Report Says 'Circular Financing' Shows AI Bubble 'Primed To Pop'

While such financing deals aren't inherently unlawful, the report continues, they can“be used to create a false impression of strong demand and disguise the true state of the involved companies' finances, particularly when circular arrangements drive a substantial portion of the companies' revenues.”

The report also urges lawmakers to avoid the same mistakes the federal government made during the presidencies of George W. Bush and Barack Obama, when it bailed out financial institutions in the wake of the 2008 housing crash.

“If they face collapse, neither AI-related firms nor their leadership should be shielded from the financial or legal consequences of their mismanagement,” the report states.“Under no circumstances should failing AI-related firms receive government support to remain going concerns. Instead, failed AI firms should be moved through legal proceedings for liquidating and/or dissolving firms in an orderly manner.”

Instead of saving the AI firms and their financiers, the report emphasizes lawmakers“must prioritize the recovery and protection of workers and families by directing federal assistance to workers, households, and communities harmed by the crisis.”

Maya Jenkins, senior policy analyst at Americans for Financial Reform Education Fund and co-author of the report, accused President Donald Trump and his administration of making the AI bubble more dangerous by“rolling back guardrails that protect investors and financial stability.”

“If nothing changes, working people will pay a high price for an AI crash,” Jenkins emphasized.“Policymakers should be taking urgent action to reduce the risks. And they should be committing now to not bail out the AI companies or banks and financial firms that caused the problems.”