Jun 19, 2026 · 26 min · 12 segments
Financial thought leader James Grant warns about the dangers facing the highly leveraged private equity and private credit markets from higher interest rates and inflation. Of particular concern are…
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I began the interview with a current financial concern, the challenges faced by private equity and private credit.
There are something like 14,000 McDonald's franchises in the country, 14,000 Golden Archers.
But what characterizes many, if not most, private equity companies or promotions is a high degree of financial leverage, which is simply trade talk for a lot of debt.
The thing to know also about private equity is that it is susceptible to all the fads to which we all fall in the world of finance.
So what happened in 2021 and 22, especially, but also a few years before, was that interest rates got very, very low, and private equity promoters became very, very bullish.
And with this free money, private equity promoters went out and bought a lot of companies.
Of course, they paid top dollar because why not? It was a bull market because money was, shall we say, accessible.
And when rates went up, that nothing became something because, importantly, they borrowed at floating rates, almost all of them.
So what we have here is an investment fad predicated upon the continuation of something that was bound to come to an end, and which did indeed end, namely, the institution of free money that was part and parcel of the Fed's response to the great troubles of yesteryear.
I began the interview with a current financial concern, the challenges faced by private equity and private credit.
There are something like 14,000 McDonald's franchises in the country, 14,000 Golden Archers.
But what characterizes many, if not most, private equity companies or promotions is a high degree of financial leverage, which is simply trade talk for a lot of debt.
The thing to know also about private equity is that it is susceptible to all the fads to which we all fall in the world of finance.
So what happened in 2021 and 22, especially, but also a few years before, was that interest rates got very, very low, and private equity promoters became very, very bullish.
And with this free money, private equity promoters went out and bought a lot of companies.
Of course, they paid top dollar because why not? It was a bull market because money was, shall we say, accessible.
And when rates went up, that nothing became something because, importantly, they borrowed at floating rates, almost all of them.
So what we have here is an investment fad predicated upon the continuation of something that was bound to come to an end, and which did indeed end, namely, the institution of free money that was part and parcel of the Fed's response to the great troubles of yesteryear.
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