Former Lehman VP warns of 2008-like credit strain in U.S. markets

Former Lehman Brothers vice president Lawrence McDonald is warning that U.S. markets are showing signs that resemble the run-up to the 2008 financial crisis. In an interview published March 10, he pointed to a growing list of credit disruptions and weaknesses tied to private credit, artificial intelligence, and software.

McDonald explained that what looked like isolated problems months ago has broadened into multiple credit-related events. He drew a parallel to 2007 and early 2008, when early credit strains were downplayed and then spread more widely across the financial system.

According to McDonald, roughly a dozen recent developments in private credit-loans made by nonbank lenders that have expanded quickly in recent years-are now showing stress. He also noted signs of pressure in parts of the technology sector connected to AI and software, arguing that these issues are appearing across several pockets of the market.

“What we saw from 2007 to 2008 is a lot like what’s happening now. Whereas you have credit risk that’s coming in, and people originally downplay it with kind of hubris-type knockoffs. They’re not taking it seriously, but then the credit risk becomes more serious. That’s the most compelling similarity between today and 2008. All of a sudden, now we’ve got 12 different credit events that are tied to private credit, artificial intelligence, and software weakness,” McDonald stated.

He urged investors to be careful about optimistic market narratives from large financial firms, noting that they often encourage clients to remain fully invested even as risks increase. McDonald advised following independent research and watching cross-market signals that can highlight rising credit pressure.

Recent commentary from major bank leaders has also focused on lending standards. JPMorgan CEO Jamie Dimon has warned that competitors are doing “dumb things” in lending to chase profits, highlighting concerns about risk-taking in credit markets.

McDonald’s perspective is informed by the collapse of his former employer. Lehman Brothers filed for bankruptcy in 2008 with more than $600 billion in assets, the largest bankruptcy in U.S. history. The firm was heavily exposed to subprime mortgages and operated with leverage of about 31 to 1. As home prices fell and defaults increased, Lehman’s position deteriorated. The decision not to arrange a rescue undermined market confidence, froze parts of the credit market, pressured equities, and helped set off a deep economic downturn.