A new report from Open Markets Institute and Americans for Financial Reform Education Fund argues that the AI boom is being sustained by circular financing, opaque private fund investments, and accounting tricks, and that a sharp correction could trigger a recession or a 2008-scale financial crisis. The report, “Brace for Impact: Protecting People and the Economy when the AI Bubble Bursts,” examines how a handful of tech companies and their financial backers are fueling the bubble, and it calls for transparency, closing regulatory loopholes, stronger supervision of AI financiers, and a commitment not to bail out AI firms or their financial backers.
The report highlights:
- A new report warns that AI’s trillion-dollar spending boom is propped up by circular financing, opaque debt, and accounting gimmicks.
- Warning signs are already emerging: OpenAI revenue miss, Firmus Technologies IPO cancellation, and strategist warnings of a 2027-2028 burst.
- Fitch Ratings and the IMF have flagged AI-driven market corrections as recession and financial stability risks.
- The report names Alphabet, Amazon, Anthropic, Meta, Microsoft, OpenAI, Oracle, and SpaceX as drivers of the spending spree.
- Policy recommendations include transparency, closing regulatory loopholes, stronger supervision, and no bailouts for AI firms or backers.
- The report argues that an AI crash could threaten workers’ jobs, retirement savings, and communities beyond Silicon Valley and Wall Street.
The warning signs are already visible. OpenAI’s annualized revenue was reported to be a full $20 billion below a figure widely reported just weeks earlier. NVIDIA- and Blackstone-backed Firmus Technologies abandoned a planned IPO in Australia after investors balked at its valuation and business prospects. Panmure Liberum’s top strategist warned the AI bubble could burst in 2027 or 2028, potentially triggering a severe stock-market downturn. Fitch Ratings warned that any sharp correction of AI stocks could plunge the U.S. into a recession, and the IMF named an AI-driven market correction as a salient stability risk.
In addition, the report lays out steps that policymakers at every level of government can take to limit potential harms before and after a crash, including demanding financial transparency across the entire Al ecosystem, closing statutory and regulatory loopholes that enable deceptive accounting practices, strengthening regulation and supervision of AI financiers, and refusing to bail out AI firms or financial backers. Excellent read!
[Read More]