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It is 'nearly unavoidable' that AI will cause a financial crash within a decade, SEC head says
(www.businessinsider.com)
this post was submitted on 16 Oct 2023
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Technology
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Is it because replacing employees with AI results in a never-ending cascade where your stupid system doesn't keep consuming because AI don't consume and won't get paid?
Or is it because using AI will result in the climate to continually become more inhospitable?
Maybe it will be because AI will be used to create more and more believable misinformation that results in WW3?
OK, it is addressed in the article...
He's specifically talking about the use of AI in finance, and that an algorithm that runs amok in a particular sector:
I'll throw out a microeconomic example. About a year into the pandemic, the price of used cars started going up... a LOT... in a short time. One of the reasons for the sudden changes in used car prices was that major used car resellers were using algorithms to set buying and selling prices for cars. While supply chain pressure on the new car market was unprecedented, and it trickled down to used cars, a facilitating cause is that the used car price-setting algorithms didn't really have any humans in the chain checking to see if the numbers they were kicking out made a lick of sense.
So you had companies like Carmax and Carvana buying used cars for $X, and then a month later 5X, then a month later 10X, because they were programmed to just up the offering price until they reached target stock levels. Sometimes they were buying 3+ year old used cars for more than the current price of NEW cars of similar trim level. Carvana's numbers got so whacked that it nearly sunk the company.
Now imagine that kind of a runaway algorithm in stocks, bonds, real estate, etc. It's 2008 all over again.
Gosh, maybe legalized gambling is not a good way to run an economy?
What are talking about? Did you read any of this conversation.
I have more questions than answers.
Honestly hoping something like this happens in residential real estate, if it isn’t happening already. Housing is well overdue for a correction.
You can’t tell me that most people can afford a $400,000-$700,000 mortgage. Median incomes don’t support that price point. Median household incomes might support the lower end…barely. So I am starting to wonder just who is buying/selling all these houses. When I see a $600,000 “average” house last 3 days on the market and then sell for $760,000…I have questions.
I swear if I ever marry it will just be to combine finances so we can actually buy a house and stuff
I am married with a household income in the 200,000-300,000 range and we can’t afford anything here.
I bet every single one of them bought prior to the bubble and rate increase that started during the pandemic.
You are outta your mind if you think they are dropping $100,000-$300,000 for a down payment on a house, only to turn around and pay $3,000-$6,000/mo for a mortgage.
Those properties you see being sold are wealthy folks using them as investment vehicles.
Those numbers are very regional, though. $100K down payment is 20% for a $500K purchase, and lots of homes are under $500K. I just bought a new home (as in, literally just built & never lived in) here in California for less than that.
Not sure why people are downvoting your lived experience.
Investor purchases of single-family homes have spiked to 28% of home sales, and well above 30% in many high-demand localities. Market prices reflect that competition, so when one says, "the price just keeps going up so clearly people can afford it", one must also concede that many of those people are investors who are displacing buyers with less money. Those lower end buyers -- who could have afforded a house if an investor wasn't ready & waiting to flip houses or turn them into rentals -- have been frozen out of a home purchase.
I traded in a 2014 Toyota hatchback to Carmax and got an Audi A3 when the algorithms went haywire. It didn’t cover the whole cost but it was a silly enough trade that I thought for sure someone would call me and say it was a computer error.
Wow, what a deal! Did they say anything about how crazy that was?
No, they actually called and paid me $100 to make the swap at a lot about an hour away. I wasn’t gonna argue my way out of an upgrade so I was like, “Oh, yeah, I can drop it off wherever.” The dude who details the cars after you drop them off definitely wasn’t worried about it. He thought it was funny his bosses fucked up.
My 2013 Prius got totaled around the peak of this. I wanted to just replace it with the exact same model, because it's a good car. It would have been cheaper to buy brand new one at the time. I got a new electric car instead and with the $7k tax rebate ended up spending less than I would have to buy a 9 year old Prius.
While that's really interesting, there was a lot more at play than a pricing algorithm. It was a culmination of a lot of things, starting with Cash for Clunkers that had a huge impact on the used car market. Then there were a ton of supply chain issues during COVID that squeezed the new car market. Probably some other factors I'm not aware of, too.
Right, my point is that relying on pricing algorithms when faced with novel "black swan" conditions nearly drove major used car dealers out of business. Obviously, the algorithm didn't cause the novel conditions, but neither did they buffer the effects. Instead, they accelerated the financial effects.
If you go back and read about Carvana before the pandemic, their big selling point to investors was that their algorithms were "smarter" than the competition and would realize more consistent profits for the company and their investors. When it became clear that these "smart" algorithms went insane, investors abandoned the company and their valuation dropped from $60 billion to $7.5 billion between 2021 and 2023. Carvana has narrowly avoided bankruptcy.
He has a good point as this monoculture of systems and models would very greatly amplify any market imbalance and defects, at a speed human bank managers would only realize when getting notified of their impending bankruptcy
My mom's 2020 Fit at the top trim level sold new for roughly 20k. Her lease buyout price was 1/2 the cost of an entry Fit in the same year with 30k miles (going for 25k at the time)
It was pretty bananas for a minute. The Mazda dealership offered us 5,000 more than we paid brand new for my wife’s Mazda 3 in 2018. I told the salesperson that it makes no fucking sense and he couldn’t explain it either. Didn’t go for it for a bunch of reasons but it was really odd.
Currently, I would rather guess it's the usual bubble popping. AI has attracted billions of investments and will likely pull in even more, but it's already foreseeable, that hardly any of the investments will turn a profit. So we'll end up with a third dotcom bubble.
AI isn't a bubble. The futurist/Rationalist/transhumanist communities were saying what's happening now would happen in a few years about a decade ago, and our predictions are that the next phase is AI taking over all labor through sophisticated automation. We've been trying to warn everyone about this since the advent of Google Deep Dream, but sure stick your head in the sand again and let the world burn around you; it's worked so well so far.
This comment will probably get bombed, but w/e. 🤷♂️ Go ahead and be ignorant and angry at me, I'm used to it.
Edit: yes I am bitter. I've had a bad day, and I'm annoyed.
How many times has that been predicted already? Three, four? Look at the history of AI, it happens every few years.
Anyway, you're implying a dichotomy here. World domination or pipedream, but that's not the case. The dotcom bubble was without a doubt a bubble, but much of the underlying technology was used a few years later, just without the hype and fanfare.
AI will probably find its uses, and has the potential to eliminate a lot of jobs, but the current iteration of AI businesses is utter garbage. Even something as comparatively simple as Microsoft's Copilot is currently losing money - roughly as much as it costs to use. Yet, there are billions upon billions being poured into useless start-ups that will never produce anything of value in a profitable manner.
What exactly happened to self driving cars BTW? Weren't those totally on track of what experts predicted?
They're on the streets in San Francisco, I see them all the time
Yes. Definitely one of those or something else entirely.
That’s an economist level reply right there
I'm thinking yes, plus AI margin trading running into a tragedy of the commons where they collectively run the stock market into the ground and there's no reset button on that.