IIUC, they ignore it because they're supposed to.

If the market collapses I think Meta can technically just walk away and they lose access to those data centers (which they no longer want anyways) and the SPV is stuck holding $X of assets with $>X liabilities and the issues of the credit are on the hook but not Meta.

And investors are fine being on the hook because they get a higher return from the SPV bonds than Meta bonds. (risk adjusted it's probably the same return).

> We all know what's going on

Do we?

The payments Meta et al are making to the SPV are payments for data-center services. The data centers are then buying the assets and issuing the debt. Now, Meta is obligated to make those payments to the SPV. Which looks like debt. But they are only obligated to do so if the services are being provided.

Blue Owl, meanwhile, owns 80% of the datacentre venture. If the price of chips crashes, that's Blue Owl's problem. Not Meta's. If Meta terminates their contract, same deal. (If Beijing nukes Taiwan and the chips quintuple in value, that's Blue Owl's gain. Mostly. Not Meta's.)

> Why don't they just say "actually no, we all know that's debt and it's owned by Meta so we will consider it when rating their credit."?

If Meta stopped paying the SPV, the SPV would have the recourse of a vendor. If Meta stopped making payments on its bonds, that would trigger cross defaults, et cetera. Simply put, Meta has more optionality with this structure than it would if it issued its own debt.

The red flag to keep an eye out for are cross guarantees, i.e. Meta, directly or indirectly, guaranteeing the SPV's debt.

Because, to quote from The Big Short, “if we don’t give them the rating they want they’ll just walk down the street and go to [the other ratings agency].”

Does that make any sense? No.

Because in credit ratings game, the customer is paying to get their bonds rated. Therefore the customer is always right.

the point is to get pension money into the market, whilst ringfencing the risk in an SPV so that when/if it pops, it’s none of the people who do actually know what’s happening that will be affected. And they’ll potentially be shorting it on the way down as well

We’re a bit too far if we assert this. The weird circular Enron stuff wasn’t all in the open, was by wholly owned subsidiaries, and the downfall was massive trading losses that could no longer be hidden by shuttling money to and from subsidiaries at the right time. A hole in a balance sheet is quite different from a purchase done by financing, thus “circular financing” when applied to both means “things we worry about that involve payments between 2 entities”

> not done on the basis of trust me bro

It's not. It's done on the basis of don't question me bro.

dang is the hackernews moderator

https://news.ycombinator.com/user?id=dang

> That type of logic is not inherently flawed, is it?

Inherently, no. In practice, it's riddled with biases deep enough [1] to make it an informal fallacy.

"The competition in a large market, such as CRM software, is very tough," and "there are power laws which mean that you have to rank surprisingly high to get 1% of a market" [2]. Strategically, it ignores the necessity of establishing a beachhead in a small market, where "a small software company" has "a much better chance of getting a decent sized chunk."

[1] https://www.nature.com/articles/s41599-024-03403-9

[2] https://news.ycombinator.com/item?id=45804756

Those don't seem like reasonable targets at all to me. OpenAI's product is information and their power is engagement. It's more like a cross between Facebook that thrives on engagement and Google that delivers information.

Googles biggest advancement in the last ~15 years is to produce worse search results so that you spend more time engaging with Google, and doing more searches, so that Google can show more ads. Facebook is similar in that they feed you tons of rage-bait, engagement spam, and things you don't like infused with nuggets of what you actually want to see about your friends / interests. Just like a slot machine the point is that you don't always get what you want, so there's a compulsion to use because MAYBE you will get lucky.

OpenAI's potential for mooning hinges on creating a fusion of information and engagement where they can sell some sort of advertisement or influence. The problem of course is that the information and engagement is pretty much coming in the most expensive form possible.

The idea that the LLM is going to erode actual products people find useful enough to pay for is unlikely to come true. In particular people are specifically paying for software because of it's deterministic behavior. The LLM is by its nature extremely nondeterministic. That's fully in the realm of social media, search engines, etc. If you want a repeatable and predictable result the LLM isn't really the go to product.

Not every kid born in the last five years will know Google as a verb as we do. They’ll be adults in 15 years, which is a paltry investment timeline for the type of Black Swan event we’re talking about, which AI is.

I don’t disagree with you entirely, but I’d argue the second level apps are harder to chase because they get so specialized.

Death of Google (as everyone knows Google today) is a tricky one. It seems impossible to believe at this exact moment. It can sit next to IBM in the long run, no shame at all, amazing run.

> Given the trajectory of inference cost, it unlikely that they would fail to reach profitability.

> We don't have evidence one way or the other

I don't see how both of these things can be true. How can we know something to be likely or unlikely if we have no evidence of how things are?

If we don't have any evidence they're moving towards profitability, how is it likely they will become profitable?

At this point I'll be surprised if the financial company in charge of my 401k exists when I retire. I know there are laws to protect things, but my faith in US laws is dwindling fast.

> Correct, oAI is short rates vol

Why vol? They're just short rates, which is a silly way to say leveraged. If rates become volatile but halve, OpenAI does fine. If rates stabilise at 10%, OpenAI fails. There is no "duration hedging," which for OpenAI would involve buying duration, i.e. bets that profit when rates go up, going on.

Western economic history is 75% of businesses failing in the first 15 years, and the market still growing because the last 25% has outsized rewards.

More pertinently, we have a long history of people buying into bubbles only for them to crash hard, no matter how often people tell them "past performance is not a guarantee of future growth" or whatever the legally mandated phrase is for the supply of investment opportunities to the public where you live.

Sometimes the bubbles do useful things before they burst, like the railways. Sometimes the response to the burst creates a bunch of social safety nets, sometimes it leads to wars, sometimes both (e.g. Great Depression).

In other words, "It's different this time!"

A trillion dollar valuation for a company losing money does naturally lead to the belief "this is a bubble", that's not really what most call an "assumption" as evidence led to the belief.

May be incorrect, but it's not writing down the answer first and working backwards.

> But what if, maybe, it ain't so?

https://www.youtube.com/watch?v=9z70BKwfSUA

Comedic take from last time, but the point at the conclusion remains. "Just this once, we think we might".

> Of course, lots of AI things are going to fail, and nobody is exactly sure of the future. But what if, after in depth inspection, the overall thing is actually looking pretty good and OpenAI like a winner?

Much as I like what LLMs and VLMs can do, much as I think they can provide value to the tune of trillions of USD, I have no confidence that any of this would return to the shareholders. The big players are all in a Red Queen's race, moving as fast as they can just to stay at the same (relative) ranking for the SOTA models; at the same time, once those SOTA models are made, there are ways to compress them effectively with minimal losses of performance, and if you combine that with the current rate of phone hardware improvements it's plausible we'll get {state of the art for 2025} models running on-device sometime between 2027 and 2030, with no money going to any model provider.

> Also, IIUC the guys in The Big Short would've lost everything if the government stepped in sooner since the banks controlled the price of the CDSs and could've maintained the incorrect price if they had a bunch of extra cash.

Yeah. "Markets can remain irrational longer than you can remain solvent."

https://en.wikipedia.org/wiki/Michael_Burry had an investor panic and nearly lost everything. He was right, but he nearly got the timing wrong.

People always talk about shorting like it’s an efficient and reliable way to make money being right when everyone else is wrong. But it isn’t.

When you go long, you can still make money by being “sort of right” or “obliquely right” or “somewhat wrong but lucky”or by just collecting dividends if the market stays irrational long enough. If you short something you have to be exactly right (both about what will happen and precisely when) or your money will end up in the hands of the people you’re betting against. It’s not a symmetrical thing you can just switch back and forth on.