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To be fair to banks this is what they do with almost all debt their underwrite.
They hold it to help stabilize the market for it while its being sold and then offload it once the market has been established.
Nothing out of hte ordinary here, but to be fair the original article isnt' a financial site so they would have no real idea about how this work behind the scenes.
This doesn't seem like a story at all given how robust this debt is trading.
I think the real story isn't that the banks are selling it, but that they are apparently struggling to find buyers.
If it were trivial to find buyers, wouldn't that be a sign that they priced the debt too low? It should be just hard enough to find buyers that your lost sales are less than the extra price you are able to extract to the sales you make.
Could it be tied to the current debt crisis USA is having?
This might play out just fine, or crash like the housing market.
Banks don't want to own anything. They want to get their share and pass on the risk.
My mortgage has been sold almost a half dozen times already.
My favorite was the following:
- I still have a mortgage on a property but don't live there so the mortgage bill gets sent to a different address (b/c rental property)
- Company A originated the mortgage and sells it to Company B
- Company B completely ignores the mailing address and starts sending bills to the original property address
- only through blind luck did I realize that the mortgage bill was being unpaid
This seems like basic, basic bookkeeping but I guess it's also a reminder that "reality has more detail than people realize" and that there are plenty of opportunities for improving systems.
Ar some point I had all the bills on my calendar and a event to check if the company confirmed the payment. It saved me at least a handful of times.
I confess that I am not that diligent anymore, but I also have scheduled things in a more reliable way that always notifies me on payment. But the other day the bank skipped one of the payments because some information on the destiny account have changed but nothing was shown.
It is always annoying to stop what you are doing to do this
One of those myths too many programmers believe: All street addresses can accept US mail. Not necessarily the issue in this comment, but when somebody gives you both a shipping address and a mailing address and you send mail to the shipping address, the fault is yours if it doesn't arrive.
Another: A particular street address only maps to one person, entity, or family. Counterexample: Giant skyscraper with a zillion tenants, each in a different suite. Or a giant apartment building. Etc.
Still another: One particular suite address only maps to one person, entity, or family. Counterexample: Any of thousands of commercial mailbox-rental / package-shipping stores in US strip malls, which tend to have suite numbers (within the mall) and possibly hundreds of tenants, all at one suite.
I own the duplex I live in. The actual property address is the rental unit. Every time the mortgage gets sold my tenant gets mail about it until I can change the mailing address back to my actual address (next door). It’s absolutely infuriating because the carelessness of my mortgage servicer who I don’t even choose makes me look bad.
You should be able to go to the USPS and do a change of address for yourself. That way every time mail for you is sent to your tenant, it will go to you.
https://moversguide.usps.com/mgo/move-combined-mobile will let you do it online.
It's a pain that you have to do this because of their incompetence. But it will save you the embarrassment.
If the world were just, the consequences for that would be the morons owning the mortgage having to eat a missed payment.
(They'd stop fucking this sort of thing up pretty quick if they faced financial consequences for it.)
Is there a way that you can track this yourself? I've had three different mortgages [1] in my lifetime and as far as I know it was all completely opaque who/what was ultimately holding the underlying debt.
[1]: First was a decade ago with RMG (a Canadian monoline lender) and the other two with Scotia, the first of which was a fixed mortgage at purchase, and the second was a refinancing.
Use a mortgage originator that keeps the servicing themselves. One of the reasons I usually use PenFed in the US, after a nightmare of fly by night servicers.
When your mortgage is sold, you should get a "goodbye letter" from whoever sold it, and a "hello letter" from whoever bought it. This is so you don't keep sending checks to the old place, and have the new people decide that you aren't paying your mortgage.
Composition vs inheritance maybe makes a difference here? :thinking_grimace:
What I mean is parent companies and contracts that might obfuscate who's owed the debt.
However, I don't know anything about debt markets let alone homeownership.
Checks? ;)
in principle you should be able to reject the mortgage sale, too. purely hypothetical but: suppose some bank was responsible for killing a family member, you shouldn't be forced to owe that bank money.
This means that any mortgage transfer would come with a 'sweetener deal'. If you don't object to the transfer you get a small reduction in your monthlies, e.g.
I don't mean this flippantly, but it's usually whoever you're writing the check to. My first home had the mortgage sold within a week, and someone else started taking the money out of my account.
The servicing company could be different than whoever actually owns the debt.
Oh okay, in that case mine were never sold. As in the sibling reply, my assumption is that the "retail" side of the mortgage (who you make your payments to) is fully detached from who ends up owning the mortgage backed securities that your debt is being financed by.
At one point my mortgage was sold to a bank with a truly awful website. One of its many faults was the password had to be exactly 8 characters.
I remember getting a mortgage and the loan officer saying that there was a 100% possibility that the loan would be sold within 60 days of closing.
This is standard. Origination and servicing are typically handled by different companies (or parts of the same company). Usually the Origination side only handles short term loans and doesn’t want stuff hanging around longer than is necessary.
My mortgage got sold before the first payment. It was in retrospect quite funny because I still get periodic spam emails from the originator as if I'd already be back on the market for another mortgage.
After being chopped up and bundled with safe loans being mixed with non safe loans so nobody has any idea what’s being bought.
Where have I heard this before.
Probably from Margot Robbie :-)
> My mortgage has been sold almost a half dozen times already.
Sure that could be true, but that has nothing to do with the public debt we're talking about.
Completely different markets.
That's like me saying the condo Market in Miami is hot and you rebutting that single family homes in HOA's in Phoenix are not hot right now.
Both can be true at the same time as they are completely different market that are only very tangentially relate.
Is there any way other than a bloomberg to watch the trading action on it?
> This doesn't seem like a story at all given how robust this debt is trading.
That directly contradicts specific points made in the story, about specific Tier 1 banks and specific amounts of debt not finding buyers. And the amount cited isn't all that great, given the overall equity in play.
> Nothing out of hte[sic] ordinary here
Matthew Moniot, Man Group: "the deal sizes involved are 'out of scale to anything we've thought about, ever.'"
Hard to compare your model with his, since he doesn't have one. When quotes from named credit risk guys from named finance organizations sound like angsty Gen Z, it's not ordinary.
In any case, the story is covering something significant. There is an important test occurring, and we're all going to learn the results, sooner or later. It could all turn out fine, but I don't know. I don't believe you really know either.
Well I'd agree the size of these deals are far larger than any debt deals I can remember in the past 10 years.
But that has nothing to do with the scare tactic headline that says banks are trying tot offload debt. As I said this is exactly how banks work and how they treat all debt they underwrite.
If the of fate of the AI boom is so fragile that a digital newsletter site's headlines are a meaningful concern to you, perhaps you have some things to ponder. The story itself names names, quotes verifiable statements and makes reasonable inferences.
And this is supposedly high grade debt we're talking about: JPMC is spending months on end shopping around a few $10's of billions, and having to discount it. Never mind the far greater sums on the books of vastly less credible outfits, complete with meme names that always age poorly when things go pear shaped.
How a bunch of highly speculative moonshot big tech stuff has managed to be financed by Tier 1 financial institutions and high grade debt, as opposed commonplace equities, is a question for the ages, and we may all yet find ourselves suffering the answers.
I believe the implication is that if AI is really The Second Coming (or First Coming, if you prefer), then banks would want to keep the debt and the potential gains of said debt. Or rather, there should be an overwhelming demand for said debt.
> This doesn't seem like a story at all given how robust this debt is trading.
FTA: That is exactly why CoreWeave-leased paper prices at 7.00% to 9.875%, against the 5.70% to 7.875% that hyperscaler-leased bonds command, per bond market data compiled by CCIR.
Just so were clear: Core weave paid Micron and NVIDA 80 percent margins to buy equipment at a 9 percent lending rate so it can sell it to providers who are subsidizing tokens at 20x their own API prices (that are likely also subsidized).
Could it all work out? It could. But it does not look like there is the financing to keep building - thats going to impact prices and the moment that happens this debt looks even more risky.
What you've written is the demand for debt. What's the supply like? You can't conclude demand exceeds supply without knowing both sides, and the US has printed more money than any other time in history.
The debt (bonds basically) is sitting on the books of investment banks. The article here is 5 days old - that "9 percent" figure is already out of date.
Here is today: Shares of AI cloud provider CoreWeave (CRWV) dropped over 15% Wednesday, a day after venture capitalist Chamath Palihapitiya posted on X a chart that showed the yield Nvidia-backed firm's 2032 bonds hit 15% yesterday as a sell-off brought prices into distressed territory. SOURCE: https://finance.yahoo.com/markets/stocks/articles/nvidia-bac...
I can conclude that supply is far exceeding demand because of the rates attached.
How would the banks make money then? I imagine the profit margin of debts is pretty small
1. Bank gives you $X to buy an asset and burdens you with debt of $Y, which is much more than $X as it includes interest.
2. Bank sells the debt at $Z because holding the debt is risky and the bank would rather have cash than debt. Its counterparty would rather have more cash over time and is fine with the risk but does not want to bother with the whole process of closing the loan. $X < $Z < $Y.
3. Profit! Bank spent $X to get $Z, which is greater than $X.
Volume!
This just in: banks sell assets (data center loans) to raise capital so they can do bank things again (i.e. make more loans).
Also just in: water is wet!
yeah, but they dont underwrite such garbage!
stop trying to normalize that oracle got away with shady deals with those banks.
could you get 20mi on your 1mi house? yeah, oracle could, and much more. how on earth is this "normal" and "what banks do"?
You give a blatant misrepresentation of the very non-ordinary circumstances here.
The debt isn't trading robustly at all, exactly the opposite.
> JPMorgan and MUFG are part of the group that has spent more than six months trying to distribute $38 billion in construction debt tied to a Texas and Wisconsin data center project leased to Oracle.
> JPMorgan, Morgan Stanley, SMBC and MUFG are quietly shopping pieces of the AI debt pile they helped build, a sign the lenders closest to the money have started hedging their own bet.
> One case shows how stuck this has gotten. A group of banks including JPMorgan and MUFG has spent more than six months trying to distribute $38 billion in construction debt tied to a Texas and Wisconsin data center project leased to Oracle, Bloomberg has reported. Some lenders are now willing to sell pieces of it to non-bank buyers at a discount, just to move it. Six months is a long time to sit on debt nobody underwrote to hold forever.
> Matthew Moniot, co-head of credit risk sharing at Man Group, told the Financial Times the deal sizes involved are "out of scale to anything we've thought about, ever."
Isn’t this a perfectly normal thing banks do with all large debt? Any bank underwriting any $40b loan was always going to syndicate it.
Not to do so would be reckless.
What is unusual about this is that syndications usually clear in a few weeks but this has been stuck in distribution for six months and still not closed.
> Matthew Moniot, co-head of credit risk sharing at Man Group, told the Financial Times the deal sizes involved are "out of scale to anything we've thought about, ever."
Isn't that just because corporate bond issuance is at a all time high?
https://www.economist.com/content-assets/images/20260711_EPC...
Which of course is a valid point to raise, but you should just say "corporate bond issuance is at a all time high", rather than some clickbait headline about how "Banks are now trying to offload the AI data center debt" and it's "out of scale to anything we've thought about, ever."
It's not a clickbait headline. It's a direct quote.
And the key point of it is not "larger than ever" but "out of scale"?
>It's not a clickbait headline. It's a direct quote.
I'm chastising the author of the article, for the "Banks are now trying to offload..." framing, not the commenter. Hopefully the fact that I was commenting about the headline made this clear.
>And the key point of it is not "larger than ever" but "out of scale"?
Isn't that "larger than ever" but with more exclamation points?
What is unusual about this is not that it is a single debt of that size but that it is Oracle that is the poor quality indicator.
And it's just one of them: they know that there is about three trillion dollars of this risky shit out there either in the hyperscaler/FAANG balance sheets or off the books and others are reaching the limits of their appetites for it, so they are going to struggle to sell this particular debt, and meanwhile Oracle's position gets worse every day.
We are getting a lot closer to the Margin Call crisis meeting moment where one bank decides it cannot assess the risk of their share of it, are we not?
But this time it is happening in a world where retail investors, lawyers, government officials, elected representatives are much more likely to have seen Margin Call and The Big Short.
Yes this is basically the Margin Call situation.
Everyone knows these loans are dogshit but if anyone moves first to say so then everyone else’s loans basically are screwed too. So everyone is incentivized to pretend like there’s no problem even though everyone knows there’s a problem.
The trigger in Margin Call was not that they could not assess the risk, it was that they were improperly assessing the risk, had taken too much risk onboard, and the downside of the risk was more than the value of the firm.
Yes, and no. The film is not really about that one day or that one discovery.
Much of what Margin Call is about has already happened in the few days and weeks before the day in the movie — the events that precipitated the widespread firings, including a rather deliberate firing of the head of risk management, but are not really discussed.
In the meeting, Sullivan is talking about the music slowing, saying "if the music were to stop…". He's suggesting that the situation is bad, in the context of the un-discussed preceding days, so some action is needed, which is why he escalated.
Tuld saying he fears he "can't hear anything" is about much more fundamental uncertainty — his own belief that no set of numbers could be useful (he didn't even want to discuss the numbers in the report) and that the actual situation required acting on his gut instinct that it was much, much worse.
He, basically, thinks the risk cannot be assessed ("I'm telling you, this is it!") and arbitrary action is needed.
In short, the point is he did not have any confidence they could ride out the consequences of the preceding, largely un-discussed few days, because they were beyond their parameters, and that there was no time to assess the real hidden risk.
The trigger for the chosen action is not the newly correct numbers in Sullivan's report, but it forcing Tuld to confront his belief that even those numbers were no guide for anything.
(Sam's dog dying after his sad failure of a divorce is a crucial metaphor — the dog days are literally and metaphorically over)
Listening to Ed Zitron on various podcasts, there are several issues with Oracle stocks:
1. they are one place above junk;
2. they are being treated as effectively junk;
3. if they get classified as junk, any pension portfolios holding Oracle stock must sell as they can't hold junk stocks.
If that happens then there will be a cascade of effects. Not just in the AI/datacentre sector but elsewhere, as Larry Ellison holds a stake in Paramount/helped finance the Paramount/WB merger.
[1] https://www.youtube.com/watch?v=rHaPfdnRoZ4 -- Mostly Economics Podcast #55: Who pays when the AI bubble bursts with Ed Zitron (12:36 - 23:53)
Oracle's force majeure notice on a data centre build-out is not helping, I am sure.
(Can't remember, is it this Texas one?)
ETA: This whole Oracle bit is really the area of Zitron's predictions that is the least contentious: he called things, they are happening.
The big question is to what extent this is a harbinger of bad things. In a less crazy market where the value of enterprise-software-backed consultancy is stable or growing, you can imagine people lining up to bite off chunks from the carcass of a failed Oracle. But is the value of enterprise software even stable? Aren't many of the possible buyers also overextending themselves?
ETA 2: No, the potential force majeure is about a project in New Mexico, apparently
The longer a clearly deteriorating credit like Oracle remains nominally investment grade, the worse the selloff eventually becomes. It’d be a false economy to try to drag it out, especially when investment grade institutions are already pricing Oracle at crossover and preparing to get the hell out of dodge.
>3. if they get classified as junk, any pension portfolios holding Oracle stock must sell as they can't hold junk stocks.
Wouldn't hedge funds or PE recognize this arbitrage opportunity and eat this up, making this a non-issue? Vastly simplifying this: suppose "junk bond" means the chance of default is greater or equal to 10%. Of course it's bad if the risk of oracle going bankrupt edges up from 9% to 10.1%, but we shouldn't expect pandemonium from the 10% cliff edge, because there's plenty to be made by selling all the bonds that pension funds are obligated to sell, because now they have higher yields (yields move inverse to bond prices).
Why aren't the PE firms buying this debt right now though, before Oracle is downgraded? Isn't that a better purchase?
(Sincere, not rhetorical questions)
Ehhhh?
I guess, maybe, but perhaps the risk that GP is commenting on is that it could be it's own form of Juicing.
I do sincerely doubt, even with the big shifts that AI enables to have companies 'move away' from Oracle, that Oracle will default.
On the other hand, There's still an elevated chance of decline.
IOW, Those stocks might move from pension type plans to different baskets as a result, however there is a non-negligible risk of some (not total!) loss in the 5-10 year term.
Will add, I would -hope- that the same pension rules around selling questionable stocks, would also have rules limiting what level of exploitation is possible.
s/stock/bonds
Equity shares do not have ratings, bonds have ratings. Everything else is correct, if their bond ratings slip one more level they will be rated junk which may force some holders to liquidate if they’re not allowed to hold junk bonds.
You could have made a lot of money betting against Ed Zitron over the past few years. He has predicted 12 of the last 0 AI market crashes.
Of course past performance is no guarantee of future results, as they say.
tbf he only needs to be right once, and at the moment the question of profitability of these frontier companies is still open
I think it's only a matter of time, like the build-up to the financial crash in 2008 or the dot-com bubble. There's currently a huge amount of money being bet on the big AI tech companies without any real sense of return. And the companies like Oracle that are funding data centre build-out are sitting on unused GPU stock.
Recently, the Australian AI firm failed to secure an IPO [1], [2].
OpenAI is looking to go for an IPO despite shaky revenue [3], [4], [5], resulting in a stock drop for companies like Oracle invested in OpenAI [6].
Anthropic is in a similar situation: looking to IPO despite shaky finances [7], [8], [9].
The companies involved are all investing in each other and trading money between them leading to circular investment [10].
[1] https://www.wsj.com/finance/firmus-ipo-ai-trade-f490c240
[2] https://www.abc.net.au/news/2026-10-10/how-firmus-the-bigges...
[3] https://techcrunch.com/2026/10/08/openais-revenue-is-reporte...
[4] https://www.inc.com/chris-morris/what-openais-leaked-financi...
[5] https://futurism.com/future-society/ai-financial-bubble-open...
[6] https://www.cnbc.com/2026/10/08/open-ai-revenue-nvidia-oracl...
[7] https://www.investors.com/news/technology/anthropic-ipo-fili...
[8] https://www.newconstructs.com/wp-content/uploads/2026/10/Ant...
[9] https://www.tradingkey.com/analysis/stocks/us-stocks/2622154...
[10] https://graceblakeley.substack.com/p/the-ai-circular-economy
But if Oracle crashes and burns, is that going to tank the whole industry, or is it more likely that the bigger players just eat it up and take its customer?
Oracle is a really serious problem, because they actually are too big to fail. Nobody can take Oracle's core business that quickly. So multiple governments, internationally, are going to have to step in to preserve the various outposts of Oracle that keep them and major organisations running.
Those bits could be sold off to different global consulting firms, I suspect.
(But aren't those global consulting firms also going to be freaked out about their own AI risks? And what does the whole AI-assisted coding thing do to a sober assessment of what all of Oracle's global business is worth? Lots of unanswered questions)
Also that is not the AI data centre bits; those will have to be chopped off and dumped.
If that doesn't seriously spook the markets — a company as well-known and formerly blue-chip as Oracle, needing an international bailout — then it would be kind of surprising.
I think liquidation would be unlikely. Restructuring would be more likely. Like as happens with airlines from time to time.
Yeah, like what happened in the 2008 financial crisis where governments had to step in to save the banks as people defaulted on housing payments due to high mortgages.
Oracle is already close to being classified as junk and reaching a tipping point. If/when that happens it is unclear what affect that will have on the markets on companies invested in AI datacenters with Oracle, and other companies that Larry Ellison and other Oracle investors own shares in.
Oracle’s customers/counterparties aren’t really at risk of becoming unsecured creditors in a bankruptcy situation though, so there’s no contagion risk, so “too big to fail” does not mean what it means when you’re talking about a systemically important financial institution.
Is oracle too big to fail?
I mean yes, there are key contractors for certian things, but depending on the structure they can be chapter 11'd to yeet that debt.
Of course junking all those bonds would cause a crisis.
I'm confused. Why would you offload it if you thought it was a good investment?
Massively not an expert, but at that level, things are not a binary "good/bad investment". Financial institutions have policies regarding finely sliced debt types, ratios, risks, lengths, sectors, etc.
I personally think it's all hugely overcomplicating things but that's the way modern world works.
(until it every now and then, on regular intervals, doesn't:)
The short answer is to free up money to make other investments.
The longer answer is that banks generally have policies about how concentrated they can be in individual borrowers, industry sectors, geographies, etc. That is why you rarely see a single bank take all of a very large corporate loan. They syndicate it out.
Banks like good investments, but they like being paid fees more
They make money as middlemen, not the ultimate holders of debt.
They take a cut / fee for financing the debt deal and hold the debt short term. They can't do another deal (simplifying the situation) until they offload the risk. Their business is in their percentage for arranging deals, not in getting paid back over 50 years.
In these times, what other deals are out there. AI has sucked all the air out of the room, difficult to imagine anything getting similar investment over the next decade.
its a different business model? IBs dont generally hold debt to maturity. they underwrite the debt then gradually sell down in the weeks/months following the deal. their business is making money on the spread/underwriting margin.
I saw an article a couple of days ago on one of the popular sites (ft or Bloomberg or something), about how now is a great opportunity to purchase private company credit.
Guess this is the submarine https://paulgraham.com/submarine.html
Private credit is far different than the debt of a public ally traded company. It is far riskier as those companies can't easily tap the credit or equity markets for new money if they get into trouble the way a public company can.
But the debt we are talking about is not Private credit debt, its completely different animal with far different risk characteristics
Found it: head of JP Morgan asset management calling "once in a lifetime opportunity to invest in high quality company debt"
https://www.cnbc.com/2026/10/10/jpmorgan-sees-once-in-a-gene...
Different markets, that is public debt the op was talking about private credit.
I agree with JPM that now is a good time to invest in public debt.
yeah, 10y US T-bills are nearing to 6%,this is actually excellent public debt :-D
The problem with private credit is that most of the valuations are not publicly tested.
what do I mean by that? oracle is publicly traded, which means they (should) report profit loss and other key metrics in a standardised way. This means that one company's metrics should be comparable to others. Their value is assessed by the second on a public market. This means that anything that affects thier value (real or imagined) is reflected almost instantly. (same goes for debt)
Private credit, and the stuff its invested in, is much murkier. THey do not have the same public reporting rules. There is no testing of value. Its in the interest of the owner of that debt to talk up the value of the assets they hold.
This means that a fund might invest in 10 companies. Those companies might be doing well, or they might not. Because information is limited, and there are no public trades, the value of those companies are only ever tested at sale, or in a crisis. (ie they fold, or do something so public that they can't avoid the consequences.)
THe problem then is that because information is limited (was it a one off, did the owner hide the problem, did they use the wrong investment strategey, is the rest of the portfolio also over valued by 10x?) causes people to panic, and withdraw money.
Because private credit is not that liquid, it means that if people withdraw too much money, they either have to say "no we have no free cash" (lehman brothers insolvancy), they have to take out bridging loans (expensive and very short term) or sell assets (fire sales rarely get good value and shrink the credit supply)
All of which causes a panic, and people look at places like softbank, see the leverage and think "oh fuck thats not worth anything" and the bubble pops.
Hah, this is remarkably short turnaround. The OBBB only lifted the ESLR on April 1!
Had temporary acronym overload, unpacking for anyone else:
There was a cringe-named Republican bill from the beginning of Trump's term, it somehow(?) relaxed the Enhanced Supplementary Leverage Ratio, and the eSLR is one of several related rules on very big banks that deter them taking on "too much" risk.
Wow, 2 lines in and I realize I already read this article waaay back, before I even knew what a startup was, much less who paul graham was.
The world is a napkin
thank you for this link, all these years on the internet and I had not come across it
This is just what banks do O_o underwrite loans, then collateralize (i.e. bundle) to people who want the risk.
> This is just what banks do…
Sure. Sometimes they cause global financial crises as part of that process.
Yes, and sometimes they turn Tulips[0] into value stores. Or GPUs for that matter[1].
[0] https://en.wikipedia.org/wiki/Tulip_mania [1] https://nvidianews.nvidia.com/news/nvidia-partners-with-apol...
No but like this is how money supply works.
Loans are sold off, which means that they can raise more money to make loans. Each time you do that, you create more money out of thin air, which is profit.
The problem is, it only works if everyone believes.
THe problem with 2008 is that people stopped believing and demanded banks settle immediately. which then meant that they needed to raise cash, which meant looking at their assets, which meant looking at the risks of those assets, and then it went to shit.
You might as well say that banks giving mortgages caused that. Sure it happened as part of the process but that wasn't the thing that caused the problem.
No, banks collateralizing mortgages caused it.
https://en.wikipedia.org/wiki/Collateralized_debt_obligation
> In the early 2000s, the debt underpinning CDOs was generally diversified, but by 2006–2007—when the CDO market grew to hundreds of billions of dollars—this had changed. CDO collateral became dominated by high risk (BBB or A) tranches recycled from other asset-backed securities, whose assets were usually subprime mortgages. These CDOs have been called "the engine that powered the mortgage supply chain" for subprime mortgages, and are credited with giving lenders greater incentive to make subprime loans, leading to the 2007–2009 subprime mortgage crisis.
It's hard to ignore the similarities.
The cause is always a failure of underwriting. That was true of the Savings and Loan Crisis, the Great Financial Crisis.
It feels like each bubble gets bigger.
I reacted the same. What could be a bad sign though is if they try to sell it and they dont get what they want.
yeah, either they discount it enough to look worthwhile to someone, or they keep it and take the risk. Risk assessments are inherently subjective, so both parties can think they're making a deal.
>We lent £1,000 to John Sozzleby at 10%. We quantify the risk level as “iffy”, which is 42.6 qualm points above "dodgy". and are willing to sell you the debt for £700. its a great deal!
But it seems according to TFA they are trying and failing to do this.
This is what a lot of, if not all, IPOs are for too.
Lots of names to obfuscate the same financial yada yada.
|This is just what banks do O_o underwrite loans, then collateralize (i.e. bundle) to people who want the risk.
... and from the linked piece ...
| Banks do not sell down debt they are confident in
... I have no claim to expertise but both of these can't be true.
I wouldn't worry about it anyway, you can be sure when the day comes "they'll be to big to fail".
The next sentence in that article is:
> They sell down debt when they are worried about concentration, which is exactly what "approaching internal limits" means in plain English: too much of this bank's balance sheet is now one bet on one sector holding up.
Which is correct, but kind of weird because being confident in a credit and being worried about concentration are not really mutually exclusive things. You can be pretty confident in an investment but not want it to constitute a majority of your portfolio. (Bankers know that even very strong credits are never 100% guaranteed to pay out.)
Let's say I offered you the chance to pay $100 to get $120 back if at least one coin toss in five came up heads. That's a pretty good bet, right? But would you bet your house on it?
yes just like mortgage backed securities in 2007
[deleted]
Next thing you know, they're going to take the money in your savings account lend it out to anyone who asks for a loan!
/s
Major base rate fallacy.
This is common. Selling debt is normal. If there is money to be made by selling the debt and going back to issuing more loans, they’ll try to find a buyer.
Everyone is so primed to believe that all things related to data centers are bad that they’ll assume this is a special event. The person writing the headline knows that.
So, is this the type of signs we should be on the lookout anticipating an impending implosion?
I remember in Summer 2007 feeling that there was an impending implosion coming based on the shady practice of using 2nd mortgages as downpayments - it had become a common practice. Started doing a bit of shorting (not too much), made a little, lost a little and then sort of lost interest in doing it just about the time things fell apart in '08. All that to say that these things can take a lot longer than you'd expect. You can look at the situation (like the circular funding as well as this article) and decide that yes it's not sustainable. But it can sustain longer than you expect.
Oh, I am well aware it's hard to time it. But still getting a general sense of the impending crash can help preparing in different ways. You can park part of your assets, not completely withdraw. Or pay extra for piece of mind by hedging them. Sure, it will cost, maybe won't be needed at all, or still misfired, but I'll sleep better with less anxiety, so that's still a win in my book...
I can’t short anything due to this. I know something smells but I can never predict when the system will fall apart. And especially recently, the markets seem way too “vibes based” as if even normal securities are all meme stocks now.
Buy some put options instead?
This is the thing about being right too early has the same effect of being wrong.
Which is why I hate when people criticize some obviously overvalued shit, and the response is "why don't you short it".
Sometimes the best way to be safe of something about to explode is to just get away from it.
Yeah. The thing is, we were being told that was a problem in late 2004 (this is when Max Keiser was writing and talking about the risks to Fannie Mae and Freddie Mac; he and others saying this were written off as cranks, even though they laid out a pretty solid scenario that came substantially true.)
So yes, Oracle is likely a canary in the coal mine.
It can only really be seen as an indicator of hidden risks to the banks from exposure to the SPVs.
But how long it will take before the miners start dropping dead from the fumes, who knows. Could be years, could be a few weeks after the Anthropic IPO when people are sitting smoking on the steps to the helipad saying "what the fuck? No I mean, really, really. What the fuck!"
Yep, market can remain irrational for longer than you can stay solvent.
"The market can stay irrational longer than you can stay liquid"
With these things it's not about spotting the signs but rather predicting the timing. Everyone and their dog can see the signs but that's not enough to be actionable
If I knew the answer to that I’d go short some stock…and maybe not post about it.
You absolutely should post about it when you short for good cause - there was a fund that earned it's money that way. Do research, find adverse fundamentals or malfeasance that are underreported, short the security, then publish your findings and let the market do its thing. IIRC, it was them that publicized that Nikola (Electric truck startup) faked their demo video by rolling a non-operative prototype truck down a stretch of slightly inclined highway.
The big two AI labs are still not listed on the stock market, and SPCX is still above it's listing price. Unless you can remain liquid more than the market remains irrational better find some other use for your investment funds. No?
Depends on what price the banks offload at.
When the debt in 2007 sucked, it crashed the economy. But when the price was good in 2006, everyone celebrated.
Note: prices are getting worse for bonds today but nothing panic worthy yet.
Not sure I agree. The credit default swaps have been extremely expensive lately, meaning that someone is already thinking about an AI bubble popping that will take private credit down which will make banks take a serious hit (11% of their outstanding loans are to linked to AI). On top of that we are in a time where the economy is propped up basically by AI spending and delinquencies on all sort of debt are at historically high rates.
I am panicking a bit TBH
Maybe it's because I've lived through 2007, but the time to panic is when ~100 year old institutions disappear overnight (Bear Stearns)
Do we even have one bankruptcy yet?
I'm keeping an eye on Coreweave and Oracle. But they haven't collapsed yet, not as of today anyway.
If it's anything like 2007, it's going to be the one we aren't watching that collapses first. Those in the open about their debts and situation are often more honest and solid than other unknown players. The ones who are lying the most are the ones with the worst accounting and worst books.
------
So yeah, chances are that Coreweave is just this week's topic. We really don't know how close we are to a collapse until someone out there actually starts to collapse.
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oh ffs please
When are we getting CDOs with Nvidia GPUs as collateral as Nvidia envisions?
That's some very nice collateral you have there. But can it run crysis?
As soon as Jensen gets his new leather jacket and invests in the new neocloud who then buys up nvidia chips.
Who is building the infrastructure to resell the gpus from failed data centers if / when this collapses. It would be a waste for everything to get wasted
The GPUs used in data centers cant really be used outside the same context. They cant connect to standard PCs or servers. They are highly specialized. The resale would need to be at the server or rack level for the same use case.
Aren't they PCIe like everything else or am I missing something? I know they have some fast interconnects. If not, is an adapter to PCIe possible?
Cooling is usually what kills you with server gear at home. I don't have a cold aisle, or a case that flows that much air. Can I water cool it enough?
No video outputs would probably be my biggest annoyance. It should be fine at headlessly rendering games for streaming though, as well as AI.
If there's a will, there's usually a way.
Lots of the newer stuff is watercooled
Yes they use pcie electrically, but its not the same slot shape and there is usually carrier boards
You wouldn’t repurpose these for home gaming, it would still be for llms
Yes, they're "just" pcie, though units like H100 and newer (or did it start with pascal? i really don't know) have variants that use a proprietary connector called SXM, but it's always just pcie lanes underneath. In some versions there are interposer and mezzanine boards, but again, pcie with associated bits and bobs like retimers and pcie switches. Not impossible to integrate, just annoying.
So, sort of specialized? but not really.
> If there's a will, there's usually a way.
That's the spirit!
I bet China will find a way. They have stuff like desktop-size motherboards with BGA soldered mobile chips, just cause they can.
I have seen guys on Reddit posting their H100 machines for a home lab
I don't mind running private deepseek instances on server rack that I have bought for cents on the dollar.
Why not use them to host AI models? There is a ton of demand for AI that shadows consumer Pc usage. There is a compute shortage right now for AI.
There have been some examples of folks ripping off the SMX interface and rewiring the card for PCI-E but I'm not sure how efficient that would really be or what kind of market there could be
Here is an example of an SXM2 adapter board to use a regular pcie slot
You're saying I can't get a rack of H100s in my garage and play Crysis 3 on medium
I actually think one might?
They do not have display outputs, but, at least with my 4090, if I plug the monitor into the iGPU instead, Windows still renders frames on it and just pushes them to the GPU that has a monitor attached.
So the lack of output ports of those DC GPUs might not prevent that?
Or maybe there are other limitations there I am not aware of, of course. Maybe the silicon cannot do the stuff needed for games or something like that.
Yeah, probably that. But something like the L40 - which is just a 4090 with more VRAM - might be usable like that? Maybe?
You SV guys go use your stock options and try it out for science.
I think the data centres stay, continue to be used for LLMs but end up not getting the intended returns and possibly ending up in the hands of creditors who don't end up with the sort of money they expected.
I think at least we Europeans will really want these data centres once prices become reasonable though. We really need training infrastructure.
Maybe as ship's ballast.
I volunteer as tribute!
I'd much rather be in the recovery/asset remarketing market rather than the primary/reseller one when this thing pops, for sure.
With bad dentists (1) and bad debt underwriters on the HN front page, I love that subjective diagnosis remains challenging and topical.
Same thing they did with bad mortgages just before the 2008 crash.
"bank does what banks normally do" is not news
It's time to bring back Bird and Fortune on the subprime crisis.
If they're selling at a discount, and everyone is optimistic about the market, that's just free money for everyone else right.
As someone who's in it's late 20s now, I always thought the idea of selling IOUs, debts, loans and invoices for cash is batshit crazy to me to be honest.
I never knew my loan and others loan could be packaged together as a financial product, the most famous one being the Mortgage backed securities (MBS), and then repackaged with other MBSes together to make a tranches of debts/loan known as Collateralized Debt Obligation (CDO).
Both MBS and CDO, plus Gaussian Copula that is being used to price CDO, not realizing the implied volatility is actually higher than expected that poisoned the whole scheme, contributed heavily into the unwinding of the 2008 Great Financial Crisis and is what killed Lehman Brothers, and set the powder keg to detonate the Eurodollar crisis 3 years later.
Yet it has been 20 years. 20 fucking years. The banks and the governments around the world hasn't fucking changed. Those CDO money ended up in private credit and Special Purpose Vehicles (SPV) which both of them is in its pending doom.
I can't fathom to imagine how fucked would this financial tsunami would be.
JOHN TULD: And Mr. Sullivan that challenge is?
PETER SULLIVAN: We have to hold these assets on our books longer than we might ideally like to.
JOHN TULD: Yes.
JOHN: So. Now that we know the music has stopped. What do we do about it?
JARED: Sell it all. Today.
JOHN: Is that even possible, Sam?
SAM: Yes. But at what cost?
The media will do anything to capitalize on public fear, seriously...
Yeah that's sort of how banks work.
So... When does the music stop?
Unpaywalled companion article created with a different perspective:
https://medium.com/@vektormemory/the-si-wealth-transfer-is-b...
Debt doesn't make any sense in tech sector. Why would anyone take all the risks associated with innovation and accept an upside capped at like 5% per year which barely offsets the value lost to inflation. The only reason anyone takes the risk is because the risk is on the taxpayer who has to foot the bill through inflation.
This sounds like fearmongering. Banks aren't in the business of collecting on debt. They are in the business of writing loans they can sell to people who collect the debt. This is pretty standard business in the 2020s. Not defending data centers or AI or whatever, not denying that there is an AI bubble. Just saying that this is how business is done now.
This tracks with recent reporting that AI debt issuance fell 50% month over month in September[0]
> Tech companies raised $23 billion in AI-related debt globally in September, less than half the amount raised in August, according to Morgan Stanley data covering public bonds and private placement transactions.
> The decline marks a continued drop from June, when companies raised a record $113 billion for AI infrastructure including data centers and chips. In the US investment-grade market, where blue-chip tech groups borrowed around $306 billion between January and August, AI-related bond issuance stopped completely last month.
0: https://www.investing.com/news/stock-market-news/tech-compan...
To make senes of the drop we need to know how much they expected to raise in September. Were the expecting to raise $50B but only raised $23B? Or were they expecting to raise $25B but only raised $23B? That's an important detail. Further, "bond issuance stopped"... was that intentional or not? It's like we're getting half the story and then have to use our imagination and biases to make the story as bad as possible.
ftfa "Morgan Stanley attributed the decline to the large amount of debt already raised earlier this year."
ok, is that good or bad? They never say.
They should offload the overprovisioned, hyper concentrated GPUs back to the people
Why? It's hard to see what they're good for outside of AI data center workloads. Your average member of the general public arguably doesn't have much use for a "graphics processing unit" that isn't actually capable of processing graphics
I run free local models on my A4500. I wouldn't mind a little upgrade... if I could afford it.
You sound exactly like the people who didn't understand personal computers because mainframes existed.
I don't see how. I'm not saying that consumer-grade hardware isn't useful because enterprise-grade hardware exists. I'm saying that enterprise-grade hardware isn't particularly practical for most consumers. Personal computers were many things, but what they generally weren't was people installing IBM S/390s in their living rooms. Because some of the same design features that make them great for centralized, high volume business workloads also makes them kind of a PITA if that isn't what you need.
For my part, I do work on machine learning projects at home. But I'm nowhere near operating at a scale where datacenter GPU features like being optimized for 4- and 8-bit calculations would be a net benefit. Nor do I have any particular desire to have one of those things making my home office sound like I live next to a steel mill.
It's not too far off from why I don't have a box truck parked in my garage even though it's technically more capable than my Kia. And on the occasions when that is what I need, the local hardware store will gladly rent one to me for $20 per day.
Mainframes did not make and still don't make very good personal computers. Same goes for these "gpus". They are the modern day mainframes. (I know we still have mainframes, but that is besides analog)
What exactly is the average consumer supposed to do with an NVIDIA H100 or GB200?
If the next token prediction machine doesnt live up to the hype, this is going to be one massive bubble.
The next token prediction machine is writing 90%+ code at multi-trillion $$$ companies, its already solved millennial problems -- but yes its definitely not living up to hype.
But it's creating new problems, and when the damage those new problems outweighs the value created, then that's when the bubble starts (or started) to form and we live in a delusion until the damage massively outweigh the benefits, is when the bubble popping starts being considered, and then when there's irreversible damage is when the bubble popping is marked for formal revision and then when ...
Y/N
Is this our chance to 'get rich' by buying a negative valued asset? Like that time barrels were trading at 0$ or negatives?
Sorry if this appears obtuse, but what exactly is an “AI Data Center”?
Is it a data center with nothing but GPUs, that does nothing but inference all day and all night?
Is it a data center custom-built for only AI companies to use?
Do these “AI Data Centers” have data storage? VPS? …
Or, as I suspect, is “AI Data Center” simply a fake media buzzword that really means “Normal Data Centers” but with political baggage and stigma built-in.
It's a data centre being build specifically to run LLMs (and possibly other ML models). As such, it will be focused on NVIDIA servers with large numbers of inter-connected GPUs (so they can run the 2T-4T parameter models from OpenAI, Anthropic, etc.) [1].
It's a different build-out to a data centre that can host video/YouTube content (fast CPU, no GPU, large number/size of hard drives), or that can run web servers (fast CPUs, low to average hard drive capacity).
> Or, as I suspect, is “AI Data Center” simply a fake media buzzword that really means “Normal Data Centers” but with political baggage and stigma built-in.
No you're absolutely right. The only difference that I can tell is power requirements are legitimately higher because GPUs consume more electricity. More cooling is also needed because there's more heat generated. Aside from those two things, it's a plain old datacenter that companies have been building at break neck speeds since like 1996. Now that I think about it, how come there's no panic about additional Internet backbone capacity needed to support these "AI datacenters"?
Oracle data enter debt.
'nuff said.
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Is it just me or is debt the wrong type of investment here? It feels like the tech companies hacked the markets by issuing bonds on something that merely resembles something else where bonds makes sense (real estate) while actually being completely different.
These are moonshot investments. As an investor, equity would make sense - possible downside, but unlimited upside. But with bonds you're still taking all that downside (you'll be further ahead in line than equity investors, but you will still be in line!), meanwhile if the bet does work out in your favor, the upside is limited to just receiving fixed coupon payments.
This is completely normal. Banks underwrite large loans and then package a bunch of them in different ways to sell to different investors.
The more comments I read on HN attempting to rationalize this as "normal behaviour" by banks, the more I believe that this is a massive bubble getting ready to pop
slop
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I'll be damned if I don't get to throw people off roofs this time.
There's also a non-zero chance gubernatorial elections are won on the basis of pardoning such transgressions in the future.
The CDSs on some loans are getting to the point where it’s too expensive to even bet that the loans will fail as the CDS market seems to have concluded the loans will fail.
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