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Lee and I were talking about how quickly market confidence can change, and Jamie Dimon’s recent comments came up. The JPMorgan chief doesn’t mince words, and his warning about growing credit risk sounded like someone who has seen this story before. Lee reminded me of the summer of 2007, when early signs of trouble at Bear Stearns set off alarms that most investors ignored.
Early Signs of Stress in the Credit Markets
Lee pointed out two recent bankruptcies that caught his attention. Tricolor, which specialized in lending to subprime borrowers, and First Brands, a heavily leveraged auto parts distributor, both collapsed under growing debt loads. He compared the pattern to the early stages of previous financial crises, where a few small defaults hinted at deeper cracks across the system. Dimon’s blunt summary stuck with both of us: “You see one cockroach, there’s usually more.”
Echoes of 2007
Lee recalled sitting on a hedge fund trade desk in 2007 when Bear Stearns announced the closure of its CMO mortgage funds. At first, people dismissed it as isolated, but it marked the start of the credit unraveling that led to the 2008 collapse. He worried that today’s rising subprime defaults and corporate leverage look similar, only this time they are spread across different sectors.
Subprime Risks and Overstretched Valuations
I mentioned that two major risks now threaten the economy. The first is the persistence of junk-rated corporate debt, a legacy of Michael Milken’s era, where many firms continue to borrow cheaply despite deteriorating balance sheets. The second is the surge in subprime consumer credit. Many borrowers are sitting on 72-month auto loans or zero-interest credit cards, even as the value of their cars has fallen far below the debt attached to them. In some cases, the market value of a company’s debt now exceeds the enterprise value of the business itself.
Potential for Systemic Contagion
Lee agreed, noting that subprime failures have already started to climb. He believes Dimon’s warning goes beyond a few troubled firms. The concern is systemic, not isolated. If defaults begin to cascade through regional banks or high-yield markets, credit spreads could tighten rapidly, cutting off access to capital and triggering a downturn.
Cautious Optimism Meets Reality
The U.S. economy has shown surprising strength in 2025, with GDP growth outpacing Wall Street expectations. Yet, as Lee said, “there’s always something.” Credit markets can shift quickly, and small signs of stress can multiply. Dimon’s comments serve as a reminder that complacency in strong markets often precedes the next correction.
Transcript:
[00:00:04] Douglas: So Jamie Dimon, the king of all global bankers, head of (NYSE: JPM) | JPM Price Prediction JPMorgan Chase & Co., had some harsh words for people when it comes to, uh, risk. You want to pass some of that on?
[00:00:19] Lee Jackson: Well, and I don’t think that Jamie Dimon’s the Lone Ranger. I think you know these, these. Bankruptcies, you know, there was two that were, were, uh, significant. Okay. First there was our friends, uh, tricolor, which were kind of, they were like lending to the lowest, you know, the kind of sub‑sub‑market credit guys for, for lending and, um, and First Brands, which was a company that had acquired tons of other auto parts distributors that, you know, smaller O’Reilly’s or you know, those kind of guys.
[00:00:58] Lee Jackson: And they just kept. They just kept adding, adding debt, adding debt, and then it just blew up and there was money that couldn’t be found and things of that nature. And Jamie Dimon, you know, he’s been around, he’s seen this, this play before, you know, he saw it. You know, in, in no uncertain circumstances in oh seven and oh eight, he saw it in 2000, and God knows he saw it when long‑term capital blew up because that was a very dicey situation that could have gone either way.
[00:01:28] Lee Jackson: And, you know, his comment, which I think is, good as that is that.
[00:01:34] Lee Jackson: you see one cockroach, there’s usually more.
[00:01:37] Douglas: Nice.
[00:01:37] Lee Jackson: And you know, and then everybody comes out and says, oh, the credit markets are fine. And, uh, regional banks are fine and, and everything’s copacetic and, and, and, and all that. But the, the thing is, I was sitting on a trade desk at a hedge fund in 2007, and then we saw the news on TV Bear Stearns to close two of their, you know, CMO mortgage funds.
[00:02:00] Lee Jackson: We looked at each other, looked back at the TV, looked at each other, and we went, uh oh. Uh oh. ’Cause those are all CMOs. They’re stacked up on them. And, and they bailed out, in the summer of 2007. But it, everybody then was saying the same thing. Why is this happening? But everybody had seen a wild mortgage market for like four years, and I remember Barney Frank going, there is no mortgage problem. There’s none. Well, you know, it took a full year after the collapse of those Bear Stearns funds and I knew people there ’cause I worked there and, um, not at that time obvious. But, you know, we all looked at each other, you know, on the trade desk there and we’re like. Wait a minute, the, and these were big funds, so what if Jamie Dimon’s, right?
[00:02:47] Lee Jackson: What if there is more First Brands and more Tricolor, and there’s regional bank failures like we saw at Silicon Valley Bank, and what if this is the tip of the iceberg? Because you know, this has gone on pretty unabated for the last four years plus. And
[00:03:04] Douglas: The economy faces two uh, default risks. The first one is, is that for what you and I used to call junk bonds, the Michael Milliken invention,
[00:03:17] Lee Jackson: remember them well. They’re still, they still exist.
[00:03:20] Douglas: They still exist, but they’ve gotten some pretty good rates. So it’s been easier for them to borrow in a lot of ways. It’s easier to borrow at 8% than it is at 15.
[00:03:30] Douglas: I don’t know that the appropriate amount of risk is built in to their interest rates. The other thing is, is you now have these subprime individuals who’ve gotten great credit‑card deals. They’ve gotten 0%, 72‑month financing on their cars. The, you
[00:03:49] Douglas: value of their car loans is worth way, way more than the cars themselves.
[00:03:54] Lee Jackson: Absolutely.
[00:03:55] Douglas: The
[00:03:55] Lee Jackson: That’s why people are in that business. Yeah.
[00:03:57] Douglas: value of the debt in some of these junk companies is worth more than the enterprise value of the company itself.
[00:04:04] [00:04:06] [00:04:19] [00:04:23] [00:04:27] [00:04:44] [00:04:47] [00:04:48] [00:05:10] [00:05:38] [00:05:56] Lee Jackson: It’s always something and it is always something, especially in the credit markets.
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