Reading the details in another article, it seems like this was just old fashioned fraud. They used the same collateral for multiple loans and they were hiding other debt from lenders. Any loan agreement they signed would have required an affirmation that they weren’t doing either of those. They probably also went to some lengths to hide what they were doing, since payments to lenders would show up on bank statements, which underwriters certainly would have looked at.
One of the reason companies like staying private is that they do not have to provide all the public reporting that listed companies do. You can argue lots of public reporting is a waste of time and possibly gives competitors information they'd prefer to keep secret, but it does provide extra light on sketchy activity.
> which underwriters certainly would have looked at.
I am not sure that is for certain, with these private debt "facilities" (as the OP calls them). Seems like that's a big question.
Related (I am aware does not answer the question), the OP suggests this credit was pursued precisely because "increased regulations and capital requirements made it more challenging for traditional banks to issue certain types of loans."
A credit facility is a lengthy and detailed agreement that certainly includes checking for other debt and checking for liens on the collateral. Liens are usually documented by a UCC filing which is public information.
Traditional banks are required to conduct deeper reviews, often looking at UCC filings, lien searches, and bank statements. Private debt lenders may not apply the same level of scrutiny unless explicitly required by their internal policies
>"increased regulations and capital requirements made it more challenging for traditional banks to issue certain types of loans."
Basel III requirements post-GFC made it expensive for banks to hold riskier loans so private credit was born.
Literally banks. Banks did this historically (cf. Richard Werner), and it would try to be solved with various regulation after a crisis. Now "private credit" is doing their best to create money (credit) from thin air (cf. Bank of England paper), without being officially banks. It will be shut down, inevitably.
The trouble is that the banks are lending these private lenders the money, so any large issues are gonna hit the banks hard, with consequent impacts on the money.
While some regulations post the GFC were necessary, it seems like a bunch of the rules just pushed this risk (bad loans) onto the balance sheets of non-banks. Not sure if it was worth it, especially given the large hit to worldwide productivity.
I remember my dad who was a great investor always said that and it was one of the things that disturbed him about QE and letting some of the big banks survive.
What we’re seeing today with these quasi-public markets and even the AI mania is exponentially worse. We’re playing chicken with the whole economy, and the marginally effective regulatory regime has been completely gelded.
On the other side of the coin. Two of the most powerful barons of the era believe they are eradicating the Antichrist and colonizing mars, respectively.
Interestingly, the big banks today are some of the best run financial institutions in history. The real garbage in today's banking sector is in the mid-cap banks who went heavy into commercial real estate loans.
US banks managed to lobby recently to be able to hide their restructured loan rate, again, so while your sentence is true, given the hate for regulation in the US, do you reckon it will not last?
Banking regulation drawn under Obama one are the main reason why US big banks financial are sane and not over-leveraged. I bet those will disappear slowly, then all at once. Given no one seems to be working on obvious insider trading cases (AMD weird trade pattern just before OpenAI announcement), I'm not sure the annual stress tests will even be looked at next year.
My anecdata - I’m not based in NYC, and I’ve interviewed a half dozen excellent candidates purged from FINRA. That place has been set aflame. SEC is worse from what I’ve been told.
I don't know what it would be, e.g. pretty major dislocations go untouched because the banks can't deploy capital into them like repo in 2019.
It's quite possible that the drive towards central clearing kills someone e.g. by warehousing too much in one place/lack of discretion in margin requirements for a central house etc
Out of curiosity - what is the definition of a "well run financial institution"? I could imagine plenty of well run criminal organizations that make all sorts of profit via a combination of human trafficking and protection rackets. But is there an industry recognized understanding of what the best run financial institution would be?
Extremely low leverage, diversified portfolios, lots of cash on the balance sheet, and large amounts of stable free cash flow. Citi which is probably the crappiest of the US megacap banks used to be levered 50:1, today it is only 12:1 and prints $10-$15B a year.
This isn't just me the internet rando saying this. Steve Eisman (the character the big short is based on) has been covering the large banks for 30 years and said on his podcast that for the first time in his career he sees no problems in those banks.
Agreed. In my city some midrange bank is financing a new commercial office space - the surrounding blocks are practically vacant. That whole category is practically useless for much anything other than allowing chinese people to get cash out of china.
You can get jail time if you're found to be responsible for causing the forest fire. That's what's needed in finance, otherwise it's just a matter of time until the next "financial innovation" befalls the economy.
To reuse your analogy, I fear that the forest wasn't managed properly and that the coming fire will do a lot more damage than a controlled burn. And I have no idea when it's going to start nor how to fireproof my investments !
Regulations are what lead to private credit being what it is today. Post Dodd-Frank banks are unable to take on a lot of the lending risk with these style of transactions anymore which paved the way for asset managers to create the shadow banking system that exists today.
It's most certainly not the same. An asset manager going broke because they bought some bad loans is infinitely better off for the public at large than a bank becoming insolvent and depositors losing their money.
Slow controlled burns that don’t bring down the ecosystem. For a hypothetical person in their late 50s, they’re looking forward to having their retirement go to shit and not recover before they’re dead.
Yeah I was a burn-it-all-down person too when I was in my 20's. It hits differently now after 40 years of work and the desire to retire and play with my grandkids. I guess in the current batch of 20'something's eyes that makes me The Man. I admire their spirit but scoff at their lack of empathy, the same lack I had. Fucking irony.
Might be better than putting it off until the discontent grows to the point that the young generation sees it fit to kill us off or confiscate everything we have and leave us standing in breadlines and living in collectivized apartments.
Why is playing with your grandkids more important than making sure that they have a future to look forward to? Maybe there is a lack of empathy on both sides.
Unfortunately the government will bail out the billionaires and no new lesson will be learned. Exactly like what happened during the Great Financial Crisis.
Right or wrong it would be political suicide for anyone with a shred of power to say that. Quite understandably the “dead wood” burning takes a lot of lives with it, and the people on fire tend to be understandably distressed and angry.
> The financial distress the company now finds itself in can be traced back to early August, when it was seeking to raise another $6 billion in loans. Through that process, investors started to raise questions about the numbers being presented.
> In early September it was reported that Apollo Global Management had amassed a short position against the debt of First Brands Group, meaning that it stood to profit if the auto parts maker failed to continue paying its debt.
> The news caused a rush for the exit and the value of its debt started collapsing, before a bankruptcy process was initiated to bring some order to what appeared to have become the equivalent of a bank run. First Brands said that its Chapter 11 cases pertain solely to US operations and it expects its global operations to continue uninterrupted.
Makes me think of the subprime mortgage crisis. Everyone seemed to agree that it was fine to issue loans to an auto parts company so it accumulated multiple billions USD worth of loans before anyone finally noticed that it might not be able to repay the money it was borrowing.
I think you're confused about causality. When an investor takes a short position on a company that doesn't impact the company's balance sheet. First Brands Group isn't a bank.
Finally one of your First Brands stories stuck eh OP?
It's a bit weird how there isn't more interest in this story here and/or that there isn't much more noise about it in news other than the core business media
Of course they will. The main investors in these high-risk ventures is government defined-benefit pensions. There is no way government will let its own pensions fail.
If you look at the entire market you will find that the private sector actually does not demand high returns. Instead, the government needs high returns because it has not properly funded its pension liabilities. Thus, it floods the market, and then unscrupulous financiers take the money with promise of high returns. The entire thing is messed up.
For example, public employee retirement systems constitute 30-40% of all hedge fund investments. They need more than the 7% real return from the S&P. CalPERS needs a 13% return to meet its obligations.
There is no investment on the market that can return 13%. Thus, CalPERS (and others) give money to these 'hedge funds' and private capital banks who promise them these money. Eventually, the banks go bust. THe government realizes that letting them fail makes their situation even more precarious and bails them out. Of course, the reason the government is incentivized to do this is because public sector unions hold disproportionate influence and will oust them if they don't get paid.
> Of course they will. The main investors in these high-risk ventures is government defined-benefit pensions. There is no way government will let its own pensions fail.
Would seem cheaper to do handouts directly to the retired?
FTX ended up paying back all of its customers and many of its creditors. Truth is you don’t know how any particular process is going to play out until it happens. Do you have any idea for an alternative to process?
https://archive.is/SBM15
Reading the details in another article, it seems like this was just old fashioned fraud. They used the same collateral for multiple loans and they were hiding other debt from lenders. Any loan agreement they signed would have required an affirmation that they weren’t doing either of those. They probably also went to some lengths to hide what they were doing, since payments to lenders would show up on bank statements, which underwriters certainly would have looked at.
I think the point here is that a lot of money has been lent out under loose conditions where there was very little scrutiny of the borrower.
Someone I used to work for was borrowing all kinds of money with seemingly little scrutiny and when she couldn't pay it back the worst possible thing happened. https://sfstandard.com/2025/10/09/family-four-murder-suicide...
I understand tragedies happen, bad choices leading to these type of outcomes, but can never accept when children suffer. They did nothing wrong.
One of the reason companies like staying private is that they do not have to provide all the public reporting that listed companies do. You can argue lots of public reporting is a waste of time and possibly gives competitors information they'd prefer to keep secret, but it does provide extra light on sketchy activity.
> which underwriters certainly would have looked at.
I am not sure that is for certain, with these private debt "facilities" (as the OP calls them). Seems like that's a big question.
Related (I am aware does not answer the question), the OP suggests this credit was pursued precisely because "increased regulations and capital requirements made it more challenging for traditional banks to issue certain types of loans."
A credit facility is a lengthy and detailed agreement that certainly includes checking for other debt and checking for liens on the collateral. Liens are usually documented by a UCC filing which is public information.
Traditional banks are required to conduct deeper reviews, often looking at UCC filings, lien searches, and bank statements. Private debt lenders may not apply the same level of scrutiny unless explicitly required by their internal policies
>"increased regulations and capital requirements made it more challenging for traditional banks to issue certain types of loans."
Basel III requirements post-GFC made it expensive for banks to hold riskier loans so private credit was born.
Literally banks. Banks did this historically (cf. Richard Werner), and it would try to be solved with various regulation after a crisis. Now "private credit" is doing their best to create money (credit) from thin air (cf. Bank of England paper), without being officially banks. It will be shut down, inevitably.
Well in theory private lenders don’t have depositors, so there’s no average joes to protect.
The trouble is that the banks are lending these private lenders the money, so any large issues are gonna hit the banks hard, with consequent impacts on the money.
While some regulations post the GFC were necessary, it seems like a bunch of the rules just pushed this risk (bad loans) onto the balance sheets of non-banks. Not sure if it was worth it, especially given the large hit to worldwide productivity.
The private lender fails and the bank records losses is definitely better than the bank failing.
The lenders aren't the only one needing protection. Society does as well. We don't need another 2007.
We need failure. Just like forest fires, we need controlled burns of dead wood
I remember my dad who was a great investor always said that and it was one of the things that disturbed him about QE and letting some of the big banks survive.
What we’re seeing today with these quasi-public markets and even the AI mania is exponentially worse. We’re playing chicken with the whole economy, and the marginally effective regulatory regime has been completely gelded.
On the other side of the coin. Two of the most powerful barons of the era believe they are eradicating the Antichrist and colonizing mars, respectively.
Interestingly, the big banks today are some of the best run financial institutions in history. The real garbage in today's banking sector is in the mid-cap banks who went heavy into commercial real estate loans.
US banks managed to lobby recently to be able to hide their restructured loan rate, again, so while your sentence is true, given the hate for regulation in the US, do you reckon it will not last?
Banking regulation drawn under Obama one are the main reason why US big banks financial are sane and not over-leveraged. I bet those will disappear slowly, then all at once. Given no one seems to be working on obvious insider trading cases (AMD weird trade pattern just before OpenAI announcement), I'm not sure the annual stress tests will even be looked at next year.
My anecdata - I’m not based in NYC, and I’ve interviewed a half dozen excellent candidates purged from FINRA. That place has been set aflame. SEC is worse from what I’ve been told.
Saving this for next time the big banks fail and demand a government bailout.
I don't know what it would be, e.g. pretty major dislocations go untouched because the banks can't deploy capital into them like repo in 2019.
It's quite possible that the drive towards central clearing kills someone e.g. by warehousing too much in one place/lack of discretion in margin requirements for a central house etc
Out of curiosity - what is the definition of a "well run financial institution"? I could imagine plenty of well run criminal organizations that make all sorts of profit via a combination of human trafficking and protection rackets. But is there an industry recognized understanding of what the best run financial institution would be?
Extremely low leverage, diversified portfolios, lots of cash on the balance sheet, and large amounts of stable free cash flow. Citi which is probably the crappiest of the US megacap banks used to be levered 50:1, today it is only 12:1 and prints $10-$15B a year.
This isn't just me the internet rando saying this. Steve Eisman (the character the big short is based on) has been covering the large banks for 30 years and said on his podcast that for the first time in his career he sees no problems in those banks.
Agreed. In my city some midrange bank is financing a new commercial office space - the surrounding blocks are practically vacant. That whole category is practically useless for much anything other than allowing chinese people to get cash out of china.
Credit Suisse wasn't a mid-cap bank.
Not a US bank, and their market cap in 2019 was only $35B
You can get jail time if you're found to be responsible for causing the forest fire. That's what's needed in finance, otherwise it's just a matter of time until the next "financial innovation" befalls the economy.
To reuse your analogy, I fear that the forest wasn't managed properly and that the coming fire will do a lot more damage than a controlled burn. And I have no idea when it's going to start nor how to fireproof my investments !
Controlled burn = good regulations.
Too big to fail = put out all fires.
Regulations are what lead to private credit being what it is today. Post Dodd-Frank banks are unable to take on a lot of the lending risk with these style of transactions anymore which paved the way for asset managers to create the shadow banking system that exists today.
The lending risk is the same. It doesn’t really matter what color the rug has. Stop sweeping.
It's most certainly not the same. An asset manager going broke because they bought some bad loans is infinitely better off for the public at large than a bank becoming insolvent and depositors losing their money.
Then you'll find a new set of regulations on private credit at some point in the future.
> And I have no idea when it's going to start nor how to fireproof my investments !
You don't, that's the idea.
The hypercolony of wood-termites, on the other hand... :p
Too big to burn
Slow controlled burns that don’t bring down the ecosystem. For a hypothetical person in their late 50s, they’re looking forward to having their retirement go to shit and not recover before they’re dead.
Yeah I was a burn-it-all-down person too when I was in my 20's. It hits differently now after 40 years of work and the desire to retire and play with my grandkids. I guess in the current batch of 20'something's eyes that makes me The Man. I admire their spirit but scoff at their lack of empathy, the same lack I had. Fucking irony.
Might be better than putting it off until the discontent grows to the point that the young generation sees it fit to kill us off or confiscate everything we have and leave us standing in breadlines and living in collectivized apartments.
Why is playing with your grandkids more important than making sure that they have a future to look forward to? Maybe there is a lack of empathy on both sides.
Unfortunately the government will bail out the billionaires and no new lesson will be learned. Exactly like what happened during the Great Financial Crisis.
The issue is this: the main driver of demand for higher-than-market returns is government pensions, and these cannot fail.
Right or wrong it would be political suicide for anyone with a shred of power to say that. Quite understandably the “dead wood” burning takes a lot of lives with it, and the people on fire tend to be understandably distressed and angry.
> The financial distress the company now finds itself in can be traced back to early August, when it was seeking to raise another $6 billion in loans. Through that process, investors started to raise questions about the numbers being presented.
> In early September it was reported that Apollo Global Management had amassed a short position against the debt of First Brands Group, meaning that it stood to profit if the auto parts maker failed to continue paying its debt.
> The news caused a rush for the exit and the value of its debt started collapsing, before a bankruptcy process was initiated to bring some order to what appeared to have become the equivalent of a bank run. First Brands said that its Chapter 11 cases pertain solely to US operations and it expects its global operations to continue uninterrupted.
Makes me think of the subprime mortgage crisis. Everyone seemed to agree that it was fine to issue loans to an auto parts company so it accumulated multiple billions USD worth of loans before anyone finally noticed that it might not be able to repay the money it was borrowing.
I wonder if these companies would be solvent if shorts from companies like Apollo didn’t tip them into failure by setting off a bank run
Shorts are people pointing out bad activity in the market and making it public. I’d prefer the bad actors get called out
I think you're confused about causality. When an investor takes a short position on a company that doesn't impact the company's balance sheet. First Brands Group isn't a bank.
Their thermodynamic bound is finite either way.
There are loan companies which will lend to importers to pay the Trump's trade war tariffs. It's debt through and through.
More recently:
Billions of Dollars 'Vanished': Low-Profile Bankruptcy Rings Wall Street Alarms
https://www.nytimes.com/2025/10/10/business/first-brands-ban...
Finally one of your First Brands stories stuck eh OP?
It's a bit weird how there isn't more interest in this story here and/or that there isn't much more noise about it in news other than the core business media
Everyone is trying to make out like a bandit and get theirs before Trump brings this whole thing down crashing and burning.
Including the Trump family
Government will just write a fat check and bail them out while the people of America take it on the chin.
Seriously, how much more of this can people stand before we just flip out and go crazy?
Of course they will. The main investors in these high-risk ventures is government defined-benefit pensions. There is no way government will let its own pensions fail.
If you look at the entire market you will find that the private sector actually does not demand high returns. Instead, the government needs high returns because it has not properly funded its pension liabilities. Thus, it floods the market, and then unscrupulous financiers take the money with promise of high returns. The entire thing is messed up.
For example, public employee retirement systems constitute 30-40% of all hedge fund investments. They need more than the 7% real return from the S&P. CalPERS needs a 13% return to meet its obligations.
There is no investment on the market that can return 13%. Thus, CalPERS (and others) give money to these 'hedge funds' and private capital banks who promise them these money. Eventually, the banks go bust. THe government realizes that letting them fail makes their situation even more precarious and bails them out. Of course, the reason the government is incentivized to do this is because public sector unions hold disproportionate influence and will oust them if they don't get paid.
> Of course they will. The main investors in these high-risk ventures is government defined-benefit pensions. There is no way government will let its own pensions fail.
Would seem cheaper to do handouts directly to the retired?
Printing money to hand to retirees would not be popular. So instead, it's framed as a financial stabilization measure.
FTX ended up paying back all of its customers and many of its creditors. Truth is you don’t know how any particular process is going to play out until it happens. Do you have any idea for an alternative to process?
> Do you have any idea for an alternative to process?
Any bank that asks for a federal bailout should get immediately nationalized no questions asked.
If you're too big to fail, you're too big to be run by executives with golden parachutes.
Didn't you both just describe a different process?
FTX used their investments and depositor's holdings to pay customers and creditors (a very arguably discounted rate).
OP describe the USG paying back customers and creditors.