Bank of International Settlements Warns AI Crash Could Produce Investment Drought, Recession and Crisis

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Bank of International Settlements Warns AI Crash Could Produce Investment Drought, Recession and Crisis

The warnings from the Bank for International Settlements, although couched in dry economic language, are worth heeding. It was the BIS, particularly Willam White and Claudio Borio, who identified dangerously high house prices in many markets. Alan Greenspan pooh-poohed their concerns. A better-informed economist similarly dismissed White and Borio because all they had were empirical findings, and no theory or model.

We’ve embedded the general section of the BIS Annual Economic Report at the end of this post. The Financial Times made it a front story:

And the money chart in their writing:

Note these graphs that only design bubbles related to technology and not real estate, which represent a very large portion of accumulated wealth and are drawn on top of that, so that the big drop in value is reduced. However, note how good the dot-com bubble looks, at the time, its size compared to post-depression levels was worrying, even before arriving at mania-proof practices like informing companies based on eyeballs. But as you can see, the boom of the 1920s was even worse. In addition to its great difficulty, its use of the measure was the reason that the economy returned hard to the economy. High levels of margin debt have resulted in huge losses for banks. The stock market also had leveraged structures, such as the trust of trust and the trust of trust, which were very similar to the syndicated debt obligations of the crisis era.

Even though strict securities laws limit margin credit, the current level is red-light:

There has never been a better time in a long time to review the quality of your portfolio.

History provides a clear verdict on the rising debt ceiling.

Don’t let FOMO sway you. pic.twitter.com/q0JXa7VvVE

— Thierry from arvy 🇨🇭 (@ThierryBorgeat) June 27, 2026

And it’s not hard to find other measurable causes for pauses:

🚨 WARREN BUFFETT WAS WARNED ABOUT THIS TWICE.

2000:
“Nothing dulls the intellect like large amounts of idle cash.”

2026:
“We’ve never had people in more of a gambling mood than now.”

And now the Nasdaq-to-M2 ratio has pushed OVER the peak of the dot-com bubble itself.

AI… pic.twitter.com/JoC2AR6S1Y

— Crypto Rover (@cryptorover) June 28, 2026

Also:

🚨 SOUTH KOREA JUST FINALIZED A BIG WARNING SIGNAL FOR AI STOCKS

KOSPI has cleared about ₩100 trillion today.

KOSDAQ rose +7.5% and added ~₩150 trillion.

At first glance, that looks normal, but it’s NOT.

Money is swirling out of Korean AI/memory winners like… pic.twitter.com/2o7NezaHUz

— Unlimited Finance (@trylimitlessfin) June 29, 2026

And AI has circular funding, less clear than the trust of the 1920s, but produced the same power and over-communication prone to disaster. Plus hyperscalers have such insatiable and growing funding needs that they can’t find equity and have become increasingly dependent on borrowing, where high interest rates and slow declines in the private debt markets mean that what they see as adequate funding is unlikely to be on offer.

More from the Financial Times’ on the BIS report:

Big Tech’s artificial intelligence is a risk that could lead to long-term “investment disruptions” that could disrupt financial markets and damage the global economy, the Bank for International Settlements has warned.

The Basel-based organization, which advises the world’s major banks, said the prospect of worse-than-expected returns in the technology sector could prompt investors to stop funding AI companies, at a time when the five largest “hyperscalers” are expected to invest more than $1tn from 2025 to the end of 2026.

The warning comes amid growing concern over the scale of equity and debt issuance fueling the AI revolution and the turmoil this is causing in global markets. Tech groups are flooding the global debt market, raising hundreds of billions of dollars to fund AI projects, taking advantage of corporate credit spreads that are near their lowest levels this century…

Major investors have warned that this rush to issue debt could test investors’ appetite, especially if AI investments do not bring sufficient returns…

Allianz’s chief investment officer warned this week that SpaceX’s decision to launch a $25 billion bond sale shortly after its IPO is a sign that markets are entering “bubble territory”….

The major stock market corrections associated with AI could have wider implications today than ever before, the BIS added, because households have greater exposure to stocks relative to their wealth and income.

Financial stability could also be at risk, given the amount of debt AI companies are selling to fund their investments, it warned.

However, readers of the pink paper provided many AI-positive comments on the article. So many true believers have not given up.

Ed Zitron, in a rousing speech, explains how the delay of the OpenAI and Anthropic IPOs will not improve investor/funding tsuris, and how the industry seems unable to meet its combination of what appears to be a loopy hunger for money with no prospects and no adequate returns.