Eyes Wide Shut
The Credit Strategist - December 2025
The rosy narratives promulgated by Wall Street and the mainstream financial media conceal a darker reality playing out in the economy and markets. Not only is the system plagued by extremely high levels of uncertainty, but there are signs of increasing signs of instability reminiscent of earlier periods that preceded events like the Great Financial Crisis of 2008 (“GFC”). On top of an increasingly precarious sovereign debt picture (which involves not just the U.S. but Europe, Japan, and China), an unprecedently large financial bubble in the AI sphere features financial structures borrowed from the pre-GFC period (circular financings, interlocking ownership and debt structures, hidden leverage, shadow banks, opaque asset pricing, relaxed regulation, etc.). Everything old is new again, except this time the quanta of capital involved is multiples larger than two decades ago, the financial system is significantly more leveraged, and the folks who think they are smarter than the rest of us are even more reckless and arrogant than before.
Even those who started out preaching caution have thrown in the towel and now promoting the most speculative activities in the market. JP Morgan’s CEO Jamie Dimon moved from calling for cryptocurrencies to be banned two years ago to overseeing his bank issue its own digital token this month. And just two months ago, Mr. Dimon warned about cockroaches in the private credit industry only to see his bank’s asset management division tell clients last week that private credit is an essential component in portfolios. If you can’t beat ‘em, join ‘em, especially if you are too big to fail and will be bailed out by the government if you screw up. BlackRock is enthusiastically promoting and investing in both private credit and crypto (and licking its wounds over at least one blow up in its private credit portfolios that involved blatant fraud that it should have caught). At times it seems, as my friend Doug Kass writes, that economic and regulatory policy is directed by the tech bros on the All-In Podcast (of which I am a fan though I don’t always agree with the hosts).
In contrast to the hopes and dreams of folks in the tech world, there are serious imbalances and instabilities in markets and the economy that are held at bay by egregiously irresponsible fiscal spending and lax monetary policy. Without such a policy regime, which is leading America over the cliff, as well as enormous (and quite possibly reckless) AI spending, the U.S. economy would be experiencing negligible to negative growth. As it is, the vast majority of Americans are suffering under an onslaught of higher costs for food, healthcare, housing, utilities, education and other essentials. AI proponents argue that the best last hope for economic growth lies in machine learning and artificial intelligence, but thus far it appears that those applications may primarily eliminate jobs and otherwise shrink rather than grow corporate spending. An MIT study claims that AI can already replace 11.7% of the U.S. workforce. As hyperscalers charge ahead trying to perfect their LLMs and other AI models, society seems ill-prepared for the consequences if they succeed in achieving their goals – but markets are also poorly positioned if they fail.
Great article. I was drawn to it by the title - a title I used a while back. https://open.substack.com/pub/creditgenius/p/eyes-wide-shut-we-are-the-product?r=4yl6kg&utm_campaign=post&utm_medium=web&showWelcomeOnShare=false
Didn’t expect you to be a fan of the All In Podcast