🦔Private credit is the $2 trillion world where investment firms, not banks, lend money to companies. They report a default rate near 2% and call it safe. I dug into that number, and I don't buy it. Apologies for the long post, but felt like this needed to be explained. My Take When a borrower can't pay, the lender often reworks the loan instead of admitting a default. The favorite trick lets the company stop paying cash interest and pile it onto the loan balance instead. The lender books that as income even though no money came in, so the loan looks fine while it grows in the background. This stressed kind of rework has tripled since 2021 to about 6% of these loans. Lincoln International, a firm that values a third of the market, calls that the shadow default rate, roughly three times the 2% everyone advertises. To put 6% in perspective, defaults hit around 10% in the 2008 crash, so we're already past halfway to that level, and regulators expect the number to keep climbing through the year. A big share of these loans went to software companies, and software is what AI is coming for. When OpenAI or Anthropic ships a model that does the job a mid-size software product used to do, that borrower's revenue is suddenly in doubt. JPMorgan saw it early and marked down its software private credit this year over AI disruption. So AI didn't create this debt, but for some of these borrowers it becomes the reason they never recover, and that turns the hidden losses into cash losses. And the same firms that paper over these old loans, Blackstone, Apollo, and the rest, are the ones arranging the giant AI financing deals I've written about. The Anthropic debt, the Broadcom guarantees, the Nvidia half-trillion. One balance sheet holds a stressed loan book and hundreds of billions in fresh AI risk at the same time, and all of it flows into the pension funds and insurers that hold regular people's money. I'm not calling a crash. I'm saying the same players are exposed to the old economy going bad and the new one never paying off, and the savers who never knew they were in either bet are the ones who would pay for both. Hedgie🤗