“The first big stumble will have everyone running for the exits.”
“I know a bubble when I see one.”
That’s what Sen. Elizabeth Warren (D-MA), who led the push to create a new consumer financial regulator after the 2008 recession, told a crowd at a Vanderbilt Policy Accelerator event in Washington, DC on Wednesday. Warren warned of what she called “striking” parallels to that crisis in the AI industry. While she believes the technology has “enormous potential,” she cautioned that AI companies’ extensive spending and borrowing practices are creating a volatile situation and Congress should intervene.
Even though the AI industry has grown rapidly, Warren said the pace isn’t keeping up with their spending, prompting them to borrow from opaque sources like private credit funds, lacking the regulatory oversight that traditional banks face. “If AI companies are unable to increase revenues with lightning speed, they won’t be able to service their massive debt loads,” Warren stated. “And because of shady accounting strategies, the first big stumble will have everyone running for the exits, potentially triggering destabilizing losses in the financial sector and another 2008-style financial crisis.”
AI companies have financed themselves in a way that connects their survival to many other sources: local banks, insurance funds, pension funds. Warren likens it to someone scaling a mountain with a rope tied around their waist connected to multiple anchors — if they fall, everything crumbles. Her solution? “Cut the rope. No rope for AI.”
She compared her proposal to the Glass-Steagall Act, which separated riskier investments from commercial banking. Warren also advocates for a new digital regulator to lead on antitrust, privacy, and consumer protection enforcement and for Congress to refuse to rescue the industry if it falters. “We cannot overstate the importance of accountability,” she emphasized.