When Minsky Comes Calling
As regular readers know, Hyman Minsky spent his career explaining how financial stability breeds instability. The longer the boom runs, the more reckless the lending gets.
First you get normal borrowing against real cash flows. Then speculative finance, where interest gets covered but principal never does. And then, right at the very end, Ponzi finance: credit issued not against any real return stream, but purely against the assumption that asset prices will keep rising forever.
Sound familiar?
The last two years of commercial loan growth from U.S. banks went almost entirely to non-depository financial institutions. Private credit and private equity. Not to businesses generating real cash flows. Not to households. To the shadow banking ecosystem sitting just outside regulatory view. That’s the Ponzi finance phase of the cycle. And it’s cracking.
The early signals started showing up in 2024: First Brands, TriColor Auto, Primal Lend. Not household names, which is exactly the point. Stress always shows up at the edges first, in deals nobody’s writing headlines about. Then the feedback loop kicks in. Credit tightening starts at the margin and moves inward. It doesn’t announce itself. It doesn’t ask for permission.
The same dynamic is playing out in multifamily housing. Spec building ran so far ahead of real demand during the immigration surge that construction levels blew past the 1970s peak, the last time the baby boom cohort was entering the workforce. That’s a structural mismatch that takes years to clear.
The smart operators who sat on dry powder through 2021, 2022, and 2023 while everyone else underwrote deals on pro-formas projecting 20% rent growth forever are now picking through the wreckage and buying assets well under replacement cost. The people still not being realistic about pricing are still holding. They’ll come around. They always do.
So if private credit is already cracking and the real estate cycle is rolling over, what do the AI boom, the jobs data, and the gold market all have in common with it? You’re about to find out!
