex derivative crisis triggered by subprime mortgages, current problems are more localized around liquidity, opaque valuations, and leverage buildup in the private credit market. While the sector is sizable (approximately $1.8 trillion), its interconnectedness with the global banking system and complexity of interwoven derivatives are not comparable to the pre-2008 environment. Most analysts believe that any risk spread would likely occur through widening credit spreads, repricing of risk assets, and stress events affecting specific assets or funds—rather than through a system-wide meltdown.
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