$5 trillion "credit powder keg" sounding the alarm? Goldman Sachs president warns default could trigger systemic crisis.

Goldman Sachs Group President John Waldron said that in the past decade, there has been explosive growth in the size of credit, and if the situation deteriorates, the chain reaction it triggers will not be optimistic. Waldron pointed out that the total borrowing in the high-yield bond, leveraged loan, and private credit sectors has reached about $5 trillion, with private credit being the main driver of growth. "In the past decade, the size of credit issuance has significantly increased, mainly concentrated in the private credit sector - there has also been some growth within the banking system, but the vast majority comes from private credit," Waldron said at a Semafor event discussion group held in Washington on Thursday. "We may, and are likely to see some default cases in this sector, which could be very challenging once they occur." In recent weeks, the credit market has been hit by three suspected fraud cases in a row, intensifying concerns about potential underlying risks. On Thursday, Zion Bancorp. and Western Alliance Bancorp. both said that loans they had made to funds investing in non-performing commercial mortgage loans were defrauded, making them victims. Last month, subprime auto loan company Tricolor Holdings went bankrupt, followed by auto parts supplier First Brands Group filing for bankruptcy protection, both involving fraud allegations. Waldron mentioned the risk of a "dual-speed economy," with recent corporate bankruptcies indicating that "the lower-level economy is facing difficulties, while there has been a substantial amount of credit injected into this sector in the past." Recent corporate bankruptcies have disrupted the credit market and led to losses for banks and investment firms. JPMorgan Chase & Co. suffered a $170 million loss due to the Tricolor Holdings incident, prompting CEO Jamie Dimon to warn that "there may be more 'cockroaches' (potential risks) out there." Dimon's comments have drawn criticism from rival private credit companies, who believe he is mocking their lack of due diligence in transactions. Blue Owl Capital Inc. CEO Marc Lipschultz responded, suggesting that the issue lies in the bank-led lending business, and they may need to first reexamine their own books for more "cockroaches." "I have to say, I am very concerned about this discussion about 'cockroaches,'" Waldron said on Thursday. "To me, it seems there is some animosity between practitioners in the private credit sector and Dimon." However, Waldron ultimately emphasized that private credit institutions and banks are part of the same system and should not be pitted against each other. "I really don't understand why everyone wants to see private credit and loans within the banking system as two separate things, in reality they are part of the same system," he said, adding that if a crisis occurs in the future, "all participants in the system will be affected."