Private credit is lending outside the traditional banking system. It exploded because regulation crushed banks, and when you choke off lending inside the banking system, the market simply moves outside of it. Now the cracks are showing. MSCI reported that write-downs on senior loans inside private credit have tripled since 2022. The $3.4 trillion in loans is expected to grow to $4.9 trillion over the next three years.

The Financial Times reported that investors have pulled billions from the largest private credit funds recently, and a change in perception is precisely how events begin to unfold. Confidence turns, and people realize liquidity is not guaranteed, which can easily turn into panic. Lenders cannot sell if no one wants to buy, and borrowers cannot redeem funds that are tied up.