Trillions of dollars in the market have Wall Street on edge! Goldman Sachs' legendary CEO warns: Private credit risks resemble those just before 2008

The Tong Finance APP has learned that the former CEO who led Wall Street giant Goldman Sachs through the darkest moments of the 2008 financial crisis is warning about private credit markets, which lack transparency and have hidden leverage. He has joined a group of seasoned Wall Street analysts expressing significant concern during this critical industry period. The former Goldman CEO stated that the hidden risks in the private credit market could trigger another financial crisis in the U.S. He compared the current approximately $1.8 trillion private credit market crisis to the signs and symptoms of the subprime mortgage crisis on the eve of the 2008 financial meltdown, emphasizing that implicit leverage and liquidity risks should not be ignored.

Recently, negative news about the U.S. private credit market has been frequent. Over the past few weeks, the market has seen retail credit funds under Blue Owl restrict redemptions and dispose of assets, with industry concerns about valuation transparency and liquidity pressures intensifying; at the same time, fears of AI disrupting software industry balance sheets, thereby dragging down related private credit assets, have been brewing under the panic of “AI overturning everything.” On the data front, Fitch disclosed at the end of February that the default rate for U.S. private credit rose to 5.8% in January 2026, while Morningstar DBRS maintained a negative outlook for the industry. In other words, the recent wave of bad news in the private credit market is driven by simultaneous pressure on liquidity, valuations, and sector exposures.

“This seems to be one of those moments,” Lloyd Blankfein, former CEO of Goldman Sachs, said in an interview with Citadel co-Chief Investment Officer Pablo Salame, referring to the global financial crisis. “I don’t feel a superstorm, but the horses in the paddock are starting to whinny,” Blankfein added. He led Goldman Sachs from 2006 to 2018.

Several senior Wall Street figures have recently expressed concerns about risky lending and hidden high leverage in private credit. At the end of last year, two private credit-related companies suddenly declared bankruptcy, forcing several Wall Street commercial banks to disclose massive write-downs, further fueling fears that major issues in the industry could spill over into the global financial markets.

The mortgage market turmoil triggered a financial crisis that caused a global stock market crash and plunged the U.S. economy into its worst recession since the Great Depression. Some Wall Street bankers are increasingly worried that the size of the private credit market, comparable to the subprime market in 2008, could pose similar rapid contagion risks.

Damon’s Cockroach Theory

Some industry insiders have openly voiced their concerns. JPMorgan Chase CEO Jamie Dimon warned last year that after bankruptcies related to private credit, discovering one “cockroach” usually means more are lurking. Dimon said at the end of last month that top financial experts are “doing some stupid things,” reminding him of the years before 2008.

Blankfein echoed Dimon in an interview, warning of reckless and ignorant behaviors in the industry. “The market has been very good for a long time,” he said in a podcast interview with The Big Take. “If everything is fine, with no costs and no adverse consequences, discipline will gradually erode.”

He warned that as Wall Street banks and the Trump administration push to open private markets to ordinary Americans, the risks in the financial system are rising rapidly. Supporters argue that allowing private equity into 401(k) plans will boost retirement returns and help savers enjoy more comfortable retirements. Opponents warn that private assets are illiquid, opaque, and complex, making them unsuitable for most investors, and that including them in 401(k) plans could expose retirement savers to greater investment risks than opportunities.

Blankfein said, “I would say that the consequences of errors or major issues in retirement accounts—meaning ordinary people, taxpayers, voters—are more serious than credit losses affecting complex institutional investors and high-net-worth qualified investors. The fallout from mistakes or problems in retirees’ accounts is more severe than credit losses for sophisticated investors.”

Recently, concerns about private credit have focused on another hot topic: artificial intelligence. As markets grow increasingly worried that AI will soon disrupt industries, software stocks have suffered rare setbacks this year. This has increased valuation pressures on the long-standing mutual interests of private equity and software companies, with firms like Blackstone, KKR, and Blue Owl Capital heavily exposed to software holdings.

Private Credit Market Continues to Make Waves

Some investors are rushing to exit, sparking fears about liquidity. Last month, Blue Owl restricted investor withdrawals from its private credit funds. Earlier this week, Blackstone allowed investors to withdraw only about 8% from its flagship private credit fund. Reports indicate the firm and its employees have invested around $400 million of their own funds to meet $3.8 billion in redemption requests.

On Thursday, media reported that BlackRock, the world’s largest asset manager, sharply marked down the valuation of a private loan from face value to zero, just three months after it was still valued at par. This marked the second sudden “write-off” case for its private credit division recently. According to Q4 filings from BlackRock’s TCP Capital Corp., a loan of about $25 million to Infinite Commerce Holdings is now worthless—Infinite Commerce is a so-called “Amazon aggregator” that acquires online sellers across various product categories, from spa products to light bulbs. Last year in Q3, the company still valued this subordinate debt at 100% of face value.

These developments have intensified concerns about the $1.8 trillion private credit market’s default risks and underwriting standards. The industry’s heavy bets on software companies threatened by AI this year have led to unprecedented redemption requests from anxious investors.

Over the past decade, the global private credit industry has expanded rapidly to about $2 trillion in size, but it now faces multiple challenges: inflated valuations and lack of transparency have raised market doubts; institutions like Blue Owl have resorted to unconventional “promise-to-pay” operations to replace client redemptions, deepening trust issues; last year’s bankruptcies of U.S. auto parts suppliers and subprime auto lenders exposed significant risk concentrations among some participants.

Jon Gray, President of Blackstone, said in an interview on Tuesday that the withdrawal wave is due to media “recycling” that fuels investor anxiety. “Right now, there’s a disconnect between what’s really happening in the core investment portfolios and what’s being reported in the news cycle,” Gray said. He added that institutional investors continue to allocate substantial resources to private credit and that their loan portfolios remain strong.

Gray acknowledged that not every loan in the portfolio will succeed, and that non-investment-grade credit inherently carries risks. “But the overall fundamentals of these loans—low leverage and solid performance—are what can stand the test of time,” he concluded.

From a market behavior and structural pressure perspective, several large private credit funds have imposed redemption restrictions, faced liquidity shortages, and sold assets, such as Blue Owl Capital’s permanent redemption limits and asset sales to meet investor demands. These actions have raised concerns about liquidity mismatches and valuation transparency, dragging down related asset management stocks and highlighting increased sensitivity to systemic risks. Recent liquidity issues, redemption pressures, and poor performance of loans exposed to high-leverage sectors like software have become focal points for market attention.

From a systemic risk standpoint, although these phenomena have prompted warnings from regulators, investors, and some experts, they do not necessarily indicate an imminent full-scale financial collapse like 2008. Unlike the complex derivatives crisis triggered by subprime mortgages, current issues are more localized, centered on liquidity, valuation opacity, and leverage buildup in the private credit market. While the market size is substantial (around $1.8 trillion), its interconnectedness with the global banking system and derivatives remains less complex. Most analysts believe that if risks spread, it will be through widening credit spreads, repricing of risk assets, and stress events in individual assets or funds, rather than a systemic collapse.