Private Credit’s Creditanstalt Moment

“Creditors have better memories than debtors.”

— Benjamin Franklin

November 17, 2025 — You never know where a panic is going to start … but usually a bank is a good bet.

For instance, an obscure bank in Europe may have contributed to the exacerbation of the Great Depression.

Austrian bank Creditanstalt failed in 1931.

No big deal, right? The 1930’s saw the greatest number of banks go under.

Well, think of it as the start of something big. And think again about the date: the U.S. market crash was two years distant, and everyone thought that, like prior business cycles, the dust had finally settled.

The numbers were clear: recovery was underway. The coast looked clear, and business was gradually recovering. At least until the default of Creditanstalt. The bank was swarmed with depositors looking for their money back (no deposit insurance, mind you!).

But the government stepped in to bail out Creditanstalt. And, yes, this was 1931, not 2009 or 2020. The last thing the government needed was a bank panic, so it seemed like the right thing to do.

But that’s not how the great mass of men saw it. Rather than stop the panic, it got worse.

Bank depositors were done trusting a system that had betrayed them time and time again, that would go under, leaving only massive debt and human misery in their way.

And then it went beyond the banks when Hungary defaulted on its debts. Then Austria. Then Bulgaria. Then Germany, paving the road for the election of Adolf Hitler.

It spread stateside, plunging U.S. banks into the edge of the abyss, leading to thousands of bank failures before the declaration of a bank holiday in early 1933.

The Private Credit Crunch

The past few months have seen some rumblings in another obscure corner of the financial markets – private equity and private credit.

Technically, an auto parts company called First Brands is to blame. The company recently went into bankruptcy, and nobody can account for about $2.3 billion in assets.

First Brands carried over $11 billion in debt, much of which was owned across the private equity spectrum. As the details are being sorted out, the market is taking a “sell first, ask questions later” mentality. And rightly so.

In just three weeks, as the stock market broke to new highs, private equity stocks have sold off about 14% from their peak – a notable move.

To some extent, this may simply reflect some of the froth in the market today.

To another extent, it may reflect the opacity of private credit and private equity deals.

Yes, these deals are often announced. But these aren’t publicly-traded deals. Investors don’t get daily updates on prices from the markets. And in a capitalist economy, prices are a signal.

Without that signal, assets can be left unchanged on the books, even if reality is different.

Imagine a private credit deal for $10 million, backed by a $20 million office property.

That deal, perhaps five years old, may be on the books at 100% of its value, even if comparable $20 million office buildings in the same market are now selling for $10 million.

In a public deal, that credit would be marked down appropriately. But in a private market – it’s marked to make believe.

Worst of all, private credit has become a popular investment space for institutional investors over the past few years.

As I noted last September after discussing the growth of private credit with some of the major players at the Future Proof Festival:

This private credit market is getting increasingly deep, and remains opaque. It’s the dog that won’t bark. Most investors don’t know it’s out there. And unlike the stock or bond market, there’s no way of listing up the total amount of private credit.

As the interest rate cycle peaked, parking money in high-yielding credit opportunities that won’t see their pricing knocked around by changing interest rates seems smart.

But the market seems to know something about private credit that we don’t. And in a big enough liquidity event for private credit, investors will have to sell off more liquid assets if they want capital.

That’s the danger private credit poses today, exactly at a time when rules are being eased to make it easier for retail investors like us to buy into this asset class.

I’m in the camp that this smells like a way to keep the party going by providing another source of liquidity – the passive investment flows from your regular 401(k) contributions. The smell takes on a sour note as this sector starts to falter.

Perhaps today’s selloff is simply a reaction to declining interest rates, the growth of private credit, and a few inevitable deals that have gone sour recently.

But if it’s the start of something else – a Creditanstalt moment – investors could be in for a rude awakening.

A credit crisis, no matter where it starts, rarely stays “contained.” Much like subprime mortgages, private credit may enter the lexicon of retail investors not because of the prospective returns, but because of a spectacular blowup.

It’s just one good reason to stay cautious amid today’s high stock market valuation and overbought conditions right now.

The Unsinkable S&P 500 – For Now

Currently, public markets face what we’ve been calling a “terrifying bull market.”

The rally has been relentless, with stocks about 3% off of all-time highs. However, markets just pulled back to their 50-day moving average, and daily volatility has come back.

The move has been largely driven by retail investors, and many small and mid-cap stocks have been the big winners in recent months. The Mag 7 players are holding up well, but haven’t been the most exciting trade this year.

Either way, our philosophy remains the same.

The bulk of your stock portfolio should be in shares of high-quality, industry-leading companies. They should be reasonably valued, and ideally throw off cash flow in the form of dividends.

And they should own quality assets – not assets marked at their paid-for value when their real value is now substantially lower today.

After all, a stock isn’t just a ticket to higher prices – it’s a fraction of a business.

Much of today’s market froth feels more like investors betting on lotto tickets in the hope that more buyers will push prices higher. That’s not a recipe for long-term investment success, and any small wins could easily be dwarfed by losses.

Andrew Packer
Grey Swan Investment Fraternity

P.S. from Addison: Andrew’s insights – which first appeared in the October issue of our monthly Grey Swan Bulletin – are playing out as private equity and private credit companies continue to underperform the market.

We suspect there are many more private equity and private credit positions that are struggling – but are still marked on the books at 100% of their value. Once impairments become impossible to ignore, look out below.

And when there is a crisis, look for trouble in the private debt markets to get transferred to the public market – one of the reasons for America’s debt problem is the cumulative socialized losses of banks transferred to the Fed via bailouts.

This week on Grey Swan Live!, we’ve got another two-fer on the schedule for you:

On Thursday, November 20, 2025 at 2pm EST/11am PST we’ll take deep dive into our Dollar 2.0 thesis, with guests Ian King and Mark Jeftovic. The investment thesis remains well intact going into 2026, despite the recent, nasty selloff in the crypto market.

Then on Friday, November 12, 2025 at 2pm EST/11am PSTwe’ve invited our friends at Prime Financial Services back to help you with tax planning for your investment portfolio ahead of the holiday season and closing out the trading year 2025.

Prime’s Nick Buhelos will join us again make sure you maximize your investment returns – by walking you through the correct financial structure you need to take advantage of explicit IRS business rules that apply to individual investors including provisions added by the Big Beautiful Bill for 2026.

If you have requests for new guests, such as our recent conversation with Harry Dent,  you’d like to see join us for Grey Swan Live!,  or have any questions for our guests, send them here.