6 ms·

Well technically they don’t own the debt, the SPVs that own the data centers do. The giants just have long term commitments, but if shit hits the fan, it’s not

Well technically they don’t own the debt, the SPVs that own the data centers do. The giants just have long term commitments, but if shit hits the fan, it’s not the tech giants but the banks that lent the money to the SPVs that are at risk. This usually means all of us are on the hook.

VirusNewbie 3mo ago
how are these long term commitments structured? Can the big companies default on them? pay a small penalty? I think that probably makes a large difference.
mgh2 3mo ago
Let all these greedy AI giants go down
AznHisoka 3mo ago
As someone who belongs to “all of us”, i vote to not bail us out if shit hits the fan. No need to ask me when it happens, OK? No really, it’s nice of you but we really dont need to be bailed out. You are welcome :)
- spaceman_2020 3mo ago
  Replace you with AI, and when the AI math falls apart, use your tax money to bail out AI And they’ll get away with it too
  - stymaar 3mo ago
    This the proof that guillotine is useful, if not to be used, to make the elite behave in way that avoid suffering it.
    - viccis 3mo ago
      China's doing it
    - spaceman_2020 3mo ago
      They think they’re immune. Even after Luigi, they still think they’re immune
      - ManuelKiessling 3mo ago
        Well, I really wish that anyone, no matter their income level or job description, is immune against murder; or are we just throwing out civilization now?
        edoceo 3mo ago
        It's of topic but, what if our current civilization is failing them? Like, of the system is broken and an individual acts to protect themselves or their family, the individual is still blamed. That's how revolution starts. And there are many revolutions that we (in USA) claim are good! Our own, from Britain, the French one. Of course others are bad (depending on where your vantage) It's just that, sometimes the murder is (retrospectively) justified. Like in a war, they're killing us so we kill them. But class war isn't fought with uniformed combatants. And, in USA at least, many of our politicians are bought quite blatantly. If they aren't serving the citizens perhaps they have thrown out civilization and the social contracts first? It's all quite complicated. In general though, murder bad and government should serve the poorest citizens forst, corporations last.
        LtWorf 3mo ago
        Being denied medical care is murder as well.
      - UberFly 3mo ago
        As far-fetched as it sounds, I'd prefer elected officials and the justice system hold people accountable rather than psychotic murderers.
        ben_w 3mo ago
        Likewise. I think it's a real pity that of the "four boxes of liberty", Musk has interfered with the first three: soap, Twitter; ballot, the lawsuits about million dollar rewards for voting; jury, selecting his jurisdiction, dismantling enforcement institutions via DOGE. On the plus side, it's only "interfered with" rather than "completely eliminated". Still, glad I have an ocean between me and the USA.
    - Lerc 3mo ago
      The guillotine requires being in control of the situation. It can only be used by those with the power to act with impunity. It's not fighting against tyrants, it's a declaration of an intention to be the next tyrants.
      - thin_carapace 3mo ago
        [flagged]
        Lerc 3mo ago
        I wrote that comment entirely by myself, on my phone while waiting for a souvlaki. Perhaps the things that you consider AI tells are simply a use of language from someone in country with a different education system. I can't really judge how I might personally benefit from the current direction because I am uncertain what that direction is, and indeed if it will be sustained. If you are trying to allege that I have some personal affiliation to an organisation where I might benefit more than any average member of the public, then I must disappoint you. I work on my own projects, I sometimes make money from games that I make. I do not wish for a hypercapitalist dystopia where a company could train a model on work for hire content and then forever churn out content that they assert ownership of. I don't want the suppression of ideas caused by others asserting that because they had an idea, they own it and can dictate who gets to use it. I also do not wish for another reign of terror. I don't think violence will make the world better, and I don't think disaffected chique will either. I advocate identifying problems, suggesting solutions to the problems and working with people to reach consensus to apply those solutions. I assume that humans are fundamentally good and in the absence of religion can generally be reasoned with. Even those who do things you disagree with probably are doing what they think is best. I may be wrong about the goodness of humanity, but it does not matter, If it exists it's worth working with. If it does not exist, it is not worth saving. I choose to assume that it exists on the chance that it might.
        thin_carapace 3mo ago
        believing in the inherent good of humanity does somewhat justify your perspective, may life allow you to continue believing this way and may your pursuits be productive. I would recommend not to marginalize yourself, this action is tantamount to painting targets on your back for bad actors to aim at. corporations and governments are currently acting violently against the populace, a correspondingly heavy handed response is required if the populace does not wish to become soylent green. note that I have not explicitly advocated violent behaviour - rather I suggest that if our intelligence is not used against this tide, it may as well be part of the wave. thanks for your thoughtful response
  - zkmon 3mo ago
    Because AI is "too big to fail".
    - spaceman_2020 3mo ago
      Wild that we all lived exactly the same way before AI Really changed so little in my life. I just use chatgpt instead of Google search now It's being marketed as some ground breaking revolutionary change when all it is is a better widget Remove it and the worst that will happen is that I'll go back to writing my emails and my code by hand - something I've done for the last 20 years anyway
      - donkey_brains 3mo ago
        No kidding. Except we won’t even have to do that; we can just run open-source frontier models. These companies are hosed.
  - laughing_man 3mo ago
    How are they going to use my tax money if I stop working and don't pay taxes?
- deleted 3mo ago
  [deleted]
- laughing_man 3mo ago
  The problem is if large banks fail they take everyone else with them. We should have dealt with this in 2009, but for some reason it didn't happen. But money talks, I guess.
  - fancyfredbot 3mo ago
    Things have changed since 2009. It would be private credit which fails this time, not the banks. Private credit is not supposed to be systemically important and it's not supposed to need bailing out. Maybe we'll find out how true that is in practice.
    - darth_avocado 3mo ago
      Private credit is just some guy skimming 3% while risking your pensions.
    - spwa4 3mo ago
      Why would you think that? You think pension funds and governments didn't invest this time? Because that's the problem, governments either investing everyone's money directly (to fund their own loans and expenditures, or should I say fund their own expenses using pension money without admitting that's what they're doing to pensioners) or indirectly force investments (you'll find pension funds worldwide are legally only allowed to invest in loans to the government and specific things the government allows (like politicians' charities). "For safety", of course, no other motivations there) We can check if governments went back to their own tricks or not after 2008. What were the interest rates after 2008? Quick check ... yep, they went back to the old tricks. When "shit hits the fan". Either governments really cut spending, leave pensioners without income and see their new loan interest spike to 10%+ (if they're lucky) ... OR they do a massive cash injection saving the banks, and increase spending. Which would you chose? It doesn't even matter. If you were the government and chose the first option, you would quickly find suddenly everyone across the political spectrum uniting to depose you. A decent chunk of people would literally not have any other choice but to do that. (of course, as per usual governments aren't behaving "correctly" according to economic theory. If you take the old "government as spender of last resort" governments should have radically cut spending in the last 10 years, because there was no need for extra spending. If you take the new "government invests pensions", then of course government spending needs to be investment. In other words, governments only allowed to spend like a normal investor, expecting and demanding a return. Ie. no social spending increases. In practice governments increased spending at any cost, and so we're in trouble again) Oh and should I mention that for any other entity investing pension money in loans to yourself is a very unique thing in law. It is THE ONLY financial crime where corporate structures do not protect management. You're the worldwide president of ExxonMobil? Doesn't matter. You do with employee pension money what government does with it? (ie. loan it to yourself, in this case ExxonMobil). You go to jail. Directly and long-term. In America. In Spain. In Japan. In fucking Vatican city.
- superze 3mo ago
  Always remember kids. Socialism is bad, it's only good if we bail out banks with billions. While you lose your house, and your job, they get bonuses.
- joe_the_user 3mo ago
  Unfortunately, the votes for a regime of permanent bailouts were already in when Ben Barnacke made his famous speech proposing helicopters over cities if deflation reached a crisis level (though the Internet says Milton Friedman thought of this first). Some later observed "the helicopters only seem to go to Wall Street", which isn't surprising.
- dev_l1x_be 3mo ago
  Is there a party that supports no bail?
- DrScientist 3mo ago
  Money isn't lost per se, it's transferred. ie for every loser there is a winner. Obvious ones are those who can extract value from this companies now ( high salaries/bonus etc ), swapping worthless paper for real assets, Nvidia and their share holders etc. Investors who hold short positions etc.
  - actionfromafar 3mo ago
    True but the opportunity cost is truly lost. Entropy comes for everyone. If we spend a lot of money digging holes in the ground then filling them again, maybe no money was lost.
    - DrScientist 3mo ago
      Sure - but that's a meta question of whether the current economic/political systems are delivering good allocation of resources for whatever target function you favour. And that's complex - even in your simple example you can argue that people have likely improved their capability to dig and fill holes - and the latter skill is particularly valuable in the UK right now. ie Entropy includes information component :-)
  - mlrtime 3mo ago
    You are trying to define zero sum without saying it. The market is not zero sum, a loan isn't zero sum. There isn't a winner and loser.
    - DrScientist 3mo ago
      Why not? What am I missing. If you loan me 10 pounds and I simply keep it or spend it but refuse to pay you back - aren't I the winner and you the loser? Claiming that the market is a positive sum system, because I use that 10 pounds to invent something that changes world productivity is missing the fact that there is a constant stream of huge energy inputs from the sun - that's ultimately what allows the local entropy to decrease - not that you lent me 10 pounds.
- xtiansimon 3mo ago
  > “As someone who belongs to “all of us”, i vote to not bail us out if shit hits the fan.” You have alighted onto an interesting topic: “bail out”. I believe a closely related word on the semiotic chain is “retreat”. I don’t feel that our culture would wish to “retreat” from AI. I know quite a few managers and programmers who absolutely delight in the fruits of the industry. No doubt the titans of the AI industry, who stand to lose their shirts, would also like a bailout. As would the workers under their leadership. Finally, if the governments of the world are taking “AI” technologies as seriously as I think they are, then I should expect a bailout in the event of bubble go boom is inevitable. In which case, Buy Low; Sell High.
  - gtowey 3mo ago
    > You have alighted onto an interesting topic: “bail out”. I believe a closely related word on the semiotic chain is “retreat”. Huh? That's a different meaning of "bail out". In this context its meaning is closer to "rescue" and not retreat.
    - xtiansimon 3mo ago
      Literally a "bailout" is a "rescue", yes. Hmmm? Let's call it a "figurative expression" then. You could say it would be a "retreat" to not bailout AI. A turn away. Run. For example if the investment in data centers using borrowed money is not paid back on-time, and the investments fail, and there is no bailout, resulting in a cascade of business failures, then the I would say we "retreated" from AI. Retreat from the Technology. Retreat from the Economics of AI services. Hoo-Haa! For example, if crypto failed there might be a "retreat" as far as crypto is not a bedrock of the banking industry. But I'm probably wrong in my characterization of crypto. Whatever. Not like Crypto can be compared to Tulip Mania. Now there's a retreat. https://en.wikipedia.org/wiki/Tulip_mania https://en.wikipedia.org/wiki/Tulip_mania
  - danaris 3mo ago
    > No doubt the titans of the AI industry, who stand to lose their shirts No they don't. They stand to lose points on their dollar-denominated high scores. If every one of the AI companies went belly-up, their execs would all live very, very comfortably for the rest of their lives even if they never got another job.
SanjayMehta 3mo ago
"U.S. energy company Enron, though fundamentally different from tech giants, collapsed in 2001 due to off-balance-sheet debt hidden behind multiple shell companies. Even with proper accounting practices, an increase in joint ventures with low transparency could raise concerns in the market." Remember the vendor financing model which got a lot of technology companies into trouble at the same time? It took some years, almost all those companies disappeared. Motorola, Nortel, Lucent ...
- fuzzfactor 3mo ago
  If it's not done exactly like Enron it's not that kind of crime is it?
walrus01 3mo ago
If I owe the bank $750,000 and can't pay, it's my problem. If I owe the bank $1,750,000,000 and can't pay, it's the bank's problem.
- killingtime74 3mo ago
  If the bank is owed $1,650,000,000,000 and isn't paid, then it becomes the tax payers problem apparently
  - walrus01 3mo ago
    2008 all over again, but instead of Washington Mutual and Countrywide, we have whatever the heck is going on now.
    - al_borland 3mo ago
      I don’t know if the public would be as accepting of a bailout for AI companies… trillion dollar businesses that pushed technology with the goal of eliminating 50% of white collar workers… that isn’t really mission critical. If they want the reward, they need to accept the risk when the bet doesn’t go their way. If they aren’t willing to accept that, they shouldn’t be making such big bets.
      - bayarearefugee 3mo ago
        > I don’t know if the public would be as accepting of a bailout for AI companies That's putting it mildly, IMO. An AI bailout would be a poison pill that would electorally doom whichever party was behind it for decades.
        lelanthran 3mo ago
        > An AI bailout would be a poison pill that would electorally doom whichever party was behind it for decades. One could only hope. In any case, in the short term, with AI having such a poor public-image story, if the Dems want to get back into power again they'd do everything they can to assure their voters that a bailout is not on the cards. This is the first single-issue voter concern that has really popular support, and they'd be dumb for chasing identity politics again.
protocolture 3mo ago
>SPVs that own the data centers I mean if AI falls short we might see a collapse in the price of colo but those investments would probably just be paid back over 10x the period.
harry8 3mo ago
>Well technically they don’t own the debt Channelling the 1980s for off-balance sheet financing 101. From an economic perspective there is zero difference between borrowing to buy an asset and entering into a non-cancellable long term (equivalent to its economic life) lease for the asset. The first option causes an asset and a liability on the balance sheet, affecting debt ratios that appear in financing contracts and so on. The second does not appear on the balance sheet. You pay every month, like it or not. You call it interest or you call it a lease payment. You need it off balance sheet for reasons, investment bankers will structure that to make it happen for a fee. Technically, from an economic perspective, it's debt.
- throwup238 3mo ago
  > Technically, from an economic perspective, it's debt. Isn’t the important difference that it doesn’t trigger bankruptcy on default? Economically it might not be that different but it has some significance legally because the courts have some fast tracks that trigger bankruptcies (IANAL but that’s my layman’s understanding). If they “default” in this case it will lead to lawsuits that they will almost certainly lose but in the mean time they kick the can down the road hoping to recover on general economic headwinds like lower interest rates. IMO the risks are obviously correlated here but I’m betting short term incentives drove this mess.
  - harry8 3mo ago
    if you can't meet your obligations as and when they fall due, you're insolvent. Contractual specification from there.
    - throwup238 3mo ago
      Paying someone a week late (or not at all) on net 30 terms does not trigger insolvency proceedings. The type of obligation matters.
    - mdnahas 3mo ago
      Economist here. There are 3 parties and I’d focus on the investor’s perspective. The investor gives money to the intermediary company that signs a contract with the using company. If the contract fails, the intermediary still has the asset and can still make money. It can still payback the investor. If the investor was given a bond, it is possible they aren’t paid back in full. And that’s where I would worry. The Great Recession was so bad because bond rating agencies marked bad bonds as investment-grade. That is, bonds you could rely on. When “sure future money” isn’t sure, the system glitches.
blks 3mo ago
Capitalists love to socialize losses
- hinata08 3mo ago
  *costs Privatize revenues, socialize costs of business You're not "competitive" if you have to pay for workers, ink or investments. Workers only get a wage because of communist populists who don't understand business, and (insert place - even the Philippines these days) has the most highest taxes and wages around the world.
- blitzar 3mo ago
  Heads I win, tails you lose.
0xbadcafebee 3mo ago
> it’s not the tech giants but the banks that lent the money to the SPVs that are at risk Banks have not been loaning AI money for some time. They hit all their regulatory safeguard limits so they can't keep loaning. Half the money being invested in AI is private capital. There is still systemic risk, because private capital is a shadow banking system and you don't know who will be affected when they go kaput. Your utility company may [read: will] go bankrupt, but the money in your personal bank account is safe. Your retirement account, however...
- darth_avocado 3mo ago
  Private capital isn’t some dark box, at least half of it is pension funds, endowment funds, insurance companies and non profits. Then there are private credit arms of banks, sovereign wealth funds and family offices of wealthy individuals.
  - skybrian 3mo ago
    This seems like patient capital that can wait out a downturn? Unlike a bank where the depositors could flee.
fancyfredbot 3mo ago
s/banks/private credit/
shelled 3mo ago
> This usually means all of us are on the hook. And since we are talking about USD (specifically "of" USA), it also means globally a hell lot more of "all of us" are on the hook than we would have been involved (even remotely) had (or would) this endeavour ever ended up in some sort of general success. I don't know whether it'd be "tails I win, heads you lose" or "I reap the profits alone, you reap the losses alone". Maybe the latter and it becomes magnitudes more interesting when it expands (or rather engulfs) beyond the boundaries of the great nation.
m101 3mo ago
The banks aren’t lending the money to these SPVs. It’s mostly private credit. The way banks get involved is that they may be lending senior financing to the private credit funds but that means they have a ton of subordination.
- ItsBob 3mo ago
  > It’s mostly private credit I believe that some of the private credit is the banks' own private credit arm! It's absolutely mental: the bank can't lend to them so they have a private credit company/division that can skirt around the rules and still provide the capital! Also, I bet that the Oracle datacenters aren't for Oracle LLC but Oracle Datacenter No 4 LLC so that if it all goes tits up, Oracle LLC walks away!
sajithdilshan 3mo ago
But how could it be that the banks have lent the money without a leverage or proper risk assessment? Also what I don't understand is that how come the banks cannot claw back the money they lent if they found out corruption or any other ill intention by the borrowers.
lemax 3mo ago
These are relatively contained private credit markets though. We’re not looking at anything 2009 level. For scale, total US mortgage debt peaked at $9.3T ahead of the subprime mortgage crisis, 73% of GDP at the time. We’re talking here about ~5% of GDP.
- porridgeraisin 3mo ago
  This is the most relevant comment in this thread.
- StanislavPetrov 3mo ago
  We were around ~$11 trillion in debt in 2009. Now we are ~$40 trillion in debt. The FED balance sheet was less than $1 trillion before the crisis in 2008, now it is around ~$7 trillion. Our debt to GDP ratio was ~64% in 2008 and is now at ~120%. Put simply, our ability to absorb any sort of financial shock by taking on massive amounts of (more) debt (which is what we did in 2008) is not remotely similar to what it was during the last crisis. This would be true even if we weren't in the midst of a highly inflationary environment due largely, but not solely, to the ongoing energy crisis being worsened by the wars in Iran and Ukraine. https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/GFDEGDQ188S https://fred.stlouisfed.org/series/GFDEGDQ188S
surgical_fire 3mo ago
That is not accurate according to the article: > By investing in the data center's operating company with a 20% stake and using the facility under a lease agreement, Meta secured computing resources but also increased its hidden debt. > Meta has a contract guaranteeing investors' losses if the data center becomes unnecessary and the lease is terminated. The way they are hiding these debts is by having a stake in a data center company. But if shit goes tits up they are contractually liable for 100% of the losses. It's not the fund that lent the money to the SPV, it is Meta who is offering guarantees here.
nradov 3mo ago
We're not on the hook. The systemically important banks are very well capitalized now and have limited exposure to these debts. Even if there are substantial defaults the big banks will be fine.
vb-8448 3mo ago
It doesn't matter who owns the debt, if the debt won't be repaid or refinanced a big black hole on someone's balance sheet of >1.65T will materialize! The consequences could be unpleasant.
thelastgallon 3mo ago
Looks like they applied this algorithm: All problems can be solved by another level of indirection.

VirusNewbie 3mo ago

how are these long term commitments structured? Can the big companies default on them? pay a small penalty? I think that probably makes a large difference.

mgh2 3mo ago

Let all these greedy AI giants go down

AznHisoka 3mo ago

As someone who belongs to “all of us”, i vote to not bail us out if shit hits the fan. No need to ask me when it happens, OK? No really, it’s nice of you but we really dont need to be bailed out. You are welcome :)

spaceman_2020 3mo ago
Replace you with AI, and when the AI math falls apart, use your tax money to bail out AI And they’ll get away with it too
- stymaar 3mo ago
  This the proof that guillotine is useful, if not to be used, to make the elite behave in way that avoid suffering it.
  - viccis 3mo ago
    China's doing it
  - spaceman_2020 3mo ago
    They think they’re immune. Even after Luigi, they still think they’re immune
    - ManuelKiessling 3mo ago
      Well, I really wish that anyone, no matter their income level or job description, is immune against murder; or are we just throwing out civilization now?
      - edoceo 3mo ago
        It's of topic but, what if our current civilization is failing them? Like, of the system is broken and an individual acts to protect themselves or their family, the individual is still blamed. That's how revolution starts. And there are many revolutions that we (in USA) claim are good! Our own, from Britain, the French one. Of course others are bad (depending on where your vantage) It's just that, sometimes the murder is (retrospectively) justified. Like in a war, they're killing us so we kill them. But class war isn't fought with uniformed combatants. And, in USA at least, many of our politicians are bought quite blatantly. If they aren't serving the citizens perhaps they have thrown out civilization and the social contracts first? It's all quite complicated. In general though, murder bad and government should serve the poorest citizens forst, corporations last.
      - LtWorf 3mo ago
        Being denied medical care is murder as well.
    - UberFly 3mo ago
      As far-fetched as it sounds, I'd prefer elected officials and the justice system hold people accountable rather than psychotic murderers.
      - ben_w 3mo ago
        Likewise. I think it's a real pity that of the "four boxes of liberty", Musk has interfered with the first three: soap, Twitter; ballot, the lawsuits about million dollar rewards for voting; jury, selecting his jurisdiction, dismantling enforcement institutions via DOGE. On the plus side, it's only "interfered with" rather than "completely eliminated". Still, glad I have an ocean between me and the USA.
  - Lerc 3mo ago
    The guillotine requires being in control of the situation. It can only be used by those with the power to act with impunity. It's not fighting against tyrants, it's a declaration of an intention to be the next tyrants.
    - thin_carapace 3mo ago
      [flagged]
      - Lerc 3mo ago
        I wrote that comment entirely by myself, on my phone while waiting for a souvlaki. Perhaps the things that you consider AI tells are simply a use of language from someone in country with a different education system. I can't really judge how I might personally benefit from the current direction because I am uncertain what that direction is, and indeed if it will be sustained. If you are trying to allege that I have some personal affiliation to an organisation where I might benefit more than any average member of the public, then I must disappoint you. I work on my own projects, I sometimes make money from games that I make. I do not wish for a hypercapitalist dystopia where a company could train a model on work for hire content and then forever churn out content that they assert ownership of. I don't want the suppression of ideas caused by others asserting that because they had an idea, they own it and can dictate who gets to use it. I also do not wish for another reign of terror. I don't think violence will make the world better, and I don't think disaffected chique will either. I advocate identifying problems, suggesting solutions to the problems and working with people to reach consensus to apply those solutions. I assume that humans are fundamentally good and in the absence of religion can generally be reasoned with. Even those who do things you disagree with probably are doing what they think is best. I may be wrong about the goodness of humanity, but it does not matter, If it exists it's worth working with. If it does not exist, it is not worth saving. I choose to assume that it exists on the chance that it might.
        thin_carapace 3mo ago
        believing in the inherent good of humanity does somewhat justify your perspective, may life allow you to continue believing this way and may your pursuits be productive. I would recommend not to marginalize yourself, this action is tantamount to painting targets on your back for bad actors to aim at. corporations and governments are currently acting violently against the populace, a correspondingly heavy handed response is required if the populace does not wish to become soylent green. note that I have not explicitly advocated violent behaviour - rather I suggest that if our intelligence is not used against this tide, it may as well be part of the wave. thanks for your thoughtful response
- zkmon 3mo ago
  Because AI is "too big to fail".
  - spaceman_2020 3mo ago
    Wild that we all lived exactly the same way before AI Really changed so little in my life. I just use chatgpt instead of Google search now It's being marketed as some ground breaking revolutionary change when all it is is a better widget Remove it and the worst that will happen is that I'll go back to writing my emails and my code by hand - something I've done for the last 20 years anyway
    - donkey_brains 3mo ago
      No kidding. Except we won’t even have to do that; we can just run open-source frontier models. These companies are hosed.
- laughing_man 3mo ago
  How are they going to use my tax money if I stop working and don't pay taxes?
deleted 3mo ago
[deleted]
laughing_man 3mo ago
The problem is if large banks fail they take everyone else with them. We should have dealt with this in 2009, but for some reason it didn't happen. But money talks, I guess.
- fancyfredbot 3mo ago
  Things have changed since 2009. It would be private credit which fails this time, not the banks. Private credit is not supposed to be systemically important and it's not supposed to need bailing out. Maybe we'll find out how true that is in practice.
  - darth_avocado 3mo ago
    Private credit is just some guy skimming 3% while risking your pensions.
  - spwa4 3mo ago
    Why would you think that? You think pension funds and governments didn't invest this time? Because that's the problem, governments either investing everyone's money directly (to fund their own loans and expenditures, or should I say fund their own expenses using pension money without admitting that's what they're doing to pensioners) or indirectly force investments (you'll find pension funds worldwide are legally only allowed to invest in loans to the government and specific things the government allows (like politicians' charities). "For safety", of course, no other motivations there) We can check if governments went back to their own tricks or not after 2008. What were the interest rates after 2008? Quick check ... yep, they went back to the old tricks. When "shit hits the fan". Either governments really cut spending, leave pensioners without income and see their new loan interest spike to 10%+ (if they're lucky) ... OR they do a massive cash injection saving the banks, and increase spending. Which would you chose? It doesn't even matter. If you were the government and chose the first option, you would quickly find suddenly everyone across the political spectrum uniting to depose you. A decent chunk of people would literally not have any other choice but to do that. (of course, as per usual governments aren't behaving "correctly" according to economic theory. If you take the old "government as spender of last resort" governments should have radically cut spending in the last 10 years, because there was no need for extra spending. If you take the new "government invests pensions", then of course government spending needs to be investment. In other words, governments only allowed to spend like a normal investor, expecting and demanding a return. Ie. no social spending increases. In practice governments increased spending at any cost, and so we're in trouble again) Oh and should I mention that for any other entity investing pension money in loans to yourself is a very unique thing in law. It is THE ONLY financial crime where corporate structures do not protect management. You're the worldwide president of ExxonMobil? Doesn't matter. You do with employee pension money what government does with it? (ie. loan it to yourself, in this case ExxonMobil). You go to jail. Directly and long-term. In America. In Spain. In Japan. In fucking Vatican city.
superze 3mo ago
Always remember kids. Socialism is bad, it's only good if we bail out banks with billions. While you lose your house, and your job, they get bonuses.
joe_the_user 3mo ago
Unfortunately, the votes for a regime of permanent bailouts were already in when Ben Barnacke made his famous speech proposing helicopters over cities if deflation reached a crisis level (though the Internet says Milton Friedman thought of this first). Some later observed "the helicopters only seem to go to Wall Street", which isn't surprising.
dev_l1x_be 3mo ago
Is there a party that supports no bail?
DrScientist 3mo ago
Money isn't lost per se, it's transferred. ie for every loser there is a winner. Obvious ones are those who can extract value from this companies now ( high salaries/bonus etc ), swapping worthless paper for real assets, Nvidia and their share holders etc. Investors who hold short positions etc.
- actionfromafar 3mo ago
  True but the opportunity cost is truly lost. Entropy comes for everyone. If we spend a lot of money digging holes in the ground then filling them again, maybe no money was lost.
  - DrScientist 3mo ago
    Sure - but that's a meta question of whether the current economic/political systems are delivering good allocation of resources for whatever target function you favour. And that's complex - even in your simple example you can argue that people have likely improved their capability to dig and fill holes - and the latter skill is particularly valuable in the UK right now. ie Entropy includes information component :-)
- mlrtime 3mo ago
  You are trying to define zero sum without saying it. The market is not zero sum, a loan isn't zero sum. There isn't a winner and loser.
  - DrScientist 3mo ago
    Why not? What am I missing. If you loan me 10 pounds and I simply keep it or spend it but refuse to pay you back - aren't I the winner and you the loser? Claiming that the market is a positive sum system, because I use that 10 pounds to invent something that changes world productivity is missing the fact that there is a constant stream of huge energy inputs from the sun - that's ultimately what allows the local entropy to decrease - not that you lent me 10 pounds.
xtiansimon 3mo ago
> “As someone who belongs to “all of us”, i vote to not bail us out if shit hits the fan.” You have alighted onto an interesting topic: “bail out”. I believe a closely related word on the semiotic chain is “retreat”. I don’t feel that our culture would wish to “retreat” from AI. I know quite a few managers and programmers who absolutely delight in the fruits of the industry. No doubt the titans of the AI industry, who stand to lose their shirts, would also like a bailout. As would the workers under their leadership. Finally, if the governments of the world are taking “AI” technologies as seriously as I think they are, then I should expect a bailout in the event of bubble go boom is inevitable. In which case, Buy Low; Sell High.
- gtowey 3mo ago
  > You have alighted onto an interesting topic: “bail out”. I believe a closely related word on the semiotic chain is “retreat”. Huh? That's a different meaning of "bail out". In this context its meaning is closer to "rescue" and not retreat.
  - xtiansimon 3mo ago
    Literally a "bailout" is a "rescue", yes. Hmmm? Let's call it a "figurative expression" then. You could say it would be a "retreat" to not bailout AI. A turn away. Run. For example if the investment in data centers using borrowed money is not paid back on-time, and the investments fail, and there is no bailout, resulting in a cascade of business failures, then the I would say we "retreated" from AI. Retreat from the Technology. Retreat from the Economics of AI services. Hoo-Haa! For example, if crypto failed there might be a "retreat" as far as crypto is not a bedrock of the banking industry. But I'm probably wrong in my characterization of crypto. Whatever. Not like Crypto can be compared to Tulip Mania. Now there's a retreat. https://en.wikipedia.org/wiki/Tulip_mania https://en.wikipedia.org/wiki/Tulip_mania
- danaris 3mo ago
  > No doubt the titans of the AI industry, who stand to lose their shirts No they don't. They stand to lose points on their dollar-denominated high scores. If every one of the AI companies went belly-up, their execs would all live very, very comfortably for the rest of their lives even if they never got another job.

SanjayMehta 3mo ago

"U.S. energy company Enron, though fundamentally different from tech giants, collapsed in 2001 due to off-balance-sheet debt hidden behind multiple shell companies. Even with proper accounting practices, an increase in joint ventures with low transparency could raise concerns in the market." Remember the vendor financing model which got a lot of technology companies into trouble at the same time? It took some years, almost all those companies disappeared. Motorola, Nortel, Lucent ...

fuzzfactor 3mo ago
If it's not done exactly like Enron it's not that kind of crime is it?

walrus01 3mo ago

If I owe the bank $750,000 and can't pay, it's my problem. If I owe the bank $1,750,000,000 and can't pay, it's the bank's problem.

killingtime74 3mo ago
If the bank is owed $1,650,000,000,000 and isn't paid, then it becomes the tax payers problem apparently
- walrus01 3mo ago
  2008 all over again, but instead of Washington Mutual and Countrywide, we have whatever the heck is going on now.
  - al_borland 3mo ago
    I don’t know if the public would be as accepting of a bailout for AI companies… trillion dollar businesses that pushed technology with the goal of eliminating 50% of white collar workers… that isn’t really mission critical. If they want the reward, they need to accept the risk when the bet doesn’t go their way. If they aren’t willing to accept that, they shouldn’t be making such big bets.
    - bayarearefugee 3mo ago
      > I don’t know if the public would be as accepting of a bailout for AI companies That's putting it mildly, IMO. An AI bailout would be a poison pill that would electorally doom whichever party was behind it for decades.
      - lelanthran 3mo ago
        > An AI bailout would be a poison pill that would electorally doom whichever party was behind it for decades. One could only hope. In any case, in the short term, with AI having such a poor public-image story, if the Dems want to get back into power again they'd do everything they can to assure their voters that a bailout is not on the cards. This is the first single-issue voter concern that has really popular support, and they'd be dumb for chasing identity politics again.

protocolture 3mo ago

>SPVs that own the data centers I mean if AI falls short we might see a collapse in the price of colo but those investments would probably just be paid back over 10x the period.

harry8 3mo ago

>Well technically they don’t own the debt Channelling the 1980s for off-balance sheet financing 101. From an economic perspective there is zero difference between borrowing to buy an asset and entering into a non-cancellable long term (equivalent to its economic life) lease for the asset. The first option causes an asset and a liability on the balance sheet, affecting debt ratios that appear in financing contracts and so on. The second does not appear on the balance sheet. You pay every month, like it or not. You call it interest or you call it a lease payment. You need it off balance sheet for reasons, investment bankers will structure that to make it happen for a fee. Technically, from an economic perspective, it's debt.

throwup238 3mo ago
> Technically, from an economic perspective, it's debt. Isn’t the important difference that it doesn’t trigger bankruptcy on default? Economically it might not be that different but it has some significance legally because the courts have some fast tracks that trigger bankruptcies (IANAL but that’s my layman’s understanding). If they “default” in this case it will lead to lawsuits that they will almost certainly lose but in the mean time they kick the can down the road hoping to recover on general economic headwinds like lower interest rates. IMO the risks are obviously correlated here but I’m betting short term incentives drove this mess.
- harry8 3mo ago
  if you can't meet your obligations as and when they fall due, you're insolvent. Contractual specification from there.
  - throwup238 3mo ago
    Paying someone a week late (or not at all) on net 30 terms does not trigger insolvency proceedings. The type of obligation matters.
  - mdnahas 3mo ago
    Economist here. There are 3 parties and I’d focus on the investor’s perspective. The investor gives money to the intermediary company that signs a contract with the using company. If the contract fails, the intermediary still has the asset and can still make money. It can still payback the investor. If the investor was given a bond, it is possible they aren’t paid back in full. And that’s where I would worry. The Great Recession was so bad because bond rating agencies marked bad bonds as investment-grade. That is, bonds you could rely on. When “sure future money” isn’t sure, the system glitches.

blks 3mo ago

Capitalists love to socialize losses

hinata08 3mo ago
*costs Privatize revenues, socialize costs of business You're not "competitive" if you have to pay for workers, ink or investments. Workers only get a wage because of communist populists who don't understand business, and (insert place - even the Philippines these days) has the most highest taxes and wages around the world.
blitzar 3mo ago
Heads I win, tails you lose.

0xbadcafebee 3mo ago

> it’s not the tech giants but the banks that lent the money to the SPVs that are at risk Banks have not been loaning AI money for some time. They hit all their regulatory safeguard limits so they can't keep loaning. Half the money being invested in AI is private capital. There is still systemic risk, because private capital is a shadow banking system and you don't know who will be affected when they go kaput. Your utility company may [read: will] go bankrupt, but the money in your personal bank account is safe. Your retirement account, however...

darth_avocado 3mo ago
Private capital isn’t some dark box, at least half of it is pension funds, endowment funds, insurance companies and non profits. Then there are private credit arms of banks, sovereign wealth funds and family offices of wealthy individuals.
- skybrian 3mo ago
  This seems like patient capital that can wait out a downturn? Unlike a bank where the depositors could flee.

fancyfredbot 3mo ago

s/banks/private credit/

shelled 3mo ago

> This usually means all of us are on the hook. And since we are talking about USD (specifically "of" USA), it also means globally a hell lot more of "all of us" are on the hook than we would have been involved (even remotely) had (or would) this endeavour ever ended up in some sort of general success. I don't know whether it'd be "tails I win, heads you lose" or "I reap the profits alone, you reap the losses alone". Maybe the latter and it becomes magnitudes more interesting when it expands (or rather engulfs) beyond the boundaries of the great nation.

m101 3mo ago

The banks aren’t lending the money to these SPVs. It’s mostly private credit. The way banks get involved is that they may be lending senior financing to the private credit funds but that means they have a ton of subordination.

ItsBob 3mo ago
> It’s mostly private credit I believe that some of the private credit is the banks' own private credit arm! It's absolutely mental: the bank can't lend to them so they have a private credit company/division that can skirt around the rules and still provide the capital! Also, I bet that the Oracle datacenters aren't for Oracle LLC but Oracle Datacenter No 4 LLC so that if it all goes tits up, Oracle LLC walks away!

sajithdilshan 3mo ago

But how could it be that the banks have lent the money without a leverage or proper risk assessment? Also what I don't understand is that how come the banks cannot claw back the money they lent if they found out corruption or any other ill intention by the borrowers.

lemax 3mo ago

These are relatively contained private credit markets though. We’re not looking at anything 2009 level. For scale, total US mortgage debt peaked at $9.3T ahead of the subprime mortgage crisis, 73% of GDP at the time. We’re talking here about ~5% of GDP.

porridgeraisin 3mo ago
This is the most relevant comment in this thread.
StanislavPetrov 3mo ago
We were around ~$11 trillion in debt in 2009. Now we are ~$40 trillion in debt. The FED balance sheet was less than $1 trillion before the crisis in 2008, now it is around ~$7 trillion. Our debt to GDP ratio was ~64% in 2008 and is now at ~120%. Put simply, our ability to absorb any sort of financial shock by taking on massive amounts of (more) debt (which is what we did in 2008) is not remotely similar to what it was during the last crisis. This would be true even if we weren't in the midst of a highly inflationary environment due largely, but not solely, to the ongoing energy crisis being worsened by the wars in Iran and Ukraine. https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/GFDEGDQ188S https://fred.stlouisfed.org/series/GFDEGDQ188S

surgical_fire 3mo ago

That is not accurate according to the article: > By investing in the data center's operating company with a 20% stake and using the facility under a lease agreement, Meta secured computing resources but also increased its hidden debt. > Meta has a contract guaranteeing investors' losses if the data center becomes unnecessary and the lease is terminated. The way they are hiding these debts is by having a stake in a data center company. But if shit goes tits up they are contractually liable for 100% of the losses. It's not the fund that lent the money to the SPV, it is Meta who is offering guarantees here.

nradov 3mo ago

We're not on the hook. The systemically important banks are very well capitalized now and have limited exposure to these debts. Even if there are substantial defaults the big banks will be fine.

vb-8448 3mo ago

It doesn't matter who owns the debt, if the debt won't be repaid or refinanced a big black hole on someone's balance sheet of >1.65T will materialize! The consequences could be unpleasant.

thelastgallon 3mo ago

Looks like they applied this algorithm: All problems can be solved by another level of indirection.