I sense an impending collapse, according to the ex-CEO of Goldman Sachs

Warnings of a Looming Financial Crisis

Lloyd Blankfein, who steered Goldman Sachs through the 2008 financial meltdown, has expressed concern that another crisis may be on the horizon.

Drawing comparisons to the events leading up to the last global financial crisis, Blankfein noted that he detects early warning signs of economic trouble. In a conversation with Pablo Salame, co-chief investment officer at Citadel, he questioned, “Where might hidden, risky leverage be lurking?”

He recalled that before the mortgage crisis, many believed the world was not over-leveraged—only to later discover significant risks, such as those in Iceland’s mortgage market. “It feels reminiscent of that period,” Blankfein remarked. “While I don’t sense the full force of a storm yet, there are definite signs of unrest.”

Concerns Over Private Credit and Shadow Banking

Blankfein, who led Goldman from 2006 to 2018, warned that the financial system could be heading toward another disaster, largely due to the rapid expansion of private credit—a sector often described as shadow banking.

He criticized private credit lenders for seeking to attract retail investors at a time when the sector is particularly unstable. In a separate interview with Bloomberg, Blankfein cautioned, “Opaque, illiquid assets are a cause for concern. We’re nearing the end of a cycle, and a reckoning may be imminent.”

Regulation and the Rise of Shadow Banking

Although stricter regulations after the last financial crisis have strengthened traditional banks, these rules have also shifted lending activity into less regulated areas like shadow banking. Unlike banks, private credit lenders do not accept deposits and are not subject to the same oversight.

According to a recent House of Lords report, the UK’s private market has surged by 56% since 2015, reaching $185 billion (£138 billion), making it the world’s second largest after the US.

This rapid growth has sparked fears about the sector’s resilience and the potential fallout from a market crash. The Bank of England is preparing to launch the first-ever “stress test” of the shadow banking sector to assess its ability to withstand a global shock.

Risks Facing the Private Credit Market

Private credit firms have increasingly introduced investment vehicles that allow everyday investors to participate in business lending. The $1.8 trillion private credit market, both in the UK and the US, is facing significant challenges. Experts warn that up to 35% of the $1.7 trillion market could be vulnerable to disruption from artificial intelligence, and in a worst-case scenario, default rates could soar to 13%.

Recent Turmoil and Industry Reactions

Last month, Blue Owl, a major player in the sector, was compelled to permanently close one of its technology-focused private credit funds after investors grew anxious about the impact of AI on software companies.

Notable Collapses and Industry Warnings

In the UK, Market Financial Solutions (MFS), a private credit provider backed by banks and specializing in mortgages, collapsed recently amid fraud allegations. Major institutions such as Barclays, Jefferies, and Apollo’s Atlas SP Partners had extended £2 billion in financing to MFS, which, despite not being a regulated bank, offered bank-like lending products.

Blankfein’s concerns echo those of JP Morgan CEO Jamie Dimon, who has also highlighted the growing risks in private credit. Dimon recently remarked, “We saw a similar pattern in 2005 to 2007—rising markets, widespread profits, and some questionable decisions being made.”