The Revolving Door Project, a Prospect partner, scrutinizes the executive branch and presidential power. Follow them at therevolvingdoorproject.org.
After Barack Obama surged to the White House in 2008, his administration was hobbled by the perception that it had rescued the bankers who had crashed the global economy, held nobody accountable for the destruction that was unleashed, and left ordinary people to fend for themselves. Current events may soon rhyme with that fateful episode.
Just like before, there is an overleveraged, underregulated sector at the heart of our economy that could cause devastating consequences should it hit a liquidity crunch. Perhaps the biggest difference is that this time, the executives and billionaires have learned from 2007, and are already looking to justify golden parachutes in advance. Progressives can learn from 2007, too.
A Tale of Two Bailouts
In 2008, the Republican Party was dead in the water. Weighed down by the Iraq War and the unfolding Great Recession, the party suffered what is to date its worst defeat of this century. The view that a new period of long-term dominance was dawning for Democrats became commonly accepted. Memories of 1933 and an enduring Democratic majority were plausibly relevant, as George “Katrina + Iraq + subprime” Bush could make a long-term electoral punching bag comparable to Herbert Hoover.
Obama’s winning coalition was handed a gift-wrapped opportunity to champion working people in their clash with Wall Street. Instead, influenced by neoliberals like Larry Summers and Tim Geithner, the Obama White House chose to arbitrarily constrain the size of the stimulus package and prioritize stabilizing Wall Street as the “responsible” path forward, with accountability for the crisis dismissed as “Old Testament” justice. There was only a single prosecution for triggering the greatest economic downturn of the century.
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Today, even Obama’s own chief of staff, Rahm Emanuel, has criticized this as a crucial mistake. Entire volumes have been filled with documentation of the mass fraud carried out by the financial sector and how the government actively decided not to press for serious accountability. The moment passed without Democrats clearly demonstrating that the enemies of the American public were their enemies as well.
The bank bailout signed by George W. Bush ended up hurting Democrats as well. Pew found that support for the bank bailouts (even when described only as a “loan”) were underwater by 33 points, and nearly half (47 percent) wrongly believed that the bailout originated from the Obama administration. As Nate Silver explained in a 2010 column for The New York Times, Democratic incumbents who backed releasing the second tranche of bailout funds at the beginning of Obama’s presidency were met by a sharp electoral punishment. As Silver concludes, “Democrats who voted no on the bailout seem to have done themselves a big favor.”
In short, the 2008 bailout was a political albatross around the establishment’s neck, seen as a rescue of the very rich and connected people who caused mass unemployment and foreclosures. Whoever was in power as this anger built would get singed by it.
More recently, a loud chorus of venture capitalists and tech magnates pressured the Biden administration into bailing out depositors at Silicon Valley Bank. This crash, much like 2008, stemmed largely from inane financial practices, with fintech and crypto firms keeping massive amounts of cash in regular bank accounts at SVB instead of using basic risk management practices.
In the face of direct pressure from David Sacks and Bill Ackman, the administration oversaw what was almost certainly the fastest major federal bailout in history. Fast-forward a year and a half, and it bit Biden’s whole party in the butt. The crypto industry that benefited enormously from the bailout repaid Democrats by spending more money to help elect Donald Trump than anyone had ever spent on elections before.
It’s a familiar story. In 2012, Wall Street spent heavily in favor of electing Mitt Romney, even after President Obama saved them from themselves. In 2024, crypto tripled down on that play with Donald Trump. Bailouts never seem to end well for Democrats; they save free-market ideologues from their own mistakes and then are punished with an avalanche of spending from the exact same people to try and install Republicans who will just pave the way for even less regulation.
In moments of economic crisis, the electorate needs to feel that public servants are prioritizing their interests, not enriching the already rich. Politically, anything short of full-throated opposition to bailouts and demands for accountability risks inviting voters to cast a pox on both parties. And the financial titans propped up by bailouts will only be grateful until a better offer comes along.
Trump’s Compute Corruption
Much like the housing bubble in 2007, there is massive risk exposure to AI. According to Fitch in its recent Global Risk Outlook report for the third quarter of 2026, an AI market correction is, along with fallout from the war with Iran, the major short-term risk to financial markets. Moreover, Fitch credits AI infrastructure as a crucial buoy for flagging consumer sentiment and spending and equity valuations.
Despite AI firms outwardly projecting confidence in growth and profit potential, the idea of a bailout has already been floating around, most notably last November when OpenAI CFO Sarah Friar said that the industry’s longevity may require a governmental “backstop” that can “really drop the cost of the financing but also increase the loan-to-value, so the amount of debt you can take on top of an equity portion” to ensure that chip manufacturers don’t face a demand shortfall.
The comment was quickly walked back by both Friar and CEO Sam Altman. Then-Trump AI czar David Sacks even went so far as to dabble in gaslighting by saying that the idea of a governmental backstop in no way implied the company would solicit or accept a bailout. Later that month, Sacks posted to X that “AI-related investment accounts for half of GDP growth. A reversal would risk recession. We can’t afford to go backwards.” He went on to express bemusement, saying he was “puzzled that anyone could interpret this post as supporting a bailout.” Commentator Gary Marcus noted a marked increase in government spending on contracts with AI providers coming at roughly the same time, suggesting that could be something of a slow-motion bailout.
When the first domino falls—whether due to companies shifting en masse to cheaper Chinese models or sketchy data center financing blowing up—it needn’t go very far to hit the next one. The major AI companies are all lending to one another, so as soon as one of them goes bust, it could easily trigger a liquidity crunch across the entire industry.
Much like the housing bubble in 2007, there is massive risk exposure to AI.
If and when that happens, the Trump administration will likely defend an industry it has long been in bed with. AI titans spent heavily to elect Trump in 2024; Meta, xAI, and OpenAI have all long since bent the knee to the Trump White House; and Elon Musk was given free rein to shred entire government institutions. And Oracle, perhaps the most leveraged firm in the AI industry, is the source of Larry Ellison and his son David’s wealth, which they have used to purchase CBS News (and potentially CNN) in the hopes of turning it into a more Trump-friendly media outlet.
As a general rule of thumb, it’s prudent to assume that this administration will find a way to do the most corrupt thing possible. We’ve already seen how this could play out with the cryptocurrency industry, where multiple firms were let off the hook by the SEC after funneling fortunes into the Trump family’s crypto holdings. Why would it be any different with an AI bailout?
But we don’t know when the industry will need the support. It may last until a new Democratic Congress or even the next Democratic president. When the time for a bailout comes, Democrats will have choices to make.
They could just funnel money to the AI giants in the name of stabilizing the economy. They could take an equity stake in an industry that seems sketchy to its core in return for bailing out the oligarchs who built it. Or they can take the simple and clear public stance of opposing any bailout for an “industry” that has generated far more arrogance and distress than productivity or happiness.
Recall that bankruptcy only means that current equity holders get wiped out: For better or worse, the physical data centers and the “intellectual property” will still exist in the world even if the billionaires are no longer billionaires. That would leave the country to plan for the future of AI with the current generation of overpromising “founders” pushed to the sideline, after their massive investments yielded modest revenue and no profits.
The AI industry has already set up a sister PAC to Fairshake, the centerpiece of crypto election influence, funded and run by many of the exact same people. Just like Wall Street in 2012 and crypto in 2024, AI executives will invest ungodly sums in right-wing causes and Republican candidates, even if they have been bailed out in part or whole by Democrats. At some point, the corporate welfare train must be derailed.
