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What's Wrong With Credit?

December 1, 2025 | Commentary

  • Recent headlines have focused on changes in consumer credit behavior and private loan defaults to suggest the economy is at risk. A careful look at the data paints a more nuanced and calmer picture.
  • There will always be a meaningful part of the population that struggles with their budgets, but in terms of the amount of disposable income needed to service household debt, the average American consumer is in as strong a position as any time this century.
  • Bank capital requirements increased dramatically, and probably appropriately, after the Global Financial Crisis. This left many riskier borrowers underserved, opening the door to the rise of private credit where risk is shouldered by private investors with no implicit or explicit government guarantees. Such a transition does not reflect on the general state of credit or the economy.
  • Loan defaults caused by fraud always garner headlines. Private credit is not fundamentally riskier than public, it is just less transparent. While there has been some credit softening observed, credit spreads for bonds of both high and low rated corporate borrowers do not indicate a broader systemic issue.

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