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Steve Eisman, an investor made famous by “The Big Short,” said Friday that bank credit quality may no longer be the warning signal for the next downturn.
“In the past, I have said as the banks go, so goes the economy. Probably not this time,” Eisman said on his podcast, The Real Eisman Playbook. “I’m starting to think that the entire future of the US economy hinges on the success or failure of AI.”
Why The Banks Look Fine
Eisman reviewed second-quarter results from JPMorgan Chase & Co. JPM, Bank of America Corp. BAC, Wells Fargo & Co. WFC and Citigroup Inc. C, focusing on non-accruing loans as the cleanest read on the credit cycle.
The data, he said, is “benign” on both sides of the book. JPMorgan’s total non-accruals reportedly fell 5% year-over-year, while Bank of America’s dropped 4%.
That resilience is striking given the backdrop, with the 10-year Treasury yield climbing toward 4.6% and oil above 80 dollars a barrel amid escalating U.S.-Iran strikes.
Where The Risk Actually Sits
The danger, in Eisman’s view, has migrated to private credit, which is heavily exposed to loans to software companies. If corporate budgets keep shifting from software subscriptions to AI hardware, those borrowers may struggle to repay in a market far more opaque than bank balance sheets.
That shift may already be underway. International Business Machines Corp. IBM pre-announced a miss and fell 25%, its worst day ever, after clients reportedly rushed to secure servers and memory ahead of AI-driven price increases, a phenomenon Eisman dubbed a “short-term SaaS apocalypse.”
Eisman also cautioned that the aggregate data masks a “K-shaped economy” that is “not fine for everyone.”
What Prediction Markets Say
Traders on Polymarket currently price a U.S. recession by the end of 2026 at roughly 12%, in a market with over 1.6 million in volume. JPMorgan’s economists reaffirmed a 35% probability in their mid-year outlook.
A separate market, in case the AI bubble bursts this year, stands at 17%. That’s up very slightly this week, but down from the mid-20s during the height of the Iran conflict.
For now, the tape favors the bulls. Goldman Sachs Group Inc. GS posted 92% earnings growth on what Eisman called a “golden age” for investment banking, fueled by AI financing needs flowing to Wall Street.
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This article ‘Big Short’ Investor Steve Eisman: Forget The Banks, AI Now Controls US Economy’s Fate originally appeared on Benzinga.com.
