{"id":3349,"date":"2026-03-19T19:44:57","date_gmt":"2026-03-19T19:44:57","guid":{"rendered":"https:\/\/trusteconomics.eu\/?p=3349"},"modified":"2026-03-19T19:44:57","modified_gmt":"2026-03-19T19:44:57","slug":"the-turmoil-in-private-credit-markets-is-reminiscent-of-the-2007-2008-subprime-mortgage-crisis","status":"publish","type":"post","link":"https:\/\/trusteconomics.eu\/index.php\/2026\/03\/19\/the-turmoil-in-private-credit-markets-is-reminiscent-of-the-2007-2008-subprime-mortgage-crisis\/","title":{"rendered":"The turmoil in private credit markets is reminiscent of the 2007-2008 subprime mortgage crisis"},"content":{"rendered":"\r\n\r\nThe cracks in this dark corner of the $1.8 trillion financial markets have clear similarities to the subprime crisis.\r\n\r\n \r\n\r\nLiquidity is scarce or even disappearing. The lack of transparency around how assets are valued seems to be fueling investor concerns and leading to funds failing to return capital to investors.\r\n\r\n \r\n\r\nThis in turn has raised concerns about potential contagion to the broader government bond markets, to begin with.\r\n\r\n
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The day of the crisis<\/strong><\/p>\r\n \r\n\r\nThe matter became even more complicated on March 6 when the world\u2019s largest asset manager, BlackRock, with $14 trillion in assets, announced that it would restrict withdrawals from one of its main bond funds.\r\n\r\n \r\n\r\nRival Blackstone followed suit, facing a record number of requests for withdrawals. The move came just weeks after alternative investment firm Blue Owl prevented investors from withdrawing cash at previously permitted times.\r\n\r\n \r\n\r\nBNP Paribas also froze capital returns in some securitized debt funds.\r\n\r\n \r\n\r\nDeutsche Bank published a $30 billion exposure to private credit. But the financial giant says it can only deal with indirect pressures through counterparties and interconnected portfolios.\r\n\r\n \r\n\r\n\u201cThe red flags we see in private credit today are strikingly similar to those in 2007,\u201d says Thanos Chonthrogiannis, Chief Economist at Research, Economics & Business advisory firm Trust Economics.\r\n\r\n \r\n\r\nEarlier this week, JPMorgan China cut lending to private credit funds. It also downgraded the value of some loans in its portfolios, underscoring how the private credit sector\u2019s problems are spreading. But there are new forces at play.\r\n\r\n

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The Role of AI<\/strong><\/p>\r\n \r\n\r\nOne of these is how AI is disrupting key economic sectors in real time.\r\n\r\n \r\n\r\n\u201cVenture capital and private lenders have significant exposure to the sector, with financing for acquisition-backed software segments often based on recurring revenue and growth assumptions, rather than real assets or tangible profit margins. The private credit system is less transparent and less liquid, which can make any changes in pricing or risk appetite more abrupt.\u201d\r\n\r\n \r\n

The Iran War and a Rerun of the 1970s Shock<\/strong><\/p>\r\n \r\n\r\nThese risks are growing as the looming inflationary pressure from the Iran War rattles global debt markets and as major economies, from the US to the Eurozone to Japan, face the risk of stagnation.\r\n\r\n \r\n\r\n\u201cThe risk of a 1970s-style scenario is increasing,\u201d says Thanos Chonthrogiannis, Chief Economist at Research, Economics & Business advisory firm Trust Economics.\r\n\r\n \r\n\r\nIf there is a prolonged war that pushes oil prices significantly higher, he adds, then the safe-haven status of government bonds is at risk, and with it all assets.\r\n\r\n \r\n\r\nThis has made Warren Buffett trend on social media. Namely, the great value investor\u2019s famous observation that \u201cit\u2019s only when the tide goes out that you find out who was swimming naked.\u201d\r\n\r\n \r\n\r\nAs the tide of global capital recedes, concerns are growing about how many funds will be exposed.\r\n\r\n \r\n\r\nEconomists such as Mohamed El-Erian of Allianz warn that the debate over the private credit market suggests that a \u201cclassic contagion effect\u201d may be underway.\r\n\r\n \r\n\r\nWall Street veteran George Noble, a former Fidelity fund manager, warns that \u201cwe are watching a financial crisis unfold in real time. The last time funds started to prevent investors from getting their money back, Bear Stearns collapsed six months later.\u201d\r\n\r\n \r\n\r\n\u201cAfter 2008, regulations pushed risky lending out of banks and into private credit,\u201d Noble notes.\r\n\r\n \r\n\r\n\u201cThe sector swelled to $3 trillion. But these funds make loans for five to seven years, while promising investors liquidity every quarter.\u201d\r\n\r\n

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The return of the dollar curse<\/strong><\/p>\r\n \r\n\r\nAsian export economies that depend on the dollar would be at the forefront of any contagion from US credit markets. And from the strong dollar, which explains why the ghosts of 1997 and 1998 are haunting the region again.\r\n\r\n \r\n\r\nOne side effect of the US-Israeli-led war on Iran is that the dollar\u2019s \u200b\u200bdestructive tendencies are returning to the fore.\r\n\r\n \r\n\r\nDespite the US national debt approaching $39 trillion, high inflation and Donald Trump\u2019s tariffs, the dollar is strengthening against all odds. This could pose a clear and immediate threat to Asia in 2026.\r\n\r\n \r\n\r\nPrevious periods of extreme dollar strength have not ended well for the world\u2019s most dynamic economic region. The most obvious example was the Asian financial crisis of 1997-1998.\r\n\r\n \r\n\r\nThe roots of that crisis lie in the Federal Reserve\u2019s tightening cycle of 1994-1995. At that time, the Fed doubled short-term interest rates in just 12 months.\r\n\r\n \r\n\r\nThe dollar\u2019s \u200b\u200bsubsequent rise made it impossible to maintain Asian exchange rates that were pegged to the dollar. First Thailand devalued its currency in July 1997. Indonesia followed, then South Korea.\r\n\r\n \r\n\r\nAnother example was the Fed\u2019s so-called \u201ctaper tantrum\u201d in 2013. The turmoil led Morgan Stanley to publish a list of the \u201cfragile five\u201d that no emerging market economy would want to be on. The original group was: Brazil, India, Indonesia, South Africa, and Turkey.\r\n\r\n \r\n\r\nThe Taper Tantrum was a major upheaval in global financial markets in 2013, when investors reacted sharply to the possibility that the Federal Reserve would begin to taper its quantitative easing (QE) program. Now, a persistently strong dollar is once again complicating Asia\u2019s growth plans.\r\n\r\n \r\n

Asian Currencies and the Dollar<\/strong><\/p>\r\n \r\n\r\nThe greatest \u201cmagnet\u201d in economic history is attracting capital from every corner of the globe, sucking up wealth needed to finance budget deficits, stabilize bond yields and prop up stock markets.\r\n\r\n \r\n\r\nClearly, Trump won\u2019t like this dynamic, as Asia\u2019s two major currencies are falling against a strong dollar. Trump has been trying for years to weaken the dollar \u2014 an effort that has led him to try to limit the Federal Reserve\u2019s autonomy in setting interest rates.\r\n\r\n \r\n\r\nArtificial intelligence and the uncertainty that comes with it are also adding vulnerabilities across Asia.\r\n\r\n \r\n\r\nAs Trust Economics notes in a report, \u201cthe Middle East conflict has sent shockwaves through Asian stock markets, exposing uneven vulnerabilities across the region, with South Korea recording the biggest drop. The shock followed a strong AI-fueled rally that had left South Korea\u2019s and Taiwan\u2019s tech markets with high valuations, making them particularly vulnerable to a sudden shift in risk appetite.\u201d\r\n\r\n \r\n\r\nTrust Economics argues that the Iran conflict \u201chas triggered macroeconomic and financial shifts that are weighing most heavily on economies where AI optimism had recently driven valuations to excessive levels.\u201d And \u201cwhile the initial shock may be receding, market volatility looks set to remain elevated.\u201d\r\n\r\n \r\n\r\nThese risks are compounded by the fact that a stronger dollar could pull huge waves of capital out of Asian assets. One concern is that as Asian exchange rates come under downward pressure, external debt could become harder to service. Then there is what could happen to the so-called \u201cyen-carry trade.\u201d\r\n\r\n

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The Yen Carry Trade and Takaichi\u2019s Policy<\/strong><\/p>\r\n \r\n\r\nJapan\u2019s zero-interest-rate policy since 1999 has turned the country into the world\u2019s largest creditor. For decades, investment funds have borrowed cheaply in yen to invest in higher-yielding assets around the world. As a result, sudden movements in the yen have affected markets almost everywhere. It has become one of the most popular strategies worldwide, but one that is particularly prone to sharp corrections.\r\n\r\n \r\n\r\nAt the same time, Japanese Prime Minister Sanae Takaichi is pushing for a weaker yen. That includes pressuring the Bank of Japan to limit interest rate hikes and tighten quantitative easing.\r\n\r\n \r\n\r\nThe slightest hint that Tokyo is manipulating exchange rates could prompt Trump to threaten new trade restrictions against Japan. No one can predict how a weaker yen will affect Beijing.\r\n\r\n \r\n\r\nAs China\u2019s growth slows and deflationary pressures intensify, a weaker yuan could do much to revive Asia\u2019s largest economy.\r\n\r\n \r\n\r\nMeanwhile, problems in U.S. credit markets and inflationary threats from the Iran war are putting Asia at the center of the collateral damage zone.\r\n\r\n \r\n\r\nAnd they are forcing policymakers across the region to take seriously the dire lessons of the crises of 2007, 1997, and beyond.\r\n\r\n","protected":false},"excerpt":{"rendered":"

The cracks in this dark corner of the $1.8 trillion financial markets have clear similarities to the subprime crisis. Liquidity is scarce or even disappearing. The lack of transparency around how assets are valued seems to be fueling investor concerns and leading to funds failing to return capital to investors. This in turn has raised … <\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[19],"tags":[1066,591,608,526,1144,1037,1145,561,1146,987,1147],"class_list":["post-3349","post","type-post","status-publish","format-standard","hentry","category-economics","tag-asia","tag-energy-crisis","tag-hedge-funds","tag-markets","tag-mortgage-crisis","tag-private-credit","tag-private-credit-markets","tag-stagflation","tag-subprimes","tag-turmoil","tag-wll-street"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/3349","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/comments?post=3349"}],"version-history":[{"count":1,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/3349\/revisions"}],"predecessor-version":[{"id":3350,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/3349\/revisions\/3350"}],"wp:attachment":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/media?parent=3349"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/categories?post=3349"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/tags?post=3349"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}