It's The Smart Move
October 14, 2025·26 comments
The structures that generated billions in private credit returns are perfectly legal. So is hiding leverage across dozens of lenders through special entities that no single investor can see. When First Brands and Tricolor collapsed, Wall Street discovered it wasn't the fraud that was shocking. It was realizing how standard those structures are across the entire system.
• No one intends to become a fraud. They start with good intentions, hit a bump, find a temporary workaround that works, and then rationalize doing it again. By the second time, they're already telling themselves a different story about why it's justified.
• The opacity that enabled their fraud is standard across private credit. Multiple lenders fund the same companies through deliberately opaque structures, none seeing the full picture. Each piece is legal. The system is designed this way.
• Apollo reviewed First Brands' financials, declined to fund them, and shorted their bonds. If even the most immersed players in this system barely see the danger, what about everyone else funding these companies?
• Private credit machines work by moving capital quickly through origination, structuring, funding, and securitization while keeping minimal risk on the originator's books. But this requires constant fuel: fresh capital. The moment funders get spooked, the entire machine can halt.
• This happened before. In July 2007, Bear Stearns' mortgage funds collapsed. Within months, the financial sector lost 40%. The question: Are First Brands and Tricolor that moment for private credit, or is the system robust enough to absorb the hit?
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