It was early last month when observers noticed ominous cracks in the facade of one of America’s most important financial markets. Tricolor, one of the largest used-car retailers in Texas and California, abruptly declared bankruptcy. Federal investigators are reportedly looking into whether the company committed fraud by promising the same collateral to multiple lenders.
Shortly after Tricolor cratered, something similar happened to First Brands, a company primarily known for making car parts. Its investors discovered roughly $2 billion in loans not on its balance sheet. That’s when things started getting scary. Fifth Third, a regional bank, said it had lent Tricolor $200 million, nearly all of which it now expected to write off as a loss. Same at JPMorgan Chase, which reported it was out $170 million that it will presumably never see again. At Barclays the figure is nearly $150 million. They’ll survive the loss, but the incident cast into sharp focus a risk that had otherwise lurked in the shadows, growing year by year: a cascade of bankruptcies that triggers a widespread financial crisis.
Tricolor and First Brands had also borrowed from a breed of nonbank financial firms known collectively as private credit, whose workings are much more opaque. Giving voice to a widespread sense that the losses had only just begun to pile up, Jamie Dimon, JPMorgan Chase’s chief executive, warned, “When you see one cockroach, there are probably more.”
The 2008 financial crisis occurred in part because banks and other financial institutions were offering too many mortgages to borrowers who couldn’t plausibly repay them. When enough bad loans began caving in at the same time, they sucked big banks and the rest of the economy into the sinkhole along with them.
Banks today are subject to stricter regulations, which have largely functioned as intended, keeping banks from making as many risky loans. Filling the void has been private credit. Today, firms like Apollo, KKR and Blackstone that manage and invest huge pools of money have gotten into the business of making direct loans, and they’re doing so at staggering rates. Now an approximately $2 trillion market, it is a leading option for many companies and consumers alike.
Private credit firms say they can offer better terms than banks because they are not reliant on depositors who can withdraw their money and flee. But these firms are broadly exempt from the post-crash regulations that were imposed on the banking industry, so they are more able to make the kind of risky loans that brought down the economy the last time around. And they’re not exempt from the damage when those loans go south.
The problem is that often the funds they rely on are not their own. They’re drawn from the money that has been entrusted to them by insurance companies, pension funds and, soon, 401(k)s. As was the case in the run-up to the big crash, these potentially risky ventures may therefore be fueled with the money of ordinary people who have no idea how it’s being deployed.
Another troubling similarity: These not-bank banks, also known as shadow banks, do a lot of what’s known as financial engineering. That means packaging up a whole grab bag of debts — loans to corporations, leases on A.I. data centers, bills from plastic-surgery patients, car loans, anything, really — which are then sliced up and sold as new kinds of investment vehicles.
Because the private and public credit markets are so closely connected, cockroaches in one part of the house will always spread to the other. Lending to risky borrowers has been on the rise for years. It is inevitable that after a period of excess, cases of insufficient due diligence by lenders and indeed fraud will pop up in public and private credit markets alike.

Those (inflation) numbers do not comport with my own experience. It feels greater than what the BLS has published. Some time ago I cited a replacement window identical to one purchased 7 or 8 years earlier. The price had jumped from $400 to over $700 while the delivery time had increased from 3 days to 6 weeks. Your experience may differ.
Then there are the lumber prices you were quoting a few years ago. In May 2018 (7½ years ago), lumber was at $600. It's now at ... $600. And forget about Covid, when everyone was sheltering in place and renovating. Prices topped out above $1600.
I sound like a broken record here, but people tend to notice bad financial data (higher prices, losses in the market) more than the notice good financial data, like rising markets. That's why we have metrics like Sortino ratio and ulcer index. And why understanding behavioral finance is important to be aware of when investing.

@hank in what way are you prepared for such an event? "Inquiring minds want to know."

I think anything published by Zero Hedge needs to be fact checked.

As a mother of two, Paige Harris has noticed a change in the way she shops for her family. “Items that I have bought regularly have gone up in price steadily,” she said. “From hair dye to baby formula, our grocery list has gotten smaller while our budget has had to increase. Meats like steak are a no-go for our household.”
Harris, 38, lives and works as a teacher’s assistant in Stella, North Carolina, and is one of almost 40 people who spoke to the Guardian about how they’ve been coping with the price of goods in the six months since Donald Trump announced his sweeping tariffs.
On Thursday, a study from S&P Global revealed that companies were expected to pay at least $1.2tn more in 2025 expenses than was previously anticipated. But the burden, according to the researchers, is now shifting to US consumers. They calculated that two-thirds of the “expense shock”, more than $900bn, will be absorbed by Americans. Last month, the Yale Budget Lab estimated tariffs would cost households almost $2,400 more a year.
Harris says the tariffs’ impact on her daily life contradicts promises from the Trump administration to “cut prices and make living affordable for everyone”. She said: “You see prices soaring. It has become very clear that this administration did not and does not care about the everyday lives of Americans.”
Several Americans told the Guardian their weekly budgets had been drastically altered with the introduction of Trump’s tariffs. “Prices are way too high. I mostly shop at Costco and buy as little as possible anywhere else,” said Jean Meadows, a 74-year-old retiree who lives in Huntsville, Alabama. “I can’t imagine that stores haven’t noticed the change. I think people are really afraid of what is coming.”
That sense of apprehension is reflected in a recent poll, exclusively conducted for the Guardian, where respondents identified the tariffs as the second biggest threat to the economy. “The bread I buy has doubled in price within a year. We live on a fixed income that doesn’t keep up with inflation,” said Myron Peeler, who is also retired and is the sole caregiver for his wife, who suffers from debilitating arthritis. The only saving grace, he said, is that his house and car are paid off.
Trump shows few signs of backing away from his tariff policy – a move the White House maintains will reinvigorate American manufacturing and increased revenue from trade partners.
Most recently, the president reignited a trade war with China by threatening a 100% tariff on Beijing as soon as November. This came after China moved to restrict exports of rare earth minerals needed for several everyday items from electric vehicle batteries to hospital equipment, a decision that Trump branded as “very hostile”. In an interview with Fox News, the president has admitted that the proposed tariff hike was “not sustainable”, but said he was left with little choice: “They forced me to do that”.
Currently, the average US tariffs on Chinese exports hovers around 58%, according to the Peterson Institute for Economics. It’s a levy that is already taking a toll on Americans such as Michele, from north-eastern Pennsylvania. “We need to buy new tires for a car, and can’t, because affordable tires are no longer in stock and we can’t afford $250 a tire,” she said.
Several people echoed Michele’s feelings about availability, describing the situation as “empty shelves, higher prices”. Natalie, who lives in New Hampshire, said she hasn’t seen certain pantry staples “for months”. She said: “The store shelves have become more and more bare … instead of multiple choices there may only be one or two, and name brands are being replaced by store brands.”
At 55, Natalie is semi-retired but is due to start part-time work at a supermarket, and she has seen a price rise in nearly everything she buys regularly. “Any brand of cat food has increased anywhere from 25% to double the price. One wet food my cats like went from $1.79 to $2.49 per can,” she said.
The new normal many Americans are bracing for, or already feeling, is not just the cost of groceries, for those such as Minnie, a food writer in Portland, Oregon, it’s a change in lifestyle. “I don’t shop for non-essentials. No fall shopping trips for a new sweater or jeans. And we’ll make all our Christmas presents this year,” said Minnie, 55. “We used to dine out once a week. Now we never eat out. Even fast-casual is insanely pricey. Everything is twice what it used to cost and we’re very afraid of what’s next, financially speaking.”
While the US inflation rate hovers around 2.9% – a substantial drop from the spikes of the Covid era – the tariffs haven’t helped ease the impact on Americans’ wallets. Richard Ulmer, 81, who has lived in Florida for 35 years, said this year has been “the worst from a financial standpoint”, adding that “everything” from his groceries to the electric bill has become more expensive.
For Cassie, a 25-year-old consultant based in Siler City, North Carolina, costs have shot up quickly compared to the “gradual price increases” during the first two years of the pandemic. Cassie has a strict $65 per week budget for groceries, but since Trump first announced his tariffs, she’s been priced out of her normal routine, which included doing most of her weekly shopping at Walmart.
“Now I must visit at least four different stores in the area and other towns, often driving longer distances to find the best prices,” she said. “During the summer months and the Mexico/Latin America tariff announcement, Walmart and other stores in the area ran out of bananas for around two weeks. No one could get bananas in my area.”

Vultures gleefully getting fatter. Lower than slug spit.

Among CLOs that hold [First Brands'] loans, the median concentration of First Brands is a relatively modest 0.5% of collateral. CLO structures limit concentrations of assets from any single obligor. ... CLOs as a class have a relatively low exposure to the auto sector (just 1.5 percent of collateral).

It was the poor performance of the loans in these “private-label” securities—those not owned or guaranteed by Fannie and Freddie—that led to the financial meltdown, according to the bipartisan Financial Crisis Inquiry Commission, among other independent researchers.

The International Monetary Fund (IMF) warned this week that banks now have about $4.5tn of exposure to the “shadow banking” sector, a sum exceeding the size of the entire British economy.
Throw in a bout of geopolitical turmoil – which, with Donald Trump in the White House, is never far off – and the IMF says up to a fifth of banks could be in some kind of strife.
/snip
“If the problems in the illiquid markets persist and grow, they may start to become a systemic risk, forcing the Fed and other central banks to intervene,” analysts at Panmure Liberum wrote in a note to clients.
That scenario still felt quite distant until two regional American banks, Zions Bancorporation and Western Alliance Bancorp, revealed that they had found bad loans on their books. There has also been increased activity in the repo market, where banks go for cheap emergency cash.
/snip
“The Fed and other central banks can in theory provide liquidity by accepting these private loans as collateral for liquidity injections in affected funds,” Panmure Liberum’s analysts said.
But they finished with a warning: “We are old enough to have been around in the run-up to the financial crisis of 2007 and 2008 and we are fully aware that we could have written similarly comforting lines ... back then.”

Auto delinquencies are up more than 50% since 2010 and have transitioned from the safest to riskiest consumer commercial credit product in that time frame, according to a Friday report from VantageScore.

“The bigger picture: the auto market is a bellwether for household financial health,” the report says. “A sustained climb in auto delinquencies signals deeper affordability challenges across the consumer economy.”
The country is seeing “the most precarious consumer credit health situation since the last financial crisis,” said VantageScore Chief Economist Rikard Bandebo.

Delinquencies among other loan categories, like credit cards and first mortgages, have declined since the first quarter of 2010, making autos a bit of an outlier, VantageScore said.