Wine country is heating up
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What is the main topic discussed in this episode?
On the program today, a vote for making finance boring again. We'll do some commodities and then wine. From American Public Media, this is Marketplace.
In Los Angeles, I'm Kai Risdahl. It is Tuesday, today the 24th day of March. Good as always to have you along, everybody. We're going to begin today not with the war, not with equities, not with oil or supply chains, but with a slice of the financial markets that is beginning to become just a little bit unglued. Ever since the financial crisis going on 20 years ago now, if you can believe that, investors have been pouring money into what's known as private credit, nearly $2 trillion worth, money that gets loaned out to businesses that were unlikely, shall we say, to be able to get loans from actual banks. Those investors, though, have been getting jittery, worried by some high-profile defaults and the future prospects of...
you know, getting their money back. So a lot of them have started pulling money out of private credit. Bank run is a little bit strong here, but not by much. Marketplace's Henry Epp gets us going. Private credit has gotten as big as it has because of the financial crisis. Banks had lost a lot of money on loans and Washington had imposed new lending regulations, says Kent Belasco at Marquette University.
That caused banks to become, you know, much more risk averse. And so therefore, it became a little harder to get credit.
Especially for mid-sized companies. At the same time, investors were looking to put their money into funds that got a decent yield, says Amir Sufi, a professor of finance at Chicago Booth. Private credit gave them that. From about 2010 to about 2024, the returns on private credit were truly impressive. Eight to 10 percent, Sufi says, and the borrowers didn't default much. But the good vibes have changed lately. Private credit firms made a ton of loans around 2021 and 22, Sufi says, when interest rates were low. They're higher now, and a lot of those five-year-old loans are coming due soon.
And when debt comes due and the interest rate required to roll over the debt is much higher, then the borrowers are much more likely to default on the payments.
Private credit firms have also done a ton of lending to software companies, and investors are worried that AI is coming for them. But it's hard to know exactly what's going on at private credit firms, says Lenore Palladino at UMass Amherst, because they don't have to follow the same rules as traditional banks.
They're making a lot of loans, but without needing to disclose what is happening with the loans.
They don't necessarily have any reserves in case the loans go south, in case they're not paid back. And they aren't required to disclose or be supervised by federal regulators. All of this uncertainty in private credit at a very uncertain time in the economy has investors trying to get their money out. We always have moments where all of a sudden, if there's fear, then everyone will try to get out and, you know, be safe with their assets, be safe with their money. The thing is, a lot of private credit funds can limit how much investors can withdraw at any one time. And right now, a lot of them are throwing up those gates. I'm Henry App for Marketplace. Wall Street on this Tuesday. The war wasn't front and center in markets, nor, though, was it far from top of mind.
We will have the details when we do the numbers.
The program today, it seems, is loosely organized around the theme of things to keep an eye on. Henry did private credit for us just a second ago. The Bureau of Labor Statistics brings us our next item, its update on worker productivity during the fourth quarter of last year.
So Paul Krugman has this quote where he says, productivity isn't everything, but in the long run, it's almost everything. It's really the primary way by which we improve living standards over time.
That's Erica McIntarfer, now a policy fellow at the Stanford Institute for Economic Research.
What is the current state of the private credit market?
And until she was fired by President Trump after he lied and said she'd manipulated the jobs numbers, she was the commissioner of the Bureau of Labor Statistics.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:02–4:47
2
What is the current state of the private credit market?
4:47–11:40
3
How is climate change affecting Oregon's wine industry?
11:40–12:22
4
What grape varietals are vineyard owners adapting to warmer weather?
12:22–12:53
5
What challenges do winemakers face from extreme heat events?
12:53–14:03
6
How are vineyard owners preparing for water shortages and wildfires?
14:03–25:07
7
What economic indicators are affecting labor productivity revisions?
25:07–25:24