Groups | Search | Server Info | Login | Register

Groups > alt.fan > #55

Opinion | I Predicted the 2008 Financial Crisis. What Is Coming May Be Worse.

Cross-posted to 4 groups.

Show all headers | View raw

 https://nytimes.com

Opinion | I Predicted the 2008 Financial Crisis. What Is Coming May Be
Worse.
Richard Bookstaber

Guest Essay

March 16, 2026

By Richard Bookstaber

Mr. Bookstaber is the author of "A Demon of Our Own Design," which in 2007
warned of the potential for a financial crisis.

At the start of the 2008 financial crisis, I was at a hedge fund. By its
end, I was at the U.S. Treasury. At both, I worked with people only a few
years out of college. The drama of 2008 was all they knew about financial
markets. "Remember what's happening," I told them. "You'll never see
anything like this again."

Now I'm not so sure. Maybe they'll see worse.

We have returned to a period of risk, one rife with the sort of pressures
that have led to major financial crises. This time, the risks are spread
across industries, markets and nations: artificial intelligence, the
roughly $2 trillion private credit industry, stock markets, Taiwan and now
Iran. These risks are analyzed one by one, news article by news article.
We understand them in isolation. Yet they are different entry points into
the same underlying structure - a complex and tightly coupled system where
the specific source of stress matters less than how quickly that stress
can spread.

Signs of systemic strain are emerging.

Let's start with private credit, which is already showing worrisome signs.
Over the past two decades, the retreat of traditional banks after the
financial crisis has left many companies increasingly reliant on borrowing
from institutional investors. But these loans rarely exchange hands,
leaving investors uncertain about what these instruments are really worth
or how easily they could be sold if conditions deteriorate.

Now clouding the picture is the fact that many of the borrowers
underpinning the lending industry are software and technology companies -
the kinds of businesses whose services could be replaced by A.I.

That vulnerability is starting to worry investors. Already uneasy about
the way higher interest rates are raising borrowing costs, some have begun
withdrawing their money from the private credit funds of well-known
companies like Blue Owl, BlackRock and Blackstone. Shares in Blue Owl have
fallen sharply. And because the market has no organized exchange and
information is inaccessible, investor withdrawals can trigger the kind of
wholesale run that in the past turned financial stresses into full-blown
crises.

Sign up for the Opinion Today newsletter  Get expert analysis of the news
and a guide to the big ideas shaping the world every weekday morning.

Simultaneously, the A.I. boom is driving extraordinary investment into a
small group of dominant technology companies, inflating their valuations
to the point that 10 stocks now account for more than a third of the S&P
500's value. That level of concentration is unprecedented - and dangerous,
because it means a shock to any one of these companies can ripple across
the entire market rather than be absorbed by it.

What appear to be separate developments - a new kind of lending market and
technological dislocation on one hand, stock market exuberance on the
other - are in fact the same network of money and expectations, approached
from different directions.

Of course, private credit isn't only financing those companies vulnerable
to A.I. It is also a critical source of financing for the infrastructure
that drives A.I. - the data centers and semiconductor chips. This
infrastructure is largely being built by the handful of companies like
Google and Microsoft that dominate our stock market. In this tightly
connected system, the weakening of private credit strains the A.I.
investments of the tech Goliaths, which in turn threatens the stock
portfolios, the retirements and the pensions of tens of millions of
people.

In addition, the A.I. boom is placing new strains on the physical
infrastructure it depends on. It drives enormous electricity consumption
and has a ravenous appetite for advanced semiconductors. These carry
geopolitical weight.

Take Iran. An energy shock from the conflict that raises the cost of power
or constrains its supply directly affects data centers and A.I.
production, raising costs for the A.I. Goliaths, which then transfer those
pressures to our private credit and stock markets.

Then there's Taiwan. If China were to invade or blockade it, America's
access to semiconductors would be severely limited. That would immediately
slow deployment of A.I., weakening the companies driving the A.I. boom,
with the inevitable knock-on effects.

Our current financial system fails not because any one thing goes wrong.
It fails because different shocks propagate through the same structure and
in ways that are hard to anticipate. When something eventually goes wrong,
it spreads faster than it can be contained.

It is critical that our policymakers realize that private credit is not
just a parallel risk sitting alongside the A.I. boom. A.I.'s data centers,
chips and infrastructure have been built largely on private loans.
Investors in those loans cannot easily sell their positions. So if there
is any quake in the system and they find they need to raise cash, they
will do what investors do when they can't sell what they want to sell:
They sell what they can. And what they can sell easily are the large,
publicly traded technology stocks that dominate the major indexes.

This is not the first time we have built a system like this. The crisis of
2008 is often remembered as a story of homeowners gorging on excessive
debt, a housing bubble fueled by speculation and millions of mortgages
going bad. But the housing bubble itself was not the reason the crunch
became so destructive. The accelerant that pushed the crisis to such
depths was the financial system that had been constructed around the
housing market. Novel and complex financial instruments obscured the risk,
intertwined balance sheets across the financial system and eliminated the
buffers that once absorbed shocks. When the housing market tanked, these
instruments nearly took our entire financial system down with it.

This time, the danger isn't financial engineering. It's that our financial
system has attached itself to the vulnerabilities of our physical world -
power grids, water, land, supply chains - and created hazards that markets
have no framework to analyze. Our models for detecting risk look at
prices, volatility and correlations. They have no instruments for reading
a grid failure, a drought or a severed supply chain. By the time warning
signs show up in market data, the damage will already have been done.

The physical risks of Iran, Taiwan and the A.I. boom are supplanting the
types of financial risks that preceded 2008. I'd take financial risk any
day. Financial risk moves prices. Physical risk moves the world.

Richard Bookstaber is the author of "A Demon of Our Own Design," which in
2007 warned of the 2008 financial crisis. His forthcoming book is "A Risk
Manifesto: Decisions in the Face of Material Events."

The Times is committed to publishing a diversity of letters to the editor.
We'd like to hear what you think about this or any of our articles. Here
are some tips. And here's our email: letters@nytimes.com.

-- 

Created with https://notepad-plus-plus.org/ $Free
Posted Through Usenet Server: http://news.individual.net/ €10 annually 
Using Forte Agent 8.00 news reader $29 for the life of product
==================================================
Anyone that isn't confused doesn't really 
understand the situation.
~Edward R. Murrow USA WWII Correspondent
==================================================

Back to alt.fan | Previous | Next | Find similar

Thread

Opinion | I Predicted the 2008 Financial Crisis. What Is Coming May Be Worse. Biased Journalism <biased@nowhere.invalid> - 2026-03-21 17:08 -0700

csiph-web