Warnings from the Bank of International Settlements, even though written in dry economese, are worth heeding. It was the BIS, specifically Willam White and Claudio Borio, who identified dangerously elevated housing prices in many markets. Alan Greenspan pooh poohed their concerns. Better credentialed economist similarly dismissed White and Borio because all they had was empirical findings, and no theory or model.
We have embedded the germane section of the BIS Annual Economic Report at the end of this post. The Financial Times made it their lead story:
And the money chart from their write-up:
Note this graphic plots only tech-related bubbles and not real estate ones, which are represent a very large component of collective wealth and are levered on top of that, so that a big fall in value is deflationary. Even so, note how tame the dot-com bubble looks even thought, at the time, its magnitude compared to post-Depression levels was worrisome, even before getting to proof-of-mania practices like valuing companies based on eyeballs. But as you can see, the 1920 boom was even worse. In addition to its its much greater severity, its use of leverage was the reason the bust blew back so hard to the economy. High levels of margin debt wound up generating large losses to banks. The stock market then also had leveraged structures, such as trust of trusts and trust of trusts of trust, that were a lot like the crisis-era collateralized debt obligations.
Even though strict securities laws limit margin debt, the current level is flashing red:
There hasn't been a better time in a long while to review the quality of your portfolio.
History offers a clear verdict on rising margin debt.
Don't let FOMO sway you. https://t.co/plx60LYayI pic.twitter.com/q0JXa7VvVE
— Thierry from arvy 🇨🇭 (@ThierryBorgeat) June 27, 2026
And it’s not hard to find other valuation causes for pause:
🚨 WARREN BUFFETT WARNED ABOUT THIS TWICE.
2000:
“Nothing sedates rationality like large doses of effortless money.”2026:
“We’ve never had people in a more gambling mood than now.”And now the Nasdaq-to-M2 ratio has pushed ABOVE the peak of the dot-com bubble itself.
The AI… pic.twitter.com/JoC2AR6S1Y
— Crypto Rover (@cryptorover) June 28, 2026
And:
🚨 SOUTH KOREA JUST FLASHED A MAJOR WARNING SIGNAL FOR THE AI STOCKS
KOSPI erased nearly ₩100 trillion today.
KOSDAQ surged +7.5% and added ~₩150 trillion.
At first glance, that looks normal, but it's NOT.
Money is rotating out of Korea’s biggest AI/memory winners like… pic.twitter.com/2o7NezaHUz
— Limitless Finance (@trylimitlessfin) June 29, 2026
And AI has circular financing, which is more opaque than the trust of trust of trust of the 1920s, but produced similar leverage and crisis-prone excessive interconnectedness. Plus hyperscalers have such insatiable and growing needs for fund that they can’t get it through equity and have become more dependent on borrowing, when high-ish interest rates and a slow-moving crunch in the private debt markets means what they deem to be adequate funding is unlikely to be on offer.
More from the Financial Times’ take on the BIS report:
Big Tech’s AI spending spree risks ending in a prolonged “investment bust” that could rattle financial markets and damage the global economy, the Bank for International Settlements has warned.
The Basel-based organisation, which advises the world’s central banks, said the prospect of worse than expected returns in the tech sector could prompt investors to rapidly curb financing for AI companies, at a time when the five biggest “hyperscalers” are expected to invest more than $1tn from 2025 to the end of 2026.
The warning comes amid mounting concerns over the scale of equity and debt issuance fuelling the AI revolution and the turbulence this is creating in global markets. Tech groups have flooded into the global credit market, raising hundreds of billions of dollars to fund AI projects, taking advantage of corporate credit spreads that are close to their lowest level this century…
Big investors have warned that this rush to issue debt could test investors’ appetite, especially if the AI investment does not deliver an adequate return…
Allianz’s investment chief warned this week that SpaceX’s decision to launch a $25bn bond sale so soon after its IPO was a sign that markets had entered “bubble territory”….
A major equity market correction associated with AI could have broader implications today than in the past, the BIS added, because households have greater exposure to shares relative to their wealth and income.
Financial stability could also be endangered, given the volumes of debt being sold by AI companies to finance their investment, it warned.
However, pink paper readers provided a lot of AI-positive comments on the article. So a lot of true believers are not yet deterred.
Ed Zitron, in a characteristically lively talk, describes how the delay of the IPOs of OpenAI and Anthropic won’t improve their investor/funding tsuris, and how the sector seems set to become unable to meet its loopy-seeming combo of yawning-pit money hunger with zero prospects of adequate returns.
Again, a very bad ending seems baked in, but the incentives to keep the party going are massive.
00 Annual Economic Report 2026 - ar2026e
under the guise of NATIONAL SECURITY, we’ll have a federal gubmint bailout…….
“Too Big, Too Important, to fail. Somebody find me Hank Paulsen’s yellow Legal Tablet! ”
Who gets to scribble on it? Trump? Lutnick? Bessent? Jared oh Jared? Kevin Warsh?
“Crisis is the rallying cry of the tyrant.”
“If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy.”
“Oppressors can tyrannize only when they achieve a standing army, an enslaved press, and a disarmed populace.” James Madison
well, two out of three… and a well-armed populace in this day and age will simply shoot at each other… there will be no unified collective protest, as near as I can see looking around my divided neighborhood, town, county, and state.
Here’s the Financial Times “AI ‘exuberance’ risks ending in lengthy investment bust, BIS warns” archived:
https://archive.ph/MvIEV
This brings Steve Keen to mind. When credit is positive things go up, when credit (the change in debt) is negative maybe not so good things happen. If margin credit is negative the flow of money to push the market higher is over. Oops.
AI got big just as cryptocurrency was losing its cachet. Many of the same companies that had their stock valuation boosted by “crypto needs big data centers” segued over to “AI needs even bigger data centers!” I can see a pivot coming where, as AI meets reality and stocks start to plummet, crypto gets pumped up again, as in, “Hey, old folks, all your Social Security benefits will be converted to a lump sum of cryptocurrency to give you more control!” As with “marketplace” health insurance, “more control” (that you didn’t ask for, versus just getting a no worries, guaranteed benefit) is shorthand for more bureaucratic hoops to jump through for paltrier, hit-or-miss services. But we’ll still need all those data centers (repurposed back to crypto mining), so win-win for the financial class.
All this pointless computation has, for me, a bit of the feel of the famous Keynesian meme of paying people to fill in holes in the ground that other people were paid to dig, except that the circular hole digging/filling proposal would, if implemented, be a lot less destructive to the climate system.
I have never enjoyed digging holes in big heat on an empty stomach….
Good thing we have plenty of potable water!
This will be entertaining to watch.
Horrifying in some ways, utterly absurd in others.
I will cheerfully admit that watching some of “Homo Superior” such as Larry Ellison, Mark Zuckerberg and Elon Musk crash and burn is something I will enjoy.
Hoocoodanode that a “little excursion in the Middle East” might increase uncertainty in the financial markets and lead to people asking awkward questions about profitability?
Schadenfreude is a pleasing emotional state that is too often neglected or repressed in contemporary Western cultures, particularly among Americans, IMO. Theater works most easily when evil gets its proper reward.
Even when it crashes, these billionaires are still walking away with billions. Some of their paper wealth will disappear but they won’t be the bag holders.