JPMorgan just marked down $22.2 billion in loans. That's not a typo. The largest bank in America told the world that money it lent to private credit funds is worth less than it thought. A lot less.
I can't stop thinking about this. Because that $22.2 billion didn't sit in a vault. Those private credit funds took it and loaned it out again. Hundreds of billions went to software companies. The same software companies that AI is now threatening to replace.
Here's what worries me. Nobody is connecting the dots.
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Private credit funds are having a bad year. Investors pulled billions out in the first quarter. These funds borrowed from Wall Street banks to make loans. Now those loans are souring. Software companies can't pay back what they owe because their revenue is shrinking. AI is doing what their products used to do. Cheaper. Faster.
So private credit funds are stuck. They can't collect from software companies. They still owe money to the banks. And the banks are starting to panic.
Wall Street banks lent $300 billion total to private credit funds. That's the number I keep coming back to. When private credit goes bad, banks lose money. And when banks lose money, they don't just shrug it off. They tighten their belts. They stop lending.
Not just to private credit funds. To everyone.
I don't think most people realize how this works. Your local bank doesn't operate in a vacuum. When JPMorgan and Goldman Sachs and Bank of America see trouble in one corner of the market, they pull back everywhere. The lending standards at your community bank tomorrow depend on what's happening in private credit today.
It's already starting. Banks are quietly raising the bar for business loans. Small business owners are getting turned down for credit they would have gotten six months ago. The reason isn't their business. It's what's happening three levels up the chain. In funds they've never heard of. Making loans to companies they don't know exist.
This is the shadow banking system doing what it always does. It hides risk until the risk explodes. Then everyone acts surprised.
I get it. Private credit sounds like Wall Street nonsense. Something that happens in conference rooms in Manhattan and doesn't touch real life. But that's the trap. This money is all connected. The $22.2 billion JPMorgan marked down came from somewhere. It's going to go somewhere when it disappears.
Here's the part that keeps me up at night. Nobody knows how bad this gets. Private credit funds don't have to report their losses the way banks do. They operate in the dark. By the time we see the damage, it's already done.
The AI threat to software companies isn't going away. It's getting worse. Every month, another AI tool replaces another software subscription. That's revenue these companies were counting on to pay back their loans. Revenue that's evaporating.
And when those loans go bad, the private credit funds take the hit first. Then the banks that lent to those funds. Then the rest of us.
I'm watching this closely. The connection is clear if you look for it. Wall Street banks lent hundreds of billions to an industry that's now in trouble. That trouble doesn't stay contained. It spreads.
Your business credit line. Your mortgage rate. Your ability to borrow next year. All of it ties back to decisions made in private credit funds today. Decisions we won't see until it's too late.
More on this tomorrow.
— Lauren
Editor, American Ledger
