The Week: How Leverage Broke the AI Trade

George Hahn connects the dots across the week’s biggest stories: how leverage brought down one of the hottest AI hedge funds, why South Korea’s market crash offers a warning for American investors, and what Sam Harris teaches us about attention, anxiety, and the pursuit of happiness. We’d love your feedback as we build this show! Let us know what you think: [email protected]. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

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• 0:31Speaker 01

  I'm Ina Garten, and each week on Happy Hour, I invite new and old friends for a drink and a fun conversation at my kitchen table in New York City. On this week's episode, I'm joined by Sofia Coppola. Sofia is an Academy Award-winning filmmaker. We chat about the hilarious way that we met, our shared love of Paris, and what influences her iconic personal style. New episodes of Happy Hour are available every Wednesday. You can watch on YouTube or listen wherever you get your podcasts. Cheers.

• 1:09Speaker 02

  Hey, everybody. Cassidy Hubert here. This week on Ann Mom, we spoke with Grammy Award-winning musician Corinne Bailey Rae about taking her kids on tour, becoming a widow at 29, and how she felt about having a home birth. Check out the latest episode of Ann Mom wherever you get your podcasts.

• 1:29George Hahn?

  Welcome to the Week from Prof G Media, where we break down what mattered and what it all means. I'm George Hahn, and it's Friday, August 7. Today, a hedge fund blew up. South Korea's stock market plunged 44%, and the AI trade found its floor. Then, why a generation locked out of financial security is taking bigger risks to get ahead? And finally, Sam Harris on what's actually worth your attention. Let's get into it.

• 2:05George Hahn?

  Last week, the debt that was propping up the AI boom finally came into view. This week, we found out what it does to people. On Friday's Prof G Markets, Scott and Ed sat down with Jim Chanos, the short seller who called Enron and who now teaches a course on the history of financial fraud.

• 2:25Speaker 04

  The fraud cycle follows the financial cycle with a lag, and the longer the financial cycle goes on, the more amount of fraud is ultimately uncovered on the down cycle. So I've already dubbed this the Golden Age of Fraud. And I suspect that when we're on the down part of this cycle, the bodies will float to the surface, as they always do. But remember, the corollary to that is is the harshest prosecutor and the staunchest defense attorney of a company is at stock price. Nobody goes after frauds at all-time highs.

• 3:06Speaker 04

  They only go after them after investors have lost money because these kinds of things are political.

• 3:14George Hahn?

  So why does the boom still look so healthy on paper? Chanos says the accounting is doing the work.

• 3:20Speaker 04

  And that's a big question. Because like the dot-com boom, we have an accounting identity problem that follows these capex booms, namely that the companies that are spending the money

• 3:38Speaker 04

  do not expense immediately most of that money that's being spent. It's capitalized and depreciated over five to 10 years. The companies receiving a lot of that money, the Nvidia's of the world, the Caterpillar tractors of the world, the utilities, they're receiving it in terms of revenues and profits immediately. So the same dollar is basically contributing to profits in a far greater extent than it does in a more normalized economy, where it would be recognized as revenue by one company and expense by another. And that's what we're seeing. And that's why S&P profits have taken off in the last two years.

• 4:22Speaker 04

  It's because of this mismatch.

• 4:24George Hahn?

  That was the theory. This week, we saw it play out. Leopold Aschenbrenner is 24. His fund, Situational Awareness, was up 439% for the first half of the year, swelling to roughly $45 billion. He told investors the sell-off had created an unusually attractive opportunity. Six days later, after mounting losses and margin calls, the fund sold most of its public stock portfolio to Ken Griffin's citadel in a fire sale. Situational was left managing roughly $10 billion.

• 5:00Ed Elson?

  Last week, we learn a truth bomb, which is that it turns out he was 5X levered up. He was then margin called. And then he decided, well, not decided, he was forced to liquidate his entire public equity portfolio. And supposedly, he's also selling his stake in Anthropic, too. And it is remarkable because if you've been online, if you've been on Twitter and you're kind of plugged into the investing community, this guy was considered AI Jesus. He was like the savant of our time. He could predict the future. He knew everything that was going to happen. And literally overnight, the whole thing has collapsed. And what is it?

• 5:45Ed Elson?

  It's a story of leverage once again. He was levering up into the hottest stocks, into the hottest momentum trades in the world, looked really smart until suddenly he didn't.

• 5:56George Hahn?

  That was the institutional version. The retail version happened on the other side of the world. South Korea's market fell 44% from its June highs. $2 trillion in value, gone. The cause was a product launched in May. Single-stock leveraged ETFs tracking Samsung and SK Hynix, multiplying daily returns by two, three, even five times. Here's both Scott and Ed on Monday's Prof G Markets.

• 6:29Scott Galloway?

  Leverage on the way up is a ton of fun. It's ugly on the way down. And my understanding is, talk about a gambling economy. 92% of investors in these products were retail. And so there were two brokerage accounts for every citizen in South Korea. So it was never institutional risk. It was household risk. And Goldman estimates that 3.4% of South Korea's adult population has received a margin call. I mean, that's insane when you think about it. So the human cost here is so real that South Korea has rolled out a debt counseling hotline as part of its suicide prevention plan. That's a sentence that should give us all pause.

• 7:13Scott Galloway?

  And so the lesson here isn't new. It's just very expensive for, you know, for every generation to relearn this. And that is leverage doesn't create risk. It removes your margin for being wrong.

• 7:26Ed Elson?

  You mentioned the craziest stat, I think, which is that more than 3% of the adult population has now received a margin call in South Korea. But I think probably most astounding is some of the imagery that we're seeing coming out of South Korea. If you go to the National Assembly Building in Seoul, South Korea, right now, and you go on the sidewalk, you will find a pile of funeral wreaths on the street

• 7:53Scott Galloway?

  Yeah, I saw that.

• 7:53Ed Elson?

  with a sign that says abolish the single-stock leveraged ETF. Because suddenly, everyone is realizing that this stuff is extremely dangerous. There are literally thousands of people who have lost their life savings because they convinced themselves that this was the way to do it. This is how they were going to get rich. I mean, if you look at the amount of people in South Korea that are in the red on those two names, on SK Hynix and on Samsung, it comes out to around 70%. That is according to the Korean stock market regulators. The response from regulation,

• 8:35Ed Elson?

  from the people in charge of South Korea's version of the SEC, is they're going to just stop allowing these new listings of the single-stock leveraged ETF. This is rising in America. You look at US leveraged ETFs. They've jumped from $120 billion in AUM in April to more than $200 billion today. It's up nearly 70% in just a few months. The number of US leveraged ETFs has more than doubled since 2025. And more than half of them are single-stock ETFs, which is the exact same thing that got South Korea into trouble. So it'll be really interesting to see how this plays out in the US. I think the same trend is happening, but it's almost like we're maybe a couple of months behind South Korea, or at least we're less concentrated than South Korea is

• 9:20Ed Elson?

  because of how dependent their stock market is on those two names in particular. But the same trends are beginning to happen. And I think it can only end badly.

• 9:35George Hahn?

  We'll be right back after the break.

• 9:43Scott Galloway?

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• 10:27Scott Galloway?

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• 11:10Scott Galloway?

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• 11:52Scott Galloway?

  Learn more at vanta.com/profg and get $1,000 off. That's spelled V-A-N-T-A dot com slash prop G for $1,000 off. Support for the show comes from Vanta. As AI adoption grows, so does your company's security risks and requirements. New frameworks, audits, and vendors keep piling on, but your team isn't getting any bigger. Most compliance tools promise automation, but you're really stuck doing all the work by hand, chasing screenshots, validating controls, and playing catch-up when audit season comes around again. Vanta works differently. The Agentic Trust Platform is built to scale with you, not slow you down.

• 12:33Scott Galloway?

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• 13:02Scott Galloway?

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• 13:19George Hahn?

  Welcome back. The obvious question about the South Korea story is why anyone wanted these products in the first place? On Monday's Prof G Markets, Ed had an answer, and it sounds a lot like what's happening in America, too.

• 13:33Ed Elson?

  Well, when you think about why has this happened? Why are all these young people flinging their money into these leveraged ETFs and then praying that the stock goes to the moon, and then being upset when it crashes to the ground? If you look at South Korea on a demographic basis, there are few nations in the world that are experiencing a loneliness crisis more severe than South Korea. You look at their marriage rates, which have declined 40% in the past decade. You look at the fertility rate, which hit 0.8 last year. It's the only OECD nation with a fertility rate below 1. You look at what the local governments are doing, where they're actually paying people

• 14:18Ed Elson?

  to get married now. I don't think it's a coincidence that they're suffering the same loneliness crises that we're starting to see in America, and also seeing the same sense of financial nihilism that is becoming pervasive among young people, such that they are levering up on these names and praying and hoping that it'll take them into a state of financial security and success. I think the two are definitely linked, and I think South Korea is ground zero for the problems that we're about to see in America.

• 14:50George Hahn?

  Underneath this week's market stories was a familiar belief: endure the present, make the right bet, and happiness will arrive later. Scott's guest on Conversations this week, Sam Harris, has spent much of his career challenging that idea.

• 15:07Speaker 07

  We're living in a much more highly weaponized environment where the smartphone in our pocket has canceled the very possibility of boredom. It used to be that you could get bored and you could become interested in that fact. You're sitting in a waiting room, the doctor's taking an hour to see you, and there's no magazines worth reading, and you're just left with your thoughts. And you might have noticed in that situation that your mind is not at rest, it's not at ease, you're actually not comfortable in your own skin, you're casting about trying to find something worth paying attention to, and you're uncomfortable.

• 15:49Speaker 07

  Very few of us have that experience anymore, because we can always relieve boredom by watching something, or reading something, or listening to something. And in some ways, that's a good thing. I'm not really just, I'm not advocating boredom in principle as a good experience, but what it used to allow many of us to discover is that there's something on the other side of boredom. And boredom really is an illusion. I mean, boredom really is just lack of attention. When you go on a meditation retreat and do nothing but meditate, you're in silence and you're doing nothing but pay attention to your moment-to-moment experience. You're not reading, you're not writing, you're not watching anything, obviously you're not having conversations with people.

• 16:31Speaker 07

  You just are noticing sights and sounds and sensations moment by moment, and the arising of each subsequent thought. When you just become the witness of your experience in that way, that is meditation. And the moment you can actually do it, the moment you actually build a little bit of concentration in that direction, you discover that boredom is a total illusion. It was just, boredom is just an inability to pay attention.

• 16:59George Hahn?

  And at the end, Scott asked how he allocates his attention now versus in his 20s.

• 17:05Speaker 07

  The real recipe is, paradoxically, it's not worrying about the future, it's not worrying about the past, it's not being ambitious in all the usual ways, I mean, seeking happiness in all the usual ways. It's actually developing a capacity to be more and more present, so that you kind of equalize your moments, whereas like even if you're just stuck in traffic, you can locate a depth of well-being that makes that not a problem. The lesson of life, as far as I can tell, is that you can't become happy, you can only be happy.

• 17:45Speaker 07

  I mean, that's really, that is the structure of our psychology that goes unacknowledged for most of our lives. We've lived most of our lives thinking we can become happy. All we have, what we have to do is we have to get all the things and all the accolades and all the pieces in place, such that we have a good enough story and good enough reasons to finally be happy. But for the most part, that's a mirage.

• 18:11George Hahn?

  The markets offer their own version of that mirage. One more trade, one more rally, one extraordinary return that will finally make everything feel secure. But leverage can't guarantee a better future, and obsessing over the future can cost us the life happening now. That's the week. I'm George Hahn. We'll see you next Friday.