America’s private credit boom is turning into a game of musical chairs—and that’s a worry

Every financial crisis has a moment, usually identified only in retrospect, when an obscure product intended to mitigate risk spreads through what author Rick Bookstaber called “tightly coupled” interconnections to cause widespread damage. The first sign is lots of hard-to-understand stories that seem unrelated, except that they all involve a single sector.Think of all the stories in 2006 and early 2007 about subprime mortgages, underwriting fraud and various other technical-sounding events that seemed far removed from the real US economy and retail investors—until they weren’t.

Starting late last year and accelerating in 2026, private credit has been the subject of lots of stories [in the US] about complicated problems facing a sector that’s gone in short order from being largely invisible to managing more than $3 trillion and becoming a crucial lender to riskier businesses. We’re not seeing an abnormal number of defaults or missed payments, but this is due largely to the way these deals are structured.

The ‘shadow default rate’ in US private credit increased 150% between the final quarter of 2021 and the fourth quarter of 2025. More broadly, the extra yield the market demands to lend to risky borrowers is near historic lows, so this is not (or not yet) a problem for public bonds or bank loans to companies.The barrage of negative private-credit news may turn out to be a tempest in a teapot with temporary losses restricted to investors able to absorb them.

Or it could be the opening salvo in a financial crisis. It’s hard to tell now, when we’re at the beginning of a credit crunch which resembles a game of musical chairs.