The end of some 13 years of nearly free money in financial markets has exposed excesses that seem utterly baffling in hindsight.

Take, for instance, the tsunami of so-called cov-lite, or covenant-light, leveraged loans that investors flocked to with reckless abandon. At the end of 2023, the amount of these loans outstanding, which lack the typical protective covenants designed to be an early warning system for lenders, ballooned to $1.25tn, according to law firm Paul, Weiss.

It was quite a party, especially for the issuers of the loans, who were able to borrow lots of money with minimal checks and balances. And now the lenders and investors who provided those loans are paying the price, in a phenomenon on Wall Street dubbed “creditor on creditor violence”.