[credit_guy]

This is how financing works. When you buy a house, you get a mortgage from a bank. It is unusual to get a mortgage from a seller. It would feel a bit circular, right? But that is exactly what happens most of the time when people buy a car. They get a loan from the same company that sells them the car. Is that circular?

When you replace people with companies, the financing can become much more complex. The example you provided with Nvidia and Lambda seems quite reasonable to me. Here's an example that happens every day in the world of housing: banks lend money to house buyers. Then they package the mortgages and sell the resulting mortgage back securities. Then they take the money from the proceeds, and give more loans, and package them and create more mortgage back securities. Seems circular, right? But that's just how business is done. There is no Ponzi aspect to this, or fraud, or smoke and mirrors. It's just every day business. Nobody labels that as being circular.

[diab0lic]

When people buy a car they sometimes get a loan from the auto manufacturer’s financial services arm. What they don’t usually get are warrants struck at a penny for 10% of the manufacturer.

You sound like you know what you’re talking about. I only think I know what I’m talking about. Help me understand: What am I missing in the OpenAI / AMD deal that makes it non circular?

[credit_guy]

OpenAI: We need lots of GPUs, you make GPUs, but your GPUs are not quite equal to Nvidia's GPUs. And we are a growth startup, we don't have a lot of cash, can you give us a hefty discount on those GPUs?

AMD: We need cash too, you know? We'd love to sell you those thousands and thousands of high end GPUs, that would cover some of our R&D, and we could one day match NVidia. But we don't swim in cash either. We can't give you the discount.

OpenAI: What can you give us? You must be able to throw in something there. Otherwise, honestly, we can't make the deal.

AMD: What if we give you some equity? And if our deal goes well, and our GPUs start being viable alternatives to Nvidia's, maybe we'll be able to get close to Nvidia's market cap and even surpass them, just like we did with Intel.

OpenAI: Brilliant. We love it.

AMD: Yes, but that equity will be contingent on how the deal goes.

OpenAI: Sure thing, we'll take that.

[lelanthran]

> You sound like you know what you’re talking about.

Honestly, I'm not an expert either, but I've run a company, and I can all but guarantee that credit_guy above really does not know what he is talking about.

[mattfca]

what is incorrect with what they are saying?

[lelanthran]

> what is incorrect with what they are saying?

I've replied else-thread, in detail, on exactly why his analogy to mortgage and car loans are incorrect.

His main point that "these deals cannot be circular because mortgage and car finance are not circular" is incorrect. The mortgage and car finance deals are not analogous to the Nvidia/OpenAI or AMD/OpenAI deals.

[BobbyTables2]

Everyday business isn’t based on hype.

The AI startup valuation largely is. I feel it quickly becomes circular because people make projections purely on other projections since the world is too impatient to wait and find out.

A single hamburger store is never going to be projected to have a billion dollars of revenue because people understand the total addressable market. Doesn’t matter how good the burger is.

The AI stuff is too new that people don’t have a firm grasp on the costs and profit opportunities. They don’t really even know how to define the TAM. Too many unknowns. Entire classes of labor could be replaced by AI —- or perhaps not.

With little grounding, it quickly becomes a circle of hype.

[jrflowers]

I don’t know what to tell you guy, but when people see money moving in a circle in a deal there is a good chance that “circular deal” might pop into their heads. Because it’s a deal that is shaped like a circle.

> Is that circular?

Doesn’t really seem so because at the end of the day the money goes from me to them. I don’t get my money back, I get a car in exchange for my money.

Also this deal didn’t begin with the manufacturer purchasing shares of me before offering me debt to buy a car from them.

>But that is exactly what happens most of the time when people buy a car.

Your car manufacturer leases your car back from you? And you use that revenue to raise debt to buy more cars from them? What manufacturer are you doing this with? What do you end up driving?

[lelanthran]

> Your car manufacturer leases your car back from you? And you use that revenue to raise debt to buy more cars from them?

Honestly, if this was possible people would be doing it (not that they are not - fleet services and rental fleet services do some pretty funky accounting sometimes, so I wouldn't be surprised at all if this sort of thing happened).

If this was possible, I'd be doing it.

> What manufacturer are you doing this with?

Good question. The minute an answer gets posted I'm going to have a really good side-hustle.

> What do you end up driving?

I presume, at the point that this is being done, there is no actual car involved, so nobody involved will be driving because there is no car to drive.

[jrflowers]

> Good question. The minute an answer gets posted I'm going to have a really good side-hustle.

Yeah “everybody buys cars through the infinite car glitch” sounds like the sort of thing that would be part of an enormously long answer to “should I try WoW for the first time in 2025”

[laserlight]

It's ironic that you described how the 2008 financial crisis came to be to illustrate how “normal” this circularity is.

[nl]

Loans have happened long before 2008 and have continued ever since.

This process is described in the Bible for example!

[jrflowers]

What does the Bible say about collecting interest on loans (the necessary part for making mortgage backed securities)

[nl]

"Do not charge your brother interest on money, food, or any other type of loan. You may charge a foreigner interest, but not your brother." - Deuteronomy 23:19-20

[jrflowers]

I also like Ezekiel 18:13

[surgical_fire]

I sort of would read bible passages describing modern financial instruments.

Perhaps it has some psalms discussing merits of MMT, or parables on Quantitative Easing.

[lelanthran]

> But that is exactly what happens most of the time when people buy a car. They get a loan from the same company that sells them the car.

No, they don't!

Serious "Citation Needed" here. They get a loan from a financial services company, that is a separate company from the automaker and/or dealership.

The certification and requirements for trading as a credit provider will not be met by neither the auto manufacturer nor the dealership.

> Here's an example that happens every day in the world of housing: banks lend money to house buyers. Then they package the mortgages and sell the resulting mortgage back securities. Then they take the money from the proceeds, and give more loans, and package them and create more mortgage back securities. Seems circular, right?

No, it doesn't! They make out new loans, sure, but they aren't loaning you specifically the proceeds from the sale of your specific mortgage-backed security!

If you happen to get a new loan from the sale of the MBS, it is impossible that only you get that loan, from the sale of an MBS that had only your existing loan.

Seriously, there's laws and regulations around this, and from what you say, with all due respect, it seems that you are unaware of these regulations.[1]

The only reason that these actually-circular deals can go on right now is because OpenAI (and other providers doing similar circular deals) are not publicly traded, and thus there are fewer regulations and even fewer enforcement of what little regulations there are for unlisted companies.

=================

[1] Why is your handle "credit_guy"? You don't appear to be familiar with the fact that credit providers are heavily regulated in all jurisdictions that we are talking about. I mean, you don't even need to know the specific regulations and certifications necessary, you just need to know things like a dealer cannot be a credit provider too.