‘perfect Storm’: Wall Street Turmoil Muddies Trump’s Pitch To Boost 401(k)s

President Donald Trump set out last year to open up an opaque corner of the financial world to more everyday Americans saving for retirement.

Now, the market is starting to crack.

The Labor Department is planning to roll out a long-awaited proposal that would offer workers invested in retirement products like 401(k)s access to the so-called private markets — a class of highly coveted but risky investments that have historically been walled off from the masses.

Yet the push may land at the worst possible moment: The roughly $2 trillion private credit industry — a major piece of the broader private markets where risky companies obtain loans from Wall Street firms that fall outside the highly regulated banking system — is facing a reckoning from investors. Such funds loan tens of billions of dollars each year to private companies in industries as varied as software and auto lending.

A string of blow-ups has sparked new concern over the quality of loans underpinning the industry. Investors are pulling their money from credit funds so fast that they’re running into withdrawal limits. And fears of an artificial intelligence upheaval could ripple through the market, since private credit funds have been critical sources of capital for software companies, which are now endangered by AI.

That has officials across the upper echelons of finance and politics, including former Goldman Sachs CEO Lloyd Blankfein and Sen. Elizabeth Warren of Massachusetts, sounding the alarm about the potential danger awaiting wannabe retirees.

Some even see parallels to the lead-up to the 2008 financial crisis.

“It’s the perfect storm,” said Danny Moses, an investor who was among those to presciently bet against subprime mortgage debt in the run-up to 2008 and was depicted in Michael Lewis’ best-seller “The Big Short.” “They’ll have no choice but to bail out this entire industry if it goes off a cliff. It will impact retail investors, the banks, certainly private equity and private credit.”

Market panics are nothing new for Trump. The markets have faced a series of sudden sell-offs over the last year that have more often than not been followed by quick rebounds — and that’s to say nothing of the historic investor freakout at the outset of the Covid-19 pandemic during his first administration.

But private credit’s recent woes represent by far the starkest test yet of just how far Trump’s administration is willing to take its deregulatory hammer to Wall Street. All this comes at a time when both parties are gearing up for a midterm campaign that will be largely fought over voters’ economic anxieties.

The White House has known throughout its push that private-market assets can be riskier and less transparent than the stocks and bonds that drive many Americans’ retirement accounts today. But the administration says it’s committed to making sure workers’ best interests are always top of mind for Wall Street.

“This historic initiative to democratize retirement investment options does nothing to change the commonsense guardrails in place for 401k and other asset managers to rigorously uphold their fiduciary duty requirements and ensure that Americans’ money is invested soundly,” White House spokesperson Kush Desai said in a statement.

Treasury Secretary Scott Bessent said last month that the administration is working to make sure individual investors don’t become a “dumping ground” for sour assets. Bessent, speaking in Dallas, said those investors should “definitely” be allowed to diversify into private assets — but warned that the push must be done in “a safe, sound and smart way.”

But the private credit industry is still bracing for more scrutiny. A person who works with firms in the industry and was granted anonymity to preserve business relationships said private credit is “going to see itself in the crosshairs” for much of 2026.

“The private credit industry is walking on eggshells in D.C. right now,” the person said.

Private credit, a piece of the so-called shadow banking system, acts as an alternative to traditional lending where companies can turn to large money managers for loans rather than banks. And up until its recent wobbles, the industry’s track record of steep returns was a draw for investors.

But private credit has also long been a Washington boogeyman, as critics have fretted over the lack of transparency in the industry. Now, the pressure is rising as investors race for the exits. Shares in Blue Owl, a $300 billion private credit giant that has been at the center of the frenzy, were down more than 35 percent on the year, as of Thursday.

Warren, the top Democrat on the Senate Banking Committee, told POLITICO “this is the worst possible moment” to be opening up the private markets to everyday investors’ retirement accounts, pointing to the risks and questions about their returns.

“This should refocus regulators on the opacity and illiquidity of private debt and be a wake-up call on systemic risk,” said Amanda Fischer, a former chief of staff at the Securities and Exchange Commission. “Instead, the Trump administration is opening the door for fund managers to dump private debt and equity on retail investors and their 401(k)s right at the point when the market is showing the largest signs of strain.”

ndustry officials have sought to allay the distress. Retirement-plan advisers are subject to strict legal obligations to act in workers’ best interests when considering investments, they say. And expanding private-market access would put more workers on par with others who already invest in the private markets through pension plans. Private credit, meanwhile, is only expected to be a small exposure for 401(k)s.

“Every asset class can experience short-term headwinds, and alternative investments are especially well suited for these moments because their structural features help protect investors from destabilizing redemptions and disorderly asset sales,” said MFA CEO Bryan Corbett, whose group represents alternative asset managers like private credit firms.

Losses may not necessarily pose a risk to the broader financial system, either. Some argue they’re actually healthy, letting air out of what had been a hot trade on Wall Street.

Nellie Liang, who served as undersecretary for domestic finance at Treasury during the Biden administration and is now a senior fellow at the Brookings Institution, cautioned that private credit’s issues don’t currently appear to be a systemic threat à la 2008. The industry, she said, plays a critical role in the economy for things like infrastructure spending and financing long-term loans that may scare away bankers.

But the outcry isn’t just coming from the usual market Cassandras. Liang said she expects “a lengthy period” of losses ahead. Blankfein recently warned that individual investors are gaining greater exposure to less transparent private-market assets right as “we’re due for a kind of a reckoning.” And Apollo Global CEO Marc Rowan, a one-time contender to be Trump’s Treasury Secretary whose company is a private-credit giant, has said a “shakeout” is happening in the market.

Sparked by an executive order last year, the DOL’s plan was originally expected in early February. But the proposal remains pending in a state of limbo that has lobbyists, critics and industry officials asking what the hold up is. A person briefed on the process who was granted anonymity to speak freely said the plan is still expected but cautioned that the flood of private market headlines has "prompted debate within the administration about timing and whether this is the appropriate time."

Desai of the White House denied that there has been any delay. Labor Secretary Lori Chavez-DeRemer, speaking at a conference in Washington on Tuesday, also downplayed talk of a delay and emphasized the importance of getting input from other agencies to head off issues. DOL spokesperson Courtney Parella, asked for comment, said the department is “carrying out President Trump’s call to expand investment opportunities for American workers and retirees.”

“Our focus remains on removing unnecessary barriers and leveling the playing field so hardworking Americans have more choice and greater opportunity to build a secure future,” Parella said.

There is technically no prohibition on 401(k)-like products from venturing into the private markets. But the DOL’s plan is intended to ease the anxieties of investment advisers who have been reluctant to do so over litigation concerns.

By allowing 401(k)s access to such products, the DOL plan could help buttress workers’ savings with higher returns and a diversified portfolio, proponents say. About 40 percent of American adults have expressed concern that they won’t have enough money to last them after they stop working.

Still, the private credit fallout is far from over. And even those on Capitol Hill who aren’t fretting quite yet recognize the potential for danger ahead. Sen. Mark Warner said in an interview that he’s gotten “pretty good answers” when he’s asked about private credit. But the Virginia Democrat is still cautious.

“Everything’s fine until it’s not,” he said.

Victoria Guida, Jasper Goodman and Nick Niedzwiadek contributed to this report.