AMNA NAWAZ: Lately, investors and# economists are warning about a piece## of the financial system that could pose a risk,## potentially similar in ways to the housing crash# that preceded the financial crisis in 2008.

It's part of what's been called the shadow# banking system, the private credit market,## an alternative type of lending to companies# that doesn't involve traditional banks.

We asked economics correspondent Paul Solman# to explain how it works, what's at stake,## and why alarm bells are sounding in some quarters.

PAUL SOLMAN: Bought an aftermarket car part in## recent years?

Good chance# it came from First Brands.

JOHN BASQUILL, Senior Reporter, Global# Trade Review: First Brands was a large## supplier of auto parts, things# like wiper blades, spark plugs.

PAUL SOLMAN: Over a decade the# company borrowed heavily to grow,## gobbling up 20 companies employing# 25,000 people, until this fall, that is.

JOHN BASQUILL: The lenders had become a# bit concerned about some of the financial## goings-on at the company and requested some extra# information which First Brands couldn't provide.

PAUL SOLMAN: What happened?

Went bust.# And who were its lenders?

Many came## from the world of private credit, a# part of the global financial system## that's exploded in recent years and has# some key players in finance rattled.

JAMIE DIMON, Chairman, J.P.

Morgan Chase: I should# probably shouldn't say this, but when you see one## cockroach, there's probably more.

And so we should# -- everyone should be forewarned on this one.

PAUL SOLMAN: One such roach, First Brands.

JEFFREY GUNDLACH, CEO, DoubleLine Capital: I# have been saying this for probably two years now,## that the next big crisis in the financial# markets is going to be private credit.

PAUL SOLMAN: OK, but what# exactly is private credit?

MARK ZANDI, Chief Economist, Moody's Analytics:# Private credit is just lending by nonbanks,## financial institutions like pension funds,# insurance companies, sovereign wealth funds,## but not going through the banking# system, thus the word private.

It's grown very rapidly.

It's now a# sizable player in the financial system.

PAUL SOLMAN: Growing from a $40 billion market# in the year 2000 to nearly $2 trillion today.

NATASHA SARIN, President, Budget Lab at Yale# University: The reason for that growth is that,## after the Great Recession, regulators realized# that large financial institutions had been## really exposed to making relatively# risky bets without having enough of## a backstop internally in the form# of capital that they held that was## available for the bank to draw down on# in case some of those bets went sour.

And so the result of the aftermath# of the crisis and the post-crisis## regulation in Dodd-Frank was to say that,# in order to take those types of risks,## it would be more expensive# for banks going forward.

PAUL SOLMAN: As a result, most banks# pulled back from riskier lending.

NATASHA SARIN: And private credit# stood ready, in some sense, to take## advantage and meet the need of the market# to be able to make those types of loans.

PAUL SOLMAN: For investors, returns on# those loans were, well, mouthwatering,## nearly double the rate of government bonds# or other loans.

So what's the problem?

MARK ZANDI: One of the issues with private credit# is, the lack of transparency is very opaque.

It's## not like the banking system, where it's highly# regulated and exactly what's going on.

Here,## we don't know very much because it is private.

And# so that makes it a little bit more disconcerting.

PAUL SOLMAN: For example, private credit firms can# report the value of their loans according to their## own internal models, rather than the market price,# marking to model instead of marking to market.## Problem is, it's nearly impossible to verify that# the loans are worth what they're claimed to be.

MARK ZANDI: Most times, no big deal.

That's# probably just fine.

But when you get into## kind of a risk-off environment,# when things are moving quickly,## prices are falling rapidly, that's when# mark to model becomes more of an issue.

PAUL SOLMAN: A loan mark to model could# even become a loan marked to zilch.

So how serious is the risk posed by private# credit to the American economy as a whole?

MARK ZANDI: It's consequential, but# it's still on the small side.

And I## don't think it's at a place# yet where it could do us in.

NATASHA SARIN: In some sense, it's a yarn# that you start to pull and you're worried## that it's both potentially unraveling, but# also that it's potentially connected to all## the other parts of the financial system.

And# the system is still very much reliant on all## of these different pieces in a way that# regulators don't yet fully appreciate.## And I worry none of us fully appreciate the# possibility of cascading downturn risk as well.

MARC ROWAN, CEO, Apollo Global# Management: Most of the market## is investment grade.

Credit stats are# actually improvi.. PAUL SOLMAN: Look, says Marc Rowan, CEO of# private credit giant Apollo Global Management: MARC ROWAN: There are good banks# and bad banks and good insurance## companies and bad insurance companies# and good asset managers and bad asset## managers.

But there's nothing# that I see that is systemic.

PAUL SOLMAN: Systemic risk,# that's the danger, which starts## with risk to, well, viewers like you.

TOM GOBER, Insurance Fraud Examiner: A## very large percent of the population is# affected by this higher risk without knowing.

PAUL SOLMAN: Insurance fraud examiner Tom Gober.

TOM GOBER: I look after policyholders and# annuitants.

If you have a life insurance## policy or an annuity, I'm trying to# help that you know you're going to## be safe.

But now there's a lot of# pensioners who are also counting## on the same insurance companies# that are taking all these risks.

PAUL SOLMAN: And suppose insurance policy# and annuity holders get skittish and start## withdrawing their, or, I should say, our money,## the money that backs up the private# credit loans, putting them in jeopardy?

In fact, recent headlines have featured# bankruptcies of firms financed largely by## private credit, Renovo, Tricolor and, where# the story began, First Brands.

A cockroach## operating in the dark accused of engaging# in blatant sleight of hand accounting.

JOHN BASQUILL: The company or group companies# would make a sale, generate an invoice,## and then sell that invoice or the sort of debt# that generates to a third-party investor.

And## there were huge, multibillion-dollar investments# in invoices that First Brands was generating.

PAUL SOLMAN: Those billions came# in large part from private credit,## that is, private loans backed# by invoices.

Unfortunately,## the head of First Brands was allegedly faking# those invoices and selling them more than once.

And, worse still: JOHN BASQUILL: We're talking about a company# that's now being accused.. billions of dollars to fund its founder# and CEO's personal extravagant lifestyle.

PAUL SOLMAN: That's why the new CEO of the# company is suing his predecessor for malfeasance,## while a spokesman for the old CEO says# he -- quote -- "categorically denies## the baseless and speculative allegations# contained in the First Brands complaint."

But the point is, First Brands, financed# in the so-called shadow banking industry,## was operating in the shadows, which leads to# the question of the day regarding the private## credit industry.

Were First Brands and its# fellow private credit failures anomalies or## an early harbinger of risks not unlike those# that triggered the financial crisis of 2008?

For the "PBS News Hour," Paul Solman.