The BIS warns an AI bust could hit credit markets as hard as the 2008 financial crisis



TL;DR

The BIS warned that an AI investment bust could be as disruptive to credit as 2008, flagging circular financing and poorly disclosed risk in its annual report.

The Bank for International Settlements warned on Sunday that an AI investment bust could hit credit markets with disruption comparable to the 2008 financial crisis. In its annual report, the Basel-based institution listed AI-led risks alongside inflation and fiscal stress as “pressure points” that “demand attention.

Disappointment in returns could trigger a sudden pullback in financing and turn the capex boom into a protracted investment bust, with potential knock-on effects on financial conditions,” the BIS said. It added that “a major equity-market correction could have larger macroeconomic consequences today than in the past.

The report singled out what it called “circular financing” as a specific vulnerability. Chipmakers and hyperscalers take equity stakes in AI labs or neocloud providers, who in turn commit to multi-year purchases of chips or computing power from those same investors. Data centre construction is increasingly outsourced to third parties that lease facilities back on long-term contracts with embedded exit clauses. “The terms of such deals are typically poorly disclosed, with risks of the same asset being pledged multiple times,” the BIS wrote. The AI boom’s financial complexity has been escalating through record bond issuance, metered pricing shifts, and export controls that converged in June.

The BIS warned that repricing of risk, “whether triggered by higher interest rates or an AI bust, has the potential to be similarly disruptive” to credit markets as the 2008 global financial crisis. The comparison is significant coming from the institution that serves as the central bank for central banks.

BIS chief Pablo Hernandez de Cos highlighted inflation as a compounding risk, noting that the 2022 cost-of-living shock “is still in the memory of economic agents,” which raises the probability of second-round effects from the current Middle East energy disruption. The report also flagged sovereign debt vulnerabilities, warning that hedge funds using “highly leveraged strategies that rely on short-term financing” now play a much larger role as buyers of government bonds, creating “risks of fire sales and de-leveraging feedback loops.”

The annual report landed on the eve of the European Central Bank’s three-day symposium in Sintra, where global policymakers will scrutinise many of the same stability risks. AI stock concentration already exceeds dot-com-era levels, with the ten largest S&P 500 companies accounting for 36% to 40% of the index. The BIS’s message is that the financial architecture supporting the AI boom, not just the equity valuations, carries systemic risk that regulators have not yet fully mapped.



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Meta stripped NameTag facial recognition code from its AI app one day after WIRED exposed it on 50 million phones. Meta says no decision has been made.

Meta removed nearly all traces of an unreleased facial recognition system from its smart glasses companion app on Friday, one day after WIRED reported that the software had been quietly embedded in an app installed on more than 50 million phones. The feature, which Meta internally called NameTag, was designed to convert faces captured by the company’s Ray-Ban smart glasses into unique biometric signatures and compare them against a database stored on the user’s device. WIRED also found that faces the system failed to recognise were cropped, indexed, and stored locally for future processing.

Andy Stone, Meta’s vice president of communications, told WIRED on Monday that the feature is “purely exploratory,” adding that no final decision has been made on what to do with it. That characterisation sits uneasily with the evidence WIRED documented. The version of Meta AI published the day of WIRED’s Thursday report contained several code libraries explicitly named for face recognition, a process for running the NameTag recognition pipeline, and a “Person recognised” alert the app would have shown if someone were identified.

Friday’s release stripped all of it out, along with a folder where the app would have stored the cropped images and biometric signatures of unrecognised faces. Meta did not answer WIRED’s questions about why the code was removed or whether the changes were planned before the story was published. A few fragments remain in the latest version, including an internal debug menu label and a dormant link meant to open a recognised person’s profile, pointing to parts of the system that are no longer there.

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The gap between Meta’s public statements and the code WIRED found is the central tension. Before the Thursday report, Stone dismissed the findings by writing that the company could not answer questions about how the system would work because “the feature does not exist.” Andrew Bosworth, Meta’s chief technology officer, called the reporting “incredibly misleading” and “absolutely dishonest.” Yet the code was functional enough to include three AI models, one to detect faces, another to crop them, and a third to encode them as biometric data, all embedded in the companion app for a product already at the centre of a mounting privacy crisis.

Meta declined to answer ten questions WIRED posed before publishing, including whether it had already created the database of face profiles NameTag uses, how long the app retains photographs and biometric data of unrecognised people, and whether that data would ever be sent back to Meta’s servers. The company also did not respond to questions about whether it was building NameTag for blind or low-vision users, or to criticism from privacy advocates who warned the system could let stalkers and abusers identify strangers in public.

NameTag first surfaced in February, when The New York Times, citing internal Meta documents, reported that the company was developing face recognition for its smart glasses and considering a launch as early as this year. One internal memo reportedly described releasing the feature during a “dynamic political environment” when privacy and civil liberties advocates would be distracted by other concerns. WIRED subsequently found that much of NameTag’s machinery had been built into the Meta AI app as early as January, months before any public acknowledgement, adding another layer to the company’s pattern of shipping first and disclosing later when it comes to its smart glasses.

Kade Crockford, director of the technology for liberty programme at the American Civil Liberties Union of Massachusetts, said the removal does not undo the original decision to ship the code and pointed to it as evidence that consumer privacy needs stronger legal protection than Congress has been willing to provide. The Massachusetts House of Representatives last week unanimously passed a consumer privacy bill that, if enacted as written, would impose strong enforcement provisions including a private right of action allowing aggrieved users to sue. “State lawmakers need to do their job and step up to protect consumer privacy,” Crockford said.

Meta’s sneaky tactics in slipping the face-recognition code into its smart glasses show exactly why data privacy bills need the teeth of strong enforcement,” Crockford added. “Companies like Meta prioritise their bottom line, so lawmakers need to speak in the only language its C-suite understands.” Whether a code removal prompted by investigative reporting constitutes a victory or merely a tactical retreat depends on what Meta does next, and on whether the regulatory pressure building on both sides of the Atlantic produces enforceable consequences before the feature quietly returns under a different name.



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