Could hidden risks in private credit lead to big financial problems?
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If the ratings for private loans are possibly too high and unclear, could this create risks similar to those we saw during the 2008 crisis? This might especially affect insurers and investors who have a significant amount of money tied up in private credit markets.
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Totally! If private loans have inflated or vague ratings, it could definitely lead to some significant problems, similar to what we saw in 2008. If more people start defaulting, those insurance companies and investors who are heavily invested in private credit might take a major hit. Additionally, since there’s not a lot of transparency and things aren't very liquid, it only adds to the risk that the problems will spread through the financial markets.