Real estate will be hit hard by the collapse of AI. They were already hit hard by the collapse in demand for office space, and related retail space. Data centers were the main way they were trying to repair their balance sheets. Instead they could be left with an even bigger hole. Or their lenders will end up with defaulted loans secured on worthless developments.
And there are the looming effects of the massive drought, Iranian war on top of an already very weak economy. The US economy in 2003 was generally quite strong. I don't think you can really make the same claim today.
to save people who know me well from having to root through the archives, I will admit that this is **exactly** the kind of neo-Austrian crap that I have lampooned in the past as "curing tuberculosis just means that you're going to get a worse epidemic" and "from time to time you have to let a city block burn down in order to protect the rest". I do not at all uncritically believe in the Minsky Financial Hypothesis, and I don't think there's anything necessary or inevitable about the deregulatory cycle. despite what I said then.
As usual I am happy that in the real world earnest politics-free "centrist" technocrats like our blogger :-) and some other commenters worry about the best policy responses for "the economy", because in my parallel world instead the technocrats know well that their role is political and it is to ensure the electoral loyalty of middle class voters to Reagan/Thatcher Clinton/Blair politics by giving then large gains on stocks and property redistributed from the lower classes.
Therefore their goal is to keep the property and stock markets booming at any cost to someone else, to "moderate" wages and other labour costs, and to ensure that their "sponsors" in tech, finance, real estate will be bailed out after they bravely underprice risk to make big book profits to extract huge bonuses to reward themselves for such bravery.
In my parallel world the technocrats and their sponsors and even many of the middle class voters know that eventually the "any cost to someone else" will become overwhelming but at that point the winners will have put away so much of their winnings in offshore havens that they will continue to live very well (the middle class voters I know hope that they will be retired abroad or dead by then). It is so fortunate that in the real world none of these politics driven situations happen.
«one of Substack’s most underrated economics/African politics bloggers: n»
A good "technical" summary but it leaves out all the politics of why the house mortgage system evolved like that and the enormous amount of fraud inn it so I guess "YAW" also lives in the real world and not in my parallel reality where politics drives policy in the interests of the winning lobbies and policy does not just "happen".
The private credit-AI nexus has far more real backing than either crypto (a couple of trillion based on nothing but facilitating money-laundering) or Tesla (a trillion based on a failing car and battery company with some big stories about robotaxis and humanoid robots). And both of these are now part of the core financial system, which had previously kept crypto at arms length. Effectively, much of system is now in Minsky's Ponzi phase, and most of the rest is speculative.
«Effectively, much of system is now in Minsky's Ponzi phase, and most of the rest is speculative.»
Since at least 1997 "irrational exuberance" or arguably since 1987. But as long as there is the overriding political motivation to buy the votes of the middle-class for the "Washington Consensus" with Ponzi stock and property gains that will continue until a crack that will make the periodic argentinian/greek crashes look quite mild.
One thing that still worries me even if you are right all along this piece is whether the state has the firepower available for yet another massive bailout/stimulus. The UK government in particular looks a little constrained in terms of what it could do. Obviously things change in a crisis but we did run up an awful lot of debt that has yet to be inflated away.
«we did run up an awful lot of debt that has yet to be inflated away»
The policy of high inflation followed by the Treasury and BoE (and those of other states) is similar to that of the 1970s-1980s but it not just to reduce the real value of debt but also has the transparent purpose to reduce the real value of wages and other labor costs making workers more "affordable" and thus "competitive" in the global labor market. It is a big push to help UK workers get ahead in the race to the bottom. Note: the difference with the past is that in the 1970s and 1980s the labor unions had not yet been smashed so nominal wages were not falling behind as much.
1. I think that the 1998 Russia/Asia crisis fertilized the Minsky-an seeds of 2008. In 1998, the big banks were beautifully hedged to put the fallout on non-systemic rabble. The chumps were the small banks and end-parties who bought the bonds and wrong-side derivatives. (Ahem: the counterparties who sold protection.) In 2007, they also thought that their risk management was da bomb, with German banks serving the role of designated non-systemic chump. They were wrong.
2. DD is correct when he says that bailouts give regulators strong political clout. But it doesn't last very long. By 2010 or 11, the banks reverted to their ordinary mode: "You pretend to regulate us, and we'll pretend to respect you." But by 2020 or so, the banks even dropped the faux respect.
Real estate will be hit hard by the collapse of AI. They were already hit hard by the collapse in demand for office space, and related retail space. Data centers were the main way they were trying to repair their balance sheets. Instead they could be left with an even bigger hole. Or their lenders will end up with defaulted loans secured on worthless developments.
And there are the looming effects of the massive drought, Iranian war on top of an already very weak economy. The US economy in 2003 was generally quite strong. I don't think you can really make the same claim today.
Long Memory Coming (again) to Theaters everywhere:) https://convex-strategies.com/2026/04/15/risk-update-march-2026-exposing-fragility/
to save people who know me well from having to root through the archives, I will admit that this is **exactly** the kind of neo-Austrian crap that I have lampooned in the past as "curing tuberculosis just means that you're going to get a worse epidemic" and "from time to time you have to let a city block burn down in order to protect the rest". I do not at all uncritically believe in the Minsky Financial Hypothesis, and I don't think there's anything necessary or inevitable about the deregulatory cycle. despite what I said then.
What specific criticisms of Minsk credit cycle theory do you have? Curious, not arguing.
I think one interesting aspect is it's not clear the political system is in the right frame of mind to backstop a big public stimulus.
As usual I am happy that in the real world earnest politics-free "centrist" technocrats like our blogger :-) and some other commenters worry about the best policy responses for "the economy", because in my parallel world instead the technocrats know well that their role is political and it is to ensure the electoral loyalty of middle class voters to Reagan/Thatcher Clinton/Blair politics by giving then large gains on stocks and property redistributed from the lower classes.
Therefore their goal is to keep the property and stock markets booming at any cost to someone else, to "moderate" wages and other labour costs, and to ensure that their "sponsors" in tech, finance, real estate will be bailed out after they bravely underprice risk to make big book profits to extract huge bonuses to reward themselves for such bravery.
In my parallel world the technocrats and their sponsors and even many of the middle class voters know that eventually the "any cost to someone else" will become overwhelming but at that point the winners will have put away so much of their winnings in offshore havens that they will continue to live very well (the middle class voters I know hope that they will be retired abroad or dead by then). It is so fortunate that in the real world none of these politics driven situations happen.
I’m not sure which Minsky type this is, but this seems like an excellent place to stick this extremely well articulated guide from one of Substack’s most underrated economics/African politics bloggers: https://yawboadu.substack.com/p/the-forgotten-catastrophe-the-us?r=48lltr&utm_medium=ios
«one of Substack’s most underrated economics/African politics bloggers: n»
A good "technical" summary but it leaves out all the politics of why the house mortgage system evolved like that and the enormous amount of fraud inn it so I guess "YAW" also lives in the real world and not in my parallel reality where politics drives policy in the interests of the winning lobbies and policy does not just "happen".
The private credit-AI nexus has far more real backing than either crypto (a couple of trillion based on nothing but facilitating money-laundering) or Tesla (a trillion based on a failing car and battery company with some big stories about robotaxis and humanoid robots). And both of these are now part of the core financial system, which had previously kept crypto at arms length. Effectively, much of system is now in Minsky's Ponzi phase, and most of the rest is speculative.
https://www.reuters.com/legal/transactional/goldman-sachs-files-its-first-bitcoin-etf-product-2026-04-14/
«Effectively, much of system is now in Minsky's Ponzi phase, and most of the rest is speculative.»
Since at least 1997 "irrational exuberance" or arguably since 1987. But as long as there is the overriding political motivation to buy the votes of the middle-class for the "Washington Consensus" with Ponzi stock and property gains that will continue until a crack that will make the periodic argentinian/greek crashes look quite mild.
One thing that still worries me even if you are right all along this piece is whether the state has the firepower available for yet another massive bailout/stimulus. The UK government in particular looks a little constrained in terms of what it could do. Obviously things change in a crisis but we did run up an awful lot of debt that has yet to be inflated away.
«we did run up an awful lot of debt that has yet to be inflated away»
The policy of high inflation followed by the Treasury and BoE (and those of other states) is similar to that of the 1970s-1980s but it not just to reduce the real value of debt but also has the transparent purpose to reduce the real value of wages and other labor costs making workers more "affordable" and thus "competitive" in the global labor market. It is a big push to help UK workers get ahead in the race to the bottom. Note: the difference with the past is that in the 1970s and 1980s the labor unions had not yet been smashed so nominal wages were not falling behind as much.
Two points:
1. I think that the 1998 Russia/Asia crisis fertilized the Minsky-an seeds of 2008. In 1998, the big banks were beautifully hedged to put the fallout on non-systemic rabble. The chumps were the small banks and end-parties who bought the bonds and wrong-side derivatives. (Ahem: the counterparties who sold protection.) In 2007, they also thought that their risk management was da bomb, with German banks serving the role of designated non-systemic chump. They were wrong.
2. DD is correct when he says that bailouts give regulators strong political clout. But it doesn't last very long. By 2010 or 11, the banks reverted to their ordinary mode: "You pretend to regulate us, and we'll pretend to respect you." But by 2020 or so, the banks even dropped the faux respect.