December 27th, 1772. One of the most respected banking houses in Europe locks its doors. The lights go out. Business is over for good. Within two weeks, 20 banks across three countries are gone. Merchants are literally cutting their own throats in the streets. And the world's first global financial system is collapsing under the weight of something investors thought was mortgage-backed securities on Caribbean plantations. Those words should sound incredibly familiar to anyone listening to this. Welcome to the Timeless Investor Show. I'm Ari Van Gemeren, real estate fund manager, student of history, and your host today through the wreckage of financial catastrophes, past and present. Today, we are diving into the crisis that nobody knows about, but everyone should know because Wall Street is selling the exact same product to your retirement account right now. Here's something you need to know. This month, this year, 2025, BlackRock, Apollo, State Street, and KKR are launching new investment products designed to get Main Street investors into private credit. They are calling it, I'm using air quotes, the democratization of private markets. Your 401k provider might offer it soon. Your financial advisor is very likely getting pitched on it. You might soon see it in a target date retirement fund. And the marketing pitch, safe, stable, high returns with low volatility, diversification from public markets. Private credit has exploded from$1 trillion in 2020 to$1.5 trillion today, and it's projected to hit$2.6 trillion by 2029. But here's what nobody is telling you, whether they are aware of it or not. We have seen this exact playbook before. Same structure, same promises, same marketing language, same end result. And no, I am not talking about 2008. I'm talking about 1772, Amsterdam, the world's financial capital at the time, a shadow banking system built on mortgage-backed securities, cheap credit, and zero regulation. Banking houses with venerable names like Clifford Co., Hope and Company, and the Seppenwold Brothers were financing an empire of Caribbean plantations through a revolutionary financial product called negotiatees. They marketed these securities to the Dutch upper middle class, not the ultra-wealthy, regular, successful merchants, craftsmen, professionals, people who wanted steady income and thought they were buying something safe. These bonds were backed by real assets, plantations, land, buildings, the banking houses that represented them and marketed them and sold them had sterling reputations going back generations. The returns were attractive, but not crazy. Everything looked perfect on paper until it all collapsed in a matter of weeks. So today, we're going to break down exactly what happened, why it matters, and what it tells us about the$2 trillion in private credit that Wall Street is now packaging and preparing for you and for retail investors across this great country and across the world. Because the products being sold today have many of the same structural flaws as 1772. The marketing language is almost identical, and credit rating agencies are already sounding alarms. Now that's a wild fact, right? Knowing what we know about credit rating agencies, already sounding alarms. So let's dive in to really understand this. So first I want to set the scene. Mid-1700s Amsterdam. If you wanted to understand global finance, you had to understand Amsterdam. This was the city that invented modern capitalism. The Dutch East India Company, the world's first publicly traded corporation, was born here. The Amsterdam Stock Exchange was the epicenter of international trade. And by the 17th century, Amsterdam had created something revolutionary, a sophisticated system of mortgage-backed securities. Here's how it worked. Caribbean plantations, Suriname, Granada, the Danish West Indies, they needed capital, massive amounts of it. Sugar and coffee were booming commodities, but running a plantation required enormous upfront investment. Land, enslaved labor, which cost money to acquire, equipment and processing facilities. So Amsterdam's merchant banking houses created something new. They pulled plantation mortgages together and they sold them as bonds to investors. They called them negotiatees. This is literally the 18th century version of mortgage-backed securities, and investors then as now loved it. You could buy in for 1,000 guilders, roughly$35,000 to$50,000 in today's money, not pocket change, but accessible to the upper middle class, successful merchants, skilled craftsmen, and professional traders. The returns were attractive. The plantations generated steady cash flow from sugar and coffee exports. The bonds were backed by real assets. So what could go wrong? Between 1766 and 1772, just six years, over 40 million guilders and new plantation loans were issued. That represented 22% of Holland's entire GDP. Nearly a quarter of the nation's economic output was tied up in securitized Caribbean plantation debt. But here's where it gets twisted. These were not traditional banks issuing the securities. They were shadow banks. The big names, Clifford Co., Hope and Company, DeSseppenwolds, Terborsch, these were merchant banking houses. They didn't take deposits like regular banks. They operated in a regulatory gray zone using complex financial instruments called bills of exchange. And a bill of exchange was essentially an IOU, a promise to pay a fixed sum at a future date. But here's the trick: you could roll them over again and again. Therefore, you could use short-term funding that you anticipate continually rolling to finance long-term projects. Classic maturity mismatch, which, as we know from every modern financial crisis, is incredibly dangerous. We just saw this blow up with Silicon Valley Bank and First Republic, with long-dated bond portfolios not held for sale and short-term deposits trying to leave quickly. We also saw it with Bear Stearns. But it gets worse in this 1772 story because Amsterdam at the time had the lowest interest rates in Europe. You could borrow secured money for as little as half a percent. Meanwhile, investments in British colonies, Caribbean plantations, and European sovereign debt were paying 5% or more. So, as capital does, a massive carry trade developed. Borrow cheap in Amsterdam, land expensive everywhere else, and pocket the spread. And because Amsterdam's merchant banks were not regulated, there was no limit to how leverage they could get. No reserve requirements, no capital ratios, no oversight, just reputation, and the willingness of the individual partners to take exorbitant risks in the pursuit of profit. And this is critical. When you bought a negotiate, you weren't really analyzing the underlying plantations. You couldn't. The bonds had generic names like LAA or LAB, incredibly vague. You had no idea which specific plantations you were financing. Instead, you just trusted the banking house. If Clifford ⁇ Co. was offering it, it had to be good. They had been around for generations. They financed kings and merchants. Their word was gold. The entire system was built on reputation, not transparency. And for a while, as these things do, it worked. The plantations produced sugar. The sugar sold in Europe. The mortgage payments came through. Everyone was making money. And again, I have to point out, it always starts this way. It always starts good. A good like every bubble in history started as a good idea and then it got out of hand, right? And this is just the same thing. And beneath the surface, as always happens, risks were accumulating. Now, before we go further, I want to point out that this is not just a history lesson. In May 2025, literally a few months ago, as of the date of this recording in October, the SEC announced they're reconsidering restrictions that prevented retail investors from putting more than 15% of their money into private markets. In February of this year, 2025, Apollo and State Street launched the first private credit ETF for retail investors. And right now, Hamilton Lane, BlackRock, KKR are creating evergreen funds and semi-liquid vehicles designed to let regular people invest in private credit through retirement accounts. And what is the marketing language? Safe and stable returns, low volatility, diversification from public markets. But what is the structure? Pooled loans to private companies, generic fund names, limited transparency into underlying borrowers. You trust the brand name, BlackRock, Apollo, State Street, these are great firms with sterling reputations. The promise they're providing, quarterly or annual redemptions, liquidity when you need it. The reality here is that multi-year loans cannot be sold quickly without taking massive losses. That is the exact same playbook as 1772. So let's talk about what was really happening beneath the surface in 1972. First, the plantation sector was deteriorating. By the early 1770s, soil depletion was becoming a real problem. Hurricanes, yes, they've always existed. They're just worse today, but we had them then too, were damaging crops, and operating costs were rising. But investors didn't see this. Remember, they had zero transparency into the actual assets. They just saw the coupon payments coming in, the quarterly distributions. Everything looked fine on the statements. And the banking houses, these venerable institutions, were representing that everything was fine. Everything's good, business as usual, we're all good. They had no reason to suspect otherwise. Secondly, the banking houses themselves were getting reckless. Take Clifford Co., which, as I've mentioned, is one of the oldest, most respected names in the business at that time. By 1772, they were not just financing plantations. They had moved into pure speculation. They formed a syndicate with the Seppenwold brothers and a banker named Abraham Teborsch. Together, they controlled 5.6% of the British East India Company shares. A massive position, massive, in one of the world's largest corporations. What was their bet? They were betting that EIC shares would rise. Why? Well, partly because they were acting as what we call prime brokers today. They were lending money to other speculators who were also betting on EIC shares. Create the demand, ride the wave up, profit on both lending and the equity appreciation. Sounds like genius, right? Except, except it only works if the stock keeps going up. Thirdly, information asymmetry, a term I absolutely adore, was everywhere. When you're a plantation owner in Suriname, you can borrow from multiple Dutch banking houses. Nobody's tracking your total debt load. There's no credit bureau. There's no way to know if you're overleveraged. So when you're a merchant in London, you can get credit from multiple sources. Your British agent doesn't know what you owe in Amsterdam. Your Amsterdam banker doesn't know what you own in Hamburg. The system was fragmented, opaque, and built on trust rather than data. And lastly, I hate to irritate all the anti-central banking folks in my audience, and you know, I'm certainly more in that camp myself, but this is a good this is a true point. There was no lender of last resort in Amsterdam. Amsterdam had the Whistlebank, the Bank of Amsterdam, one of the world's first central banks, but it was not like a modern central bank. It couldn't expand credit freely. It had strict rules about maintaining gold and silver reserves. So if a liquidity crisis hit, there was literally no safety net. Now it's arguable whether there should be one, right? You're sort of rewarding banks for taking excessive risk. But you as an investor should be aware of what's undergirding the entire system and what your security looks like. And so by 1772, all of these risks were building, but nobody saw it. Prices were stable, returns were solid, credit was flowing. Now let me read you something that I found fascinating from a September 24 article in the Globe and Mail about modern private credit. Private credit strategies are being marketed and sold to retail investors as safe and stable. The high risk will not show up as volatility because it is an illiquid asset class. The result is what appears to be high returns, low risk, and low correlations to public markets. But retail investors may not have the tools or knowledge to evaluate the risks they are taking. And here's Moody's credit rating agency from June 2025. If growth from retail investors outpaces the industry's ability to manage such complexities, such challenges could have systemic consequences. Private asset managers also face reputational risk if in a scramble to grow share, credit standards slip or risk management falters. Let me translate all of that from corporate speak. Moody's is saying the exact same thing is happening today that happened in 1772. Retail investors are being sold products they do not understand. The risks aren't visible because these are illiquid assets. Credit standards are loosening as firms compete for market share. And if there's a crisis, it could have systemic consequences. But in 1772, nobody listened to the warnings either, whatever warnings there may have been, until June 9th, 1772. On that date, infamous date in financial history, a Scottish banker named Alexander Fortas walks out of his office and disappears. He flees to France. Why? Because he just lost 300,000 pounds shorting East India Company stock. In today's money, that's about 60 million US dollars. A catastrophic loss. His banking house, Neil James Fortas and Down, was immediately insolvent. And within two weeks, eight banks in London collapsed. But that was just the beginning. Because remember, Amsterdam's merchant banks were deeply exposed to British financial markets. They'd lent money to British speculators. They held EIC stock themselves. They had bills of exchange, those IOUs, floating everywhere in the system. And now counterparties were defaulting. So through the summer and fall of 1772, pressure built in Amsterdam. Plantation mortgage payments started coming up short. Caribbean hurricanes had damaged crops. Commodity prices were tanking. But the real problem was Clifford Co. They had bet big, remember, on EIC shares rising and the shares were falling. They were getting margin calls and they couldn't meet them. Side note, please, if you haven't watched it, watch margin call. Fantastic movie. I see it referenced all the time. I've watched it several times. It is amazing. So on top of this, margin calls, their plantation mortgage portfolio was deteriorating. Borrowers were missing payments. Asset values were declining. Clifford Co. tried to hold on, as we all would, right? They sold some positions, they called in loans, they tried to raise cash. But in a leveraged system built on short-term funding, once confidence cracks, it is over. December 27, 1772, Clifford Co. shuts its doors. Total liabilities, 4.6 million guilders, which comes out to nearly a billion dollars in today's money. Claims on syndicate partners, 3.2 million guilders, most of which were worthless. Good assets, barely 1 million guilders. They were catastrophically insolvent. And the contagion spread immediately like a wildfire. Their syndicate partners, the Steppenwolf brothers, Abraham Taborsch, they also collapsed. Andre Pels and Sons, another major house, went down in flames. Investors who thought they held safe, income-producing plantation bonds, suddenly realized these bonds were backed by insolvent banking houses with deteriorating collateral, absolute panic. Here's what contemporary newspapers reported. Lurid tales abounded of merchants cutting their throats, shooting or hanging themselves. The crisis here was not just financial, it was existential. And it spread beyond Amsterdam. Banks in Hamburg collapsed, Stockholm saw failure, St. Petersburg, even as far as the North American colonies. This was one of the world's first truly global financial crises. Governments tried to respond. Amsterdam civic authorities set up a collateralized lending facility. If you had good commodities in a warehouse, they lend against them. The Bank of England started providing emergency liquidity to London banks. These were some of the world's first bailouts. And they worked, sort of. By mid-1773, credit markets had stabilized, banks reopened, but the damage was permanent. Amsterdam never recovered its position as the world's financial capital. Before 1772, if you were a sovereign looking to borrow money, you went to Amsterdam. After 1772, London. Why? Because British banks had survived better. The Bank of England had acted as a lender of last resort. The financial, the British financial system had proven more resilient. And critically, trust shifted. It shifted. And may I remind everybody, we we published a video piece earlier about this, about the sack of Antwerp, an event known as the Spanish Fury. Antwerp was, before Amsterdam, the center of finance for Europe. And 3,000 Spanish soldiers who hadn't been paid ransacked Antwerp in search of money and funds. And they're just doing what soldiers will do when they don't get paid by their sovereign. And Antwerp disappeared because trust died in the city of Antwerp, and Amsterdam became the beneficiary of this. So again, when trust evaporates or gets crushed by some external large event, big things can happen in the system. So that's what happened. London took over. Hope and Co., the one great house that survived, completely changed its business model. They pulled back from risky lending, they focused on commodities trading and government bond underwriting, conservative business, and the era of Amsterdam's financial dominance was over. Here's the thing, though. The specific mechanisms that caused the 1772 crisis did not disappear. They just evolved. Shadow banking, securitization, maturity mismatches, information asymmetry, reputation-based lending, cheap credit fueling speculation. The harsh reality about human nature is that people will always find a way around whatever system is put up in their way. We are ambitious, we're driven, we want to be wealthy. So long, I always say this, as men are inspired to have the respect of their peers, have wealth, and impress women, the system will simply never change. So let's talk about what's happening today in your investment accounts. This asset class, private credit, was historically institutional money, pension funds, endowments, sovereign wealth funds, sophisticated investors who understood the risks and could bear them. But that is changing fast. Wall Street has identified retail investors, you and me, as the next great frontier. The SEC is reconsidering rules on how much retail money can go into private markets, which frankly has been a dream of the private markets industry for a very long time. There are trillions of dollars locked up in wealthy individual household balance sheets that Wall Street wants access to. Wall Street's gonna do what Wall Street's gonna do. It is what it is. Our duty and job as timeless investors, as people that look to history to understand what's going on, is to be educated and make the right decisions for ourselves and our families. In the UK, starting April 2026, private assets will be available through tax-advantaged retirement accounts. Hamilton Lane has an evergreen fund with$1.6 billion in assets just two years after launch, targeting individual investors. And the marketing pitch is seductive. I get it. The structure looks sophisticated. You have professional management, you have due diligence teams, you have risk controls, you have brand names you trust. But here is what they are not telling us. First, the risk doesn't show up as volatility. And why? Because these are illiquid assets. They are not traded daily. There is no market price fluctuation. So on your statement, everything always looks good. Smooth returns, no wild swings. But it's not because the risk is low, it's because the risk is hidden. In 72, investors thought their positions were safe because the coupon payments kept coming right up until the banks collapsed and they realized the underlying assets were absolutely worthless. The second thing, transparency is extremely limited. When you invest in these funds, you don't know exactly which companies you're lending to. You trust the fund manager's process. Now listen, if you're a large institution, billionaire, family office, or endowment that is investing like 20% of the capital, you've got information rights. You're going to negotiate heavy rights for yourself. Are you going to get any of these rights with a$100,000 ticket into a$1.7 billion fund? I don't think so. Just like 72, you just know that the bond or the fund was issued by Clifford Co., or let's call it KKR or Goldman Sachs today, and that was good enough for most investors. Third, many of these funds have massive maturity mismatches. These funds often allow quarterly or annual redemptions, but the underlying loans are three to five year commitments, sometimes longer. What happens when investors want their money back and the fund can't sell the loans quickly enough? We actually saw this in 23. When rates spiked, several private credit funds had to suspend redemptions. They couldn't give investors their money back because they couldn't liquidate the underlying assets without taking massive losses. And that was just a small stress test. It's not even a real crisis. Fourth, leverage is everywhere, not just in the funds themselves, but in the borrowers. These are middle market companies that cannot get bank loans. Why can't they get bank loans? Often because they're already heavily leveraged or their cash flows are questionable. Fifth, and this is critical and wild if you really think about it, there is no transparent pricing. How do you value a loan to a private company? There is no market. There's no daily trading. The fund manager uses their own models to estimate value. Consider that. And when a crisis hits on this sort of investment, there is no easy exit. You cannot just sell like you can with stocks or bonds. You are locked in. You are hoping the fund manager can navigate the storm. You are hoping redemptions don't freeze. And I want to add, it's not true of all these funds, but many private credit funds themselves are leveraged. Okay. Many of them have warehouse line of credits that they borrow from to make their own loans. Okay, so you're investing, but where do you stand in the capital stack? Probably behind the leverage that they've taken on. The parallels here are uncanny. Now, to be fair, to be fair, and I always try to be fair, not all private credit is created equal. Some funds are well managed, some have good underwriting, some are appropriate for sophisticated investors who understand what they're getting into. But Wall Street wants to sell this to retail investors across the world, to people investing for their retirement, to people like you and I who may not have the sophistication to evaluate what they're actually buying. They are calling it democratization of finance or whatever you want to say. I'm gonna say what I think it really is. The same playbook as 72, 2008, over and over again, wrapped in modern financial engineering. So, in the timeless investor style, what are the timeless lessons we can take away from this to make ourselves better investors? First, shadow banking systems are fragile, inherently fragile. They work beautifully in good times. I do not want to diminish that. There's a reason they work and they're attractive, and there's a reason money flows into it. Credit flows, returns look great, everyone feels good. But when stress hits, they collapse faster than regulated banks because there is no safety net. There is no lender of last resort, no government backstop. 72, when the crisis hit, there was no Fed to step in. The Bank of Amsterdam couldn't expand credit and the system imploded. Today we do have central banks, we have the Fed, but private credit operates outside of that system, hence, it's a shadow banking system. If there is a run on private credit funds, the Fed cannot, and I would argue hopefully will not, just bail them out the way they can with a bank. Secondly, reputation is no substitute for transparency. People trusted, Dutch investors trusted Clifford and Co. They had 200 years of history, connections to royalty, impeccable reputation, and they were catastrophically insolvent. We covered over in Gurney two weeks ago, the creme de la creme of London banking houses. People invest with them despite taking on incredibly speculative and risky investments based purely on their reputation. Today, we trust BlackRock, KKR, Apollo, Goldman Sachs because of their brands. Tens of billions in assets, trillions at times, professional teams, sophisticated risk management. But trust does not protect you from bad underlying assets. Reputation doesn't guarantee good underwriting. And when these firms receive billions and billions of dollars, they have to put it somewhere. They have to deploy it. And what happens when you have to deploy money? Your standards slip. Because here's the other thing many of these funds don't get paid until they deploy your capital. So they have to put your money out there. And if it becomes a real big retail bonanza, which it probably will, you know, because most investors are not, you know, unfortunately are not watching this channel or other channels to talk about this exact issue. When they have excessive amounts of money, it will flow. Credit standards will drop, it'll become a thing, everybody goes for it, and we will go through the same exact cycle again. And the wheel turns ever onwards. Third, another timeless lesson: cheap credit creates moral hazard. When borrowing costs are low, everyone takes more risk. Banks lend to riskier borrowers. Investors chase yield. Speculation increases. Amsterdam had 0.5% interest rates. Money was practically free. The banks levered up massively and financed increasingly risky plantations. We just had a 15-year period of near zero interest rates. The private credit boom happened because money was cheap and investors were desperate for yield. Now rates are higher, but the leverage that built up during that cheap money era doesn't just go away overnight. It sits there waiting for a shock to hit. Fourthly, fourth timeless lesson, information asymmetry benefits insiders and punishes everyone else. When you don't know what you own, you cannot properly assess your risk. And when a crisis hits, you're the last to know and the first to lose. In the crisis of 72, ordinary investors had no idea that their plantation bonds were backed by insolvent banks and failing plantations. They found out when it was way too late. Hence the suicides across the field, from primo bankers down to merchants who'd overleveraged themselves on these air quote great investments. In 2025, you have limited insight into what companies your private credit funds are actually lending to. You won't know there's a problem until redemptions freeze. So what does that mean for you as an investor? If someone pitches you private credit, whether it's your financial advisor, your 401k provider, or a slick marketing brochure, ask the hard questions. What are the underlying assets? Not the asset class, the actual companies. How leveraged are the borrowers? What's their debt to eBit doll ratio? What's the redemption structure? Can I get my money back quarterly, annually? What happens if too many people try to redeem at once? I'll give you a preview. It's going to be a freeze on redemptions. That's the quick answer to that question. Or what happens in a stress scenario? If we hit a recession, a default spike, what's my downside? Like, how much can we lose before we're we're completely wiped out here? How are the assets valued? Who's deciding what they're worth? Is there any independent verification? Is the fund leveraged? As I mentioned earlier. Like, are they leveraging on leverage to make these investments? If you cannot get clear, specific answers to these questions, and to be fair, I'm almost positive you will not. That's a red flag. Walk away. More broadly, be extremely cautious about any investment that promises high returns with low risk and limited volatility. Those three things, guys, do not coexist in nature. If something yields 10% when treasury bonds yield four, there is risk somewhere. Either credit risk, liquidity, liquidity risk, or something you are just not seeing. Private credit offers attractive yields with seemingly low volatility because the assets are illiquid and they are priced by models. You don't know what's wrong until it hits you in the face. And recognize, everyone, that we are still living through the aftermath of the longest credit expansion in modern history. Yes, rates went up recently, but we had 15 years of ultra low rates fueling risk taking. This does not unwind in two years. The leverage, the speculation, the poor underwriting, it is all still deeply embedded in our system. The 72 crisis happened after decades of credit expansion. The plantation mortgage market had been growing since the 1740s. Shadow banking had been thriving for an entire generation. Everyone thought it was different this time. They had sophisticated financial instruments, professional managers, diversified portfolios, and then in a matter of months, it all came apart. History doesn't repeat perfectly, but it sure as hell rhymes. I want to leave you with one final thought before we wrap this episode up. The Dutch investors who survived 72 were not the ones who had the most exposure to the highest yielding Caribbean plantation bonds. They were the ones who understood that sometimes boring is better than exciting, that transparency and knowing what you're investing in matters more than reputation. And that liquidity has real value even when you don't need it. When you empty your bank account to pursue yield, you're putting yourself on a knife's edge. And that doesn't usually end well. The survivors were likely the ones who owned real estate in Amsterdam, or even better, geographically diversified real estate portfolios had in diversified income streams. They weren't levering up to chase returns. And when Clifford and Co. collapsed and credit froze, they were fine. Uncomfortable, maybe, watching their neighbors panic, and they might have even lost some money themselves, but they were fine. They survived. The ones who got destroyed, the sophisticated investors, the ones who thought they understood this new system, who trusted the names on the door, who believed the risk was managed and the returns were real. So when someone pitches you one of these deals, understand. I like to go back to the buffetism, right? Invest in what you know. Don't touch the other stuff. It's just not worth it. That's why I like real estate. It's actually fairly simple, generally, although there are financial complexities in this business as well, and there's many ways to cut these up with financial engineering to make it look better, but also magnify the risk. And critically, then trust is important. It is important. You do want to trust the people you work with, but please verify. And when in doubt, when you're being pitched deals you don't understand, just default to boring. Own assets you get. Keep enough liquidity, don't lever up, don't chase yields. Because in the end, the investors throughout history who built lasting wealths are not the ones who maximize returns during the boom. They're the ones who survived the bust. Thank you for listening to the Timeless Investor Show. If you found this valuable, please share it, send it out. If you love this episode, hit subscribe, notification bell, be part of the Timeless Investor community. Leave your thoughts, forward this to your financial advisor, why not? Or send it to a friend who's being pitched private credit. Be educated, understand what's going on. Leave a comment for us if you found this helpful, if you have had your own experience looking at private credit deals, or you have other eras of history you'd love for us to do a future episode on, I would love to hear from you. Thank you. This is Ari Van Gemran, the host of the Timeless Investor Show and the founder of Lombard Equities Group, multifamily investment company spread across the United States West Coast. Thank you for your time today. Think well, act wisely, build something timeless.