Describing Boxed's Chapter 11 filing, co-founder Jared Yaman validated the saying that bankruptcy happens 'slowly, then all at once.' The process was a gradual series of breached covenants and forbearance requests that created a turbulent environment before a sudden, rapid collapse into bankruptcy.

The 'bezel' is the inventory of hidden, fraudulent wealth that builds up during good economic times. Investor overconfidence, plentiful capital, and lax due diligence create the perfect environment for financial scams to flourish, with this phantom wealth only being discovered during a downturn.

Years of low interest rates encouraged risk-taking, resulting in a large pool of low-rated loans (B3/B-). Now, sustained higher rates are stressing these weak capital structures, creating a boom in distressed debt opportunities even as the broader economy performs well.

Recent "canary in the coal mine" cases like First Brands, often blamed on private markets, were not PE-owned and were primarily financed in liquid markets. In fact, it was private credit firms pushing for deeper diligence that exposed the issues, strengthening the argument that private credit offers a safer way to access the asset class.

Contrary to theories that recent blow-ups like Tricolor indicate more fraud is coming, the real issue is broad economic stress. Using Warren Buffett's "tide goes out" analogy, higher rates and persistent inflation are exposing fundamental weaknesses and squeezing consumers across large, non-AI sectors of the economy.

Recent credit failures and frauds are not 'systemic' risks that threaten the entire financial system's structure. Instead, they are 'systematic'—a regularly recurring behavioral phenomenon. Good times predictably lead to imprudent lending, creating clusters of defaults. The problem is human behavior, not a fundamental flaw in the market itself.

Bubbles provide cover for fraudulent activities, as rising prices mask underlying problems. In cases like the South Sea Company and Railway Mania, it wasn't until after the collapse that the full extent of financial engineering, corruption, and deception came to light, by which point it was too late for most investors.

Unlike past recessions where defaults spike and then recede, the current high-rate environment will keep financially weak 'zombie' companies struggling for longer. This leads to a sustained, elevated default rate rather than a sharp, temporary peak, as these firms lack the cash flow to grow or refinance.

Citing a lesson from former Goldman Sachs CFO David Viniar, Alan Waxman argues the root cause of financial crises isn't bad credit, but liquidity crunches from mismatched assets and liabilities (e.g., funding long-term assets with short-term debt). This pattern repeats as investors collectively forget the lesson over time.