The importance of private credit has proven to be quite significant since the Great Recession of 2008. When this financial crisis took place, the economic conditions were the worst since the Great Depression of the 1930’s. During this time, the publicly traded stocks fell by over 700 points once investors began to panic. At the height of the recession, public debt markets became frozen. As a result of this financial crisis, two of the top investment banks Bear Stearns and Lehman Brothers became insolvent and went bankrupt.
During the Great Recession another major financial service firm was on the brink of going under. Goldman Sachs was facing the possibility of going bankrupt as well. Since this financial institution had a major stake in the world financial markets it could not fail. Billionaire investor Warren Buffet intervened to help Goldman Sachs by providing an emergency loan of $5 billion. Buffet wanted to earn a 10% interest rate for the loan as well as have it converted into preferred shares. The loan prevented Goldman Sachs from going bankrupt and also provided the government time to devise TARP which helped save the economy from total collapse. With this loan, Buffet was able to earn a 74% return and earn $3.7 billion. This very type of loan gave rise to private credit.
Private credit is a type of financing that allows private individuals or entities to loan money to other individuals and businesses. It is primarily used to help public markets from becoming unstable. With private credit, a number of people and businesses are in position to get the funding they need in order to stabilize finances. An example of this would be a major correction in the stock market wiping out a major share of your assets and a company needs new machinery to remain competitive. As a result you lose you are unable to get funding from a bank due to your credit cards being maxed out. Private credit can allow you to solve this problem.
Gareth Henry is a longtime financial executive who has worked for a number of major investment firms during his career. Over the course of his career, Gareth Henry has spent time working as an analyst, a director of investor relations and as a managing director. During the last two decades, Gareth Henry has been able to acquire expertise that has made him an authority on finance. Today, Gareth Henry serves as a columnist and educator of the financial markets.
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