A full-on financial crisis is a horrifying event. It destroys lives. It weakens economies for years. It destabilizes political systems. The 2008 crisis damaged the United States quite severely, more so even than it seemed at the time.
The Great Depression is really one event with the second world war. These are things that these are things it is worth not having. And so it is just incredibly important right now that the financial regulators in the United States, the center of the world's AI industry and the center of the world's financial markets seriously turn over the rocks here and do everything they can to make sure that the kind of event that I'm talking about doesn't happen.
It is not a foregone conclusion that it will happen. I think it's pretty likely that the stock prices of some of these magnificent seven companies are going to return to something more rational, but that does not mean we have to have a full-on financial crisis. I fear, though, that the mentality of “whatever the rich guys do is fine” will once again produce disaster if there isn't a course change on the part of the Trump administration's regulators.
I just found this interview from December of Damon Silvers by Americans for Financial Reform. It is prescient, and long, but too packed to do justice to it in a post here. The dominoes are set, Trump is at the helm, what could go wrong?
The regulators should be right now asking their regulated entities, and this is not just federal regulators, but state banking and insurance regulators. They should be asking the entities they regulate, What is your exposure to the four categories?
- What's your exposure to actual direct debt related to AI?
- What's what's your exposure related to stock market margin accounts related to the magnificent 7 and to the market as a whole?
- What's your exposure to crypto? That would be large certainly your exposure to lending using crypto as collateral, but also your exposure to crypto on your own balance sheet as an asset.
- What’s your exposure to AI-related energy investment, energy investment that depends upon this kind of hockey stick of demand for electricity from the AI from the AI industry.
That's what regulators ought to be doing. And members of Congress and members of state legislators that are relevant to these regulators need to be asking.
This presentation is ideal for the informed, but not expert. Very accessible. Very scary. Historically grounded.
I don't have any I don't really doubt that at some point AI and the associated technologies around it are going to be enormous drivers of productivity and value. How could they not be? But the question is to what extent there is a gap in time between these huge capital investments that the AI the companies competing in AI are making and businesses generally figuring out how to really make money out of AI, and [at the same time] the AI companies figuring out how to avoid AI becoming a commodity, right? Which is then not very profitable.
In that gap in time is when you could have a very severe financial crisis. I'm not making this up. This has happened before and it's happened before in with technologies that are at least as transformative as AI and in the long run produced enormous value.
So the real example that should cause people real concern is what happened to the railroads in 1873. Railroads – talk about transformational – think about the what railroads did in a world before cars, before meaningful telecom, before airplanes. Think about the enormous impact of railroads on the American economy and on the world economy. They basically created modern capitalism.
In the late 1860s and early 1870s throughout the world, everybody was building railroads as fast as they could, and American railroad companies raised huge amounts of money both in the United States and overseas to build railroads. They built railroads out into the plains, across the country, every which way. They built railroads WAY AHEAD OF PEOPLE, and they got no cash flow back in [the near term]. Once markets realized this, once railroad started defaulting on bonds, the entire financial structure around the railroad industry collapsed. The result was a decade of severe recession. The result was huge financial losses. A decade of severe recession and social unrest.
The railroad strike of 1877 that some people may be familiar with was the consequence of the railroad bubble bursting. You want to talk about severe? The railroad strike of 1877 ultimately led to the United States Army being deployed in the streets of our major cities, pitched gun battles, and for a brief time a kind of American Soviet in Pittsburgh, in Baltimore, and in Chicago.
But the the crash of ‘73 led to gigantic suffering, huge suffering to the American people and around the world. It's not an experience we'd want to repeat. All those railroads eventually made money, but not those investors. Those investors got wiped out.
Now, this may sound like ancient history, but the same thing more or less happened with the foundational tech company Global Crossing in the late 90s and early 2000s. Global Crossing laid the cable that created the world we live in today. None of what we have in terms of the kind of amazing nature of the Internet today would have been possible without the cables Global Crossing laid in the late 90s and early 2000s. Global Crossing went bankrupt because there was not the demand for all that capacity. Global Crossing went bankrupt. And yet those cables today are making money for the people who own them.
