They Rebuilt the 2008 Crash Machine — And Put It In Your Retirement Account

In 2008, the American financial system didn't just crash, it almost ceased to exist. And a similar danger is building in the system once again. 12 of the 13 largest financial institutions in the United States were at risk of total failure. That was exactly what the Federal Reserve Chairman Ben Bernanke told the Financial Crisis Inquiry Commission. 12 out of 13. The United Kingdom's Chancellor of the Exchequer admitted Britain came within hours of what he called a breakdown of law and order. American households alone lost $16 trillion in net worth. One quarter of all families lost 75% [music] or more of everything that they had. The stock market fell by 57%. 7 and 1/2 million jobs vanished essentially overnight. And the Federal Reserve, in a move that had no precedent in the history of this country, printed 7.77 trillion dollars out of thin air to keep the system from collapsing entirely. Every single American lost an estimated $70,000 in lifetime income because of what happened. And for all of that, all of the destruction, all of the fraud, all of the recklessness, exactly one banker went to jail. One. A mid-level trader at Credit Suisse. 30 months. That was the price. Now, I'm telling you all of this because the mechanics that caused 2008 are running again. And this time, odds are it's already inside of your retirement account. I'll prove it. And more importantly, I'm going to give you the framework that may help you avoid the fallout if the market, as a whole, is indeed at risk from this potential new contagion that we're going to walk through. Buckle up because here's what this video is going to show you. Wall Street has built [music] a two trillion-dollar shadow banking system that operates in dark with no public pricing, no public reporting, and no public oversight. It is a sector of the economy known as private credit and there are now significant warning signs that it has a major issue. One of BlackRock's private credit funds recently lost nearly 20% of its value in a single quarter. We're not talking about a small obscure company here. We are talking about a load-bearing wall of the global economy and if they're already taking a hit, it stands to reason that there's something much bigger going on. And in fact, we already have proof that there is. Recently, a firm most Americans have never even heard of, Blue Owl Capital, permanently locked investors out of a fund that was supposed to let them withdraw their money every quarter. Instead, after getting overextended on debt, they were forced to sell 1.4 billion dollar in loans, halt all redemptions, and tell investors they'd get their money back eventually. The stock dropped 9% instantly and one analyst called it, and I quote, "a canary in the coal mine" and said the private markets bubble is finally starting to burst. Finally starting to burst? How long has this problem been building up? Most people have never even heard of private credit. And even if they have heard of it, they probably couldn't explain it and this is exactly like mortgage-backed securities and subprime mortgages right before everything blew up in 2008. There was a ton of risk in the system that most people were completely unaware of, but that didn't stop it from becoming a major threat to the economy. 15 years ago, the private credit market barely existed, but now it's roughly the same size as the entire high-yield bond market. Whether people know what it is or not, pension funds have 5% to 15% of their assets in private credit. Now, this isn't a story about one fund blowing up. This is a story about a predatory pattern that keeps repeating. In 2008, the vehicle was mortgage-backed securities, and in 2026, the vehicle is private credit. Risky assets get created by sophisticated financial players, repackaged under a new name, blessed by rating agencies, and sold downstream to the people least equipped to survive it if something goes wrong. Pension funds, retirement funds, and everyday investors who were told this was safe, stable income. I'm going to walk you through exactly how it works, why it's breaking right now, and what it reveals about a much bigger pattern that's playing out across the entire economy. The US private credit market has exploded from $500 billion to over $2 trillion in just 5 years. Pension funds have billions parked in it, and last August, the government opened the door to putting your 401k money into it. Most people have never even heard the term private credit, and that's exactly how Wall Street wants it. But, here's the bad news. Goldman Sachs published data showing that 15% of private credit borrowers are no longer generating enough cash to cover their interest payments. One in six across the board. And that number is almost certainly understating the problem because the IMF's own financial stability report found that over 40% of private credit borrowers are now operating >> [music] >> with negative free cash flow. That's up from 25% in 2021. For all of the hype in the economy about it booming, the reality on the ground is that things are trending rapidly [music] in the wrong direction. So, what happens when a borrower can't make their interest payment? In a normal market, that's obviously a default. It is game over. But in the private credit market, there's a trick. The lender lets the borrower skip the cash payment and instead tack the interest onto the loan balance. It's something called payment in kind or PIK. The borrower doesn't pay. The lender doesn't report a loss. Everyone's numbers look clean. That's why the official default rate in private credit is reported at under 2%, but once you account for these restructurings and cute little extensions, analysts estimate the real number is more than double that at closer to 5%. The gap between those two numbers is where this escalating risk is hiding. Jamie Dimon, CEO of JPMorgan Chase, the largest bank in the United States, didn't mince words on his October earnings call when he compared the problems building in private credit to cockroaches. His meaning was plain. When you see one, there are always more hiding in the walls. Now, how did we end up back here? After the 2008 financial crisis, regulators told banks never again. They imposed strict new rules known as Basel III that essentially forced banks to stop making these risky ass loans. Problem solved, right? Not even close. The risky lending didn't stop. It just moved somewhere the regulators couldn't see it. The goal of Basel III was to make it expensive and difficult for banks to lend to mid-size companies. The businesses too big for a local bank, but too small to issue public bonds. Private credit funds stepped in to fill that gap. They raise money from big investors, pension funds, insurance companies, wealthy individuals. They then pool it and lend it out to these companies at higher interest rates than banks would charge. For a while, this worked great. Companies got funding, investors got high yields, and because the loans were held by sophisticated institutional players with long time horizons, the illiquidity wasn't actually a problem. It went wrong when three things happened together. One, the market exploded in size, the aforementioned 500 billion to 2 trillion plus in just 5 years. With that much money pouring in, lending standards just dropped. Also, lenders have to put the money raised to work. They have that obligation, but they quickly ran out of good borrowers and just started lending to riskier ones. Remember the ultra-toxic subprime mortgages that almost destroyed the global economy? That's exactly what subprime meant. It's a nice way of saying people banks really should never have lent money to. Two, they started selling these loans to retail investors through semi-liquid funds like Blue Owl's OBDC II. Here's the problem. The underlying loans are typically 5 to 7-year commitments to private companies borrowing the money, and you can't cash them out overnight to pay back impatient investors. There's just no exchange. There's no market maker. And foolishly, the funds that hold these loans ended up promising investors they could withdraw their money every quarter. How is that supposed to work? You have long duration loans, illiquid assets, stuffed inside of a vehicle that promises short-term access to cash. How? That might work fine when everyone is calm and only a few people request to get their money back. It falls apart though the second people want their money back all at the same time. Why? Because the fund has to sell assets that were never designed to be sold quickly. >> [music] >> Now, that's the same mechanic as a bank run. Except there's no FDIC insurance backing it up. The third converging problem is that the government opened the door to 401ks to hold these assets. In August of 2025, an executive order directed regulators to explore letting 401k plans invest in private markets. The industry is already marketing to the $13 trillion defined contribution retirement market. So, the risk waterfall is just being extended further and further downstream. Now, I want you to see the full chain of cause and effect here because when you see it laid out end to end, you will understand why the people at the top of this system sleep fine at night and why the people at the bottom should be worried, but don't even know what's happening. It all starts with private equity. Let's say a private equity firm wants to buy a company. They need debt to finance the deal, and before 2008, they just go to a bank. But, the banks got regulated out of that business. So, now they go to a private credit fund. The private credit fund writes the loan, but it doesn't use its own money. It has to raise capital from somewhere. So, it goes to pension funds, insurance companies, endowments, and sovereign wealth funds. That's the traditional investor base. It's sophisticated. They have long time horizons. They understand what they're actually buying. But, that wasn't enough capital to feed a market that was growing this fast. So, the funds created a new product, semi-liquid vehicles marketed directly to retail investors. Everyday people with 401ks looking for yield in a world where savings accounts were just paying nothing. These are the funds like Blue Owl, the ones that promise quarterly access to your money while holding loans that don't mature for 5 to 7 years. And now, with last August executive order, the door is just wide open for people with 401ks to get involved in this asset class. $13 trillion in defined contribution retirement savings, the single largest pool of retail money in the world [music] is being invited to the table. So, follow the chain. A private equity firm loads debt onto a company. A private credit fund writes that loan and packages it. The fund sells shares to a pension fund who sells retirement promises to a teacher in Ohio or an insurance company who backs the annuity your parents are living on. Or now, potentially, directly into your 401k. The company at the bottom of that chain, the one that actually has to generate the cash to service the debt that the private markets are cramming on top of it, might be a mid-market software firm that's about to get disrupted by AI or an auto parts supplier running on razor-thin margins [music] or a healthcare company that's been acquired three times in five years and is carrying more debt than revenue. This is happening more and more frequently. If that company can't pay, the loss doesn't stay at the top. It waterfalls down through the fund, through the pension, into the retirement account of someone who was never told this is what they owned. I call this the risk waterfall. Risk doesn't disappear. It just flows downhill. And in this system, it always ends up in the same place with the people who have the least information and the fewest options to get out of the way. We'll be back to the [music] show in a second. But first, let's talk about lazy money. 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And [music] now, let's get back to the show. In the last quarter alone, private credit investors have requested $2.77 billion in withdrawals. That's a 200% increase from the prior quarter. When that many people want out at the same time and the underlying assets can't be sold quickly, you have a structural problem that no press release can fix. So, that's the machine that's siphoning wealth out of the working and middle classes and shoving it up to the top. Now, let me explain the environment this machine is operating in so you understand why things are suddenly accelerating, why there is so much risk. The global economy has been completely destabilized by COVID-era money printing, insane levels of deficit spending, a rapidly changing geopolitical world order, and the dawn of AI. There are bubbles forming across multiple asset classes at the same time. AI valuations have blown past historical benchmarks. Companies with minimal revenue are being priced like they've already won the AI race. Some of that is genuine belief in a technology that really is going to pay off. Some of it is just an ocean of capital swollen by years of artificially low interest rates and historic levels of money printing. So, smart money right now knows that it must find a return somewhere that outpaces the 25% inflation of the last 5 years alone. Meanwhile, people like Warren Buffett, the most famous long-term value investor alive, realizes the market is not in a healthy place and has been pulling out of the stock market and is sitting on the largest cash reserve in Berkshire Hathaway's history. Gold has blown past $5,000 an ounce, a record high, and it's not a sign of confidence in the market. >> [music] >> Gold surges when serious money is looking for shelter from massive uncertainty. Crypto's also pulled sharply back from its highs. Consumer spending patterns have gotten dangerous due to the severe effects of a radically K-shaped economy. The wealthier are still spending and they're masking the fact that middle- and working-class Americans are pulling back hard. And all of this is happening inside of a geopolitical environment that is blowing apart in real time. Trade wars, tariff escalations, invasions, military strikes, deposed regimes, a serious global contest over the future of the dollar as the world's reserve currency. The entire architecture of the post-war economic order is under pressure from every direction all at once. And layered on top of it is the arrival of AI, which is disrupting job markets, rewriting business models, and creating a level of uncertainty in the workforce that we haven't seen in at least a generation. You put all of that together, and what you get is a market environment that has become incredibly skittish, fragile, and reactive. The kind of environment where bad news travels fast and a contagion spreads even faster. And that instability is putting direct pressure on exactly the kinds of companies that have borrowed heavily through the private credit market. Mid-size firms running on tight margins in an economy that is squeezing them from every direction. The question is, how far down is the economy going to go? Will the pressure dismantle the private credit markets entirely? And is private credit now big enough that its failure could trigger a global event like 2008? Let's look at the visible cracks that are erupting as we speak. Last September, a company called First Brands Group, a major auto parts supplier backed by private credit, filed for Chapter 11 bankruptcy. Creditors alleged the company had borrowed against the same invoices multiple times, using what court filings described as off-balance sheet financing to hide how leveraged it actually was. The Department of Justice opened a criminal investigation. Total unpaid loans were up to $2.3 billion. dollars. later, Tricolor Holdings, a subprime auto lender, also funded through private credit, collapsed. Regulators had previously cited them for selling cars they didn't even have the titles to and lending to borrowers without credit scores or even a driver's license. JP Morgan wrote off 170 million dollars on that one. Barclays lost 147 million and Fifth Third Bank, one of the largest banks in the Midwest, lost 178 million. These are big companies funded by private credit loans that all blew up in the span of just a few weeks. And every one of those losses landed on the balance sheets of institutions that millions of Americans depend on. US banks have lent 300 billion dollars directly to private credit providers. That's Moody's data. The same banks that hold your deposits, that back your mortgage, that underwrite the bonds in your index fund, they've all lent money into private credit and are subject [music] to whatever is about to happen to that industry as the structural fragility collides headlong with an unstable economy. To put it bluntly, this exposure means that stress in private credit will not stay limited to private credit. If defaults rise and fund values drop, the banks that lent those funds take losses. If pension funds face capital calls on their private credit commitments during a downturn, they may be forced to sell their liquid holdings, stocks, bonds, the stuff in your brokerage account, to meet those obligations. Private credit stress >> [music] >> becomes public market stress. Your 401k doesn't need to hold a single private credit loan for you to potentially get hit. The Financial Stability Oversight Council has explicitly warned that a sustained increase in private credit defaults could create financial instability through the entire system. Roughly 12% of Blue Owl's OBDC2 portfolio was invested in software companies. Across the private credit market, software and SaaS businesses were some of the most popular borrowers over the past 5 years. The thesis was pretty simple. Recurring revenue, high margins, predictable cash flow, great collateral. But that thesis was built before AI started devouring the economics of enterprise software as a category. If AI disrupts the business models these loans were unwritten against, and there are serious reasons to believe it will, then the collateral underneath billions of dollars in private credit loans is worth less than the day the loans were made. That's a slow-burning fuse on top of everything else we've just walked through. Now, I'm not saying this is guaranteed to be 2008 all over again. No one can see the future that clearly. But what I am telling you is that the mechanic is identical to what happened in 2008. Opacity, you can't see what's going on. Misaligned incentives, risk created at the top flowing downhill to the people least equipped to understand it, and a backstop of government printing if everything goes pear-shaped. In 2008, the vehicle was mortgage-backed securities. Today, the vehicle is private credit. The question is not whether the mechanic is the same, it is. The question is whether the private credit market is big enough to blow up the entire economy. And that's a big bet to make. Here's what would need to happen for this to become a systemic event. A recession hits and triggers a wave of defaults among private credit borrowers. Companies that are already struggling to cover their interest payments. Funds facing a surge in redemption requests are forced to sell loans at steep discounts, not at the 99 cents in the dollar that Blue Owl just managed, [music] but at 70 or 80 cents on the dollar. Fire sale prices. Pension funds and insurance companies hit with capital calls they didn't expect are forced to liquidate their public market holdings to raise cash. Stocks and bonds get sold, not because anything is wrong with those companies, but because the money is just needed somewhere else. Banks that lent $300 billion to private credit funds start pulling their credit lines to protect themselves, which accelerates the very stress they're trying to avoid, and the selling feeds on itself. Public markets drop, consumer confidence drops, lending tightens, the economy slows, and the borrowers who are already struggling now have even less revenue to service their debt. None of these steps are guaranteed, but every single one of them is plausible, bordering on likely, >> [music] >> and the system is now structured in a way where each one makes the next one more likely. That's exactly how 2008 unfolded. Whether by conspiracy or simple incentive structures, we find ourselves in the middle of something I'm calling the invisible coup that by design or accident is siphoning the wealth out of the middle and working classes and funneling it up to the wealthy. Everybody can feel it, you can see it, it is patently obvious. It all happens via a very simple set of mechanisms, and the current structure of the private credit market is just the latest tool facilitating this wealth transfer that you need to protect yourself against. Here's how the coup is playing out. The setup of our current economic system uses central banking and modern monetary theory, aka debt, deficits, money printing, and inflation to push risk, cost, and vulnerability away from the banks who will be backed up by money printing, and they shove it onto anyone who holds a fiat currency like the dollar. Then the system insulates the banks from the downside of these risks by classifying them as too big to fail. This designation acts like an insurance backstop [music] paid for via money printing which causes inflation. The one thing that the average person does not understand well enough to revolt against allowing inflation to function as a hidden tax on the working and middle classes. Anyone who understands this structure, which can effectively be rounded to the wealthy, knows to put essentially their money into assets to not only avoid the hidden tax of inflation, but to benefit from it. That's the game. And private credit is just the most recent method of displacing risk across as many taxpayers as possible while concentrating the wins, if there are any, at the top. Heads they win, tails you lose. Now, the question becomes, what do you do about it? Obviously, master the rules of the game, even if the game is rigged. I've talked about that many, many times. Next, remember this is about more than just portfolio management. The people who get crushed by these systems aren't the ones who pick the wrong fund. They're the ones who never learned to trace the chain of cause and effect that makes the entire world go round. Think about the chain of logic we just walked through with private debt. We started with a company most people have never heard of, Blue Owl, locking investors out of a fund. And from that single data point, we traced a chain that runs through private equity, through private credit, through pension funds, through insurance companies, through the banking system, through the executive branch, and into your retirement account. Every link is knowable because they're all causal links. That's the skill. Not picking better investments, learning to trace chains of logic and cause and effect. Learn to maintain your sovereignty by learning to ask, who created this risk? Who packaged it? Who sold it? And who's left holding it right now? Because if you can answer those four questions, and you know who's going to be protected by inflation, money printing, and debt, you will know which financial product, policy, or headline is going to potentially hurt or help you. You will see the waterfall of risk before you're standing at the bottom of it. That is what separated the people who saw 2008 coming from the people who got buried by it. It wasn't insider information. It wasn't luck. People like Michael Burry read the loan documents. They traced the chain from the homeowner who couldn't afford the mortgage, through the bank that didn't care because the government was backing the loans, through the rating agency that rubber-stamped it, to the pension fund that bought it. They saw the waterfall. And while people were being assured that the system was sound, people who understood the causal chain bet against it and won. Your goal is to master that same framework, not necessarily the trading expertise, the mental model. You need to know what a risk waterfall looks like. You need to know how payment in kind adds risk and hides distress. And when you know how liquidity promises are dangerous when you have a duration mismatch between the loaners and the lenders, and when you know how interconnection turns a private credit problem into a public market problem, you're in a much better position. Mastering things like that is the difference between being manipulated by a system and at least maintaining some level of coherent optionality while others are just led to slaughter. As you think through all of this stuff, pull up your retirement account, your 401k, your IRA, your pension summary, whatever you have, and don't just look at the balance. Look at the holdings. Look at what's inside the funds you own and ask yourself, can I trace the sequence of cause and effect as to why these are or are not reasonable positions to hold? You'll never be able to drive risk to zero. The markets are best understood as a casino for a reason, but you can certainly improve your odds of success and avoid the obvious traps that virtually everyone else will get sucked into. That's sovereignty, not a bunker in Hawaii, a bug out bag, a gun, or a bunch of water. Sovereignty is the ability to see the system clearly enough to make your own decisions instead of being funneled blindly [music] into someone else's and it's built on the back of first principles thinking. All right, if you want to see me explore ideas like this in real time, be sure to hit the subscribe button and join me live Monday, Wednesdays, and Fridays at 7:00 a.m. Pacific Time. You can either debate people in the comments or just sit back and enjoy as we go through the most important topics of our time. All right, until next time my friends, be legendary. Take care. Peace. If you like this conversation, check out this episode to learn more. The price of Bitcoin was being manipulated by the same company that trained convicted felon Sam Bankman-Fried of FTX fame. At least that's the claim in a recent lawsuit. Now, as we go through the