Several warning lights are flashing that have some wondering whether we are in the foothills of another financial crisis.

In 2007, investments in risky US mortgages went sour as homeowners struggled to pay. Funds run by Bear Stearns, BNP Paribas and other banks either had to freeze the ability of investors to take out their money, or liquidate the funds completely.

These problems were the canaries in what proved to be a very deep financial coal mine. As nervousness spread, even banks eventually stopped lending to each other for fear of not getting their money back, creating a so-called “credit crunch”. That caused a global financial crisis.

Fast forward to today.

Several funds which lend money have declared losses or restricted investors’ ability to take out their money. BlackRock, Blackstone, Apollo and Blue Owl have all faced demands for billions of withdrawals from private credit funds - institutions that provide an alternative to traditional banks.

  • mlg@lemmy.worldEnglish
    12·
    2 days ago

    The thing that kicked off 2007 was that CDOs ended being largely made up of crappy mortgage bonds which caused their massive trillions in debt “value” to dissappear when the underlying bonds failed which was tied to people not paying their mortgage on crappy adjustable mortgage loans.

    After getting bailed out with a shit ton of tax money, the banks agreed not to repeat the same mistake by ensuring their trillions of debt trading doesn’t depend on a single point of failure, so they’ve diversified it across multiple markets (like how a CDO was otherwise supposed to work)

    This type of warning shows up every now and then because the vulnerability is still there (since nothing really changed), but its much harder to knock it down without causing some type of collapse in multiple areas first.

    Right now, I think its estimated that private credit makes up about 40% of their investments into the AI boom, which is 1 trillion dollars exact. That’s proportionally less than what CDOs were with mortgage bonds, but it’s still entirely possible that a couple of hits in some businesses sectors could collapse the system.

    Iran actually succeeded in affecting multiple supply chains due to their strait closure, including AI, so if they continue on that path it might actually happen.