You should check your 401K for "Cockroaches"
Many average Americans to this day have no idea they’re exposed
Help us defeat the mainstream media and promote capitalism and American exceptionalism.
Support The Capitalist, become a paid subscriber today:
You’ll have to forgive us if this story sounds a little too familiar to those readers of a certain age, thats because it is. There are strong parallels between what is happening in the private credit market in 2026 and the housing market in 2008. It’s not identical, but it is close enough that people should be paying attention to it and most people have no idea that it’s happening.
Private credit was supposed to be the sophisticated heir to traditional banking—nimble, high-yielding, lightly regulated. Builders lending to builders, floating-rate loans tied to Treasuries delivering mid-teens returns for investors while banks stayed shackled by regulation enacted after the 2008 crash.
For a decade it worked brilliantly.
Then October 2025 arrived, and the first cockroaches appeared.
Tricolor Auto’s collapse, complete with federal fraud charges against its founder and COO for double-pledging the same subprime car loans to multiple lenders, wasn’t pretty. First Brands Group followed into Chapter 11, with allegations of vanished collateral and off-balance-sheet private debt. Regional banks like Zions and Western Alliance took hits; Jefferies absorbed a $715 million exposure. Jamie Dimon, never one for euphemism, called the $170 million loss at JPMorgan “not our finest moment” and invoked the now classic line: “when you see one cockroach, there are probably more.”
Sponsored By Mode Mobile
Apple’s Starlink Update Sparks Huge Earning Opportunity
Apple just secretly added Starlink satellite support to iPhones through iOS 18.3.
One of the biggest potential winners? Mode Mobile.
Mode’s EarnPhone already reaches 490M+ users that have earned over $1B, and that’s before global satellite coverage. With SpaceX eliminating “dead zones,” Mode’s earning technology can now reach billions more in unbanked and rural populations worldwide.
Their global expansion is perfectly timed, and investors like you still have a chance to invest in their pre-IPO offering at $0.50/share.
With their recent 32,481% revenue growth and newly reserved Nasdaq ticker, Mode is one step closer to a potential IPO.
Tap into a $1T opportunity — invest now at just $0.50/share and get up to 20% bonus.
What started as outlier fraud and malpractice—naked “double pledging” schemes in subprime auto and distressed industrial names that should have been caught by an ounce of due diligence—is now revealing something more insidious: systemic overvaluation, and it is creeping through private credit portfolios and peoples 401K’s like a slowly spreading poison.
We covered this back in October in our deep dive on the fraud here and it turned out that Dimon was absolutely right.
Fast-forward and Moody’s downgraded FS KKR Capital Corp, the second-largest publicly traded business development company run with KKR and Future Standard, to junk (Ba1 from Baa3). Non-accrual loans—those where borrowers have simply stopped paying—climbed to 5.5% by the end of 2025, among the highest for rated Business Development Companies (BDC’s). The fund posted a $114 million net loss in Q4 and scraped together just $11 million in net income for the entire year. Software loans, its largest single bucket at 16.4% of exposure, are flashing warnings. Shares of FSK have plunged more than 30% this year.
The very next day, Apollo—hardly a fringe player in this industry—told investors in its $15.1 billion Apollo Debt Solutions Business Development Company that redemption requests hit 11.2% of shares outstanding, more than double the 5% quarterly cap.
The result: redeeming shareholders received only about 45% of what they asked for, roughly $730 million prorated. Net Asset Value per share slipped 1.2% in the quarter. Software again dominated at 12.3% of the portfolio.
Apollo framed it as prudent stewardship. Markets heard liquidity stress.
And then the quiet admission that changed everything. John Zito, co-president of Apollo’s asset management arm, said what few insiders dare: “I think all the marks are wrong.” meaning that private equity and private credit valuations, particularly for software companies acquired between 2018 and 2022, sit well above comparable public firms despite being of lower quality. In a slowdown, recoveries on leveraged mid-market software loans could land between 20 and 40 cents on the dollar. Apollo intends to lead on accurate marking, Zito said—implying many others are not.
This is the shift. The early cracks were ugly but containable: outright fraud, doctored collateral, “social lending” to borrowers without income or licenses. They were always going to implode, they survived because no one looked at the books, but now the problem is subtler, more pervasive—assets carried at optimistically, (read “wildly”), high valuation marks in an environment of rising defaults, payment-in-kind structures that mask distress, and “evergreening” that keeps these zombie companies afloat. Private credit’s opacity, once its selling point, has become its vulnerability. No real-time pricing, minimal covenants, and confidential deals. When the music slows, the lack of transparency means that things can turn ugly, fast.
Help us beat and replace the mainstream media!
Support The Capitalist by becoming a paid subscriber today:
Dimon’s cockroach comment wasn’t alarmist; it was diagnostic. The $3.4 trillion market—on track toward $4.9 trillion by 2029—has filled the gap left when regulators pushed riskier lending out of banks. It now finances everything from middle-market software to subprime auto Auto Backed Securities and almost nobody knows a thing about it.
Pensions, endowments, and retail wealth platforms piled in chasing high yield returns. Many average Americans to this day have no idea they’re exposed. Their 401(k) or public pension might hold slices of this rapidly degrading asset through intermediaries, layered into Collateralized Loan Obligations or in insurance general accounts, which promise uncorrelated returns with low volatility.
When those marks finally adjust and the correction shows up, the pain arrives not as headline-grabbing bank runs and Bear Sterns and Lehrman Brothers style implosions but as quietly disappointing retirement balances and higher required contributions.
Counterpoints exist, of course. Defenders note that private credit has weathered volatility better than leveraged loans in recent quarters, that many managers maintain strong liability ladders, that floating rates provide a buffer and gating protects remaining investors from fire sales. Yet the pattern—downgrades, redemption queues, executive admissions, Dimon’s pointed skepticism—suggests the stress is no longer anecdotal. It’s migrating from the obvious fraud cases to the broader book where optimism on valuations have met, or very soon will meet, reality.
What is notable this time around, compared to 2008, is that this time the banks are paying attention. Where as in 2008 the people shorting the market were outliers and the major banks were unaware of just how ensnared they were in the embrace of “toxic assets” this time the a potential crash is being gamed by Wall Street.
Goldman Sachs have created specific investment vehicles with the sole aim of shorting private credit entities. That major Wall Street firms are dabbling in Credit Default Swaps, should give even the most ardent Private Credit Bull a moments pause.
The innovation and capital allocation since the big bank’s retreat in 2008 is impressive but innovation without rigorous marking and transparency eventually invites the very bureaucratic scrutiny its proponents sought to escape. To stave this off from becoming a major conflagration the market needs accurate marks now, disciplined underwriting, and honest communication with capital providers. Delay that, and the cockroaches will multiply—first in software and subprime, then across the middle market, and finally into the portfolios that fund American retirements.
Markets are watching. Banks and Hedge Funds are maneuvering. Pension fund trustees should be, too.
If you have a 401K, it might be time to go and check if it has “cockroaches” in it.