I’ve been feeling uneasy about financial markets lately… not because I think we’re headed for a carbon copy of 2008, but because a few old patterns are starting to bubble back up. Not in the same costume, but the themes are sounding a bit too familiar for my tastes.
Mark Twain (or someone often misattributed as him) once said: “History doesn’t repeat itself, but it often rhymes.” That phrase has been bouncing around in my head lately. So I did what anyone would do when their gut starts raising red flags — I Googled.
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“What were the weakening financial conditions leading up to the financial crisis of 2007–2008?”
The top hits were obvious, but worth revisiting:
- Housing bubble
- Risky subprime mortgages
- Complex financial instruments built around them
- Reduced lending standards
- Leverage
- Loss of confidence (as a result of all the above)
Most post-mortems on the Great Financial Crisis boil it down to two culprits: too much market risk (duration mismatches, leverage, liquidity illusions), and credit risk that looked manageable until it suddenly wasn’t. The packaging changed... but those two variables were always at the core.
So I started thinking — what would that same list look like today?
Then vs. some parallels today:
Again, I’m not arguing we’re replaying 2008 beat-for-beat. The scale, scope, and drivers are different. But we’re seeing familiar dynamics crop up in new forms… and I think it’s worth paying attention.
Take crypto. The comparison to subprime is imperfect — I don’t think crypto exposure is anywhere near the systemic risk profile or pervasiveness of what we saw in the mortgage/CDO complex leading up to the crash. But it is starting to show up in more traditional wrappers, and that creates a new set of questions.
Just this year, we’ve seen a sharp uptick in tokenized Treasury and money market funds — vehicles designed to blend yield, speed, and collateral access, and backed by big names like BlackRock, Goldman Sachs, Franklin Templeton, and BNY Mellon. Assets in these funds have jumped nearly 80% year-to-date, topping $7.4 billion.
We’ve also seen retail-friendly private credit ETFs entering the scene. The idea that you can take limited-liquidity assets and offer daily redemption is — at best — optimistic. But that’s what’s happening (it’s also worth noting that historically, these vehicles have been both hard to value and hard to sell; so how are we to make sense of them being packaged in a continuously-traded wrapper?). MarketWatch put it like this:
“The rise of these private-credit products is raising alarms among market observers, as many see the lines between liquid and illiquid, public and private, transparent and opaque becoming increasingly blurred. What was once an asset class reserved for sophisticated institutions is now being sliced, repackaged and sold as an easy income solution for yield chasers through ETFs or mutual funds — a shift that could make them risky and potentially harmful for everyday investors.”
Then there’s credit spreads. As of publishing, investment-grade spreads are now flirting with late-90s levels (around 80bps). High-yield spreads are hovering near 2.5%. That’s not much room for error. If spreads widen — even modestly — investors could be staring at drawdowns they weren’t expecting from supposedly “safe” parts of their portfolios.
None of this is a doomsday forecast. But when you start seeing leverage and complexity creeping into a market that’s already underpricing risk… it’s worth rechecking your footing.
So what can investors (or advisors) do about it?
Here’s where I’d start:
- Reassess your leverage
Even if you’re not using margin, think about it this way: how much of a drop would it take for your portfolio (or home) to go underwater relative to your obligations? If the number’s small, you’re effectively leveraged whether you realize it or not. - Rebuild your emergency buffer
Do you have 3, 6, 9, or 12 months of expenses covered in cash or cash-like instruments? The longer your buffer, the less likely you’ll need to sell at the wrong time. - Know what you actually own
Asset allocation isn’t just about percentages… it’s about exposure. Do any of your holdings operate in parts of the market that have hidden liquidity or credit risks? Are they structured in a way that could surprise you if volatility spikes? - Gut-check your equity mix
One rule of thumb I still find useful: equity allocation should roughly equal one minus your age. Not perfect, but a helpful starting point. - Watch for hidden liquidity mismatches
If a fund offers daily redemption but holds assets that trade monthly (or quarterly), that’s a flag. It’s not about predicting a run… it’s about avoiding the potential for one.
None of these steps require perfect foresight… just discipline. If I’m being overly cautious, fine. But I’d rather be early and safe than late and sorry. Risk doesn’t announce itself in advance — it builds quietly, then shows up all at once.
So yeah… maybe history isn’t repeating. But it might be humming the same tune in the background. And if you can hear it, even faintly, it’s worth listening to.
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