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The market was incredibly inefficient since 2010. Artificially suppressed rates, a regulatory regime that, you know, disallowed any form of M&A and consolidation. Now that those constraints are lifted, you're going to see a lot of this creative destruction work its way through the economy. And I do think that there is a lot of risk in the economy in this sector because again of this wall of commercial real estate debt that's coming due.
And I think this is the the problem. You got pal sitting there. You got too late pal sitting there in his ivory tower. He's willing to keep rates artificially low so he can get renominated and he can help Biden and Yellen. He's willing to cut rates to help Kamla. But as soon as Trump gets in there, he stops the rate cutting cycle even though inflation's down to 2.0%.
2025 is quickly shaping up to be one of the busiest bankruptcy years since the great financial crisis of 2010. In May and June alone, more than 120 companies with significant debt or assets collapsed. And with the second half of the year underway, the pace shows no signs of slowing. Corporate America is facing a reckoning.
The surge in bankruptcies comes after years of easy money that left companies hooked on cheap credit and constant refinancing. Now, the Federal Reserve refuses to cut rates despite slowing growth. While new global tariffs from the Trump administration weigh on consumer demand, businesses that once survived on abundant liquidity are running out of oxygen, and the cracks are widening across vulnerable sectors like retail and real estate.
Many analysts argue that the Fed itself created the conditions for today's crisis, keeping interest rates near zero for over a decade, fueling reckless borrowing, then hiking them at record speed once inflation hit. The result is a fractured economy where some industries remain strong, while others buckle under debt.
On the All-In podcast, Chamath Palapidia called this a long overdue creative destruction of weak firms, while David Friedberg and David Saxs sharply criticized the Fed's handling. Their insights cut through the headlines and reveal what's truly driving this wave of bankruptcies. All right, let's talk about corporate bankruptcies.
According to N S&P Global Report, so far in 2025, we've seen the most corporate bankruptcy filings since 2010. That was after the great financial crisis, you remember? Uh, or some of you might have been too young. So, uh, corporate bankruptcies, according to the S&P, are public companies with debt of at least 2 million and private companies with assets or liabilities of at least 10 million.
I'm not sure why the public companies is less than the private. It didn't make sense to me, but there must be a reason. Uh these are also called large bankruptcies. Here's a chart showing you corporate bankruptcies since 2008. The blue bar is through July. Gray bar is the full year. So, uh we're looking at a partial year here.
Obviously, in 2025, we're at 446 large bankruptcies 7 months into 2025, which would put us on track for the most since 2010. Yeah, nothing close to GFC numbers, but uh you know it's not trending well. And if you look at corporate bankruptcies broken down by month since 2020, you can see uh that bankruptcies are increasing after the massive rate hike cycle in 2022 and 2023.
So obviously rates have something to do with this. What are your thoughts, Chimath, on what we're seeing here? It's not like super dramatic, but it's definitely uh notable. Yeah, it's notable, but I think it's notable not for the reasons that the mainstream media tries to describe it in. I read these articles and I was a little bit caught off guard because initially what it said was the tariffs were causing this and I was like large companies don't go bankrupt 30 60 days.
Yeah. Because of the tariff this makes no sense. But the narrative was very strong. Basically trying to paint the Trump administration as having caused this. So I just started to look into this and couple of interesting things to note that I the conclusions that I came to. I think the most interesting is that there were a lot fewer bankruptcies over the last four or five years than there should have been.
And I think that there are two reasons. The first reason is that you had rates artificially suppressed at zero for an incredibly long amount of time. And so you had all kinds of companies able to raise enormous enormous amounts of capital that they probably shouldn't have been able to or at a minimum should have done at much higher rates which weren't really there because the poor rate was at zero.
So what that means is that many companies were able to fill the reservoir of money and then when the core structural business started to fail, they had a lot more oxygen in the tank to survive a lot longer. So I think a lot of what you're seeing and if you look Jason at some of these companies like Joann's Fabrics and Party City, these were businesses that were upside down for years.
Yep. And a number of these right were PE buyouts that you know their strategy is to saddle them up with a bunch of debt too. So that that speaks to what you're saying. So I think I think the reason why bankruptcies are up right now is because the reservoir of free money the money printer that printed frankly since 2010 up until about 2021 because you know we still gave an enormous amount of money in co is finally starting to run out.
That's number one. But the second is that we actually haven't had a process of creative destruction in American company formation for a while. Yeah. Probably since GFC GFC, right? A similar a similar thing happened at that time too, Jamal, right? We had all these backed up companies that probably should have died and it kind of
Well, what I think I I think what happened was like, you know, startups ran out of money. There was certain parts of of industries that had some trouble, but by and large still paying taxes on your crypto gains. What if you didn't have to? With iTrust Capital, you can buy and sell crypto inside a tax advantaged IRA, giving you a smarter way to grow your portfolio without worrying about capital gains tax.
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And that in part was a structural issue because of the way the federal bureaucracy reacted to it. Not just in the United States to be fair, but around the world. And I think when you relax those constraints, what you can start to see are companies identify assets that they want inside of other businesses, be much more aggressive in getting them.
businesses that are floundering, being able to see that they're about to run out of money and have the confidence to try to do an M&A deal to survive. You need all of these things to work in lock step for a market to be efficient. The market was incredibly inefficient since 2010. Artificially suppressed rates, a regulatory regime that, you know, disallowed any form of M&A and consolidation.
Now that those constraints are lifted, you're going to see a lot of this creative destruction work its way through the economy. That's one big trend. The other big trend, and I think we saw this in Nick, can you please find the tweet from Delion where he talked about the Chipotle competitor that TK launched?
I just want to point to this because I think this is another wave of competition that's going to put a bunch of categories of business under duress, which is, you know, our friend Travis Kalanick, who's the founder of City, what is it called? City Logistics. Is that what it's called? Yeah, Cloud Kitchens is how it's called.
Cloud Kitchens. Okay. He launched a Chipotle competitor and it's apparently totally kick-ass and way better than Chipotle. And it just starts to show that there's an a wave of competition that's also coming from completely different companies you never would have expected going after a bunch of these businesses.
So, if you put these two things together, I think you're going to see more, not less, bankruptcies. But I think the outcome is probably positive in that you clean out a bunch of businesses that were taking up time and resources. You should allocate a lot of the human capital that are in those companies to different businesses.
Chamath Palipidia says today's bankruptcy surge isn't about tariffs but a long delayed reckoning. Four years the Fed's zero rate policy kept weak companies alive. Then in 2022, rates jumped 16-fold, draining liquidity and exposing overleveraged businesses. Now industries from retail to real estate face what Chamath calls an overdue cleansing.
But opinions differ. David Friedberg sees retail failures as a natural wash out of zero rate excesses. While David Saxs warns the real crisis is coming in commercial real estate. Their debate shows just how divided experts are on what's next for the economy. The retail channel, like others, is highly levered because in order to have a retail store, you have to pay a monthly fee to the physical real estate owner.
And so it's unlike other businesses that are services or are more nimble and can relocate. You actually, it's the equivalent of having debt. When you sign a lease, you're stuck in a 10-year debt cycle. You have to pay every month a fixed amount of money and you can't get out of it. So the retailers make a lot of sense.
they were basically levered businesses in addition to all of the kind of macro trends of people not going to physical locations and co but I think Chimath has it right which is this is all kind of zer era you know indigestion that's being washed out and to the point like some percentage of overfunded negative unit economic type businesses are also getting cleaned up in the kind of call it tech space which involves typically a lot of companies that are not tech but math does tech
so um that definitely makes sense to me. Saxs, any insights here? Well, just to pick up on this. So, you know, when you showed those charts on the bankruptcies, I didn't see a huge trend there. I mean, I can see that there's some pickup since the ZER era, but it doesn't look like a huge trend to me.
We just had a 3.3% GDP print for Q2. I think it that was restated, right? That's what happened today is they restated it. Well, no, there was an estimate. Remember the Atlanta Fed had this 3.3% estimate then they reduced it to 3.0 but now the actual number is in 3.3%. So the economy seems pretty hot and it's doing well.
But I would say that there is some softness in the economy in those sectors that are exposed to high interest rates. And the best example of this is real estate. I remember on this program a year and a half ago we talked about the wall of debt on commercial real estate that was coming due and had to be refinanced.
And there's 2.2 two trillion of debt, CR debt that's maturing before 2028. And what we talked about back then was the banks don't really want to foreclose on these buildings because then it hits their balance sheet. So, everyone has a incentive to restructure this debt. And there were a lot of these blend and extend type deals where they would extend the debt and work out a a lower interest rate.
Some people call these deals pretend and extend because you're pretending that the real estate sponsor still has equity in these buildings and they might have Have these started to come back? What I'm seeing is that some real estate developers are starting to lose buildings. Now, the reason for that is that the debt is coming to you and has to be refinanced.
And there's two problems when you refinance. One is you're paying a higher interest rate. So now you take a building that was cash flowing and now at that higher interest rate, it might have negative cash flow. In other words, it it's basically bankrupt. So those buildings don't make sense anymore. And those are situations where you're going to lose the building to the bank.
The other problem is when you refinance, you might not be able to get the loan to value that you had before because valuations have also come down because real estate valuations are inverse to interest rates, right? So in other words, if you know, let's say you had a building that was worth uh $100 million before at Zer era interest rates, you could borrow twothirds of that.
So call it 66 million. Now, if the building's only worth, I don't know, $60 million, then you can only borrow $40 million. So, the amount of proceeds you can get when you refinance is much lower. And that gap has to be replaced with something. So, in that situation, the equity holders would have to come in and do an equity in refinancing where they've got to put up that gap.
In the example I gave, that gap would be $26 million. So, the equity holders have to come out of pocket, which is very difficult to do. and they might not want to do it and in that case you're also going to lose the building. Sax, I have a question. Nick, can you show up show this to image? Sax, how does this trend build on top of that other trend which is on top of everything else now?
It just seems like the real estate financing flows are moving far away from typical office construction towards data centers. So if you add that to the mix, then people seeking funding for traditional office are going to find or refinancing are going to find fewer lenders. Is that true or not true? Well, yeah.
I think there has been a little bit of a credit crunch, but also there's no reason to really be building so much office space when there's so many buildings that are underwater or vacant. Yeah. Like a third of the real estate in San Francisco is basically vacant still. Still. So why would you build any more real estate?
But what needs to happen is those buildings effectively need to go back to the bank and then they need to be auctioned off at some lower price so that new equity holders can come in and new capills can be formed and then you can get the money you need to do the tenant improvements the TI's so that you can get more tenants in there cuz right now one of the reasons why a lot of these buildings are empty is because the equity holders don't have an incentive to put in more money to do the TI's necessary to sign new tenants.
So you got these zombie buildings that even if there was a tenant who wanted the space at some lower rent, the owners of the building have no incentive to do that because they can't put any money into the deal. So like we finally need a bunch of these buildings to go back to the bank or we need rates to come down so that you can do refinancings without them being these punitive refinancings.
And I do think that there is a lot of risk in the economy in this sector because again of this wall of commercial real estate debt that's coming due. And I think this is the the problem. You got Pal sitting there. You got too late Pal sitting there in his ivory tower. He's willing to keep rates artificially low so he can get renominated and he can help Biden and Yellen.
He's willing to cut rates to help Kamla. But as soon as Trump gets in there, he stops the rate cutting cycle even though inflation's down to 2.0%. So you got this too late pal and the rest of his Fed cronies. Jal wants to make it sound like they have some dissenting voice. It's nonsense. In any event, they're all collectively sitting there in their ivory tower, completely out of touch with what's happening in the economy, and they're being slow to cut rates.
And I do think that at least sectors like real estate do need these cuts. David Saxs argues that Jerome Powell is no longer a neutral referee, but a political actor. He claims Powell cut rates aggressively under Biden, then froze the cycle once Trump returned. If that's true, the Fed is wielding interest rates as a political weapon, and the economy itself could become collateral damage.
Markets are already signaling concern. Gold has surged above $3,400 an ounce. Silver is testing multi-year highs, and investors are piling into real assets as confidence in fiat policy weakens. Meanwhile, commercial real estate remains a ticking time bomb. With $2.2 trillion in loans maturing before 2028, many properties can't cash flow at today's interest rate.
That means defaults, zombie buildings in major cities, and more stress on regional banks until assets are written down and recapitalized. The big question is what Powell does next. Cut rates to relieve pressure and risk reigniting inflation, or hold firm and let bankruptcies mount until the reset is complete.
Either way, volatility across equities, commodities, and credit markets is almost guaranteed. Do you think Powell is playing politics or just doing what's necessary? And will commercial real estate trigger the next big crisis?
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