Debt and over-leverage are the things that make the AI-hype problem for everyone. As long as AI investments are funded from revenue and wealth seeking profits, the bust makes a dent but takes very little from those who stayed away. With debt, you can create systemic risk.
Normal investment risk (risk of a stocks going down) is idiosyncratic, specific to that asset and can often be diversified away. Systemic risk is non-diversifiable because it is an external risk that drags down all interconnected parts, causing economic crises or financial contagion.
Massive debt (over-leverage) could create a systemic risk where the collapse of a few key firms forces banks to tighten credit, causing a wider recession that impacts all sectors. Systemic risk threatens the stability of the system itself, normal risk only threatens investors.
Shit.
Debt and over-leverage are the things that make the AI-hype problem for everyone. As long as AI investments are funded from revenue and wealth seeking profits, the bust makes a dent but takes very little from those who stayed away. With debt, you can create systemic risk.
Normal investment risk (risk of a stocks going down) is idiosyncratic, specific to that asset and can often be diversified away. Systemic risk is non-diversifiable because it is an external risk that drags down all interconnected parts, causing economic crises or financial contagion.
Massive debt (over-leverage) could create a systemic risk where the collapse of a few key firms forces banks to tighten credit, causing a wider recession that impacts all sectors. Systemic risk threatens the stability of the system itself, normal risk only threatens investors.
From October 7th before the more than 200 billion debt issued this month