Man who predicted 2008 financial crisis reveals four key signs that something worse is about to happen
A man who predicted the 2008 financial crash has warned of four signs that we're going to be getting something worse.
When it comes to predicting financial crashes Richard Bookstaber has quite literally written the book on them, as he penned A Demon Of Our Own Design in 2007 which managed to foreshadow how a year later the global economy would fall apart.
Now he's written for the New York Times to say that back in 2008 he told people 'remember what’s happening, you’ll never see anything like this again' but now he's not so sure that's true.
He said there were several issues plaguing the global economy that were being looked at in isolation, but putting them together was really dangerous and something going wrong with one could have far reaching consequences.
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It's a gloomy picture he paints as Bookstaber laid out his four warning signs of what might be to come.
Private credit
It's been nearly two decades since the global financial crisis and Bookstaber says that since then traditional banks have been in 'retreat' and lots of companies have been 'increasingly reliant on borrowing from institutional investors'.
He reckoned the private credit industry was worth around $2 trillion, and warned that investors weren't sure what the things they'd put money into were worth, or if they could take their money back out and run if things fell apart.
According to NPR the sector is probably worth closer to $3 trillion, and that a couple of companies backed by this private credit going bankrupt had triggered concerns over how closely investors were looking at where their cash was going.
A company named Blue Owl announced last month it would be selling $1.4 billion to reimburse investors, which triggered a panic.
Exposure to AI
A lot of money has been poured into AI, though the vast majority of places trying to find a way to use it have said their attempts to get it to do things for them have been met with failure.
Despite many businesses struggling to find a way to effectively use AI, Bookstaber warned that many of the companies borrowing money from these private creditors are ones which offered services that might be replaced by the technology altogether.
If all this money has been thrown at companies which might find themselves outdone by AI that's a problem.
Speaking of more AI problems...
AI makes the stock market 'dangerous'
Bookstaber explained that the S&P 500, an index of the 500 top companies on the US stock exchange, was increasingly being taken over by companies riding the AI boom.
He warned that 10 big tech companies now accounted for a third of the combined value of the 500.
He said: "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."
If these places wobble then the whole thing starts falling apart.
Geopolitical tensions
This one cannot be ignored, the US and Israel starting a war with Iran has spiked fuel prices and made everything more expensive.
Bookstaber warned disruption to the world's energy infrastructure threatened AI in particular, as did the threat to semiconductor chips which are largely produced in Taiwan.
Chaos in the world makes things more expensive everywhere, which in turn affects global finances and can cause all sorts of damage.
"Our current financial system fails not because any one thing goes wrong," he warned.
"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."
Topics: World News, Money, AI, Artificial Intelligence
Joe Harker