I have been fortunate or perhaps cursed to have a front-row seat to three of the defining credit dislocations of the last four decades. Each time, the specific asset class was different; the underlying behavioral sequence was identical.
The Texas Implosion
Early in my career, I watched the banking system implode in slow motion. Commercial real estate and energy loans had been extended on optimism rather than cash flow, with collateral appraised at values that assumed the cycle never turned. Covenants, where they existed, were written to close deals, not to protect lenders. These weren’t marginal institutions; they were pillars of finance. When energy broke and real estate followed, the collateral that was supposed to provide a second way out evaporated at the same moment as the first. The liquidators spent years unwinding what took months to originate.
The Dotcom Mirage
By the late 1990s, I had a ringside seat to the IPO boom. Companies with no earnings, sometimes no revenue were being priced on narrative and momentum. The underwriting discipline that should have governed our work realistic path to profitability, defensible valuation, honest risk disclosure was progressively abandoned because every deal that closed validated the next one in the pipeline. When the market broke in 2000, the damage wasn’t confined to equity; it rippled through bridge loans and facilities extended on assumptions that looked reasonable then and were absurd by 2001.
The Erosion of Memory
By the dawn of the new century, these busts were supposedly "institutional memory", lessons learned. And yet, I watched private credit markets begin trending in a direction that felt uncomfortably familiar: covenant erosion rationalized by competitive pressure, collateral coverage thinning, and yield increasingly substituting for structure. The discipline of the few was deliberately contrarian, while the market, broadly, moved the other direction.
The Modern Blind Spot
Which brings us to today. Amit Seru published a piece the other week that describes a $2 trillion market that has quietly institutionalized elements of all three prior failure modes simultaneously:
Asset Valuations increasingly disconnected from current cash flow.
Capital Allocation driven by momentum and competitive pressure rather than fundamental underwriting.
Credit Risk that has migrated well outside the regulatory perimeter across private funds, insurers, and retail vehicles, in ways that no single regulator can see end to end.
The structural risks Seru identifies aren’t hypothetical. We are seeing substantial portfolios sold at meaningful discounts to raise liquidity and funds capping withdrawals after redemption requests exceeded limits. Markets are asking a question that doesn’t have a clean answer: What is this portfolio actually worth, and how liquid is it really?
Those are Texas questions. Those are dotcom questions.
The Final Warning
The standard response is that private credit is different this time, longer-duration capital, no runnable deposits. That is true as far as it goes. But it misses the lesson that each prior cycle taught in full: the risks don’t disappear. They migrate. And they surface at the worst possible moment, in the places you weren’t watching.
Covenants are not bureaucratic friction; they are early warning systems. Collateral coverage isn’t conservatism, it’s the second way out when the first one closes. Regulators who can only see part of a system cannot stress-test the whole of it.
I don’t know when this cycle turns. What I do know from experience across three decades is what the early chapters of these stories look like.
This one is familiar.
