Crude Oil, Tariffs, and Private Credit—How Steve Eisman Deciphers the 'Four-Layer Risk'

On March 31, 2026, shortly after the U.S. market surged significantly in response to shifts in the Middle East, Steve Eisman—known as one of the inspirations for the film 'The Big Short'—invited CNBC senior economics reporter Steve Liesman to record a podcast. The themes were crude oil, tariffs, the Federal Reserve, and private credit—all critical risk factors that market participants must monitor simultaneously.

Liesman began by stating:
“Analyzing the impact of tariffs alone is a full-time job. AI-driven job losses alone are enough. Private credit alone is enough. A spike in crude oil prices alone is enough. We are trying to unravel at least four layers at once.”

In this article, based on the discussion from this podcast, we will organize the structure and key points of the risks that investors and business professionals need to grasp right now.

1. Crude Oil Prices—The Risk of Shifting from a 'Flow Problem' to a 'Stock Problem'

1-1. A Wealth Transfer of Hundreds of Billions of Dollars Annually

Crude oil prices are rising due to the escalating tensions in the Middle East. Liesman estimated the economic impact as follows:

“If you take 20 million barrels a day, add a $35 premium per barrel, and annualize that, you are looking at hundreds of billions of dollars transferring from oil consumers to oil producers.”

However, some analyses suggest that for an impact equivalent to the 1973 oil crisis, crude oil prices would need to rise to $550 per barrel, so the current level in the low $100s is not necessarily catastrophic in a historical context.

Furthermore, there is a significant difference in the case of the U.S. Since many producers are domestic companies, funds are not flowing abroad (such as to Saudi Arabia) but are largely recirculated within the U.S. Federal Reserve staff have also traditionally held the view that the negative effects of high oil prices are offset by increased domestic investment.

1-2. The Real Danger—Transitioning to an Inventory Problem

Liesman emphasized the risk that the crude oil market is shifting from a 'flow problem' to a 'stock problem'.

• Flow problem: Crude oil exists, but transportation is just delayed. The price increase is only temporary.

• Stock problem: The closure of the Strait of Hormuz is prolonged, and reserves are depleted. Prices spike non-linearly.

“If it isn't resolved by mid-April, it will shift almost entirely into a stock problem. If that happens, crude oil prices could reach $150 or $200. If there are 10 people in the desert and only 9 bottles of water, what is the price of one bottle of water? That is the essence of a stock problem.”

1-3. The Blow to a K-Shaped Economy

The impact of high oil prices varies significantly depending on income bracket. Citing Bank of America consumer data, Liesman pointed out that low-income groups are already under stress.

After the pandemic, low-to-middle income groups showed strength, with wage growth rates outpacing those of high-income groups. However, that trend is currently reversing, and high oil prices could be an additional blow, 'rubbing salt into the wound'.

“If this war continues for another two months, the bottom leg of the K-shaped economy—the low-income group—will definitely suffer. I don't know if that will trigger a recession, but it certainly won't be positive.”

2. The Fed's Dilemma—Neither Rate Hikes nor Rate Cuts Are the Right Answer

2-1. 'Policy is in a Good Place'—Powell's True Feelings

In his speech at Harvard University on March 31, Fed Chair Powell stated that 'policy is in a good place.' Liesman interprets this as a signal that there is 'no intention to change current policy.'

“Powell believes that the Fed is in a position slightly above the neutral rate, and that this slight tightening is appropriate as a response to the early stages of inflation that may be coming.”

Meanwhile, Liesman also revealed the content of a direct question he asked Powell.

“If you say you will look through tariff inflation, look through five years of inflation exceeding the target, and furthermore, look through a crude oil shock, when will you lose credibility regarding your commitment to the 2% target?”

Powell acknowledged, 'That is what we are thinking about,' and mentioned the risk of long-term inflation expectations becoming unanchored.

2-2. Polarization within the Fed

Within the Fed, policy stances are polarized into three camps.

The Rate-Cut Camp: Governor Steven Myron (Trump appointee) has advocated for rate cuts at almost every meeting since taking office. He is in a position of concern regarding economic deterioration due to high crude oil prices, but he has not gained support from other Trump-appointed governors (Chris Waller, Michelle Bowman).

The Status Quo Camp: The Fed mainstream, centered on Powell. While recognizing the limits of using monetary policy to respond to exogenous events like a crude oil shock, they maintain a stance of monitoring the stability of inflation expectations.

The Rate-Hike Suggestion Camp: Kansas City Fed President Jeff Schmidt suggested that, given the crude oil shock and high inflation, 'policy action' is necessary to maintain the anchoring of inflation expectations. He did not explicitly say 'rate hike,' but his remarks indicate that direction.

Eisman is skeptical of the logic of the rate-hike camp.
“The rise in crude oil prices is an exogenous event. Raising rates won't lower crude oil prices. Cutting rates won't lower them. Doing nothing won't lower them. Raising rates will only slow down the economy. Is that really what you want to do?”

Liesman agreed with this, while pointing out one exception.
“The only scenario where a rate hike is justified is if the labor market is tight enough that people can demand raises from their bosses because of high oil prices, creating an inflation spiral. But that argument doesn't hold at the moment.”

2-3. The Future of Kevin Warsh's Appointment

The confirmation of Kevin Warsh as a candidate for the next Fed Chair is being delayed by political conflict surrounding criminal investigation issues involving Powell. The obstacle is that Republican Senator Tom Tillis stated, 'As long as the criminal investigation continues, I will not move forward with the confirmation of Fed candidates.'

As for the policy if Warsh takes office, Liesman introduced an interesting concept. Warsh is thought to be considering a 'stock and flow' combination: proceeding with the reduction of the Fed's $6.7 trillion balance sheet (tightening) while offsetting it with cuts to the policy interest rate (easing).

However, Governor Waller holds the position that a reduction in demand for reserve balances is a prerequisite for balance sheet reduction, so he does not fully agree with Warsh's concept.

3. Private Credit—Systemic Risk or Localized Losses?

3-1. An Abnormal Situation Where 'Bad News Comes Out Every Day'

Eisman described the abnormality of the news flow regarding private credit as follows.

“I start writing my Friday summary article on Monday, and I write, 'Bad news about private credit came out today.' I wake up the next morning, and I have to add Tuesday's news, too. Wednesday, and Thursday. That happens every week. Since the GFC, I have never seen a financial story where bad news continues so consistently.”

3-2. Software Concentration: 25% Officially, Over 30% in Reality

According to reports from The Wall Street Journal, approximately 25% of private credit loans are concentrated in software companies. However, there is 'room for discretion' in classification methods; for instance, cases where healthcare software companies are classified under healthcare mean the actual figure could exceed 30%.

Many of these software companies were acquired by private equity between 2018 and 2022—a period when interest rates were much lower. Eisman raised the following point:

“Even if they can service their debt at current interest rates, can the same be said for refinancing next year and beyond? That remains an unknown.”

Furthermore, the rise of AI is fundamentally shaking the valuations of the software industry. At a conference in San Francisco attended by Liesman, the argument was made that, “The boundaries between designers, developers, and marketers have vanished. Anyone can code.”

“It’s not that software companies will disappear. But they can no longer raise prices. Growth rates will slow. They will no longer be ‘heroes.’” Eisman pointed out.

3-3. Eisman’s ‘Nobel Prize-Worthy Theorem’: Systemic Risk = Amount of Loss × Opacity

The most insightful part of the podcast was the formulation Eisman jokingly introduced as his bid for a Nobel Prize.

“Systemic Risk = Amount at Risk × Opacity”

“Even with a $1 billion loss, if no one knows who is holding it, everyone runs to sell. Even with a $50 billion loss, if everyone knows who holds it, no one panics because they know it doesn’t concern them.”

The problem with private credit lies precisely in this opacity. The fact that even the industry concentration of borrowers was unknown until recently speaks to the depth of that opacity.

3-4. Structural Differences from the GFC: The Scale of Leverage is Different

However, Liesman also emphasized a decisive difference from the 2008 GFC.

“There is no doubt that there will be significant losses in private credit. But personally, I am not that worried about the banks.” Liesman stated.

On the other hand, he posed one unresolved risk.
“Is there leverage behind the equity? In other words, is it possible that what is considered equity is actually composed of loans from banks?”
This is a hypothesis that has yet to be confirmed, but if private equity is borrowing from banks to build up equity, the actual leverage is greater than it appears.

3-5. The Timing Problem of Deregulation

Another cause for concern is the ongoing deregulation of banks. Liesman sounded an alarm based on his past experience.

“In my 35 years of reporting, I’ve seen a pattern where regulations are loosened during good economic times, which then becomes a contributing factor to the next crisis.”

Eisman acknowledges that the Dodd-Frank Act was passed during the financial crisis and contained elements of an ‘emotional reaction.’ Eisman’s expression that appropriate capital ratios were not ‘brought down by Moses on stone tablets from Mount Sinai; it is an iterative process’ suggests that the proper level of regulation cannot be determined uniquely.

However, the rapid expansion of private credit itself can be interpreted as a ‘sign that bank regulation has gone too far,’ and there is a structural problem where pushing lending activities outside the regulated banking system has led to reduced visibility and difficulty in grasping systemic risk.

4. The 'Unpredictable Resilience' of the U.S. Economy

4-1. The Repeated Prophecies of the 'Beginning of the End'

Throughout the discussion, Eisman and Liesman shared a common recognition: the astonishing resilience of the U.S. economy.

“Since the GFC, there have probably been six or seven predictions that ‘this is the end.’ With the Fed rate hikes in 2022, a recession was considered ‘guaranteed.’ But it never actually came. No one has been able to model the resilience of the U.S. economy,” Eisman said.

Liesman agreed.
“The U.S. economy has an unpredictable resilience. It comes from its dynamism, adaptability, and the structure of having an economy diversified across many different sectors. We have an oil industry the size of Saudi Arabia, but it is only one part of the overall economy.”

4-2. The 'Excessive Doomsday Thinking' on Tariffs—The Impact of Psychological Bias

Regarding the market's reaction to tariffs, Eisman presented an interesting psychological analysis.

“Every market participant took Econ 101 in college. They were ingrained with the idea that ‘tariffs are bad, tariffs caused the Great Depression.’ When Trump announced tariffs, everyone pulled out their 18-year-old textbooks and said, ‘A recession is coming, because that’s what I learned in college.’”

Liesman acknowledged this view but added a cautious caveat. Tariffs have been modified or lowered more than 50 times, so the worst-case scenario predictions were not maintained as they were. He also revealed that he had received testimony from repo market participants that it would have been close to a meltdown had the tariffs not been withdrawn.

Furthermore, he noted that manufacturing employment has fallen by 100,000 since the introduction of tariffs, and that when evaluating whether it was 'not as bad as predicted,' one must consider the fact that the tariffs themselves were significantly revised.

Summary

What emerges from the dialogue between Eisman and Liesman is a picture of an extremely complex investment environment where four risk factors—crude oil, tariffs, Fed policy, and private credit—are acting simultaneously.

For crude oil, the turning point is whether a transition from a flow problem to a stock problem will occur. Mid-April is one time limit. The Fed is caught in a bind where both raising and lowering rates are difficult, making the status quo—which Powell describes as being in a 'good place'—a passive but realistic option.

Regarding private credit, the view was expressed that the potential for systemic risk is limited at this time because the leverage levels are fundamentally different from those of the GFC. However, as Eisman’s formula—'Systemic Risk = Loss Amount × Opacity'—shows, the structure where opacity itself amplifies risk remains unchanged. The triple uncertainty of leverage hidden behind equity, the re-evaluation of the software industry due to AI, and the refinancing problem are themes to watch closely over the coming quarters.

The 'unpredictable resilience' of the U.S. economy has betrayed the bears many times in the past, but that does not mean there is no risk. Precisely because of the simultaneous occurrence of multiple risks, it is important to calmly understand the structure and interaction of each factor.

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