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It's not just an AI bubble, it's a systemic time bomb worse than 2008.
>*Dog shit wrapped in cat shit.*
If you're too dumb to read, feed these points into your favorite AI tool and ask it about the information's reliability. Then ask it how fucked retail is.
1. Increasing amount of companies are taking on private credit, up from $500B in 2020 to $2+ *trillion* in 2026, expected to grow past $4 trillion by 2030. For comparison, the 2008 subprime loans were estimated around $2 trillion.
2. This private credit market (unironically called *"shadow banking"*) relies almost entirely on Level 3 assets. This means unregulated, often unreported credit that's being valued using the funds' own internal models ("*mark-to-model*") rather than real-time market prices (*"mark-to-market*"). Basically, their analysts decide the price and tell the buyer to trust them.
3. Huge portion of these loans were written in 2021-2022 during low interest rates, and are now becoming mature in 2027-2029. We're talking over half a *trillion* in leveraged private debt scheduled to mature in 2028 alone. Many loans written to SaaS companies that are now being driven underwater by AI.
4. It has been labeled *"The Maturity Wall"*. If the rates stay high, many borrowers won't be able to refinance, leading to defaults or fire sales.
5. And Fed just cancelled rate cuts, now estimating rate hikes for the end of the year. Meaning the companies will be even less capable of making the interest payments.
6. The IMF estimates that roughly 40% of private credit borrowers operate with **negative free cash flow**, up from 25% in 2021.
7. And while the reported default rate of this private credit is currently sitting at just 1.5-2%, **the real private credit default rate is estimated at 5-6% and increasing**.
8. Why don't the reported and the actual numbers match? Because private credit lenders are offering *Payment-in-Kinds* (PIKs) to avoid defaulting the loans, allowing the borrowers to skip the interest payment in favor of increasing the debt. They're literally kicking the can on loans that aren't being paid.
9. Payment-in-Kinds usage more than doubled from 5% to 11% by late 2025. Out of the 5-6% default rate, estimated 50% is driven by PIKs and interest deferrals.
10. However, private credit funds have Payment-in-Kind exposure limits, mandated by the big commercial banks that they loan from. To circumvent these limits and maintain access to bank leverage, *synthetic PIKs* were invented to hide PIKs from the books.
11. When a borrower fails to pay the interest, they use a secondary *delayed-draw term loan* (DDTL) to pay the interest. Technically the first loan is getting cash interest payments, at the cost of a new, bigger loan. It's the private credit equivalent of paying off your credit card debt with another credit card. They invented a new instrument to hide the fact that interest payments are being missed and that these loans are growing into dog shit so that they could leverage more.
12. Furthermore, these private loans are increasingly being packaged into *Private Credit CLOs* (Collateralized Loan Obligations). The idea is simple; while any one loan might be risky on its own, bundling a bunch of them together reduces the risk. Just like index funds, for example. And similar to Mortgage Backed Securities. What could possibly go wrong?
13. Due to the private nature of these private loans, nobody knows the true health of what's really being packaged into the AA and AAA CLOs. We know synthetic PIKs exist and are being used to some extent, but we don't know the full exposure.
14. Who buys these Private Credit CLOs? Mainly pension funds and insurance companies, sometimes retail directly. They commit capital through third-party fund managers like Ares, Blackstone, and Blue Owl, or through *Business Development Companies* (BDCs).
15. The SEC is busy ensuring that the big banks aren't secretly leveraged on this. They literally know shit is about to go down, and are only protecting the big money. Retail will hold the bags.
16. Worse yet, most of the underlying credit loans mature in 5-7 *years*, yet the investors in CLOs are allowed to cash out every quarter. This means the asset managers will have to freeze withdrawals altogether to tackle the illiquidity, meaning that retail won't be able to cash out as the defaults keep happening.
17. And **this has already begun**, with numerous asset managers already freezing withdrawals. Stone Ridge fulfilled only 11% of withdrawals earlier this year, Blackstone raised affiliate capital to meet the withdrawals, and Blue Owl froze all withdrawals indefinitely.
TL;DR: They're wrapping dog shit in cat shit as we speak, valuating it themselves as AAA packages with the help of PIKs, and selling those CLOs to pension funds and retail. The assets will be frozen due to liquidity mismatch, and it will be 2008 again but this time unwinding over multiple years of slow-burning crisis. The opacity is even worse, the leverage is hidden, and the buyers are retail. Add in a bit of an AI bubble with increasing rate hikes, and we got the dot-com bubble and the 2008 crisis combined into one bomb from 2027 onward.
**Edit:** And it's not AI you dumb fucks, just because someone can write one page worth of bullet points doesn't mean they're AI. It is inspired by Tom Bilyeu's video though, I highly recommend you watch that rather than comment whatever dumb shit you were going to comment.