RM WARREN on the Looming AI Crash

It's good to be here with all of you. I want to say a very special thank you to the Vanderbilt Policy Accelerator for organizing this event today so that we have an opportunity to discuss a possible crash triggered by artificial intelligence and then to talk about how to rebuild if it hits. You know, I first want to start by saying that artificial intelligence has enormous potential. I can't say what the future of this technology will hold, what inventions or expanded capacities it will bring, but the impact on our economy is not so hard to see. I know what will hold when I see one. The parallels to the 2008 financial crisis are striking. Reckless behavior of a few billionaires and big tech CEOs has turned a promising technology into a structural risk for our entire financial system. We need to prepare now for a possible crash by putting in place simple structural reforms to protect American families, workers, and small businesses. We have seen this movie before. Washington spent the 1990s and the early 2000s slashing the financial safeguards implemented following the Great Depression. Some of you may remember that when Glass-Steagall fell. The goal was to free Wall Street from any and all constraints so that financial innovation could flourish. I, along with many experts and consumer advocates, rang the alarm, especially as the evidence continued to grow, that lenders were tricking unsuspecting families into dangerous subprime mortgages. Foreclosure rates started picking up, but rather than pulling back, banks and their private lending counterparts in the shadows of the financial system sliced and diced those risky loans and then offloaded the risk throughout the financial system in complex and opaque ways. Policymakers ignored the warning signs, even as those risks kept heating up. On the surface, the economy looked good, and a flood of campaign cash flowed from Wall Street to Washington, a flood that dampened any enthusiasm to rein in the billionaires' party. Now, we all know how the story goes. Eventually, the music stopped, and the whole economy came crashing. Nearly $20 trillion in household wealth vanished. Millions of people lost their jobs. Millions of people lost their homes. Millions of people lost their savings. Congress quickly authorized a $700 billion Wall Street bailout, while America's homeowners got pretty much nothing. No big bank CEO or executive went to jail. Not a single one. Lawmakers were caught flatfooted, and instead of restoring simple structural reforms, they passed mostly modest, complicated, technocratic reforms that failed to address the systemic flaws and inequities that were entrenched in our financial system. The one exception was the Consumer Financial Protection Bureau. Woo-hoo! I just do that every time I say that word. But that was only possible because we had developed and actually built some support for the agency before the crash hit. Now, big tech and other AI companies are now on track to spend trillions of dollars to be the dominant AI player, and they justify the spending on speculative premise that demand for AI services and products will meet their wildly aggressive revenue projections. To justify the cost of these investments, the industry would need to generate roughly $2 trillion in annual revenue by 2030. Let's put that in context. In 2025, the industry generated $20 billion in revenue, about 1% of what they would need to earn in four years just to break even. And sure, the industry is growing, but the mismatch between investment and demand is spectacular, and not in a good way. According to analysts, the AI bubble is already 17 times the size of the dot-com frenzy and four times the size of the housing bubble. The AI companies have a growing addiction to debt. They are borrowing staggering sums to finance trillions of dollars of spending on data centers, on chips, and other AI infrastructure. And to fund their habit, these companies have turned to shadow lenders, like private credit funds, and have started using conglutinated debt structures. This is when you cue the Jaws music. Giant banks are also helping to finance AI companies, both directly through their own loans and indirectly through lending to private credit funds that in turn lend to AI. This toxic combination creates a dizzying web of interconnected banks and shadow banks and deliberately obscures both how much is at risk and how much risk is building in the system and exactly where those risks will fall when a crash comes. The complexity itself could trigger that crash. If AI companies are unable to increase revenues with lightning speed, they won't be able to service their massive debt loans. And because of shaky accounting strategies, the first big stumble will have everyone running for the exits, potentially triggering destabilizing losses in the financial sector in another 2008-style financial crisis. And then to make matters worse, all of this is developing against a backdrop of two other destabilizing initiatives from the Trump administration. First, deregulating Wall Street and Wall Street banks so there is less oversight and less confidence in the stability of these giants. And second, trying to stuff these toxic financial products into Americans' retirement accounts so that any downturns will be felt even more broadly throughout the economy. The Trump moves will leave both the financial sector and retirement savings increasingly fragile at the worst possible moment. An AI industry crash threatens our entire economy. Retirement savers could see their life savings in February in a flash. And if the banking sector is in peril, credit in other sectors will dry up so that workers in industries that are completely detached from AI could face layoffs, small businesses could experience difficulties in accessing credit. Now, I come here today to talk about these things, but make no mistake, the AI companies are aware of these risks. I'm not bearing new news for them. They are very aware. And instead of reducing their borrowing, slowing their rate of growth, and cleaning up the balance sheets, they are making the classic billionaire's move. They are blindly running for a handout. They have already lobbied the Trump administration for taxpayer funding and guarantees to cover themselves if things go south. As these firms lay the groundwork for future bailouts, we need to lay the groundwork for future reform now. And that includes restore simple structural guardrails to prevent Wall Street debt machine from imperiling our economy once again. Create a new digital regulator to enforce antitrust laws, consumer protection, and data privacy laws so that a few big tech giants can't wield their outsized market power to raise costs for consumers, to lessen innovation, and to stifle competition. Third, ensure that big tech pays its fair share in taxes so that we can invest in lowering costs and creating good jobs throughout the economy. Fourth, move manufacturing jobs higher, so creating the chips that power AI creates jobs here in America, not somewhere else. And finally, establish accountability. Accountability for those who help orchestrate the next crash. No more bailouts that leave American families holding the bag. American families and workers cannot afford another economic catastrophe. They're still picking up the pieces left by the great financial crisis of 2008. And this time around, Congress needs to be ready with a durable reform agenda to prevent the next big crash. And Congress needs to have the courage to actually get it done. Thank you all.