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But money talks, I guess.
In fact, bank failure and then having the government only guarantee ~$50k of funds per person is a good way to hand wealth to the people and take it from corporations and the super wealthy.
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.
And they’ll get away with it too
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.
There isn't a winner and loser.
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.
> 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.
If I owe the bank $1,750,000,000 and can't pay, it's the bank's problem.
Everyone likes to repeat this tired cliche but skips all of the steps that would have to happen to get to that point.
if Google had to pay a $2b bill they can spend $20m fighting it.
If they have to pay a $2t bill they can spend $20b fighting it
You can buy a lot more justice with $20b than with $2000
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.
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.
See Apple's FY2025 10-K, the leases are in page 42 under "Lease-Related Assets and Liabilities", which shows:
Operating leases
- Other current liabilities: $1,579 million
- Other non-current liabilities: $10,911 million
Finance leases
- Other current liabilities: $538 million
- Other non-current liabilities: $692 million
Total lease liabilities: $13,720 million
https://s2.q4cdn.com/470004039/files/doc_financials/2025/ar/...
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.
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!
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 ...
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...
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.
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.
https://archive.ph/20260720174223/https://asia.nikkei.com/bu...
But a dig +trace archive.ph (which recurses all the way to the root locally) resolves it fine.
Is there some US-mandated DNS filtering I don't know about?
Or rather could have been, since the issue seems like it was transient. I'm now getting resolutions.
Very strange, I wish I'd recorded what was going on better while it was broken.
It's a tough job market out there and it took 4 months to land job offers after being laid off.
I have a competitive offer from Oracle OCI with a team adjacent to this initiative and I am seriously considering it. How long do you guys think it will take to blow up (if it does)
To the experienced devs out there; would you take a 15% less offer from a medium sized company for job security?
too often pessimists are treated as serious, critical thinkers, while optimists are dismissed as naive or foolish.
remember this guy Michael Burry who saw the 2008 housing crash coming, bet everything against it, and made a fortune?
but then he spent the next 15 years trying to pull off the exact same trick, lost a ton of money fighting a massive bull market, and finally had to shut down his hedge fund because lightning just wouldn't strike twice.
how I deal with this: focus on what you can control. reading news in general seems to be difficult. what can I personally do about all that? very little tbh.
In a hot job market, no.
In the current job market, yes.
It's one of the main reasons I am sticking to my current employer. I could likely make more money by moving jobs right now ; I still get the odd recruiter reaching out here and there; but I fancy the security when I see dark clouds on the horizon.
And oh boy, those clouds are very dark. Foreboding indeed.
Softbank always has their finger on the hype pulse ...
I will go against the grain of everyone else - be a hype beast, every crash I have seen they make more and get better jobs on the flip side. Counter Oracle at a higher salary and ask about bonus guarantees for when this all goes to the moon (you have to really really appear to believe).
But on the other hand, these companies are essentially paying for the service of taking the debt off books (by paying the leasing premium to the SPV partners). I guess I'm wondering what they really gain from doing so, if again sophisticated investors can see through the games?
But of course it is obvious in this scale. However, credit ratings do not care, as they are driven by regulation, and regulators get their paycheck regardless.
Also in the joint venture like Blueowl/Meta for the $27B Hyperion data center in the case when things go wrong Meta is in theory bankrupt remote. So in theory it should not affect credit rating because when the bad debt is not served, Blueowl, not Meta, is in the hook for it. And Meta's investors should be protected for this event.
According to Wikipedia, the Manhattan project only cost $28 billion in 2024 dollars. That's a completely different order of magnitude compared to what we're talking about here. I imagine the size of the investment here would even be hard for the US government to swallow.
I don't actually think the current administration, or the people behind it, actually care about real world economics anymore.
They are aristocrats. They are worried about accumulating more power then their peers, about alliances to gain that power, and about projecting an image of infallibility.
Aristocracy has never been known for caring for economics, technology or practical matters. They just care about power. Ruining nations, building useless vanity projects and going to war is kind of their main thing.
Nominal GDP from https://en.wikipedia.org/wiki/Economic_statistics_of_the_Uni...
Aren't the models from Anthropic and OpenAI simply the distilled work of everyone else who ever put their work online, or in books?
Why is their distillation okay, but other distillations not ok?
World's smallest violin.
Also, how a model identifies itself isn't very telling, many models when asked in Chinese will identify as DeepSeek
Both are true.
When it comes to military level stuff, it seems to exist outside of normal financial logic. They just invent money for it.
The actual lending is done by private credit institutions that have raised money, sometimes on the order of 10s of billions of $.
That means losses. Big losses for some.
I assume that these off-the-books companies can quite literally be pinched off and the debt becomes the banks' problem, so the primary company, i.e. Meta, Oracle, can walk away but the banks will be left holding the bag.
We know what happened the last time the banks played their stupid games!
As for China - I think their motivation is clear: if they could have pulled it off from the start, their business model would have been the same as MANGO's. Llamacpp opened up the floodgates and their best bet now is to use this and their resources to start pulling the rug from underneath MANGO. I'm not a fan of the "enemy of my enemy" philosophy - they can both be enemies but wile they are at each-other's throats (albeit not openly), I'll gladly sit back and grab some pop-corn.
Further, unlike during the dotcom crisis, most of this spending is not driven by debt. It's mostly funded by the large companies which are producing enormous revenue and profit to pay for this. It's an order of magnitude different.
The major question mark on these valuations is the revenue assumptions, which can be reasonably criticised. A bear case here is that revenue growth is not as aggressive as projected, and valuations steadily decline over time. I don't see a likely scenario where the entire sector collapses. There is no apparent cascade failure mechanism. Of course, these mechanisms aren't always immediately clear prior to crashes.
We must remember that all of the models coming out of China are presumed to be distilled frontier models. Meaning a) they will always be x days/weeks/months behind the frontier models, b) they will never be quite as good, c) inference will generally be constrained by compute capacity (especially as the frontier studios have an incentive to capitalise on their moat), meaning Chinese studios will always be at a disadvantage.
The real wildcard here is self-improvements. It looks like we're already in the singularity, meaning a large proportion of LLM development is already done by LLMs. The development cycle on these might be months now, but it will be weeks soon. Days within a year, then hours, minutes, seconds, and milliseconds. It's impossible to predict what this curve looks like.
I can see a scenario where companies like openAI and Anthropic do go belly up but the technology and IP and physical assets remain, get balkanized or snapped up by various other parties. Let's say for instance that they do finish the physical construction of the "Stargate" datacenters in Texas, and they get filled with the equivalent of a whole shitton of B300 RAM/GPU systems and are up and operational. Those don't disappear.
In some kind of catastrophic failure scenario it could end up as a debtor in possession arrangement, or chapter 7 sale to new set of people who want to make use of it. Not unlike what happened to a number of much smaller scale datacenters that were built with 1996-2000 dotcom 1.0 boom money that changed ownership around the 2001-2002 time frame.
Unfortunately, that's not the case. Between the big 5 (Microsoft, Meta, Amazon etc.) they're spending more than $600 Billion in 2026! They don't have that much cash lying around so they're selling bonds!
That's debt!
Not only that, they're increasing the bond sales in Europe! I assume that means they're tapped-out in the US!
All this off-the-books stuff, despite being legal but shady, is still debt! Debt has to be paid by someone.
To sum it up: the AI buildout is a highly leveraged, debt-fueled expansion, not an organic, cash-funded software cycle... this will not end well!
They'll be knackered though, unlike a good Herman Miller chair. :-)
We might even be able to afford RAM again!
But I'll be holding out for the gently used one owner B300.
But the main reason 2028 would be a risky year is the systemic risks around Trump. If he makes even more efforts to put his thumb on the electoral scales than he already has, or if it is not clear there will be a free and fair election (from an external perspective it really isn’t), then confidence drains out of the wider system very quickly, and one of the earliest things to go in such a situation is speculative investment.
Even if there is a free and non-controversial election, the market might well see risks for the AI companies: would the Democrats, if they make it into power, be so fully on board with letting these companies operate in a low-regulation environment?
And if the bubble should look like bursting for its own reasons in early 2028, will the by then quite stressed federal government, late in the term, actually have the real authority to do anything about it? It’s not a popular government, or a very organised one, and whatever they do will need confidence, co-ordination and an unprecedented level of buy-in
There isn't always a mechanism that will translate being-right about some fundamental fact into making-money from it.
P.S. It isn't trivially "solved" by someone setting up a gambling scheme either. Many people who are right will still lose because they didn't also guess when other people would start to agree with the conclusion. Plus there's the time-value of money for things which take longer to play out.