Written by: Jeff Park

Translated by: Chopper, Foresight News

In the financial world, each generation invents a new tool that wraps the worst nature into seemingly prudent products.

The 1980s had junk bonds, dressed in the guise of "capital democratization"; the 1990s had emerging market debt, packaged as a noble cause to help developing countries integrate into the global economy; the 2000s had structured credit, so layered and complex that even the designers couldn't figure it out before it collapsed.

These "innovations" share a common trait: they create artificial solutions (like liquidity transformation) for real problems (like inadequate growth), ultimately leading to disaster due to rampant overproduction.

Private credit is the latest version of this story, and it may be the most insidious. Unlike its predecessors, it was designed from the start to make the reckoning before risk erupts completely invisible, and by the time it’s discovered, the consequences are irreversible.

Recently, BlackRock directly wrote down the face value of two private credit loans from 100% to 0% in one go, one of which only lasted less than a month. This doesn’t look like a technical misjudgment in valuation methods, but rather an admission of faulty incentive mechanisms.

How did we get here?

The crisis is not the root cause; it is the concealment of truth that created it

The mainstream narrative in the industry is: after the 2008 financial crisis, banks were constrained by Basel III and dared not lend, so non-bank institutions stepped in to fill the gap, serving small and medium-sized enterprises, which was the market's inevitable choice.

The more truthful situation is that the regulatory framework after 2008 did not truly eliminate risks but actively gave birth to a shadow system that bore the same underlying risks while evading the regulations originally intended to contain them.

The private credit market has grown from $46 billion in 2000 to about $2 trillion today. This money did not appear out of thin air nor did it flow to pension funds and insurance companies by chance. It has been precisely routed to those institutions with substantial capital, able to lock in for the long term, and willing to accept opaque valuations.

Its structure is eerily similar to that at the outbreak of the 2008 financial crisis, with only one significant difference. In 2008, the losses from the subprime mortgage collapse were mainly borne by reckless borrowers and lending banks; whereas when private credit collapses, the losses have no boundaries, coming from life insurance policyholders and pension beneficiaries, which means ordinary people.

The kind of loss that outraged the public in 2008, which was socialized, at least had a prior phase of private profit. In the case of private credit: profits go into fund managers' pockets, while losses are socialized and flow into the pension accounts of teachers, nurses, and civil servants, who never agreed to underwrite this.

Worse yet, the industry is not satisfied with just harvesting institutions and is now targeting retail investors. Since 2025, private credit ETFs have gained popularity, but the problem has become even more severe: illiquid assets wrapped into ETFs do not become liquid. They merely transfer the "redeemable wave approaching but unable to sell assets" bomb from professional institutions to ordinary investors' securities accounts.

This is the reality that is happening.

Asset allocators who dislike Bitcoin expose everything

In the past few years, I have recommended Bitcoin to institutions everywhere and discovered a startling pattern: those who refuse Bitcoin often fervently embrace private credit. This isn’t just two different views on the question; it's the same mindset.

Their reasons for opposing Bitcoin sound very "prudent": too volatile, pullbacks are unexplainable, no cash flow means it can't be valued.

But the subtext is: Bitcoin's price is too honest. It is real-time public, visible to everyone; if wrong, it’s wrong, and can't be hidden.

Whereas private credit is the exact opposite:

• Valuations change very slowly, smoothed out quarterly by fund managers
• There is no liquid market to expose the lies
• Lock-in periods are long enough to allow those making decisions to be promoted, switch jobs, or retire

The so-called "exclusive project channels" are merely excuses for a lack of effective pricing competition.

True fiduciaries pursue the truth, while these allocators seek to avoid facing the truth. This is not risk management; it is the opposite of risk management, yet it wears a professional disguise, completely ignoring the interests of beneficiaries.

The AI craze makes it a systemic risk

Morgan Stanley estimates that from 2025 to 2028, global data centers will need $2.9 trillion in capital expenditures, with about $800 billion to be solved through private credit. This has already turned private credit from a lending market into a key infrastructure for the most significant technological transformation in the coming decades.

A typical case: In October 2025, Meta and Blue Owl completed $27 billion in data center financing, the largest private credit transaction ever. The funds came from PIMCO and BlackRock, ultimately from pension and insurance companies.

The cruel reality of this circular process is that the retirement funds of ordinary workers are used to fund automation and AI, which in turn replace the very jobs of the workers. Private credit distorts capital costs, reducing labor value. Now, nearly $50 billion in private credit flows into the AI sector each quarter.

The financialization of AI infrastructure, coupled with the replacement of the workers supporting it, forms a closed loop: the left hand cuts the right hand.

Liquidity transformation is stealing time

I am not saying that credit itself is guilty, 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 crucial difference is: who truly bears the losses?

• Banks bear bad debts on their own books, are regulated, and face run risk and equity wipe-out, with real financial risk;
• Private credit managers earn performance bonuses, incentivizing "encouraging you to bet" instead of "encouraging you to win responsibly."

By the time the loans reach zero, the managers have already made enough money.

Every instance of financial engineering ultimately points to one question: who will bear the unwanted costs?

The "cleverness" of private credit lies in how it answers this question in an incredibly "elegant" way:

Profits flow upward and backward: flowing to older, already retired beneficiaries of long-term capital

Costs flow downward and forward: suppressing wages, freezing hiring, delaying investments, distorting the entire economy’s capital cost

Private credit is stealing time.

This is the longstanding liquidity transformation in the financial sector, just stripped of its disguise.

They bear risks they shouldn’t have to assume at prices they can’t foresee, using tools they can’t choose.

Lock-in periods ensure they can’t exit, a lack of public valuation ensures they can’t protest, and the quarterly smoothing valuation mechanism ensures that when the final bill arrives, the responsible parties are nowhere to be found.

It looks like it’s not plundering but merely "stable returns," with both almost indistinguishable until the moment of collapse. Although this story has been ongoing for a long time, the novelty lies in its large scale, low transparency, and the astonishing success of this asset class built on a false sense of security, which has even convinced the most cautious capital managers in the world.

No asset class in the world can be valued at 100% for three consecutive months and then drop to zero overnight.

If this doesn't count as theft, then I truly do not know what would.