5 ms·

The real problem is continued socialization of risk when the inevitable bailouts come. The government is basically telling everyone to take crazy risks, becaus

The real problem is continued socialization of risk when the inevitable bailouts come. The government is basically telling everyone to take crazy risks, because if the risk is big enough, we'll bail you all out.

zerosizedweasle 1y ago
Maybe though, if that happens, some heads will roll and some of the white collar criminals get decades in prison for their behavior unlike in 2008.
- tartuffe78 1y ago
  Not if they bribe the big man
- ryandrake 1y ago
  Why do you think that will happen, when it pretty much never has historically happened?
- pesus 1y ago
  That's probably less likely than ever.
  - rtkwe 1y ago
    I think you could make an argument either way and have an equal chance of being right. Either Trump et al get bribed/flattered/are personally exposed to the fallout and bail out their fellow class members or he gets angry about it and decides to make heads roll via his increasingly captured and controlled DOJ. I still agree it's more likely the former than the latter but I can see the path that leads to the latter.
- scarface_74 1y ago
  It came out soon after AOL acquired Tine Warner in 2001 that they artificially inflated income to prop their stock up for the merger to go through. No one was punished for it.
  - IAmBroom 1y ago
    I'm shocked, shocked to find that gambling was going on there.
- twoodfin 1y ago
  It’s not a felony to bankrupt your company or lose your investors’ money through good faith bad bets. Presuppose everything else that contributed to the GFC was straight up fraud: Prevent it all and the crisis is basically just as bad.
  - wholinator2 1y ago
    Maybe I'm reading too far but "heads will roll" has connotations outside the strictly legal sense
    - fluoridation 1y ago
      "Heads will roll" just means "severe punishments will be administered". It doesn't necessarily imply the punishments will be illicit, illegitimate, or even fatal.
jandrese 1y ago
I would really hope that nobody considers AI companies to be foundational to the economy the way the housing market is. I know there is going to be people crying in Congress with "Think of the 401ks!" but I really want the hype men to feel some pain this time. It's really a shame that it's really the regular people who are going to suffer the majority of the harm when this bubble pops, as the Wall Street insiders get off mostly scot free yet again but I really don't want the government trying to prop up these assholes again.
- zerosizedweasle 1y ago
  https://www.derekthompson.org/p/this-is-how-the-ai-bubble-will-pop https://www.derekthompson.org/p/this-is-how-the-ai-bubble-wi... Goes into good detail on how the bubble has infiltrated everywhere. Like if you went into a REIT thinking it was safe from the bubble, nope a significant portion of your investment is in the data center buildout
  - ambicapter 1y ago
    It seems like an (ugly?) truth that if you don't want to be exposed to bubbles, you have to take lower-return investments, by definition. Because the bubble is raising the high bar of what kind of return people expect on investment, so if you try to get close to that, you're going to end up affected by the bubble. The problem, of course, that no one wants to take a lower return on investment.
    - zerosizedweasle 1y ago
      Yeah, but I guess the point is that it is so big you can't escape it, it's everywhere. So the fallout will not be limited to a segment of the economy, it's going to hurt everywhere.
    - BobaFloutist 1y ago
      And the reason nobody wants to take a lower return on investment is that doing so is trying to time the market. Let's say you heard Trump's talk of tariffs, got spooked when he won the election, and moved your investments. The S&P 500 has gone up ~33% since election day. How much growth can you realistically miss before correctly hedging against a crash still net loses you money? And that's assuming you pick the correct hedge. If the US economy well and truly crashes beyond return, to the point where the S&P 500 is actual garbage that will not recover in the next 5-10 years, that might bode poorly for the dollar, so that's it for your treasuries, money market funds, CDs, etc. Gold is always an option, until it's at an all time high because just as the economy is roaring along a ton of people are nervous. So, you can invest in gold, but it's expensive, which means it could actually dip if we get stability. Ok, so you invest in foreign markets - but the Global Financial Crisis was global, the Great Depression was global, everything was global. What do you actually hedge in? Oil? Well, the rapid development of green energy might actually, finally render that an unsafe investment. Green energy? Think again, the president is on a crusade against it. There's literally nothing that's actually a safe investment, and even if you did find a safe investment, the big crash might not happen until everyone else riding the wave has doubled or tripled their investment, by which point they'll be on par or even above you post crash. I'm actually very happy I'm nowhere near retiring, since regardless of how else you feel of the current governing of the US, I think it would be hard to argue that they're fighting a war against conventional wisdom, and that makes investing very scary.
mjr00 1y ago
> The government is basically telling everyone to take crazy risks, because if the risk is big enough, we'll bail you all out. This is the widespread sentiment, yes, and why the bubble is so crazy. The feeling a lot of people have is; even if shit hits the fan, rather than let stocks/assets decrease in value relative to cash, governments will just print money and keep stocks/assets "stable" while making cash worthless. The US proved they're willing to do this during COVID. What you're betting on by holding assets despite the bubble is that they're willing to do it again.
- zerosizedweasle 1y ago
  Yeah, but can they afford it? The government's debt obligations and inflation made it possible, the circumstances have changed considerably. They could wreck the economy for a long time by doing something like that again (particularly if it isn't a war or something).
  - wilkommen 1y ago
    I think they can afford it one more time, but this will be the last time. I think this will be the time that wrecks the economy.
  - coldpie 1y ago
    The people in control of the economy are not affected by the state of the economy. There is no incentive for them not to gamble because there is no downside. If they win, they get even more money and power. If they lose, they'll still have their yachts and land and hobby rocket, newspaper, and social media companies.
  - joules77 1y ago
    Putin the magnificent has said "whoever leads in AI will rule the world". So it is a war. An arms race. Weirdly being run by private capital cuz there was no incentive(unlike during WW2/Cold War) to fund a state run Manhattan Project for AI. Watch what happens if a breakthrough comes out of China, Russia or a shed in Nigeria. What is happening on Wall Street or who is loosing cash or jobs will drop instantly down the list of priorities. Money will be printed to the moon.
cowsandmilk 1y ago
Why would the government bail out AI companies? They didn’t bail out the dot-com bubble. Bailing out the auto industry was about the UAW. Bailing out financial institutions went with programs to keep people from being foreclosed on and losing their homes. The AI bubble doesn’t have those incentives and is mostly (all?) private company valuations.

zerosizedweasle 1y ago

Maybe though, if that happens, some heads will roll and some of the white collar criminals get decades in prison for their behavior unlike in 2008.

tartuffe78 1y ago
Not if they bribe the big man
ryandrake 1y ago
Why do you think that will happen, when it pretty much never has historically happened?
pesus 1y ago
That's probably less likely than ever.
- rtkwe 1y ago
  I think you could make an argument either way and have an equal chance of being right. Either Trump et al get bribed/flattered/are personally exposed to the fallout and bail out their fellow class members or he gets angry about it and decides to make heads roll via his increasingly captured and controlled DOJ. I still agree it's more likely the former than the latter but I can see the path that leads to the latter.
scarface_74 1y ago
It came out soon after AOL acquired Tine Warner in 2001 that they artificially inflated income to prop their stock up for the merger to go through. No one was punished for it.
- IAmBroom 1y ago
  I'm shocked, shocked to find that gambling was going on there.
twoodfin 1y ago
It’s not a felony to bankrupt your company or lose your investors’ money through good faith bad bets. Presuppose everything else that contributed to the GFC was straight up fraud: Prevent it all and the crisis is basically just as bad.
- wholinator2 1y ago
  Maybe I'm reading too far but "heads will roll" has connotations outside the strictly legal sense
  - fluoridation 1y ago
    "Heads will roll" just means "severe punishments will be administered". It doesn't necessarily imply the punishments will be illicit, illegitimate, or even fatal.

jandrese 1y ago

I would really hope that nobody considers AI companies to be foundational to the economy the way the housing market is. I know there is going to be people crying in Congress with "Think of the 401ks!" but I really want the hype men to feel some pain this time. It's really a shame that it's really the regular people who are going to suffer the majority of the harm when this bubble pops, as the Wall Street insiders get off mostly scot free yet again but I really don't want the government trying to prop up these assholes again.

zerosizedweasle 1y ago
https://www.derekthompson.org/p/this-is-how-the-ai-bubble-will-pop https://www.derekthompson.org/p/this-is-how-the-ai-bubble-wi... Goes into good detail on how the bubble has infiltrated everywhere. Like if you went into a REIT thinking it was safe from the bubble, nope a significant portion of your investment is in the data center buildout
- ambicapter 1y ago
  It seems like an (ugly?) truth that if you don't want to be exposed to bubbles, you have to take lower-return investments, by definition. Because the bubble is raising the high bar of what kind of return people expect on investment, so if you try to get close to that, you're going to end up affected by the bubble. The problem, of course, that no one wants to take a lower return on investment.
  - zerosizedweasle 1y ago
    Yeah, but I guess the point is that it is so big you can't escape it, it's everywhere. So the fallout will not be limited to a segment of the economy, it's going to hurt everywhere.
  - BobaFloutist 1y ago
    And the reason nobody wants to take a lower return on investment is that doing so is trying to time the market. Let's say you heard Trump's talk of tariffs, got spooked when he won the election, and moved your investments. The S&P 500 has gone up ~33% since election day. How much growth can you realistically miss before correctly hedging against a crash still net loses you money? And that's assuming you pick the correct hedge. If the US economy well and truly crashes beyond return, to the point where the S&P 500 is actual garbage that will not recover in the next 5-10 years, that might bode poorly for the dollar, so that's it for your treasuries, money market funds, CDs, etc. Gold is always an option, until it's at an all time high because just as the economy is roaring along a ton of people are nervous. So, you can invest in gold, but it's expensive, which means it could actually dip if we get stability. Ok, so you invest in foreign markets - but the Global Financial Crisis was global, the Great Depression was global, everything was global. What do you actually hedge in? Oil? Well, the rapid development of green energy might actually, finally render that an unsafe investment. Green energy? Think again, the president is on a crusade against it. There's literally nothing that's actually a safe investment, and even if you did find a safe investment, the big crash might not happen until everyone else riding the wave has doubled or tripled their investment, by which point they'll be on par or even above you post crash. I'm actually very happy I'm nowhere near retiring, since regardless of how else you feel of the current governing of the US, I think it would be hard to argue that they're fighting a war against conventional wisdom, and that makes investing very scary.

mjr00 1y ago

> The government is basically telling everyone to take crazy risks, because if the risk is big enough, we'll bail you all out. This is the widespread sentiment, yes, and why the bubble is so crazy. The feeling a lot of people have is; even if shit hits the fan, rather than let stocks/assets decrease in value relative to cash, governments will just print money and keep stocks/assets "stable" while making cash worthless. The US proved they're willing to do this during COVID. What you're betting on by holding assets despite the bubble is that they're willing to do it again.

zerosizedweasle 1y ago
Yeah, but can they afford it? The government's debt obligations and inflation made it possible, the circumstances have changed considerably. They could wreck the economy for a long time by doing something like that again (particularly if it isn't a war or something).
- wilkommen 1y ago
  I think they can afford it one more time, but this will be the last time. I think this will be the time that wrecks the economy.
- coldpie 1y ago
  The people in control of the economy are not affected by the state of the economy. There is no incentive for them not to gamble because there is no downside. If they win, they get even more money and power. If they lose, they'll still have their yachts and land and hobby rocket, newspaper, and social media companies.
- joules77 1y ago
  Putin the magnificent has said "whoever leads in AI will rule the world". So it is a war. An arms race. Weirdly being run by private capital cuz there was no incentive(unlike during WW2/Cold War) to fund a state run Manhattan Project for AI. Watch what happens if a breakthrough comes out of China, Russia or a shed in Nigeria. What is happening on Wall Street or who is loosing cash or jobs will drop instantly down the list of priorities. Money will be printed to the moon.

cowsandmilk 1y ago

Why would the government bail out AI companies? They didn’t bail out the dot-com bubble. Bailing out the auto industry was about the UAW. Bailing out financial institutions went with programs to keep people from being foreclosed on and losing their homes. The AI bubble doesn’t have those incentives and is mostly (all?) private company valuations.