EP 377 This Could Be the Next 2008 (But Not How You Think)

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There are moments when a headline flashes across your screen…

…and most people scroll right past it.

Then there are the moments that quietly change how you see the entire financial system.

This week was one of those moments for us.

A fund managed by Bain Capital—a respected name on Wall Street—was downgraded into default.

If you’re like most people, your first thought was probably:

“Okay… but what does that have to do with me?”

Honestly?

That was our first thought too.

But the deeper we researched what actually happened, the more we realized this wasn’t just another Wall Street story.

It was a reminder of something we’ve believed for years:

Financial structures can fail. Real assets don’t disappear.

And that’s a distinction every investor should understand.

What Actually Happened?

After the financial crisis in 2008, regulators rebuilt the credit markets.

Banks kept more risk.

Loan underwriting became stricter.

Investors gained more transparency.

The goal was simple:

Never let another 2008 happen again.

For nearly two decades…

It worked.

Trillions of dollars flowed through the system without a single default in this particular generation of CLOs (Collateralized Loan Obligations).

Until now.

That’s why this week’s Bain Capital default mattered.

Not because one fund failed.

Because something everyone believed was nearly impossible… happened.

The Part That Fascinated Us

The surprising part?

The structure didn’t fail because of reckless lending.

It wasn’t hidden leverage.

It wasn’t fraud.

It wasn’t even bad underwriting.

Instead…

Reality changed faster than the financial system expected.

And that’s a completely different problem.

The Lesson We Couldn’t Stop Thinking About

As we were researching this story, we kept thinking about redwood trees.

Redwoods survive wildfires that destroy entire forests.

Not because they’re indestructible.

Not because they have thicker branches.

But because their roots extend far deeper than the fire can burn.

The surface changes.

The foundation remains.

The more we thought about it, the more we realized investing works the same way.

Markets change.

Technology changes.

Entire industries change.

But the strongest investments are rooted in needs that don’t disappear.

Software Can Become Obsolete Overnight

One of the biggest catalysts behind this week’s story was artificial intelligence.

Think about what happened over the past year.

Businesses that once charged tens of thousands of dollars annually for software suddenly found customers asking a difficult question:

“Why would we keep paying for this?”

We’ve experienced this ourselves.

For years, The Kitti Sisters paid approximately $30,000 every year for an investor portal.

It was considered the industry standard.

Then we rebuilt something remarkably similar using AI in a matter of hours.

That wasn’t just a productivity improvement.

It fundamentally changed the economics of that business.

Now imagine you’re the software company that borrowed millions assuming those subscription revenues would continue forever.

The loan didn’t suddenly become risky because management changed.

It became risky because the business itself changed.

That’s an entirely different type of risk.

Why We Still Believe In Real Assets

Now compare that with housing.

A multifamily property may experience vacancies.

Neighborhoods evolve.

Interest rates move.

Operating expenses increase.

But the building still exists.

Families still need a place to live.

People still need housing.

The asset continues serving a basic human need.

Can operations improve?

Absolutely.

Can management create value?

Without question.

But unlike many software businesses, the underlying demand doesn’t disappear because a new technology arrives.

That’s an important distinction.

The Opportunity Hidden Inside Every Credit Cycle

One thing history teaches us is that financial stress often creates opportunity.

Not because downturns are enjoyable.

They’re not.

But because strong balance sheets become incredibly valuable when everyone else’s flexibility disappears.

That’s why we’ve spent years focusing on:

• Locking long-term financing whenever possible.
• Avoiding unnecessary leverage.
• Building relationships with multiple capital partners.
• Preserving liquidity.
• Preparing long before markets become uncomfortable.

Preparation rarely feels exciting.

Until it’s necessary.

What This Means For Investors

This week’s headlines weren’t really about Bain Capital.

They weren’t even about CLOs.

They were about something much bigger.

They reminded us that financial structures can evolve, regulations can change, and business models can become obsolete faster than anyone expects.

But assets rooted in enduring human needs continue serving those needs.

That’s why we’ve always believed wealth isn’t built by chasing the newest trend.

It’s built by owning durable assets that continue creating value through multiple economic cycles.

Wall Street will build another safety net.

Eventually.

It always does.

But we’d rather own something whose value isn’t dependent on the safety net in the first place.

Because just like the redwoods…

It’s not the branches that determine what survives.

It’s the roots.