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A quick and dirty google shows that global financial institutions wrote down 1-2 trillion in mortgage related securities, a ~6trn drop in the us real estate mkt

by cogogo 1y ago

A quick and dirty google shows that global financial institutions wrote down 1-2 trillion in mortgage related securities, a ~6trn drop in the us real estate mkt and another 6trn destroyed in the equities mkt. Not sure I really trust these numbers but they are the right order of magnitude. I have a very hard time believing the AI bubble is as big as the subprime bubble. But it very well could help trigger a massive correction and recession on a similar scale because everything else that has been propped up by low rates will likely correct with it.

simonh 1y ago
In the subprime crisis 10 million American families lost their homes and 8.7 million people lost their jobs. In the case of the collapse of an AI bubble, I don't see as much of a direct relationship to effects on the average Joe. Yes all those billions spent by tech investors will get written off, the companies heavily invested in AI will shed well paid tech jobs in a sector that was craving talent anyway. I think the biggest effect would be the fact that all that capital was spent on AI tech rather than productive assets and businesses. That's a big opportunity cost, and would hit growth, but I don't see it wiping out ordinary people in the same way. The pain will be heavily concentrated on investors and for everyone else it will just be a slow drag but not a catastrophe. The real problem is if there are other negative economic effects that compound with it.
- smsm42 1y ago
  > In the subprime crisis 10 million American families lost their homes When you say "lost their homes", do you mean "I owned the house and somehow I now own no house and have no money for it, it just evaporated", or do you mean "I took a loan I could not afford, on a house I could not afford, while investing a tiny amount of money or none at all into the deal, and hoping to profit from ever increasing prices, and using my equity as an infinite-money ATM, and when that stopped, the bank took the house back"? If the latter, then what was lost is not "homes" but unrealistic prospects of profits from the thin air. If the former, I'd like to know how exactly a subprime crisis could cause something like that.
  - pixl97 1y ago
    That is a very broad and angry brush you're painting with. There were plenty of people that bought houses at reasonable prices and down-payments and still lost their ass when downstream ramifications took out unrelated businessss.
    - smsm42 1y ago
      I don't doubt that, I just think when throwing around million-sized numbers it is necessary to be aware that these numbers are not describing one case, they describe a lot of different cases. There were a lot of people that were hurt by the subprime fallout (myself included, though I did not lose a home because I could not afford one at the time anyway) and also a lot of people engaging in absolutely reckless speculation (which also was one of the reasons why I was not able to afford a home at the time). There's more than one side to that picture, and some of the people who gut hurt were also the people who made it possible to get that crazy in the first place.
  - xboxnolifes 1y ago
    Actual people lived in those actual homes and ended up being actually hurt in the housing market crash. Actual people are not relying on actual AI. And I doubt many actual people would be hurt by the AI crash.
    - amdsn 1y ago
      I don't share your doubts. Even people not directly exposed to the bubble may be indirectly exposed by way of funds they've invested in or retirement accounts, or even just by having invested in something that invested in something that may evaporate with the bubble. Not to mention jobs that may disappear, which will result in the people who held those jobs being less able to spend their money, which has knock-on effects in the rest of the economy if it happens at large enough scale.
  - BobaFloutist 1y ago
    Didn't a lot of people lose their houses because they bought a house with a mortgage payment they could absolutely afford with their income, and then got laid off when the economy contracted? And, frankly, it's literally the bank's job not to make loans that people will default on too frequently (for their own sake), so if you're not exceptionally knowledgeable about banking, it's not unreasonable to trust your bank and their advisors not to make a loan you won't be able to pay back. Like, sure, you shouldn't trust them not to screw you on the terms and with interest, but banks mostly are trying to make loans they expect to get paid back, and I would personally expect them to have a good idea of how much they can trust me with.
- vouwfietsman 1y ago
  AFAIK its theorized much of the GDP growth of the US, as well as the stock market growth of important index funds, is mostly as a result of select tech companies surfing the AI hype. In that case, a prolonged recession may occur (that would've occurred anyway), and the effect will be felt throughout the economy. But, again, that's just a general recession being triggered by the AI bubble bursting, i.e. AI no longer propping up the economy, so that's not a bad thing. What the results of that are in terms of severity or impact I wouldn't know, I don't think anyone knows.
  - WillPostForFood 1y ago
    Why do you think it would be a prolonged recession? Dot com bust, for example, was just two quarters of GDP decline, followed by solid growth. 2007 was much worse, because it was a crisis of financial institutions. AI bubble may be bigger than dot com, but feels more like it in that is a narrow section of the economy. Even more narrow than dot com.
    - vouwfietsman 1y ago
      Well I think nobody knows this stuff, so don't take my word for it. I think prolonged makes sense because AI is holding off a depression, but that depression does not have a singular obvious cause. I think there's a bunch of reasons to be pessimistic about the global economy, including of course (geo)political, (trade)wars, extremism, stagnating production, etc. Contrary to the dotcom bubble, current AI might not actually be a useful-but-overvalued tech. It may just not be that useful at all. In that case, a rally like dotcom is out.
nefarious_ends 1y ago
[flagged]

by cogogo 1y ago

simonh 1y ago

In the subprime crisis 10 million American families lost their homes and 8.7 million people lost their jobs. In the case of the collapse of an AI bubble, I don't see as much of a direct relationship to effects on the average Joe. Yes all those billions spent by tech investors will get written off, the companies heavily invested in AI will shed well paid tech jobs in a sector that was craving talent anyway. I think the biggest effect would be the fact that all that capital was spent on AI tech rather than productive assets and businesses. That's a big opportunity cost, and would hit growth, but I don't see it wiping out ordinary people in the same way. The pain will be heavily concentrated on investors and for everyone else it will just be a slow drag but not a catastrophe. The real problem is if there are other negative economic effects that compound with it.

smsm42 1y ago
> In the subprime crisis 10 million American families lost their homes When you say "lost their homes", do you mean "I owned the house and somehow I now own no house and have no money for it, it just evaporated", or do you mean "I took a loan I could not afford, on a house I could not afford, while investing a tiny amount of money or none at all into the deal, and hoping to profit from ever increasing prices, and using my equity as an infinite-money ATM, and when that stopped, the bank took the house back"? If the latter, then what was lost is not "homes" but unrealistic prospects of profits from the thin air. If the former, I'd like to know how exactly a subprime crisis could cause something like that.
- pixl97 1y ago
  That is a very broad and angry brush you're painting with. There were plenty of people that bought houses at reasonable prices and down-payments and still lost their ass when downstream ramifications took out unrelated businessss.
  - smsm42 1y ago
    I don't doubt that, I just think when throwing around million-sized numbers it is necessary to be aware that these numbers are not describing one case, they describe a lot of different cases. There were a lot of people that were hurt by the subprime fallout (myself included, though I did not lose a home because I could not afford one at the time anyway) and also a lot of people engaging in absolutely reckless speculation (which also was one of the reasons why I was not able to afford a home at the time). There's more than one side to that picture, and some of the people who gut hurt were also the people who made it possible to get that crazy in the first place.
- xboxnolifes 1y ago
  Actual people lived in those actual homes and ended up being actually hurt in the housing market crash. Actual people are not relying on actual AI. And I doubt many actual people would be hurt by the AI crash.
  - amdsn 1y ago
    I don't share your doubts. Even people not directly exposed to the bubble may be indirectly exposed by way of funds they've invested in or retirement accounts, or even just by having invested in something that invested in something that may evaporate with the bubble. Not to mention jobs that may disappear, which will result in the people who held those jobs being less able to spend their money, which has knock-on effects in the rest of the economy if it happens at large enough scale.
- BobaFloutist 1y ago
  Didn't a lot of people lose their houses because they bought a house with a mortgage payment they could absolutely afford with their income, and then got laid off when the economy contracted? And, frankly, it's literally the bank's job not to make loans that people will default on too frequently (for their own sake), so if you're not exceptionally knowledgeable about banking, it's not unreasonable to trust your bank and their advisors not to make a loan you won't be able to pay back. Like, sure, you shouldn't trust them not to screw you on the terms and with interest, but banks mostly are trying to make loans they expect to get paid back, and I would personally expect them to have a good idea of how much they can trust me with.
vouwfietsman 1y ago
AFAIK its theorized much of the GDP growth of the US, as well as the stock market growth of important index funds, is mostly as a result of select tech companies surfing the AI hype. In that case, a prolonged recession may occur (that would've occurred anyway), and the effect will be felt throughout the economy. But, again, that's just a general recession being triggered by the AI bubble bursting, i.e. AI no longer propping up the economy, so that's not a bad thing. What the results of that are in terms of severity or impact I wouldn't know, I don't think anyone knows.
- WillPostForFood 1y ago
  Why do you think it would be a prolonged recession? Dot com bust, for example, was just two quarters of GDP decline, followed by solid growth. 2007 was much worse, because it was a crisis of financial institutions. AI bubble may be bigger than dot com, but feels more like it in that is a narrow section of the economy. Even more narrow than dot com.
  - vouwfietsman 1y ago
    Well I think nobody knows this stuff, so don't take my word for it. I think prolonged makes sense because AI is holding off a depression, but that depression does not have a singular obvious cause. I think there's a bunch of reasons to be pessimistic about the global economy, including of course (geo)political, (trade)wars, extremism, stagnating production, etc. Contrary to the dotcom bubble, current AI might not actually be a useful-but-overvalued tech. It may just not be that useful at all. In that case, a rally like dotcom is out.

nefarious_ends 1y ago

[flagged]