Elizabeth Warren warns that failure of artificial intelligence could lead to the next financial crisis

“I know a bubble when I see one.”

That’s what Sen. Elizabeth Warren (D-Mass.), who led the effort to create a new consumer financial regulator in the wake of the 2008 recession, told a crowd at a Vanderbilt Policy Accelerator event in Washington, D.C., on Wednesday. Warren warned of what she called “striking” similarities to that crisis in the artificial intelligence industry. While she believes the technology has “tremendous potential,” she warned that AI companies’ massive spending and borrowing practices are creating chaos, and Congress must intervene.

Although the AI ​​industry is growing rapidly, Warren said the pace is not keeping pace with their spending, requiring them to borrow from murky sources like private credit funds, without the same kind of regulatory oversight that traditional banks face. “If AI companies are unable to grow their revenues at lightning speed, they will not be able to service their massive debt loads,” Warren said. “Because of questionable accounting strategies, the first major default will send everyone running for the exits, which could lead to destabilizing losses in the financial sector and another 2008-style financial crisis.”

AI companies have financed themselves in a way that ties their survival to many other sources: local banks, insurance funds, and pension funds. Warren compares it to someone climbing a mountain and tying a rope around their waist that is attached to many different places – if they fall, the whole thing falls. The solution according to Warren? “Cut the rope. There’s no rope for the AI.”

She compared her proposal to the Glass-Steagall Act, which separated riskier investments from commercial banking. Warren also wants a new digital regulator to take the lead on antitrust, privacy, and consumer enforcement, and for Congress to refuse to bail out the industry if it falters. “We cannot overstate the importance of accountability,” she said.