Five US tech giants' hidden debts soar to $1.65T on opaque AI funding
asia.nikkei.comhttps://archive.ph/20260720174223/https://asia.nikkei.com/bu... 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. 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 :) 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. Iceland let it's banks default, and is now doing rather well. 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. Big corporate borrowed the money already, so it will stay with some (other) big corporate in this scenario. The bankers who did it will see that coming and move their money elsewhere and keep their money as well. What you suggest will hit normal persons. What we really need is people going to jail that let stuff like that happen. Let them bear actual responsibility for their 1,000k+ salary. > good way to hand wealth to the people and take it from corporations and the super wealthy Hence the power that be try to prevent it best they can. In some cases, unsuccessfully (Iceland) and in others, a bit more successful (the US). But seemingly, they're only able to delay the inevitable, not completely prevent it. The U.S. also let a bank collapse and shit hit the fan across the world. The global economy isn’t pivoting off Icelandic banks the way it is off US ones. Iceland's banks were full of money from people in the UK. It's a lot easier to default when there only a small political and economic price. Is everyone just glossing over the fact that the feds make a profit on bailing the banks out? Seems like a win win to take over ownership in the event of a bank failure. Was this definitely not accounting trickery? Like even the way money is created is intentionally convoluted and approximately 1% of the population even attempts to understand it. Can we really trust the accounting of bank bailouts which stood to be unpopular when the accounting produced a convenient outcome? Has anyone plausible analyzed this to a convincing level of detail? This was explained by Jon Stewart on The Daily Show ad neausum in 2008 and was common discourse for years after. No. It's not accounting trickery. Rather than allow the company aka the bank to go fully bankrupt the government simply forces a sale of the shares of the bank to the government. The original stock owners basically take a cap gains loss (potentially based on their cost basis). The bank then continues to operate as normal. This prevents a run on the bank and keeps it stable. Then 2-3 years later the stock recovers and the government sells its shares. Since they bought low this is highly profitable. Anyway yes and yes. The 2008 bailout ended up making a profit for tax payers. Thanks Obama. If there was a reliable profit to be made, a third party would do it. I suspect the real profit is made by also being in a position to adjust laws and rules to make sure your investment survives, as well as turning low rated bonds effectively into government bonds. All those things are at the expense of others in the bigger picture. 3rd parties don't have the capital to front the losses. That's the whole point for the government to do it. The feds get the advantage that they basically get to force the existing creditors to sell at a loss. Presumably that's what everyone here wants. The existing owners to pay a penalty on the failure and for everyone else to remain whole if possible. Well that's exactly how a bank "bail out" works. So what's the actual problem? The only one's "hurt" are the owners who miss managed the business. The "feds" as we used to know them are going extinct. They are all being replaced by GOP apparatchiks, who care only to look good to the Leader. > and is now doing rather well I was going to write a shitty reply to this, but the more research I did, the more it seems actually this went pretty well for them. UK and NL governments that lost deposits in the Icelandic banks mostly got their cash back (eventually), there was recession and unemployment but not that much worse than other countries, and the country is in good standing again with the markets. I would note that this is much much easier to do if your investors are foreign, rather than domestic pension funds, so it doesn’t bring down the government, though. The issue is that major US banks are systematically important to the US and also everyone else. Practically nobody cares about Icelandic banks - not even their depositors if their deposits were protected by the state (which they were). If a bank like JP Morgan were to fail, the event would be without exaggeration cataclysmic to everyone, even small local banks and credit unions. Even if ultimately the clients of JPM could be made whole, the weeks of uncertainty and frozen funds would single handedly obliterate the financial systems across the globe. It's the age old adage: "if you get margin called and get wiped out, it doesn't matter that you'd have recovered just 2 weeks later". The world as a whole is deeply leveraged. It's that leverage that affords us the ability to supercharge all the growth, from AI to drugs research, insurance, EV... everything. But that leverage comes at a cost, which is that systemically important institutions failing can have disastrous cascading de-leveraging effects. I'm sure we'd more or less all survive and the world would recover, but it would likely be a 2008 GFC style scenario most likely. The collapse of Landsbanki was absolutely not a nothingburger. Risked triggering a 21st Century Cod Wars: the UK government was forced to use organised crime laws to freeze its UK assets to protect UK savers in Icesave, to whom the Icelandic government did not clearly intend to extend protection. 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. 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. 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 This the proof that guillotine is useful, if not to be used, to make the elite behave in way that avoid suffering it. They think they’re immune. Even after Luigi, they still think they’re immune As far-fetched as it sounds, I'd prefer elected officials and the justice system hold people accountable rather than psychotic murderers. So would those guys in the boats in the Caribbean and the girls in that Iranian school, but the purpose of a system is what it does. based 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. Obviously that's preferable. What if they don't? Well... AGI by next month sounds more likely than what you are hoping for. Who wouldn't? In the real world, the top elected officials and the justice system are covering up sex trafficking of children among the US elites, and that's only the tip of the iceberg. The system is psychotic and what's strange is there haven't been more people like Luigi. Speaking hypothetically, that is preferable, yes. And the importance of the justice system working properly is that when it fails constantly and deliberately, many will come to the conclusion that the only option left is murder. Luigi is a lone nutcase who will spend the rest of his life behind bars, and what he did is just a meaningless tragedy, not the start to your pitiful little tantrum of a “revolution”. 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? 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. Being denied medical care is murder as well. China's doing it 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. I'm gonna recognise half your comment being an AI tell (negative parallelism) but not focus on that fact. based on your pro ai stance yesterday (in tandem with this non revolutionary take today), I'm then gonna ask point blank - how exactly do you personally benefit from the current direction that things are going? 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. 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 Lol, now every pattern of speech is AI? How about we jusr stop talking then? I have noted the employment of a language technique that as per the wikipedia article "signs of AI writing" is commonly used by AI, you can attack facts all you like and that will indeed stop me from talking! It is the overuse of such tells. Please, let's not ban uses of not X, but Y completely. It's a rhetoric technique that is completely fine, with moderation. But real human will use them with moderation. Also, there is the issue of human language taking some 'tells' because they are exposed to LLM output a lot. I'm still grumpy that LLMs made it nearly impossible to use the words 'delve' or em-dashes without getting called out as an LLM. What a revealing question. Only a child with zero exposure to the horrors of war would think that they’ll be better off in a world where we’re murdering the elites in droves. It’s laughably ignorant and hubristic. Fortunately, you keyboard warriors lack the skill, connections, and charisma to actually enact any of your bloodthirsty fantasies. are you looking for a fight? I love fighting but I never said any of that. so I can't really defend the position, it isn't mine. lol, yeah you did, unless you think your sad little attempt at the socratic method conceals your views? I don't know how to respond to your comment with decorum so I'm going to say goodbye, and pray that you mentor your juniors better than the way you treated me today mr senor dev How are they going to use my tax money if I stop working and don't pay taxes? Because AI is "too big to fail". 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 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. 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. 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. 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. 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 :-) Is there a party that supports no bail? 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. 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. 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. > 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. 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. If you are a collection of 5 companies with annual net income in the hundreds of billions of dollars, the debt is actually still their 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 you have to pay $200k you can afford to spend $2k fighting it and hold it up a few days. 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 If the bank is owed $1,650,000,000,000 and isn't paid, then it becomes the tax payers problem apparently 2008 all over again, but instead of Washington Mutual and Countrywide, we have whatever the heck is going on now. 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. > I don’t know if the public would be as accepting of a bailout for AI companies It won't be framed as bailing out the AI companies. It will be sold to the public as bailing out their pensions and investments. It's all about the marketing... The public has been apathetic about every single thing and will just continue scrolling their TikToks Public anger is a very pre-smartphone thing. You don’t worry about those sort of things when you’ve hyperoptimized the circus and made the bread cheap enough > Public anger is a very pre-smartphone thing. Public anger has gotten to the point that right-wing groups are pushing US legislation to outlaw it as “terrorism” [1], with the president of the right-wing American Heritage think tank pointing to examples such as “college students who took over campus quads” [2] and town halls with congress members getting shut down [3] - they say new laws are needed because public anger over “political purposes” is disturbing “civil tranquility” in the U.S. so those who are aiming to impact “civil tranquility” need to be “held accountable” under the law. The legislation being pushed starts with: > Section 1. Short Title. This Act shall be known and may be cited as the “Combatting Civil Terrorism Act.” > Section 2. Purpose. To promote civil tranquility by holding those who seek to disrupt it for political purposes accountable. And aside from that, social media (Reddit) seems awash in “public anger” etc. [1] https://sapirjournal.org/fixing-america/2026/islam-in-americ... [2] https://manhattan.institute/article/model-legislation-an-act... [3] https://www.city-journal.org/article/adam-smith-israel-civil... I gotta know, which of those specific points in your second citation do you have a problem with? The only one I can see having a problem with is "d. Subversion...". I expect that most voters welcome efforts that aim to stop other groups using violence and intimidation to suppress their speech or legal religious activities. The only problem with these proposed laws is the same problem with all existing laws - selective enforcement. I was responding to the grandparent commenter’s claims that ‘public anger’ no longer exists - so whether you want to point to one of those examples, right-wing pushes to pass new laws labeling those impacting “civil tranquility” as domestic “civil terrorists”, or public anger seen across social media (Reddit, etc), my point is that the argument that public anger no longer exists seems unsupported. I understand now, apologies. I agree with you, that public anger still exists[1], but I will not consider that link I mentioned in my response as an example of the suppression of public anger. A new law that specifically calls out people as criminals when they attempt to limit a person from entering their place of worship, etc is not a law suppressing the expression of public anger. ====================== [1] One can even make the argument that Trump got elected on the back of public anger. The values he espoused are unpalatable, but there is little question that the whole suppression of opinions in the last decade have had much to do with his popularity. I dont think anything you wrote in that paragraph has anything to do with actual public anger as it exists. It is just Heritage think tank advancing their authoritarian dictatorship agenda yet again, this time more openly. As far as they are concerned, anyone left to them speaking is a grave danger to the republic, attack on their right to be supported all the time and must be punished. They dont ask for similar laws in relation to far right, despite the fact it is more violent. There is a lot of public anger tho. Facebook and Twitter are working overtime to stroke it. Heritage loves it as long as it ends up being in MAGA colors. > made the bread cheap enough The circus is distracting from the price of bread, apparently. > 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. After seeing _what_ level of buffoonery, incompetence, and pure idiocy the gerrymandered American electoral system is capable of producing, nope, no, AI bailout won’t matter at all. > After seeing _what_ level of buffoonery, incompetence, and pure idiocy the gerrymandered American electoral system is capable of producing I honestly can't tell if you're talking about the Right pandering (in words only) to the voters or the Left scoring own-goals in the last election? Both are part of “the American electoral system” > 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. You are assuming the democrats run on the elections for the purpose of winning them. But the latest election made me doubt that is actually their goal. > An AI bailout would be a poison pill that would electorally doom whichever party was behind it for decades. Two concerns: 1. In a duopoly it won't doom either one party, not if the bailout-seekers involved are able to bribe them both equally. 2. A politician in not-so-bad party could let the other party doom itself in a long-term diffuse sense... Or they could accept some generous short-term very concentrated-on-me donations. The interest of the group is not always the interest of the members. The US desperately needs voting-reform, to reduce the spoiler-effect and winner-take-all mechanics. What if they are already doomed and just looting? I don't hold my breath for long term memory of average joe. Seems like US population was primed for short dopamine kicks for past 20 years with reality shows and similar clown stuff. Look at who got elected, all those scandals, consistent lies, empty talk and fraud yet support is still strong. "They" bailed out big banks whose gambling resulted in millions of people losing their homes, and the electoral effect was basically zero. Just invoke 'the other side' come election season and all is forgotten. Third parties fail to the same trick - by 'wasting' your vote on them, you're indirectly voting for 'the other side.' It's one of the many reasons that partisanship is foolish - it essentially leaves governments unaccountable. Another is the reason I put "they" in quotes. There will be lots of partisan finger pointing when the bubble pops, but it was both the DNC and GOP that bailed out the banks, and it'll be both of them bailing out big money again. > "They" bailed out big banks whose gambling resulted in millions of people losing their homes, That gambling actually led to people getting those homes. The people losing them was the correction. > the electoral effect was basically zero. because... > it was both the DNC and GOP that bailed out the banks Socialise the losses, privatise the profits. The public is not "accepting" if a large number of things that US governments do nevertheless. I don't think that gets even factored in nowadays. Until the public is willing and able to bring immediate consequences at scale to C-suites, boards, and billionaires, what the public accepts doesn't really matter. Society is already being rewarded from the investments AI companies have made. These investments have created something so valuable that society is paying billions of dollars for the product they are making. Even without access to the raw weights, the option of being able to pay for access to these models has tremendous value to society that can not be ignored. How about cheap healthcare? Or affordable housing, water, electricity and food? Is AI improving human quality of life? Objectivly. Yes. Not only am seeing it being used to increase farming yields it's also improving healthcare. Both water and electricity are the lowest they have ever been as a percentage of income and only getting lower. People keep looking at flat dollar figures like inflation isn't a thing and it's still 1995 or something. In reality we're accelerating to an abundance economy. https://finance.yahoo.com/economy/articles/most-us-richer-ev... The pessimistic attitude here is exhausting. In reality it's by far the best time ever to be a human on this planet. I must be living in a different universe. Where I am, people under 40 cannot afford to buy a house. This was certainly very different in the 80ies of 90ies. I got mine at 34 and I'm not 40 just yet. There has always been a magic money tree, but it's not for everyone. I don't know. The guy I bought my house from owed the bank $400k. He didn't make any payments for two years, and then they paid him $20k to go away. As Australian failed rich guy /scumbag Alan Bond said... if you owe 30k you have problems, if you owe them 30 million they take you to lunch. Or words to that effect >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. > 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. if you can't meet your obligations as and when they fall due, you're insolvent. Contractual specification from there. tbh this is only novel for the tech companies because they have never really had these types of product lines or unit cost structures before. a sass and brick and motor retailer scale very differently. This is not true at all, leases appear on balance sheets. It's not the 80s anymore 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/... There's regulation update and work around. The point of channeling the 1980s is because it was simple for the 101 explanation. Investment bakers will structure it for you if you need it, inline with the current regulatory environment. At one time cross border leases were fashionable for tax purposes. I don't keep up with such things to know if they still are. How will they structure that for you to not show up on the balance sheet then? I'm not aware of a way, and the way you described wasn't true. All you now offered is "bankers can do it", but how without having to report it? 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. 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. 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. > 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! "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 ... > 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... s/banks/private credit/ Capitalists love to socialize losses Heads I win, tails you lose. *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. 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. >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. I'm in the US and I'm either getting NXDOMAIN or NOERROR (with no A record answer) back from every big nameserver I try (my ISP, Google, Cloudflare, etc.). 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? Hmm, does DoH work? A pretty reasonable question. I guess it could be my ISP filtering. 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. You could try using archive.today to see where it would redirect you (some other archive TLDs are less filtered depending on ISP, and I believe .today autoselects the best one for your IP). Oh man,this makes my stomach churn with anxiety. 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? I am not sure why, but many people (news / media outlets?) love end of world scenarios. 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. Thanks a bunch, this is really nice advice! Jobs would come and go, One should focus on building skills (the thing we can control!) > To the experienced devs out there; would you take a 15% less offer from a medium sized company for job security? 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. From the "Read Next" section: SoftBank's Son says calling AI a bubble is 'blasphemy' 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). The 15% delta is after negotiations. They didn't allow quarterly vests either. Take what you have learnt from a layoff (assuming it is your first time) - we are all one big happy family in it together till we are not, then we are all mercenaries and it is onto the next master. Time to get back in the game. Something other than Oracle for only 15% less? Sounds great. definitely On the one hand, these debts may be off the balance sheet, but institutional investors certainly know about them and can reason about the company's valuation. Retail investors may be caught out slightly more. 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? It's mostly for having lower debt-to-equity and higher equity multiplier (better stock price). And you retain your credit rating and can get cheaper debt. 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. I think it's just a common practice to do it this way in the industry. May not mean these companies are intentionally hiding something at this point of time. To quote the Big short: "I have five houses and a condo." These debts mean nothing if the US government actually views AI technology as being on par with the Manhattan project. They'll just bail them out or nationalise them. > These debts mean nothing if the US government actually views AI technology as being on par with the Manhattan project. They'll just bail them out or nationalise them. 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 just made a similar comment further down the chain here, but I frankly think the dollars and cents economics around AI is a moot point. Like the pentagon, they'll just pull money out of thin air, or from other departments, or just write things off like it never existed. I don't actually think the current administration, or the people behind it, actually care about real world economics anymore. > 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. What percentage of the budget was it? I think that's also needed for a meaningful comparison. I've heard about the war taxes being high, but I don't know anything about the economy of the time otherwise. I didn't have budgets handy, but GDP is another way to normalise its cost to the country; ~$2.2B cost in 1942 with a nominal GDP of $166B, nominal GDP of $29.2T in 2024 puts the Manhattan Project's cost relative to GDP at $386B in 2024. Nominal GDP from https://en.wikipedia.org/wiki/Economic_statistics_of_the_Uni... I wasn't actually comparing it in terms of dollars for dollars between the projects, more the national security aspect and the probability of the government pulling whatever levers are necessary to keep it going. Or, whole program development and per unit costs included, about the equivalent of 14 units of B-2 bombers in 2024 dollars. If the US companies need trillions to barely beat Chinese companies spending billions, despite a multi year head start... That's the difference between innovating and copying/distilling someone else's innovation. https://wccftech.com/chinas-kimi-k3-identifies-itself-as-ant... > That's the difference between innovating and copying/distilling someone else's innovation. 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? The difference I was referring to was economic; I was not making an ethical judgment. So many people seem to be reading my comment as making an ethical judgment (based on their reactions); maybe I should edit it to clarify. Nope, seems I'm past the edit window. Oh well. > The difference I was referring to was economic; I was not making an ethical judgment What is the economic difference? LLMs have been trained on the results of billions of dollars worth of time, research, investment and expenditure. When you ask an LLM a question, they are giving you the results of those billions, or hundreds of billions, effort. Those things weren't free; they cost money to produce! If anything, the OpenAI and Anthropics of the world got more economic value for free than the people distilling them did. Not at all. At this point, a large amount of the work is in reinforcement learning where they are effectively generating their own data. Ah, so it's okay to copy and distill all human-produced works evee, except for reinforcment-learning data generated by OpenAI/Anthropic etc As opposed to all the copying AI companies have done of everyone else's work, in order to build something that tries to replace and undercuts the people who did that work? World's smallest violin. Not saying the American AI companies are ethically in the right, just that the work they did is a lot more expensive to do than what the companies distilling their work are doing. Or maybe China's math/science/population/gov investment powerhouse is pulling ahead and becoming unstoppable? This meme must die, how did Kimi 3 even distill Fable or GPT 5.6 within weeks of their being available? Also, how a model identifies itself isn't very telling, many models when asked in Chinese will identify as DeepSeek I'll link to this comment as a rebuttal https://news.ycombinator.com/item?id=48984531 Good UIs look alike, yes. But I'm not sure that comment is a good rebuttal in this particular case, because the model calling itself Claude is pretty strong evidence of distilling: https://x.com/denisewu/status/2077984660211269870 Ask claude it's name in Chinese and it says Qwen, or Deepseek. By your own logic Anthropic must have distilled from Chinese models rather than produce their own Chinese training data. Here is sonnet acting like deepseek:
https://x.com/stevibe/status/2026227392076018101 And if you ask Opus 4.8 in the API: '你是什么模型' (what model are you?)
It responds ~9/10 times with: 我是通义千问（Qwen），是阿里巴巴集团旗下的通义实验室自主研发的大语言模型。我可以帮助你回答问题、创作文字（比如写故事、写公文、写邮件、写剧本等）、进行逻辑推理、编程、翻译等等。 有什么我可以帮你的吗？ (I am Tongyi Qianwen (Qwen), a large language model independently developed by Tongyi Lab of Alibaba Group. I can help you answer questions, create text (such as writing stories, official documents, emails, scripts, etc.), perform logical reasoning, program, translate, and more.Is there anything I can help you with? ) This is a cope. Huh? What exactly do you think I'm trying to "cope" with? That American AI companies are overleveraged and some of them are going to go bankrupt? I've been predicting that for months. Why do you think I would need to cope with the idea? In reality just like every major market runup there's gonna be a consolidation of the industry and inevitably it will cause many companies to fail and critics will point to that and go "see it was a bubble!" while completely ignoring the several dozen new companies that will rise out of it. It's the 90s all over again. If they bail them out it should be done like the GM bailout. Shareholders leave with nothing. The advantages of being a reserve currency and then also blaming your peer competitors as “manipulators”. China is a currency manipulator who steals patents and ideas from other countries. The US uses the reserve currency as it's most beneficial soft power. The Petrodollar is the clearest example of this by a large margin. Both are true. The US also stole patens and ideas from other countries. So did Germany and Italy and pretty much every other country on this planet. Yeah, it is true that the US doesn't like a challenger here and when someone doesn't play by the rules that they want to set, they get upset. Everything is true, yes. They'll bail them out with what money? US is already almost $40T in debt, how do you think the bond market would react if another $2T were abruptly added to it? Look at how the pentagon is funded. Trillions get poured in with zero accountability, dark projects that never get disclosed at all, and audits that never pass. When it comes to military level stuff, it seems to exist outside of normal financial logic. They just invent money for it. Here's the thing about debt, though: If your debt is denominated in your own sovereign currency, you can just print more when you run out of money. Seemed fine with adding that much during Covid Just have to suck it up. Otherwise they won’t see that 40t. In other words, the US gov will simply put all the debt onto the public, as usual. They can only do that if AI is profitable or at break even. Otherwise they would need to finance these companies yearly. "hidden" debts and "opaque" funding I seem to read about every other day. they should bring back the listicle - it was more honest than the pretend investigation format The whole world's wealth is being siphoned off by these companies. I hope the very probable crash does not happen. The banks are not the ones on the hook here - they no longer lend in a meaningful way as first loss lender on many things. If they lend they do so as a senior financing provider to vehicles that provide the financing. The actual lending is done by private credit institutions that have raised money, sometimes on the order of 10s of billions of $. It's hard not to be fatalistic about all of this now: In my mind, it's crystal clear that the investments will never be paid back. The revenue streams from all the companies involved don't add up. It must fail at this point. 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! And every time some points all of this out, they are "denier", "left behind" and all the other everything-ai fanatics can come up with. As for the imminent crash - I'm all for it. There's a whole generation that is incapable of thinking for themselves without an LLM telling them what to do or worse still - do it for them. And for much of the tech world, that is becoming the single point of failure. 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. Maybe the "left behind" rhetoric stems from the underlying anxiety of this whole thing imploding and taking the economy with it. I wish that were the case. Unfortunately I know plenty of people who truly believe that anyone that isn't using AI and paying hundreds of bucks for slop subscriptions will be so irrelevant in 2 months and will be begging for food and scraps on the streets and sleeping under bridges: even more fanatical then what we witnessed with Jobs and Musk. Arguably not the sharpest tools in the shed but looking at the news from every corner of the world, the shed is filled to the brim with very blunt tools. For anyone old enough to remember attending bankruptcy/liquidation auctions of "dotcom 1.0" companies in 2000, 2001 or so and buying an Aeron chair, or similar, I really wonder what it will look like this time around. There was one point in time where only very slightly used datacenter cooling systems and diesel backup generators were selling for pennies on the dollar. IMHO I think the blast radius is implicitly contained. The major investments are in data centres, and the current investment cases impute near zero residual value after five years. Meaning that current valuations already assume "catastrophic" declines in equipment valuation. This is unusually clear-eyed and sober investment calculus in the tech space. 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 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. 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. Even if OpenAI or Anthropic or both fail, they're not even listed yet. It barely makes a dent on the stock market. Their infrastructure and IP is purchased by Microsoft/Google/Meta, and those companies valuations adjust accordingly. > Further, unlike during the dotcom crisis, most of this spending is not driven by debt. 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! Bond sales are pretty normal for companies, AI or not. Leverage is in very low ratios compared to the dotcom era. Much of the dotcom era telecom expansion depended on debt and projected future demand, but the resulting networks were so overbuilt that only about 2% of North American long-distance capacity was being used. Falling prices left numerous operators unable to service their debts. Today’s AI expansion is led mainly by already-profitable companies with large existing revenues and cash flows. Microsoft alone generated $136B in operating cash flow during its 2025 financial year while spending $65B on capex. It held $95B in cash, compared with total debt of about $43B. That means a disappointing return on AI investment would reduce profits, cash reserves, and shareholder value, rather than making these companies insolvent. I don't think Microsoft would fail if it all crashed. Nor would Google or Amazon as they all have alternate revenue streams. It's the pure AI companies like OpenAI that will hit the wall. However, the tech companies are increasing their debt enormously. That's the issue. You'll be able to buy used H100s. One careful owner. Never overclocked etc. They'll be knackered though, unlike a good Herman Miller chair. :-) We might even be able to afford RAM again! Unlike 2001, I'm also trying to imagine amateurs (or very small companies) trying to repurpose pieces of whole-rack liquid cooling systems, with varying degrees of possible success or catastrophe. But I'll be holding out for the gently used one owner B300. The banks aren’t the ones on the hook here. Private credit funds are. That doesn't sound good, but out of curiosity: How do you exactly hide debt? Circular economy is easy to understand, but what else is cooking? A bubble in progress waiting for right time (hello 2028) to burst. why do you consider 2028 to be the right time for a pop? I personally think it could pop before then if there is not concerted effort to stop inflating it and maybe start to let the air out. 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 Pretty sure Tim Apple can flip open his wallet and pick up the tab for everyone, if he’s feeling generous. Imagine shorting Alphabet stock now , just before the AI bubble bursts, what an opportunity of a lifetime. Good luck timing it. "The market can remain irrational longer than you can remain solvent." 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. Go ahead.