President Donald Trump’s plan to bolster Americans’ 401Ks by expanding access to private market investments is reaching its final stages, but according to Sen. Elizabeth Warren (D-MA) it may have come at the “worst possible moment” — and could end up sinking Americans’ savings, Politico reported Friday.
Trump signed an executive order last August designed to allow working-class Americans to more easily invest in markets not historically available to them through their retirement accounts, notably the private credit market, which involves loans made outside of traditional banks.
The Trump administration is now “planning to roll out” its proposal, though as Warren and others noted, the timing may prove disastrous.
“The roughly $2 trillion private credit industry — a major piece of the broader private markets where risky companies obtain loans from Wall Street firms that fall outside the highly regulated banking system — is facing a reckoning from investors,” Politico reporter Declan Harty wrote for the outlet Friday.
“A string of blow-ups has sparked new concern over the quality of loans underpinning the industry. Investors are pulling their money from credit funds so fast that they’re running into withdrawal limits. And fears of an artificial intelligence upheaval could ripple through the market, since private credit funds have been critical sources of capital for software companies, which are now endangered by AI.”
The factors plaguing the private credit market were described by Danny Moses — investor and predictor of the 2008 housing market crash — as “the perfect storm,” with Moses telling the outlet that the private credit market could very well face an upending equal to what the housing market saw in the 2008 financial crisis.
“They’ll have no choice but to bail out this entire industry if it goes off a cliff,” Moses told Politico. “It will impact retail investors, the banks, certainly private equity and private credit.”
And Amanda Fischer, who up until last year served as the U.S. Securities and Exchange Commission chief of staff, concurred with Moses in that Trump’s plan couldn’t have come at a more dire moment.
“The Trump administration is opening the door for fund managers to dump private debt and equity on retail investors and their 401Ks right at the point when the market is showing the largest signs of strain,” Fischer told Politico.