3 ms·

> "SPVs mean companies like Meta do not need to show the debt as their debt," Perkins writes in a note. He likens today's financing tactics to the subprime era

by piker 1y ago

> "SPVs mean companies like Meta do not need to show the debt as their debt," Perkins writes in a note. He likens today's financing tactics to the subprime era when firms shifted risk off the books to reassure investors. But it's not? If the SPV is doing its job as a limited liability entity, Meta should be bankruptcy remote from the SPV. Presumably accounting rules would look through that SPV if Meta was actually reachable. It doesn't make a good comparison to GFC where everyone was nominally on the hook but had that risk "insured" with CDSs, etc.

JCM9 1y ago
Perkins’ point is valid. It’s still shareholder assets and resources at the end of the day even if via a SPV. The banks did this sort of thing in the financial crisis with all sorts of subsidiaries and circular funding. “Hey it’s OK that mortgage side business is going belly up but we bought that special insurance.” “Cool, so who sells that insurance?” “Um, actually I think we do via our other SPV” “$&@!” Not 100% analogy here but similar shenanigans where company A is taking out debt, to build a datacenter, to buy GPUs, to sell services to startup B that Company A gave cash to to buy said services. Startup B has no viable business model and implodes. Company A goes from looking like a genius to a financial nuclear waste dump almost overnight. It’s financial shell games all over again.
piva00 1y ago
Isn't the problem the creditors exposed to the SPVs though? Meta, and others might be shielded from it but there's someone on the other end of these debts, if the SPVs are accruing massive amounts of debt and go bankrupt there are lots of obligations that will go unfulfilled, bringing the whole house down. It's quacking very similar to other accounting tricks, caham, financial engineering, to hide bad numbers somewhere else. CDSs and CDOs were a different mechanism with the same purpose: hide risk away into overly complex instruments.

by piker 1y ago

JCM9 1y ago

Perkins’ point is valid. It’s still shareholder assets and resources at the end of the day even if via a SPV. The banks did this sort of thing in the financial crisis with all sorts of subsidiaries and circular funding. “Hey it’s OK that mortgage side business is going belly up but we bought that special insurance.” “Cool, so who sells that insurance?” “Um, actually I think we do via our other SPV” “$&@!” Not 100% analogy here but similar shenanigans where company A is taking out debt, to build a datacenter, to buy GPUs, to sell services to startup B that Company A gave cash to to buy said services. Startup B has no viable business model and implodes. Company A goes from looking like a genius to a financial nuclear waste dump almost overnight. It’s financial shell games all over again.

piva00 1y ago

Isn't the problem the creditors exposed to the SPVs though? Meta, and others might be shielded from it but there's someone on the other end of these debts, if the SPVs are accruing massive amounts of debt and go bankrupt there are lots of obligations that will go unfulfilled, bringing the whole house down. It's quacking very similar to other accounting tricks, caham, financial engineering, to hide bad numbers somewhere else. CDSs and CDOs were a different mechanism with the same purpose: hide risk away into overly complex instruments.