Hm. It seems like the extent to which there is an increased risk of insolvency due to a popped AI bubble would partly depend on the extent to which these institutions had sold other assets or used leverage to pay for equity in or lend to AI companies and the suppliers that are most dependent on AI company business.
My understanding is that the great financial crisis resulted from extremely leveraged investments in mortgages due to lenient rules and a perception that American mortgages were extremely reliably paid. I don’t know to what extent important institutions may be overleveraged or overweighted in their investments in AI.
But my modal prediction is that an AI bubble would cause hedged AI investors to become less valuable without becoming insolvent, a bunch of distressed assets to be purchased for low low prices by those who kept their powder dry, and a bunch of cancelled orders and perhaps layoffs and restructuring by suppliers who expanded to meet the temporary surge in demand by AI companies. That could cause turmoil, but I really don’t have a sense of to what extent the American or global economy has reshaped itself to build out AI. It’s hard to know particularly because with Trump’s tariffs, there has been so much coincident market turmoil that it’s hard to know how much is AI and how much is tariffs/end of ZIRP (as others have pointed out before).
Hm. It seems like the extent to which there is an increased risk of insolvency due to a popped AI bubble would partly depend on the extent to which these institutions had sold other assets or used leverage to pay for equity in or lend to AI companies and the suppliers that are most dependent on AI company business.
My understanding is that the great financial crisis resulted from extremely leveraged investments in mortgages due to lenient rules and a perception that American mortgages were extremely reliably paid. I don’t know to what extent important institutions may be overleveraged or overweighted in their investments in AI.
But my modal prediction is that an AI bubble would cause hedged AI investors to become less valuable without becoming insolvent, a bunch of distressed assets to be purchased for low low prices by those who kept their powder dry, and a bunch of cancelled orders and perhaps layoffs and restructuring by suppliers who expanded to meet the temporary surge in demand by AI companies. That could cause turmoil, but I really don’t have a sense of to what extent the American or global economy has reshaped itself to build out AI. It’s hard to know particularly because with Trump’s tariffs, there has been so much coincident market turmoil that it’s hard to know how much is AI and how much is tariffs/end of ZIRP (as others have pointed out before).