What private investors are often getting wrong is the effect of rising and falling interest rates on the economic values of their investments and liabilities. This is an error financial institutions appear happy to make as well. Banks are willing to increase lending at high loan-to-value ratios while interest rates are low, taking the greed for cheap money as a sign of economic prosperity, systematically underestimating the extent to which home owners and unsecured lenders will declare bankruptcy when rates rise.
Companies are happy to increase long term liabilities in times of low interest rates, underestimating the effect rising rates will have on the values of their duration-matched invested assets. In the casualty segment, companies are happy to increase their books at thin combined ratios, underestimating the possible impact of consumer price inflation on their long dated liabilities.
Even professional investors often mistake the spike in the equity book value of companies due to low interest rates for corporate strength, not understanding that rising rates will erase the value of long-dated assets and thereby evaporate equity values
While low interest rates create a monetary illusion on the side of consumers, financial institutions and investors are often falling victim to a "capital illusion" following the same logic. Abundant capital created through low interest rates is usually expected to last forever.