Howard Marks’ “Cockroaches in the Coal Mine”: Credit Is Fine Until It Isn’t
Written By BuySide Digest Team
The Antenna Is Up
In his Memo titled “Oaktree Capital Management – Cockroaches in the Coal Mine,” Howard Marks brings the tone his long-time readers expect: no hype, no flourish — just a well-aimed flashlight in the dark. He opens citing Jamie Dimon, who recently said:
“When you see one cockroach, there are probably more… everyone should be forewarned on this one.”” Oaktree Capital That’s Marks’ setup: the auto‐parts supplier bankruptcy, the used-car lender collapse, the fraud lawsuits bubbling out of regional banks — these aren’t isolated events. They are signals.
Marks reminds us: sub-investment grade credit always carries risk — the yield premium is compensation, not a free lunch. In the memo:
Multiple bankruptcies in private credit and leveraged lending show standard underwriting may have been lax.
We see alleged fraud (e.g., companies borrowing against same collateral twice) and opaque structures.
And we remember the famous line: “the worst loans are made in the best of times.”
Marks doesn’t declare a full-blown crisis. He says this is likely systematic, not necessarily systemic — bad actors and sloppy underwriting, not a total collapse of the plumbing.
From Cockroaches to Canaries
The metaphor here is classic Marks: credit repaying while we sleep, until the fixings show up. The cockroaches are the small defaults; the canary would be a broader breakdown. He sketches the cycle in investor attitudes:
Boom times: risk is a friend, due diligence slides, lending standards fall.
Bust times: risk is enemy, standards tighten, markets punish.
“History does not repeat, but it does rhyme.” Oaktree Capital In short: when everyone says “this time it’s different,” that’s the red flag.
Private Credit’s Golden Age — Maybe a Trap?
Marks writes that private credit has grown huge: roughly $2 trillion flowed in post-2011 as banks pulled back. With new entrants, more capital chasing fewer truly safe deals, margins got squeezed. Lending standards softened. Now we have:
Firms borrowing with little oversight.
Some deals lacking public disclosures.
Fraud and misreporting creeping in. Marks’ point: just because the default rate hasn’t spiked yet, doesn’t mean the risk isn’t real.
What to Do When the Music Stops
Marks is a pragmatist. He offers guardrails more than predictions:
Don’t confuse low default rates now with zero risk.
Liquidity matters: public debt is preferable when stress hits.
“It’s absolutely essential to always balance the desire to put money to work with the need for prudence.” Oaktree Capital Basically: when everyone is leaning in, maybe lean out.
Why This Matters Now
We’re in a time when:
Leverage is high.
Lending standards may be looser than they look.
Investor complacency is widespread. Marks warns: many grievous credit mistakes happen in good times, and only become visible when the tailwind disappears.
“A good bezzle is built when people are relaxed, trusting and money is plentiful.” Oaktree Capital
- Explore Funds
SubscribeHoward Marks’ “Cockroaches in the Coal Mine”: Credit Is Fine Until It Isn’t
The Antenna Is Up
In his Memo titled “Oaktree Capital Management – Cockroaches in the Coal Mine,” Howard Marks brings the tone his long-time readers expect: no hype, no flourish — just a well-aimed flashlight in the dark. He opens citing Jamie Dimon, who recently said:
Credit Is Trying to Tell Us Something
Marks reminds us: sub-investment grade credit always carries risk — the yield premium is compensation, not a free lunch.
In the memo:
Multiple bankruptcies in private credit and leveraged lending show standard underwriting may have been lax.
We see alleged fraud (e.g., companies borrowing against same collateral twice) and opaque structures.
And we remember the famous line: “the worst loans are made in the best of times.”
Marks doesn’t declare a full-blown crisis. He says this is likely systematic, not necessarily systemic — bad actors and sloppy underwriting, not a total collapse of the plumbing.
From Cockroaches to Canaries
The metaphor here is classic Marks: credit repaying while we sleep, until the fixings show up. The cockroaches are the small defaults; the canary would be a broader breakdown.
He sketches the cycle in investor attitudes:
Boom times: risk is a friend, due diligence slides, lending standards fall.
Bust times: risk is enemy, standards tighten, markets punish.
Private Credit’s Golden Age — Maybe a Trap?
Marks writes that private credit has grown huge: roughly $2 trillion flowed in post-2011 as banks pulled back.
With new entrants, more capital chasing fewer truly safe deals, margins got squeezed. Lending standards softened.
Now we have:
Firms borrowing with little oversight.
Some deals lacking public disclosures.
Fraud and misreporting creeping in.
Marks’ point: just because the default rate hasn’t spiked yet, doesn’t mean the risk isn’t real.
What to Do When the Music Stops
Marks is a pragmatist. He offers guardrails more than predictions:
Don’t confuse low default rates now with zero risk.
Credit skills matter — second-level thinking matters.
Liquidity matters: public debt is preferable when stress hits.
Why This Matters Now
We’re in a time when:
Leverage is high.
Lending standards may be looser than they look.
Investor complacency is widespread.
Marks warns: many grievous credit mistakes happen in good times, and only become visible when the tailwind disappears.