Punchbowl: House Dems prep AI warning to FSOC

Rep. Bill Foster (D-Ill.) is leading an effort to ask the Financial Stability Oversight Council to weigh the financial risks of a speculative “bubble” around the artificial intelligence sector.

Foster told us this week he was growing “increasingly concerned about the collapse of the AI bubble.” The letter, Foster said, will ask FSOC to publish a report and convene a working group to study the phenomenon.

AI investment has been the overriding story of the American stock market for the past two years. Financing the massive ambitions of OpenAI, Nvidia and Microsoft and other key companies has also become a fascination for economic policy watchers.

So Foster is far from the only policymaker worried about what exactly happens to the U.S. economy and its lenders if its core investment engine begins to sputter. Foster said he was worried that the price inflation in artificial intelligence-related stocks’ value is veering into dangerous territory.

“The total amount of mispriced assets is several trillion dollars, which is the same amount or equivalent to the global financial crisis,” Foster said.

Between 2007 and 2009, “there was a $5 trillion mispricing of real estate, but then the market correction was 10 or 12 [trillion dollars].”

FSOC is a creation of the Dodd-Frank Act — an intragovernmental body of regulators and other senior officials who oversee the financial system. Its main job is to scour the entire financial sector for systemic financial risk, and it’s chaired by Treasury Secretary Scott Bessent.

Of course, the FSOC of Republican governments tends to be a sleepier regulator. While under Democratic administrations, FSOC has designated nonbanks as sources of systemic risk and drafted warnings about climate change. Republicans generally try to keep FSOC from getting in the way of free enterprise.

Foster said he hoped FSOC would hear lawmakers out. “Assuming that FSOC still has a staff, this would be an excellent thing for them to look at. It’s why we created them in the first place,” Foster said.