Private Credit's Fraud Problem Is Bigger Than Anyone Admitted
- A credit bubble built on the fiction of high-return, low-risk private lending is beginning to crack — with fraud and zero due diligence at its core.
- Specific failures like Tricolor and First Brands are the early cockroaches; more are coming as collateral that was never verified gets tested.
- This isn't 2008, but it doesn't have to be to cause serious damage — especially layered on top of an already fragile real economy.
Somebody convinced the entire private credit industry that risk had been engineered out of lending. Nobody checked.
Jeff Snider laid out the mechanics on What Bitcoin Did. After 2008, shadow banks — unregulated, non-bank lenders — filled the void that regulated banks left behind. They took on riskier borrowers, got their funding from the banks themselves, and grew "nuclear" between 2021 and 2022. The pitch was irresistible: high returns, low risk. The industry believed it collectively, which is exactly when the alarm bells should have been loudest.
The belief became self-reinforcing. If everyone in the chain assumed the collateral was sound, nobody had to verify it. Lenders didn't underwrite. Investors didn't audit. The underlying assets — whatever they were — were taken on faith.
That faith is now breaking. Snider points to Tricolor and First Brands as the first cockroaches: failures that exposed not just bad loans, but fraud and collateral that had never been verified by anyone. The pattern is familiar from every prior bubble — same human behavior, different wrapper. When confidence cracks in a chain built on assumed safety, the unwind doesn't happen gradually. It happens in sequence: forced selling, then distressed selling, then fire selling.
Snider stops short of calling this a 2008 replay or a 1930s event. The underlying assets are different; the structural exposure isn't the same. But the damage doesn't need to be existential to be serious. Private credit sits close enough to leveraged loans and high-yield corporate debt that the spillover is a matter of when, not if — and it lands on a real economy that's already struggling to absorb shocks.
The fatal conceit of every debt bubble is the same: that this time, someone figured out how to get something for nothing.
Jeff Snider, What Bitcoin Did:
- Everyone in the space convinced themselves they could generate high levels of return that were essentially risk-free, which whenever you hear that, alarm bells should be ringing because there's no such thing in finance.
- There's no such thing as high rates of return with low risk. It's high rates of return with what are perceived to be low risk until they're not actually low risk.