Richard Bookstaber, author of A Demon of Our Own Design, warns today’s financial system faces dangers even greater than 2008./ Image: Institute for New Economic Thinking

Richard Bookstaber, the financial analyst and author who spent decades working inside hedge funds and the US Treasury before writing the book that foreshadowed the 2008 financial crisis, says the conditions he sees today, across private credit, artificial intelligence, stock markets, and geopolitical instability, are more dangerous than anything that preceded that collapse. This time, he warns, the system has no way to see it coming.In 2007, Richard Bookstaber published a book called A Demon of Our Own Design. It was not a work of prophecy so much as a structural diagnosis, an argument that the financial system had been built in a way that made catastrophic failure not merely possible but, eventually, inevitable. A year later, the global economy collapsed in the worst financial crisis since the Great Depression. Bookstaber, who by then had moved from a hedge fund to the US Treasury, watched it unfold from the inside. He told the younger colleagues around him, people for whom the drama of 2008 was the defining event of their professional lives, to pay attention. “Remember what’s happening,” he said. “You’ll never see anything like this again.”

Richard Bookstaber (born 1950) is an American financial writer who is the author of A Demon Of Our Own Design. The book is noted for its foreshadowing of the 2008 financial crisis.

Writing in the New York Times on 16 March 2026, Bookstaber said he is no longer confident that is true. “Maybe they’ll see worse,” he wrote. The risks he sees now span artificial intelligence, a roughly two-trillion-dollar private credit industry, stock market concentration, Iran, and Taiwan, each being tracked by its own set of analysts, each generating its own news cycle, each treated as a self-contained problem with a self-contained solution. The trouble, as Bookstaber sees it, is that this tidy separation is an illusion. These are, in his words, “different entry points into the same underlying structure, a complex and tightly coupled system where the specific source of stress matters less than how quickly that stress can spread.”

What actually caused 2008, and why it matters now

The 2008 financial crisis is most commonly remembered as a story about irresponsible borrowing, millions of Americans taking out mortgages they could not afford, a housing bubble inflated by speculation and greed that eventually burst. When it did, the damage spread well beyond the property market, resulting in the collapse or near-collapse of some of the world’s largest financial institutions, emergency government bailouts running into the hundreds of billions of dollars, a stock market crash, and unemployment hitting record highs across the United States and Europe. The world entered what economists came to call the Great Recession, a downturn so severe its effects lingered for the better part of a decade, and so dramatic in its human detail that Hollywood spent the better part of the following decade trying to explain it, most memorably enlisting Margot Robbie to sit in a bubble bath sipping champagne and break down subprime mortgages for cinephiles. The popular memory of 2008 is a story of excess and its punishment. What it tends to obscure is how a collapsing property market became a near-total collapse of the global financial system, the result not of a single failure but of a domino effect across interconnected institutions whose exposure to each other had gone largely unmonitored until it was too late. It is that same dynamic that Bookstaber sees taking shape today.The housing bubble alone, he writes, was not the reason the crisis became so destructive. What turned a collapsing property market into a near-total collapse of the global financial system was the architecture that had been constructed around it. In the years before 2008, Wall Street had developed a series of novel and extraordinarily complex financial instruments, mortgage-backed securities, collateralised debt obligations, credit default swaps, that bundled and repackaged mortgage debt and sold it across the financial system in ways that obscured where the risk actually sat. Banks, hedge funds, insurance companies, and pension funds around the world held exposure to American mortgage debt without fully understanding what they owned or how much it was worth. When the housing market fell,these instruments proved unable to absorb the shock and transmitted it instantly and simultaneously across every institution that held them. As the buffers that once existed between one part of the financial system and another had been removed, there was nowhere for the damage to stop.Bookstaber warns now that almost that similar logic has returned in a different form and in another part of the economy, with risks arising from physical sources, making them fundamentally harder to detect before it is too late.

Private credit: The $2 trillion market nobody can see inside

The first warning sign Bookstaber identifies is the private credit industry, which he values at roughly two trillion dollars, a figure that some analysts, including those at NPR, place closer to three trillion. Private credit refers to loans made not by traditional banks but by institutional investors: private equity firms, asset managers, hedge funds. In the years following the 2008 financial crisis, traditional banks pulled back from certain kinds of lending under tighter regulation, and companies, particularly in the technology and software sectors, turned increasingly to these institutional lenders to fill the gap. The problem, Bookstaber writes, is opacity. Unlike publicly traded bonds or stocks, these loans “rarely exchange hands,” leaving investors uncertain about what they are actually worth or how easily they could be converted to cash if conditions deteriorated. There is no organised exchange, no transparent pricing mechanism, no daily market signal telling investors what their holdings are worth. In normal times, this is manageable. In a crisis, it is not. Signs of strain are already visible. Investors, already unsettled by the effect of higher interest rates on borrowing costs, have begun withdrawing money from the private credit funds of major firms including Blue Owl, BlackRock, and Blackstone. Blue Owl announced it would sell 1.4 billion dollars in assets to reimburse investors, a move that triggered a sharp fall in its share price and raised fresh questions about how closely investors had been examining where their money was going. Bookstaber’s warning is that because this market has no organised exchange and limited information flow, investor withdrawals can trigger the kind of wholesale run that in the past has turned financial stress into full-blown crisis.

AI and private credit: The same money, going in circles

The second risk Bookstaber identifies compounds the first in ways that are not immediately obvious. A significant portion of the companies borrowing through private credit markets are software and technology businesses, precisely the kinds of companies whose services are most vulnerable to being replaced or disrupted by artificial intelligence. If the businesses underpinning the private credit market are rendered obsolete by the very technology that investors are simultaneously pouring money into, the loans extended to those businesses begin to look considerably less secure.

IMAGE DISTRIBUTED FOR AWS – An Amazon Web Services AI data center is pictured in New Carlisle, Ind., on Friday, Oct. 3, 2025. (Noah Berger/Amazon Web Services via AP Images)

But the connection runs deeper than that. Private credit is not only financing companies that might be displaced by AI, it is also financing the infrastructure that AI depends on. The data centres, the semiconductor supply chains, the physical computing architecture that makes large-scale AI possible have been built largely on private loans. The companies doing that building, Google, Microsoft, and a handful of others, are the same companies that now dominate the public stock market. Bookstaber describes it as a single network of money and expectations, approached from different directions at the same time. “The weakening of private credit,” he writes, “strains the AI investments of the tech Goliaths, which in turn threatens the stock portfolios, the retirements and the pensions of tens of millions of people.”

Stock market concentration: When ten competing companies hold a third of everything

The third risk concerns the structure of the stock market itself. The AI boom has driven extraordinary investment into a small group of dominant technology companies, inflating their valuations to a degree that has produced a level of market concentration that Bookstaber describes as historically unprecedented. Ten competing companies’ stocks in the same industry now account for more than a third of the total value of the S&P 500. the index tracking the five hundred largest publicly listed companies in the United States, which serves as the primary benchmark for the health of the American stock market and the basis for the retirement savings and pension funds of tens of millions of people.

The biggest US tech and AI companies in the S&P 500, often dubbed the “Magnificent Seven.”

“That level of concentration is unprecedented, and dangerous,” Bookstaber writes, “because it means a shock to any one of these companies can ripple across the entire market rather than be absorbed by it.” In a more distributed market, a single company’s difficulties are absorbed by the diversification of the index around it. In a market where ten companies represent a third of all value, a serious shock to any one of them spreads through the entire system.

Source: Bloomberg News, “OpenAI, Nvidia Fuel $1 Trillion AI Market With Web of Circular Deals”

Bookstaber also describes a specific mechanism that is worth understanding. If conditions deteriorate and investors in private credit funds need to raise cash quickly, to meet redemptions, to cover losses elsewhere, they will attempt to sell their private credit holdings. But because those holdings are illiquid and difficult to sell, they will instead sell what they can sell easily: large, publicly traded technology stocks. The very stocks that dominate the S&P 500. The act of raising cash in one part of the system triggers a sell-off in another, and the market falls not because anything has gone wrong with the technology companies themselves but because they happen to be the most liquid assets available when someone elsewhere needs money fast. This is precisely the mechanism that made 2008 so destructive, the forced selling of assets not because they were necessary bad but because they were sellable.

Geopolitical disruption: When the physical world enters the financial system

The fourth risk is where Bookstaber’s argument moves furthest, and where he believes the current moment is most distinct from 2008. He argues that the risks this time stem primarily from the physical world rather than finance, and markets lack reliable tools to read those risks before they cause damage. Iran is the immediate example. The conflict involving the United States and Israel has already spiked energy prices. For most industries, higher energy costs are a manageable burden. For AI, they are a structural vulnerability, data centres consume electricity at enormous scale, and any sustained disruption to energy supply or a significant increase in its cost directly raises the operating expenses of the technology companies at the centre of the market. Those costs then flow through into private credit and stock market valuations. A military conflict in the Middle East becomes, through this chain, a risk to the retirement savings of Americans who have never thought about the connection.

A television screen shows US President Donald Trump and Israel’s President Benjamin Netanyahu shaking hands at the Knesset, in front of the German stock index DAX at the stock market in Frankfurt, Germany, Monday, Oct. 13, 2025 (AP Photo/Michael Probst)

Taiwan represents a different but related exposure. The island is responsible for manufacturing the most advanced semiconductor chips in the world, the physical hardware without which frontier AI cannot function. If China were to invade or blockade Taiwan, Bookstaber writes, “America’s access to semiconductors would be severely limited. That would immediately slow deployment of AI, weakening the companies driving the AI boom, with the inevitable knock-on effects.” The entire AI-driven stock market boom rests, at its physical base, on a supply chain running through a strait that two of the world’s largest militaries are actively contesting.

This image released by the Royal Thai Navy shows Thai cargo ship, Mayuree Naree, that was struck and set ablaze in the Strait of Hormuz Wednesday, March 11, 2026. (Royal Thai Navy via AP)

Bookstaber writes that “this time, the danger isn’t financial engineering. It’s that our financial system has attached itself to the vulnerabilities of our physical world — power grids, water, land, supply chains and created hazards that markets have no framework to analyze.” The models that financial institutions use to assess and manage risk, focus on prices, volatility, and correlations between assets, he argues, offer no instruments for reading a grid failure, a drought, or a severed supply chain. “By the time warning signs show up in market data,” he writes, “the damage will already have been done.”

Why this time could be worse

In 2008, the danger lived inside the financial system. It was painful, it was destructive, and it required massive government intervention to contain, but it was ultimately a financial problem, and financial tools existed to address it. What Bookstaber is describing now is different. The risks are physical. AI’s dependence on energy and semiconductors, Iran’s proximity to critical supply chains, Taiwan’s chokehold on the chips the entire technology industry runs on, none of these can be resolved by a central bank or a bailout package. “Our current financial system fails not because any one thing goes wrong,” he writes. “It fails because different shocks propagate through the same structure and in ways that are hard to anticipate. When something eventually goes wrong, it spreads faster than it can be contained.” “I’d take financial risk any day,” he concludes. “Financial risk moves prices. Physical risk moves the world.”