Marks explains that B-rated bonds could not be issued before high yield revolution changed thinking.
“And in those days, a bond rated below investment grade, which means below triple b, could not be issued, wasn't proper.”
“And if you bought those stocks, the day I got there in '69, and you held them firmly for five years, you lost almost all your money.”
Marks says high-quality assets can be risky if overpriced, citing nifty-fifty stocks that lost almost everything from 1969 to 1974.
“A high quality asset can be priced so high that it's risky. I started work at Citibank in September 1969, when I got out of Chicago Booth.”
Marks describes Fed funds rate declining from 20% in 1980 to zero forty years later as dominant financial factor.
“Forty years later, the Fed funds rate was zero, and I had a loan outstanding from bank at two and a quarter.”
Marks says interest rates fell 20 percentage points from 1980 to 2020, the most important financial event in fifty years.
“So the decline of interest rates by 20 percentage points over that period was a dominant factor in the financial world.”
Marks traces private credit's origins to 2011 when regulated banks withdrew from buyout lending and non-bank lenders filled the gap.
“in 2011, when the banks chastened and regulated because of the global financial crisis, pulled back from lending for buyouts, so called non bank lenders stepped in and started to engage in direct lending, lending for mid sized buyouts.”
Marks dates the origin of nonbank direct lending to 2011 when banks became unable to meet private equity demand.
“And so so called nonbank lenders stepped in to make the loans that the banks weren't making.”
Marks says credit markets have been on a seventeen-year run since the 2009 financial crisis low.
“Well, the the credit markets have been on a tear for the most part of the last seventeen years.”