A veteran finance pro who called the 2008 crash says 4 risks signal the next crisis could be worse

• A handful of compounding risks threatens the market, Wall Street veteran Richard Bookstaber said.
• Bookstaber , who foreshadowed the Great Recession, said the next financial crisis may be even worse.
• Stock market concentration, private credit, and AI fears are some of the key stressors he flagged.

Risks of a financial crisis are brewing, and it could be worse than the Great Recession, according to a longtime finance pro who predicted the 2008 crisis.

Richard Bookstaber, a Wall Street veteran who wrote a 2007 book that foreshadowed the Great Recession, said there are compounding stressors in the financial market that are not only reminiscent of the Great Recession but suggest the next crisis could be worse.

Bookstaber is familiar with financial crises, having spent decades working in risk management at companies like Morgan Stanley and Bridgewater, as well as at the US Treasury and the Securities and Exchange Commission in the aftermath of the 2008 housing crisis.

"We have returned to a period of risk, one rife with the sort of pressures that have led to major financial crises," the expert wrote in a New York Times op-ed, explaining that he went from telling his younger colleagues that they'll never see anything like the 2008 recession again, to worrying the next crisis could be more damaging.

He outlined four distinct but interconnected stressors threatening the financial system.

Stress in private credit

Private credit fears have ramped up in recent months after asset managers, like Blue Owl, BlackRock, Blackstone, and Morgan Stanley limited redemptions for some funds. The restrictions sparked fears about liquidity and a panic in the sector as investors rush for the exits.

Bookstaber said companies have become increasingly reliant on institutional lenders since the financial crisis. "These loans rarely exchange hands, leaving investors uncertain about what these instruments are really worth or how easily they could be sold if conditions deteriorate," he wrote.

Famed investor Mohamed El-Erian said private credit redemption freezes could be a "canary-in-the-coalmine" moment similar to the run-up to 2008. George Noble, a longtime Fidelity fund manager, also warned that "we're watching a financial crisis unfold in real time."

AI exposure compounds credit risks

AI hype turned to fear on Wall Street this year as investors fretted over how the technology could replace major software and tech players.

AI fears only add to investors' waning confidence in private credit, given the space's exposure to AI infrastructure and the AI-addled software space.

"The market has no organized exchange and information is inaccessible, investor withdrawals can trigger the kind of wholesale run that in the past turned financial stresses into full-blown crises," Bookstaber wrote.

AI has led to 'dangerous' stock market concentration

Big Tech is spending billions on AI. Four companies alone— Amazon, Alphabet, Microsoft, and Meta — plan to spend roughly $600 billion on AI in 2026.

The massive spending on AI has intensified market concentration at the top. For instance, Nvidia, a single stock, makes up roughly 7% of the benchmark S&P 500.

"That level of concentration is unprecedented — and dangerous, because it means a shock to any one of these companies can ripple across the entire market rather than be absorbed by it," Bookstaber wrote.

"In this tightly connected system, the weakening of private credit strains the A.I. investments of the tech Goliaths, which in turn threatens the stock portfolios, the retirements and the pensions of tens of millions of people," he added.

AI's physical needs are impacted by geopolitical tensions

Shortages in power and chips have emerged as key bottlenecks to the AI buildout. Power-hungry AI data centers have fueled demand for electricity and advanced computing chips that outpace supply.

Both energy and chips are tied to geopolitical tensions.

Oil prices have surged from the ongoing war in Iran as the conflict disrupts global supply chains.

Shocks to the energy market make costs more expensive for Big Tech companies already spending billions to invest in AI. That pressure then passed through to private credit and the stock market.

The global chip trade is heavily reliant on Taiwan. If China were to invade Taiwan, it could significantly affect chip access.

"Our current financial system fails not because any one thing goes wrong. It fails because different shocks propagate through the same structure and in ways that are hard to anticipate," Bookstaber wrote. "When something eventually goes wrong, it spreads faster than it can be contained."