Article URL: https://www.wheresyoured.at/the-subprime-data-center-crisis/ Comments URL: https://news.ycombinator.com/item?id=49031262 Points: 25 # Comments: 10

Thanks for reading this week’s free Where’s Your Ed At newsletter. Friday’s premium newsletter will ask the simple question: Is Oracle dying? It’s been one year since I launched the premium newsletter, and I’ve decided to extend the discount on annual subscriptions. Between now and 12AM ET, July 26, you can get a permanent annual rate of just $60— a $10 discount on the usual price of $70 — for life. Click here for the offer. In addition to getting access to the entire back catalog of premium posts, you’ll also receive one additional post each week — usually anywhere between 10,000 and 20,000 words — covering the most pressing topics in the AI bubble — the best value in tech analysis. Highlights include the Hater's Guide To The Memory Crisis, a guide to how AI made everything more expensive, How OpenAI Kills Oracle (which pairs nicely with the Hater's Guide To Oracle), The Hater's Guide To NVIDIA, The Hater's Guides To Private Credit and Private Equity, and how the entire AI Compute Demand Story Is A Lie. In The Big Short, Mark Baum shook with anger as a CDO manager told him that the market for insuring mortgage bonds was about 20 times larger than the mortgage bond market, realizing in real-time that speculation driven by greed and hype had set up a massive systemic weakness under everybody’s noses. To get specific, Baum (played by Steve Carell) is giving a short, dramatic summary of a much greater problem — that there were trillions of dollars of synthetic collateralized debt obligations (effectively bets on whether somebody else’s bucket of mortgages (well, mortgage bonds) will actually pay up) that allowed multiple people to bet on the same mortgages again and again, meaning that once said mortgages went belly-up, the carnage would be widespread and hard to contain. This became even more chaotic when it became clear that the same mortgage bonds were attached to many different CDOs — one study found that 5500 different mortgage bonds had been placed or referenced in CDOs over 36,000 times. A mortgage bond (or mortgage-backed security) is a slice of a pool of payments from thousands of mortgages, with each slice sold off to different buyers at different levels of seniority, the most-senior ones getting paid first and taking losses last. In the end, the only thing you really need to know is that financial institutions built CDOs that threw together bonds in ever-more complex and dangerous ways, selling synthetic CDOs to bet on the outcomes, with different CDOs having different bonds covering the same pools of mortgages — bonds that were routinely rated by agencies at a higher grade than they should’ve been. When IMF Chief Economist Raghuram Rajan attempted to warn the financial services industry at the Kansas City Fed’s 2005 Jackson Hole symposium about the instability of the system, former US Treasury Secretary (and close friend of Jeffrey Epstein) Larry Summers referred to his concerns as “misguided.” Meanwhile, the industry was handing out awards. On July 1, 2005 Lehman Brothers would receive one of Euromoney’s “Awards For Excellence,” where it was named the “Credits Derivatives House Of The Year.” Euromoney also referred to Lehman, a financial institution that was leveraged 25.3x in 2005, as “one of the more conservative credit derivatives houses.” It added that the company, which routinely overvalued its CDOs, was being able to take on the heavy burden of synthetic CDOs because it “...understands the arbitrage-driven economics of cash CDOs, the way that loan deliverable credit default swaps track the loan markets, how high-yield CDS trade (like bonds), and so on.”