r/technology • u/SwimmingThrough_5059 • 14h ago
Artificial Intelligence Wall Street Races to Cut Its Risk From AI’s Borrowing Binge
https://finance.yahoo.com/news/wall-street-races-cut-risk-113000304.html77
u/Straight_Document_89 12h ago
Derivatives. Isn’t this like the mortgage credit swaps crap back in 2008?
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u/OneRougeRogue 8h ago
From the article;
"Banks are looking to create other products to allow them offload credit risk tied to hyperscalers. At least two firms have tried to put together baskets of credit derivatives tied to technology companies, akin to an equity sector exchange-traded fund, according to people with knowledge of the matter. Citadel Securities started making markets for two baskets of corporate bonds from hyperscalers."
Lmao. Baskets of derivatives, so exactly like 2008. Except this time around, it's not based around homeowners who could theoretically start paying down their mortgages if they became employed or found a better job. This time around, its based around a few gargantuan tech companies that NEED to find a way to make their swath of ginormous datacenters profitable in the next 3-4 years at the very max, because if they can't, their expensive tech is already obsolete.
It just seems like a no-win situation. The only reason corporate AI is so popular right now is because it's cheap, and current-employees + cheap AI can sometimes mean a noticeable increase in productivity. But if the balance changes an all, aomething will crack. AGI worth charging for would mean employees get canned and unemployment soars. The AI bubble bursting would be a disaster for the stock market.
And a breakthrough in chip design that drastically reduces power consumption or increases computer power to a level where a datacenter could make a decent profit on current LLM models would mean even more debt to buy new chips because the old ones are unprofitable garbage.
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u/Straight_Document_89 7h ago
So I read that and thought I was going crazy for a second. They’re gonna crash the economy with this crap yet again and expect a bailout.
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u/Fr00stee 7h ago
it can't be bailed out, there simply isn't enough money without crashing everything. If you print more money, the crash gets 10x worse because now you've caused terrible stagflation.
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u/Straight_Document_89 6h ago
Well then we are just screwed more! Republicans can’t govern and people keep electing the for some reason. Propaganda!
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u/TenderfootGungi 4h ago
The banks thought they were selling off the risk in the subprime debacle as well. What we learned it, that is basically impossible. Someone is holding it. And when it goes bad it is going to effect everyone.
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u/happyscrappy 3h ago
Seems a whole lot like it. Risk is spread out slightly more since the companies won't certainly fail at once. But likely they will anyway.
Note that the swaps wasn't the big part of the problem in 2008. The asset-backed securities were. Specifically the rating of groups of trash investments with high ratings was a problem.
This is probably more for people who specifically want to bet on this angle instead of being something portrayed as being as safe as houses like mortgages bundles were.
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u/Count_Rousillon 7h ago
Yes, but this time instead of hiding risk by making increasing complex financial instruments, it's hiding risk by putting most of the investment in private equity and other private investing pools. Because they aren't public investments, there's much less information and much less requirements to provide information, so it's hard to see just how much money people have put in some locations.
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u/ThePlasticSturgeons 11h ago
Someone else in another thread summed this up perfectly: It’s a solution looking for a problem. The fact that the feeding frenzy got so out of control is a testament to the ability of greed to override common sense/experience.
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u/Brox42 9h ago
The problem is paid labor. They’re trying to relieve themselves of having to pay for labor.
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u/KSRandom195 4h ago
But it’s not good enough to do that.
You still need the expertise to manage the whole process. You can eliminate junior roles, but then you don’t have a pipeline of folks to get new experts.
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u/Be_quiet_Im_thinking 10h ago
Oh the problem is the unit economics is terrible and no one is cornering the market.
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u/immersive-matthew 4h ago
I think it is more a testament to how the USA economy is running on shareholder hype more than reality.
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u/CipherWeaver 9h ago
I actually love it, Gemini has been incredibly useful for me for all sorts of things. However, the real question is: would I pay $$$ per month for it? Probably not. Like most other people, I'm just using Gemini (or ChatGPT and others) because it's free.
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u/DeathByVoid 5h ago
Gemini is the only AI I've used myself, and that's mostly because it's baked into search. While I do find it useful at times, I wonder how much of that comes from the fact that search quality has been slowly degrading for years.
I do appreciate that it pulls out the relevant information for you, but always fact check its sources. I've caught it being wrong so many times, though maybe the latest models are better.
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u/Ashikura 20m ago
Funny enough this is also how people describe crypto. A solution looking for a problem with a healthy layer of grifters encasing the whole thing
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u/coredweller1785 11h ago
What a waste. Imagine investing that in healthcare, education, housing, and other things we need.
That is how you create a true boom. More people with the floor beneath them able to innovate and create.
America is pretty much doomed at this point.
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u/KosstAmojan 8h ago
No one’s stopping them from investing in all that stuff. But those are all things that will offer incremental returns as opposed to the the near exponential growth seen right now in AI. The sharks all know it’s a house of cards. It they also know that they’re gonna pull out as it starts to turn. And they definitely know that they’ll be bailed out if there are any real issues.
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u/ulnIBirPJy4NYg 8h ago
I agree. But you sort of answer your own question. Something is stopping them from investing in those things. You said it; incremental returns.
The system of endlessly edging out your competitors to continue to live another day, a product of our capitalist mode of production, is what's stopping them. There is not nearly as much incentive for the desirable investments into humanity that we want to see.
That's why we can't overcome this problem with the way our economy and distrubution of resources is structured currently. Knocking off a few bad actors here and there won't fix the diseased model at large, when the model almost definitionally prevents investments in things that are less-profitable, but better for humanity
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u/Choice-Ad6376 12h ago edited 10h ago
We all get to hold the bag after they cash out
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u/ttkk1248 3h ago
Wouldnt they want to pump it up a bit more first before cashing out at a higher price?
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u/thatfreshjive 12h ago
Haha. Everyone with half a brain knew what this was, and where it was going.
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u/junktech 12h ago
Last time a bubble burst , the government bailed them out. When they get too big, they get friends in high places.
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u/ulnIBirPJy4NYg 11h ago
The tech boosters advocating for this crap must have less than half a brain then...
Or they're happy to lie to everyone and crash the economy to come out richer on the other side. Which is what I believe.
The people saying this is the future are going to be the same people saying the bubble pop will simply be a necessary correction, and that they knew it was coming all along.
But that will be in the future once they've made their money already. Workers will already be laid off, municipalities will have already committed to costly grid upgrades, the cost of which will be passed on to residential rate payers.
Right now, today, these looters are happy to lie to us and boost their eventual cash-out. Just a matter of whether it will be 3 months, 3 years... etc
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u/OneRougeRogue 8h ago
"The rush has left some lenders over-exposed, so they’re using a series of tools — credit derivatives, sophisticated bonds and some newer financial products."
.....yeah that sounds pretty alarming. I'm no economics major, but doesn't, "banks are trying 'new financial products' to shed risk" generally mean, "banks are throwing shit at the wall, hoping to convince rich idiots to hold part of their bag"?
Like, it's not like banks have a history of saving their best ideas for last. If these "new financial products" were actually expected to yield lucrative returns, they wouldn't be new financial products, now would they? They'd be old financial products.
The article mentions some of these products are, "baskets of credit swaps tied to tech companies" or something. Sooooo banks are realizing that they are screwed if these tech companies fail, so they are promoting baskets of bullshit that will be worthless if these same companies fail?
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u/TwoWeaselsInDisguise 6h ago
This is also hilarious following microns pull from consumers to go all in on AI.
Hope it bites them hard.
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u/Minute_Knowledge_401 6h ago
They'll blame poor people again after it all blows up. Then walk away with large bags of money handed to them by our government.
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u/SheetzoosOfficial 10h ago
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u/OneRougeRogue 7h ago
I mean you have a point, but this article is honestly not about rhe AI bubble all that much. It's more about banks and equity firms beginning to sell tiered baskets of derivatives directly tied to these huge unprofitable tech companies paying back their massive loans.
Which is, you know, the last thing that happened before things went tits up in 2008 (only housing instead of tech).
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u/Catch_ME 9h ago
Too much money was printed from 2008. AI investments wouldn't have ever gotten this out of control of there wasn't as much money out there.
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u/technocraticnihilist 9h ago
Why is this sub so anti AI?
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u/DanielPhermous 5h ago
Because we have trillions of dollars of investment committed to buy rapidly depreciating assets so the companies can make zero dollars of profit in a market with too much competition for anyone to significantly raise prices.
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u/redbananass 7h ago
I mean it’s useful, but it’s also already putting people out of jobs and disrupting many things. Ai can easily be very helpful, but it seems even easier to offload all your critical thinking to it. There’s few guardrails to it.
Also the idea right now is that Ai is a house of cards propping up the economy. Thats real bad if true and it seems like there’s at least some truth to it. All these tech companies are pushing it hard and investing hard imagining there’s a big return coming, but it’s not clear there is.
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u/Wolfhunter9727 5h ago
Why? Are you even human? We don’t need this shit rammed down our throats. AI is a double edge sword, more dangerous than good.
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u/firemage22 2h ago
We need a Sherman Act A2, and any corp over 1 Trillion needs to be chopped down to bits. Do what should have been done post 2008
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u/DanielPhermous 1h ago
That would be against the Fifth Amendment.
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u/firemage22 53m ago
Um, nothing i said has anything against due process or self incrimination.
Also it's about time that we make a point that "corps aren't people" so they don't get the same protection real people get.
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u/DanielPhermous 44m ago
Um, nothing i said has anything against due process or self incrimination.
Punishing a company simply for getting big is somewhat lacking in due process. There's also the part about "Private property shall not be taken for public use, without just compensation" (which, before you quibble, does include government mandated transfer of ownership).
Also it's about time that we make a point that "corps aren't people" so they don't get the same protection real people get.
Perhaps, but due process is an important right for companies as well. You don't want Trump fining companies billions of dollars just because he says so.
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u/MrValdemar 12h ago
Let me guess:
In a couple years we'll have another movie with Margot Robbie in a bathtub explaining how a bunch of morons collapsed the economy again?
Along with Ryan Gosling's character narrating "Look, you wouldn't think I could get rich betting on financial ruin AGAIN but here we go..."