The Credit Strategist - December 2025 No paywall this month. An early holiday gift to my more than 10,000 readers. Thank you for supporting a publication that I started writing 25 years ago for investors in a fund I was managing at the time. You never know where life will take you but it's been a privilege to travel the road with all of you. Many more miles to go.
Despite not always agreeing with the hosts I learn a great deal about VC and technology from them. They also engage in open debate which is extremely important - they don’t agree with each other on many issues and don’t sugarcoat their differences. They also welcome guests of all points of view whether they agree with them or not which is to be praised. And most of all they have fun and entertain the audience. I’m all-in on All-In!
Outstanding synthesis of systemic fragility across sovereign and private credit markets. Your observation that pre-GFC financing structures have resurfaced in AI investment with even greater leverage captures something crucial that mainstream analysis is systematically underpricing. The circular financings and interlocking ownership patterns you identify mirror 2006-era CDO complexity, except now the opacity is amplified by private credit's illiquidity and the fact that hyperscalers are both borrowers and equity holders in the same structures. Jamie Dimon's pivot from crypto skeptic to issuer perfectly illustrates the moral hazard embedded in too-big-to-fail institutions, where speculative excess becomes rational once bailout expectations are priced in. The AI workforce displacement angle compounds this risk asymmetrically because corporate capex on LLMs could simultaenously destroy demand through job elimination while failing to deliver productivity gains, creating a feedback loop where debt service burdens rise against shrinking cash flows. What makes your framing especially prescient is recognizing that fiscal stimulus is masking structural fragilities rather than resolving them, meaning markets are mispricing both upside and downside tails for AI investments.
Thanks for the efforts put into this - I agree with a lot of your findings.
Especially those in private credit, the phony AI buildout (which will be physically impossible) and reckless spending metrics across the board. It's amazing to see a quasi-repeat of the "dot com" fiber buildout, but with metric tons more capital. "private credit" is the one that I feel has all the makings of the "next financial crisis" also thanks to the insanity of repacking them into asset bundles. To me it is insanity to repeat the same basic routine that led to the 2008 meltdown in a different form.
A default on a wider scale would likely again be needed to be "bailed out" (or else, they'd state "the financial system fails" as they did in 2008) - which would a lot of moral hazard into public finances... not sure the people this time would not fully question bailing out these reckless credit firms / banks etc.? Yes, sure, what can you do... but I think the system can't take another moral hazard heaped on top of the one we're still "digesting" back from 2008.
The likes of OWL are still shilled as "great investments", which makes me wonder how "deep" some of the comment on these companies really is.
Private credit firms are - like private equity firms - primarily asset gatherers that are more interested in increasing AUM than maximizing returns for investors. They earn so much from management fees that performance fees don’t matter like they did in the early days of the PE industry - and they won’t be earning significant performance fees as delayed exists and defaults eat away at returns. But my real problem with both types of firms is they pile on leverage on companies and in many instances (not all) then withdraw their own capital first (in the case of PE) leaving the companies shells of themselves. The lists of PE or PC-involved companies that default either during or after their involvement with these firms is unbelievably long. That is why the chapter in my book “The Committee to Destroy the World” and my earlier book “The Death of Capital” on PE is called “From Innovators to Undertakers” - PE and PC for the most part weakens company and shifts their wealth from the companies themselves to debt holders and PE sponsors which weakens the overall economy. Finally, the carried interest tax break given the GPs in PE funds is one of the worst public policy errors ever made - incentivizing financiers to destroy companies with debt is a perfect example of why our system is rigged and on the path to debt-financed destruction.
Great article. I was drawn to it by the title - a title I used a while back. https://open.substack.com/pub/creditgenius/p/eyes-wide-shut-we-are-the-product?r=4yl6kg&utm_campaign=post&utm_medium=web&showWelcomeOnShare=false
Didn’t expect you to be a fan of the All In Podcast
Despite not always agreeing with the hosts I learn a great deal about VC and technology from them. They also engage in open debate which is extremely important - they don’t agree with each other on many issues and don’t sugarcoat their differences. They also welcome guests of all points of view whether they agree with them or not which is to be praised. And most of all they have fun and entertain the audience. I’m all-in on All-In!
Outstanding synthesis of systemic fragility across sovereign and private credit markets. Your observation that pre-GFC financing structures have resurfaced in AI investment with even greater leverage captures something crucial that mainstream analysis is systematically underpricing. The circular financings and interlocking ownership patterns you identify mirror 2006-era CDO complexity, except now the opacity is amplified by private credit's illiquidity and the fact that hyperscalers are both borrowers and equity holders in the same structures. Jamie Dimon's pivot from crypto skeptic to issuer perfectly illustrates the moral hazard embedded in too-big-to-fail institutions, where speculative excess becomes rational once bailout expectations are priced in. The AI workforce displacement angle compounds this risk asymmetrically because corporate capex on LLMs could simultaenously destroy demand through job elimination while failing to deliver productivity gains, creating a feedback loop where debt service burdens rise against shrinking cash flows. What makes your framing especially prescient is recognizing that fiscal stimulus is masking structural fragilities rather than resolving them, meaning markets are mispricing both upside and downside tails for AI investments.
Thanks for the efforts put into this - I agree with a lot of your findings.
Especially those in private credit, the phony AI buildout (which will be physically impossible) and reckless spending metrics across the board. It's amazing to see a quasi-repeat of the "dot com" fiber buildout, but with metric tons more capital. "private credit" is the one that I feel has all the makings of the "next financial crisis" also thanks to the insanity of repacking them into asset bundles. To me it is insanity to repeat the same basic routine that led to the 2008 meltdown in a different form.
A default on a wider scale would likely again be needed to be "bailed out" (or else, they'd state "the financial system fails" as they did in 2008) - which would a lot of moral hazard into public finances... not sure the people this time would not fully question bailing out these reckless credit firms / banks etc.? Yes, sure, what can you do... but I think the system can't take another moral hazard heaped on top of the one we're still "digesting" back from 2008.
The likes of OWL are still shilled as "great investments", which makes me wonder how "deep" some of the comment on these companies really is.
Private credit firms are - like private equity firms - primarily asset gatherers that are more interested in increasing AUM than maximizing returns for investors. They earn so much from management fees that performance fees don’t matter like they did in the early days of the PE industry - and they won’t be earning significant performance fees as delayed exists and defaults eat away at returns. But my real problem with both types of firms is they pile on leverage on companies and in many instances (not all) then withdraw their own capital first (in the case of PE) leaving the companies shells of themselves. The lists of PE or PC-involved companies that default either during or after their involvement with these firms is unbelievably long. That is why the chapter in my book “The Committee to Destroy the World” and my earlier book “The Death of Capital” on PE is called “From Innovators to Undertakers” - PE and PC for the most part weakens company and shifts their wealth from the companies themselves to debt holders and PE sponsors which weakens the overall economy. Finally, the carried interest tax break given the GPs in PE funds is one of the worst public policy errors ever made - incentivizing financiers to destroy companies with debt is a perfect example of why our system is rigged and on the path to debt-financed destruction.