[darth_avocado]

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.

[AznHisoka]

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 :)

[laughing_man]

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.

[londons_explore]

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.

[petesergeant]

> 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.

[embedding-shape]

> 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.

[adjejmxbdjdn]

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.

[laughing_man]

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.

[hparadiz]

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.

[actionfromafar]

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.

[pfannkuchen]

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?

[londons_explore]

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.

[preg_match]

We have similar FDIC insurance in the US. The solution is companies have many, many deposit accounts to still get the insurance, mostly for payroll purposes.

[londons_explore]

Could easily change the rules so real humans get government insurance, but companies do not.

And perhaps have the insurance pay out only once per year per person too, so that when multiple bank failures happen at once there is not much benefit to splitting funds.

[laughing_man]

But that defeats the purpose of depositor's insurance. The purpose isn't to make sure people get their money back; that's only a side effect. The point of depositors insurance is to avoid bank runs, which can be contagious.

The cause of the run isn't that important, and if you banking system collapses because companies pull out all their money you're not in a better position than if individuals do.

[short_sells_poo]

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.

[dofm]

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.

[bulbar]

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.

[Ferret7446]

It's the middle class who gets screwed. The super wealthy and corps don't have their assets stored in banks.

[fancyfredbot]

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.

[spwa4]

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.

[fancyfredbot]

Pensions will have exposure, probably through private credit, and probably in the range of 5% to 10% of assets. It's a lot, and it'll hurt people. But I'm not at all sure it is enough to require a bailout.

US government direct investment exposure is not likely to motivate a bailout in my view. The government might be motivated to bail people out for other reasons but not because they've lent too much.

[darth_avocado]

Private credit is just some guy skimming 3% while risking your pensions.

[DANmode]

You should really define “everyone else”.

[laughing_man]

Everyone else is literally everyone else. It doesn't matter what you have or what you do for a living, the collapse of the financial system is going to affect you negatively.

[DANmode]

If a large private corporation is allowed to grow to the size of “the financial system”, regulators have failed their responsibilities, and need to unwind that immediately.

Can’t have your cake and eat it, too.

[laughing_man]

I agree. We should have dealt with this in 2009, but we didn't. There are still individual banks that are too big.

[spaceman_2020]

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

[laughing_man]

How are they going to use my tax money if I stop working and don't pay taxes?

[zkmon]

Because AI is "too big to fail".

[spaceman_2020]

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]

No kidding. Except we won’t even have to do that; we can just run open-source frontier models. These companies are hosed.

[stymaar]

This the proof that guillotine is useful, if not to be used, to make the elite behave in way that avoid suffering it.

[spaceman_2020]

They think they’re immune. Even after Luigi, they still think they’re immune

[UberFly]

As far-fetched as it sounds, I'd prefer elected officials and the justice system hold people accountable rather than psychotic murderers.

[dofm]

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.

[ben_w]

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.

[YeahThisIsMe]

Obviously that's preferable. What if they don't?

[JohnFen]

I wish that such systems in the US could be relied on to do that as well. It's pretty clear, though, that they can't.

[cryptonym]

Well... AGI by next month sounds more likely than what you are hoping for.

[dns_snek]

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.

[surgical_fire]

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.

[ManuelKiessling]

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]

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]

Being denied medical care is murder as well.

[Lerc]

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.

[viccis]

China's doing it

[xtiansimon]

> “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.

[danaris]

> 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.

[gtowey]

> 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]

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

[joe_the_user]

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.

[DrScientist]

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.

[mlrtime]

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]

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.

[orwin]

I borrow you 10 money i use to buy my chair-making tools. I make the chair, sell it 20 money, then pay you 12 money back for the service rendered. Basically money is supposed to be a tool that help us creating capital by exchanging goods.

[DrScientist]

But aren't you confusing the means of exchange with the creation of value.

The creation of value is me taking energy from the sun and converting that into a chair.

You lending me money is you extracting value from artificially being a middleman.

It would have been more efficient to write an IOU to the tool maker, make the chair and pay back the tool maker directly.

Now sure that IOU isn't that fungible - however that highlights one of the absurdities ( if I understand it correctly ) of the current banking system where private banks are able to in effect issue IOU's on their own basis but put mine and your name on it as a guarantor - resulting in the public having to bail out banks when they over extend.

[actionfromafar]

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]

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 :-)

[dev_l1x_be]

Is there a party that supports no bail?

[superze]

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.

[lemax]

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.

[StanislavPetrov]

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/GFDEGDQ188S

[porridgeraisin]

This is the most relevant comment in this thread.

[SanjayMehta]

"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]

If it's not done exactly like Enron it's not that kind of crime is it?

[0xbadcafebee]

> 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]

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]

This seems like patient capital that can wait out a downturn? Unlike a bank where the depositors could flee.

[walrus01]

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.

[Aurornis]

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.

[hdgvhicv]

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

[killingtime74]

If the bank is owed $1,650,000,000,000 and isn't paid, then it becomes the tax payers problem apparently

[walrus01]

2008 all over again, but instead of Washington Mutual and Countrywide, we have whatever the heck is going on now.

[al_borland]

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.

[ItsBob]

> 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...

[spaceman_2020]

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

[no-name-here]

> 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...

[thwarted]

> made the bread cheap enough

The circus is distracting from the price of bread, apparently.

[bayarearefugee]

> 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.

[jgilias]

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.

[lelanthran]

> 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.

[Terr_]

> 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.

[kakacik]

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.

[rapind]

What if they are already doomed and just looting?

[somenameforme]

"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.

[dartharva]

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.

[hdgvhicv]

Socialise the losses, privatise the profits.

[GolfPopper]

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.

[charcircuit]

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.

[sciencejerk]

How about cheap healthcare? Or affordable housing, water, electricity and food? Is AI improving human quality of life?

[stymaar]

There has always been a magic money tree, but it's not for everyone.

[laughing_man]

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.

[mattoxic]

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

[harry8]

>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.

[vasco]

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/...

[harry8]

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.

[vasco]

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?

[harry8]

This isn’t something in which I’m an expert on any of the current details.

You can borrow a million dollars and use it to buy gold. An asset and a liability on the balance sheet each ba million dollars.

You can buy futures contracts with an underlying value of a million dollars. Nothing on the balance sheet. Zero dollars on both assets and liabilities.

The two are economically indistinguishable.

There are regulations around leases, for example, about what you have to capitalise on the balance sheet and when. Then there are workarounds for those rules. New rules cause the investment bankers to go to work. For a fee.

[vasco]

If you borrow a million dollars and buy gold both of those will have to be communicated to shareholders and indeed show up in the balance sheet. It doesn't matter if you say the lines add up to zero, that's still in the balance sheet shown for everyone to see.

[lefty2]

According to the article they don't have to declare leases or GPUs until the datacenter becomes operational

[throwup238]

> 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]

if you can't meet your obligations as and when they fall due, you're insolvent. Contractual specification from there.

[mdnahas]

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.

[throwup238]

Paying someone a week late (or not at all) on net 30 terms does not trigger insolvency proceedings. The type of obligation matters.

[blitzar]

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.

[shelled]

> 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.

[surgical_fire]

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.

[vb-8448]

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.

[sajithdilshan]

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.

[mgh2]

Let all these greedy AI giants go down

[m101]

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]

> 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!

[VirusNewbie]

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.

[nradov]

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.

[protocolture]

>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.

[fancyfredbot]

s/banks/private credit/

[thelastgallon]

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

[blks]

Capitalists love to socialize losses

[hinata08]

*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]

Heads I win, tails you lose.