I'm joined today by Robin Wigglesworth,

editor of Alphavville, the Financial

Times financial blog, and author of A

Fabulous Debt: The Epic Story of How

Bonds Built the Modern World. Robin,

you've been doing some work on the

offbalance sheet hidden leverage of the

hyperscalers, Meta, Google, Microsoft.

So, we're we're reading, oh, hundred

billion dollars of capex. Google's doing

that. Microsoft's doing $150 billion.

This is so much money. Oh my god. But

actually, it's looking like it's almost

guaranteed to be way way higher. you've

been looking at the numbers and just

from the first to the second quarter the

the guarantees the lease uh obligations

and and so forth off balance sheet again

went from roughly one trillion to

roughly 1.5 trillion. What are what are

your thoughts? What are we looking at?

>> No, I mean it's fascinating. I mean it

is one of the biggest capital markets

events of you know our lifetimes really.

Uh it's just I mean we've seen massive

capex booms before like the railways in

the 19th century is like the classic

parallel that people draw transformative

technology very expensive to build. Uh

what's unusual of course you know

railways back in the day used to be

almost like venture capital ideas right

they were very sort of VCish. Uh today

it's like major large uh money machines

that are doing it. of Google, Alphabet

makes lots of money, Meta makes lots of

money, Amazon makes lots of money. Uh,

and for a long time the money they were

pouring into data centers, you know,

they could just fund it from their free

cash flow. You know, out Google search,

Amazon, Facebook itself just, you know,

prints money. So, it's easy. But the

scale is just becoming so massive that

they've increasingly turned to the debt

markets. uh as we now see there are

actually some signs of indigestion like

the sheer scale of the bond sales. We're

talking multiple hundreds of billions of

dollars both last year and already this

year we've already smashed last year's

record for the hyperscalers bond sales.

Uh and they're getting more creative and

look

creativity in finance can be a good

thing. I I I find a lot of this stuff

fascinating, but it can also be quite

dangerous as you know, Jack. And you

know, first it was structuring some of

the bonds as leases. So essentially like

let's say take a great example, Meta is

building a a huge data center in

Louisiana called Hyperion. And rather

than sort of pays to build it, they're

essentially sort of they're only

investing 20%. They're buying 20% of it,

but they are guaranteeing that they will

lease that data center for 20 years. So,

and the lease payments are essentially

will cover the costs of that company

itself like a JV with Blue Owl. Uh, and

they'll sell those bonds to other

investors. But, you know, so it's

offbalance sheet. It's not doesn't come

up as as a as a bond or a debt or a loan

or for Meta, but of course, it's on the

hook for paying this lease for 20 years.

A and this, you know, has inspired a lot

of the other hyperscalers. So, we've

seen massive amounts of these kind of

lease structures happen. So that's

what's gone to $1.5 trillion.

Uh I mean up from I mean less than

trillion last year and nothing

dimminimous a few years ago. And you

know crucially

you know 500 billion or so of that you

you can see as sort of uh they the

leases have started. So you can see them

in the financial accounts. They won't

appear as debt but you'll see the

payment obligations on the balance

sheets. But a trillion dollars of that

is for leases that haven't even started

yet. And that doesn't appear except as a

footnote. So Goldman Sachs, that's where

I got the numbers from. They they did

their God's work in going through uh all

the filings to find their stuff. What I

did then was I started looking at the

purchase commitments because these

companies have also promised to buy

obviously chips and equipment, uh

cooling, stuff like that, but obviously

power as well. You know these data

centers need electricity and they need

quite often guarantees that they will

get that power and that has gone from

again also roughly $1 trillion earlier

they said to $1.5 trillion. Uh and these

are quite often payment obligations they

can't squirrel out of. So they kind of

walk talk and quack a bit like debt but

they don't actually appear as debt. And

I think it's fascinating. I maybe this

is, you know, they're betting the house

on AI and uh I hope this all works out,

but I'd feel maybe slightly more

comfortable if they structured some of

this as more plain vanilla debt and let

the debt markets do the talking.

>> Well, if they've structured it as plain

vanilla debt, we you know, Goldman and

and you wouldn't have to do all all of

this work to figure out. It's it is

really interesting. So it's really a a

transformation from a pure complete AAA

double A investment grade counterparty

like Microsoft and it is using that but

through a much less investment grade

data center developer or a neocloud to

then they're the ones who are actually

spending the money and they you know

report to investors this giant backlog

which you know core we've just reported

and that giant backlog is basically

these offbalance sheet commitments that

the Microsofts and the yeah the

hyperscalers have made. Yeah, I mean you

can say, you know, this is entirely

disclosed. I mean, these companies

aren't hiding the fact that they're

pouring hundreds of billions of dollars

into capex uh and that money has to come

from somewhere. They're not hiding this.

But I do think uh they could perhaps

have chosen a slightly more transparent

approach to this. Rather than wanting to

preserve the optics of pristine balance

sheets, they are kind of increasingly

getting creative about like how they

structure, how they pay, how they

disclose it. Just literally going

through the 10 cues to look at the

purchase commitments. You know, some of

these companies, Google for example,

actually was admirally like they don't

break it up, but that you can search for

it and find it fairly easily. On some of

the other companies, I had to spend, you

know, quite a lot of time digging it

out. It's not easy. And I think that's

unfortunately

>> who's the most complicated?

>> I guess all the others except Google.

Some of them disclose it. Uh but they

don't disclose it in a uniform way. They

use different words in different places.

So it's hard to compare one quarter to

the next quarter. And some of them, you

know, don't disclose it at all really.

They just say they have, you know,

material upcoming payments or promises

to make payments.

>> So it's a bit of a mixed bag really.

Google maybe because it's the biggest. I

mean Google has p purchase commitments

now of $800 billion.

>> So that's chips, memory, equipment,

cooling, electricity, the whole

jamboree.

>> But that's almost half the total. I

think maybe their accountants maybe got

a little bit worried and thought you

know we need to be quite transparent

about this.

>> And do you have a rough sense of over

how many years the majority of that is

scheduled for? cuz like if that's

scheduled for the next three years then

the Google capex number for expectations

is too low.

>> So Google using them again they broke it

up a little bit more transparently

around $200 billion of that $800 billion

is what they call short-term. They don't

define it there but I'm pretty sure

that'll be over the next 12 months or

so. Uh so their payments are coming due

on the leases. you know, if the leases

haven't started yet, it's it's an

accounting thing. Like once a lease is

started, you actually can put a right of

use asset on your balance sheet and then

put the liability on the other side. So,

it's is transparent. This isn't them

necessarily doing something bad or

changing anything or doing anything

differently from how people have done it

forever. I just think that the scale of

it is now such that it's just it's it's

a whole new world and and maybe these

these offbalance sheet liabilities

because they are financial liabilities

that are in many cases extremely hard to

squirrel out of methods for guarantee

for example of the leases for the

Hyperion data center are incredibly

strong. Uh I don't see how they can

squirrel out of them. uh then they

should be more transparently um

disclosed and then investors can make

their minds up and you know broadly

speaking I think people are okay and

understand that they are spending this

money these companies are hiding it uh

but I wish um some of the gamesmanship

uh could maybe sort of be cut out and

then them breaking out a little bit more

obviously

>> Robin what do you make of the deal that

the memorum of understanding that Nvidia

made with five or six giantter

alternative asset management firms

Blackstone, Black Rockck, KKKR to

finance chips and recognize that these

are an investable asset class. I was

looking I asked Claude before this what

percentage of that 500 billion is going

to be debt versus equity. They said

rough my you know roughly 80% debt 20%

equity. So uh you're you're the debt guy

so this is this is good we're speaking

to you.

>> I know this this is a debt cycle. It's

not I mean there's lots of hoopla around

like the IPOs or SpaceX and Anthropic

and and OpenAI to come but really this

is a debt cycle. Uh that actually makes

me more worried. I mean fundamentally

like incredible transformative

technologies come around occasionally

and sometimes they come true. The

railways were genuinely transformative

as were canals or telegraph poles or the

internet. Uh but when these sort of big

investment cycles are primarily equity

finance you know they can break bad but

it's generally fine. I mean the end of

the dotcom bubble the stock market

dropped 50% peak the trough economically

it was a nothing burger it's kind of

hard to disentangle from the effects of

9/11

debtfueled capex cycles are very

different like even when you know the

underline premise comes true and AI kind

of transforms the world quite often they

end in tears uh on this specific deal

one thing I would say that you know it's

very easy to push out press releases

saying we're going to lend or invest S X

or Y or Z into this or that and we'll

see what actually materializes. I mean

clearly there is a lot of heat uh in

this area now and everybody wants to be

seen to be leaning into it. Uh but it's

going to be really interesting to see

what they actually do and how they

structure it because I think a lot of

these investment firms in particular are

going to be very careful about how they

protect their own balance sheets but

also the balance sheets of their

investors. Uh so I I'd urge people at

this point in the cycle to take you know

press releases

uh with a pinch maybe in a fistful of

salt.

>> Yes.

What what do you think that these AI

securities are going to look like? I

mean Larry Frink literally said I don't

know if he was on vacation these AI

securities. What's an AI security?

Well, I think it's just compute and I

think that's quite an interesting thing

and I I think this story is kind of

throwing in a lot of different things,

but it's the transformation of compute

like just kind of you can buy a lease a

certain amount of GPUs I guess or or how

you structure it that can can be turned

into an asset class. I I think it is you

know there is a a journey there. Just

because you say something is an asset

class doesn't make it so. uh when it

does become so the SEC typically has

something to say and will have a view

about it. Uh but I do think that is the

directional travel that in the same way

that like water or or commodity is a

tradable asset class at least the

futures on these things. I can see us

getting compute futures as well and and

that becoming roughly investable. Um my

my weariness is that you know just

because something is investable asset

class doesn't mean people should be

investing in it. We'll hear lots of s of

stuff about oh you need to kind of be

diversified and this is democratizing

access to whatever everybody has and you

know to paraphrase you know who was it

gobles who the Nazi propagandist who

said when I hear people talk about

culture I reach for my gun he was not a

nice man but whenever I hear people talk

about democratization of something I

tend to reach for my metaphorical gun

because it's usually a code word for

jamming something down the necks of

retail investors that not really quite

ready to digest. Um, so I actually have

great hopes for compute futures and and

and turning compute into some sort of

tradable asset class. That sounds cool

and interesting to me. Uh, but I think

there's a journey still to to make on

that. And I'd worry about what happens

along the way as well. And something

like a commercial real estate building,

yeah, it can be risky, but like you

know, a building is generally going to

hold its value and generally appreciate

over over time. So like a loan to value

of 50%. So so the you know, you lend 50%

of what the property is worth is like,

you know, pretty pretty appropriate. And

you're you're lending to pipelines of

oil infrastructure like these things

these are things we understand. And for

something like compute, yes, the market

right now is super hot. And you know,

Google is buying compute from SpaceX for

a super super high amount of money. And

on the depreciation argument, like the

Michael Bur argument, basically every

single data point of the past nine

months has has not supported the Michael

Bur depreciation point like depreci

favorable rates. Um but but just because

Michael Bur's been wrong doesn't mean

that like there's going to be a glut at

some time and that lending a trillion

dollars against this thing is a good

idea.

>> Well, fundamentally it's it's a lending

decision if you're lending towards it. I

mean the comput the chips do degenerate.

There is like there is a halflife to how

long you can keep them and you know for

example with SpaceX putting up in space

like how you going to do maintenance?

How you going to replace chips that

burnt out? Uh but I would say that look

you know finance lending officers like

they mess this up all the time but

broadly speaking that's what markets are

really good at that can be priced as

long as it's a known risk and in you

know this is very much a known risk

people can price it in. People can

adjust and sometimes they'll make a

mistake and you know they'll get their

faces ripped off and other people will

make money but that's the way of

markets. is kind of what makes this

system so dynamic. Um, so you know, I'd

be worried about the sheer amount of

money going in there and some of the

return expectations and this kind of

sense of of FOMO that seems to be

everywhere these days. Um, but that

doesn't mean that sort of the end

destination isn't the right one. It's

just, you know, how many how much money

we lose along the way and who loses it

and when. Robin, in your book, you've

been doing a lot of work on, I mean,

close to a a millennia of reading of of

financial history. I'm curious about the

trends and patterns you've noticed about

the following question, pricing power.

Whenever a new industry emerges, there

often is tremendous pricing power, as

there is in AI and semiconductors right

now. throughout your many many centuries

of of reading of history, what tends to

happen to that pricing power?

>> It tends to erode. Uh there are so many

examples of this. Um I do worry for

example this right now Nvidia is the the

picks and the shovels distributed to the

entire AI revolution. uh but it has

obviously it depends on its own supply

chain and I do wonder about the the

assumption that nobody else can create

GPUs at scale and quality of an Nvidia

ever. Uh because right now we're pricing

that in and pricing power tends not to

last forever. It's just again in a

capitalist system, people respond to

incentives and kind of monopolist like

pricing power tends to not last very

long. Sometimes it can last for a few

years. Um, but it never lasts forever as

far as I know.

>> What's the most extreme

debt cycle that you studied in the book?

the GFC to lead up to the GFC, you know,

because it was kind of the culmination

of uh a debt bubble

in every part of the world and in every

sector. Sometimes it's governments,

sometimes it's companies, sometimes it's

households.

In this case, actually, governments

weren't for the most part lovering that

much up. Uh they were doing a little

bit, but but but it wasn't too bad. Uh

but it was pretty much everywhere. You

know, everybody thinks that, you know,

our banks were uniquely terrible or our

politicians or our government was

uniquely effectless, but in reality, it

was a global phenomenon and the scale of

it was just kind of wild. And also, you

know, one of the reason when bonds and

debt becomes particularly dangerous is

when essentially it's been so long since

a previous crisis that you treat it as

money or money like I mean it's kind of

one of the USPS the ultimate selling

points of bonds originally was that it

was kind of a you could use it as

collateral as money uh for certain

things. it was kind of because it's you

know government bonds you quite often um

and then over time people started using

high-grade corporate bonds like IBM or

Microsoft very solid you know you can

use that as collateral for loans uh but

then of course you know in in the 2000s

people started using as back securities

and initially those were super solid as

well and eventually you know we take

things too far and you know they were

not the equivalent to money in fact you

couldn't trade them and some of them

were close to worthless and that I think

is what really transforms almost like a

a humdrum market downturn or an economic

recession into something nasty like

really bad is not when you invest in

something that's risky and it blows up

in your face. That's fine. That's just

risk and reward. They're part of it. If

I invest in junk bonds, look, if they

break bad, if they default, you know, I

can't complain about that. Maybe I did

something stupid. Maybe the company did

something stupid. That's fine. is when

you invest in something you think is

super safe or you base your entire kind

of investment strategy or the business

model of the bank around something that

you thought was super safe proved not to

be so and that's what happened I think

in 2008 it wasn't just the scale of the

debt bubble it was how people treated it

that's what transformed it into such a

horrific uh financial disaster but it

probably isn't my favorite crisis

because there are so many to to choose

from like really demented on

We'll get into some some demented ones.

So, a principle you're saying is

basically financial crises are caused

not by perceived risky assets, but by

assets that are perceived to be safe,

but that that are risky. You mentioned

junk bonds. Now, the more polite term of

course is high yield. And it's it's

funny obviously like the the real action

of risky credit lending was junk bonds

when it was, you know, invented in the

1980s, but now like all of that risky

lending has a lot of it has migrated

from the high yield bond market to the

private credit market. So, the high

yield bond market is, you know, so

so-called, you know, safe relative to

the private credit market. I'm sure the

private credit people would disagree.

What do you make of the rise of the the

private credit asset class? And what

have you made of the the jitters in the

market? And I'm I'm curious to what

degree do you think they are real versus

uh just just headlines and not much sub

substance to them?

>> Oh, they're real. Uh I I've been

borderline obsessed with private credit

for a long time and you know I've had

many arguments with people in the

industry and and the nuance I I think

it's a fantastic asset class. I think

it's fantastic idea. I hope it bring

grows and grows because I actually think

it does derisk the financial system.

That's not just marketing from uh from

from the executives in the industry. I

think it's great if we take basically

these bundles of risks which is what

every loan constitutes and that is in

the investment ecosystem like in the

non-bank system. I think that's a a

great thing but as we know like whenever

people get over optimistic people do

dumb uh people invest have

invested way too much money in private

credit based on very backward-looking

numbers and the illusion of safety or

just like frankly the the the lack of

volatility which is just an artifice

because of the sort of lack of

marktomarket accounting. Uh so yeah high

yield frankly does I mean it's not safe

but it's far more solid I'd say now than

it ever has been. I mean the ratings is

an obvious way to look at it. Like over

half the market is double B now. Uh but

just generally the quality even beyond

ratings I think is far more solid and it

throws off cash. It's the technicals

been great. Uh and private credit has

picked up all the dicey stuff and I

think that's great. That's where it

should be. But that does mean there's

been dicey stuff happening there. I

mean, for me, the the the real wakeup

moment was when I was still in the

United States and like I started getting

cold calls and offers for private credit

lines. Me, I mean, as a journalist. I

mean, that's just astonishing, right? I

mean, nobody should lend in any money to

any journalist ever.

>> You Oh, to to lend you money, not not

for you to be an investor. Really? Okay.

>> People were offering me term loans, you

know, needing you 20 30,000 million

working capital 304

percentage points above liable. I mean,

incredible sprays. I mean, I didn't

actually take them up on it, but I just

thought when we're getting to that kind

of spray and prey kind of approach to

origination. Like, there was so much

money flooding into private credit. And

it's it's a very kind of how do you find

the borrowers? How do you find

highquality borrowers? Well, actually,

in the end, you don't need to find high

quality borrowers. You just need to find

borrowers to take the money so you can

earn fees on it. It's very similar to

what we saw in 2008. Not in scale, of

course, but the idea that you just want

to make mortgages because that's how you

got paid. you got paid by sourcing

mortgages and making them and then you

know hopefully the risk is worn by the

next guy. So I think in private credit

too much money flooded in too quickly.

It has been deployed you know a lot of

it still dry pad hasn't been deployed

but it was in some cases deployed poorly

and there is a default cycle that is

probably going to be far worse than what

the backward-looking numbers look like.

you know, private credit looks great

if you look at the the the historical

data because, you know, frankly,

you're not looking at the market today

then. Now, it's just a very different

market. Um, but that's again, that's

part and parcel parcel of finance. We

want these things to happen. You want

cycles. You want ups and downs. You want

people to learn their lessons, and they

will. and and hopefully at some point

private credit will dust itself off,

learn from this in the same way that

securitization has and come up with a a

better mousetrap afterwards and and that

is actually a good thing that will stick

around for a long time.

>> What is the issue with the mousetrap?

What and what could be better about the

mouseetp

and the leverage. So, I mean, two of

those two, three things that will, you

know, blow up anybody. Uh, I think

I do think you can make a case that

private credit could be sold to retail

investors, but it has to be done

exceptionally carefully. And I don't

believe in sort of semi-liquid

offerings. Like if you're going to

invest in an illquid asset class that

like touts liquidity as one of its main

selling points, do not do it even in a

semi-liquid format. You know, if you

invest in loans with a 5year tener, then

you should be locked up for 5 years. Uh

because retail investors, we know

whatever they say, whatever, you know,

retail investors can be like people like

me or people are worth, you know, quite

a few million or even billion, but

people pull their money out when they're

afraid. uh and these structures aren't

built for that. So I hope more credit

migrates from the banking system and

into the non-bank financial system that

the non-bank financial system you know

private credit firms, bond funds and so

on uh lock up investor money for a bit

longer. I don't think I mean we've built

an entire financial system around the

idea that like one day liquidity is some

sort of god-given human right and it it

isn't and it shouldn't be. It's actually

dangerous. I think even mutual funds

should have you know my personal view

should have longer lockups. You should

not be able to pull your money out daily

because it actually leads to suboptimal

outcomes for both you the investor and

the fund manager because they have to

make decisions knowing that you know

money can go in and out on any given

day. Uh and private credit that's

particularly acute. So a better

mousetrap you know there are many sort

of small little fiddles. I would prefer

levered like investment vehicles that

invest in in highly levered companies

not be levered themselves. So BDC

>> zero to zero leverage.

>> Yeah. So zero leverage ideally. I mean

again term leverage if if a BDC sells a

10-year bond and invests in some similar

maturity assets. Look, it's not ideal

but it's fine. You know

>> for the public BDCs, you know, I've done

done a little bit of research and a lot

of it is termed. The BDC is just one

more transparent slice of the private

credit industry that you know quite a

lot of institutional investors that put

money into private credit.

>> As the returns started falling because

there was capital gushing in certain

return expectations, they lever up their

investments in these funds and you know

again done judiciously, done carefully

with no recourse. Maybe that's smart,

but it makes me feel uncomfortable when

you basically kind of lever up an

investment in a highly levered vehicle.

Anyway, so that's on the more on the

institutional side. I hope nobody's

borrowing money from the brokerage and

yoloing into BDC's, but you know, to

each of the road.

>> And also, there's a reflexive dynamic

you referenced of that when money floods

into an asset class, it makes returns

look really good. So the private credit

loans that were made in 2018, a ton of

money flooded into in 2022 to refinance

those loans. So defaults were very close

to zero. So so even if on a fundamental

basis nothing changes, defaults will you

likely be higher be as inflows go down

which they look like they are going to.

>> I mean that's very apparent in in the

equity market, right? inflows will uh

encourage you know will push the asset

classes up and that in BDCS like I say

the or in private credit there's a

different nuance it's not like that the

loan value will suddenly go to the moon

suddenly because there's more money

going in but yes it will give the

private credit fund manager far more

flexibility in how they manage humps

along the road bumps along the road uh

but you know only to a certain extent

it's one of the reason why we've seen

the increase in payment payment in kind

is because some of these companies like

payment in kind is a completely viable

and acceptable and important tool in

many cases. It is the right one to use

for companies growing very quickly but

you know don't want to send cash out the

door right then but I think it's

unambiguous that lots of private credit

funds have been using pick as a way of

deferring the pain essentially. Uh the

danger is of course a lot of these

companies and this is where for example

the default cycle comes in. It's not

just the fact that the defaults have

been kept probably artificially low

because of the money coming into the

market but also the recovery rates are

are are somewhat I'd say fantastical

rate uh the assumptions. So typically

let's say in a high yield bond you might

get 70 80 cents on the dollar. uh

depends on where you are in the cap

structure of course, but people have

penciled in um I suspect unrealistic

recovery rates when a lot of these

companies are not going to have any

recoveries whatsoever. Let's say if

they're in the software industry uh

where you know there there are no plants

and factories and roads and trucks,

right? It's just if the company isn't

good, it blows up and there's nothing

there for you as a creditor. So, it's

going to be fascinating to watch. I so I

I tend to be on private credit stepping

back. I tend to be on those guys that I

think it's it's going to be a bad

default cycle. It's started already, but

like it's getting masked, but it's not

going to be catastrophic. And the asset

class deserves to survive and thrive

once more once it's been through a few

of these.

>> Definitely. And you know, in a in a

crisis, I think some of these public

BDCs are probably going to go to 30

cents or 40 cents of net asset value.

And and for for investors with the

stomach, there could be opportunity

there. Yeah, completely. I mean, you

know, buying, you know, dollars for

pennies is is a a classic way of of

making a killing. The problem is when

you time it, of course, and when the

BDC's, you know, go further because it's

people always think something can fall

can't fall any further than it always

can, unfortunately. But, you know, I'm

not yoloing into BDC's go that way.

Robin, everything we we've we've talked

about the offbalance sheet, debt, the

hyperscalers, Nvidia, very, you know,

murky unclear what's going to look like,

private credit. What themes are present

in the in there that are present

throughout the history of the rise of

the bond market and in debt, uh, that

you you wrote about in your book. Well,

in fabulous debt, I talked a lot about

how, you know, we we we associate bonds

with safety, and quite often that is

true, but sometimes that safety can lull

pe people into a false sense of safety,

and they do stupid stuff. Uh, and also

bonds are just as maybe not just as, but

are also susceptible to these kind of

bouts of mania that that we see in the

stock market most obviously. Um so

whenever a transformative new technology

comes that typically manifests itself in

both the stock and the bond market and

sometimes the most dangerous development

happens in the in the bond market. A

classic case where were the canals and

banks of the United States in the early

uh 18th 19th century. So after

independence the US was rebuilding

itself. It was building canals. All

these states were borrowing money for

banks. New York famously started with

the Eerie Canal which was just a

transform. It was like the Apollo

program of the era and it was a huge

success and they sold lots of bonds and

both the investors and the state made a

killing out of it. But that encourage a

d debt bubble a bondishness bubble that

ended up you know half the United States

being in default like the individual

states all bankrupt uh and and that was

you know quite a nasty crisis that took

some time.

>> So it was the states the government

state governments that built the canals

and they were the borrowers. Okay. Yeah,

typically. So they looked at what New

York had done with the Erie Canal and

then borrowed a lot of money on their

own balance sheets because obviously

they had very little debt because the

the United States as a federal

government had assumed all the

post-revolution debts. Uh they sold lots

of bonds to investors in Britain and the

Netherlands and Italy and France and

Germany and some of the United States

and they you know started banks, they

built canals, they started gingerely to

industrialize but they just borrowed too

much money. There's actually a great

scene in in A Christmas Carol by Charles

Dickens where Ebene the Scrooge, it's

not unfortunately in the uh the Muppets

version, which is my favorite. I watch

it with my kids every Christmas. Uh but

where Ebenezer Scrooge has a nightmare

and he wakes up in a cold sweat cuz he's

had a nightmare that all his securities

have been transformed into United States

securities, which was Dickens's joke

about how US bonds had then by then like

all been become worthless. like half the

states pretty much had all defaulted and

some of them never repaid back their

debts ever. Uh so at the time, this is

in the 1840s, the US was synonymous with

I guess like Argentina today, like a

country that just defaults all the time.

But you know, those canals were

valuable. Most of the states dusted

themselves off and we've never had like

quite that violent a spate of of state

or or kind of municipal defaults in the

United States since then. Same thing in

the 19th century and late 19th century

with the railway mania. I mean that was

just massive. I mean if you talk about

AI data centers today, you know, that's

a few trillion dollars, but the

equivalent if you scale it the size of

the US economy in the 1870s and 1890s

and 189 and so on to the present day,

we're talking it's the equivalent

railways issued the equivalent around

$10 trillion of bonds. It was the

biggest cap explosion in history. And

you know, a lot of those railways went

bust and investors quite often again in

in in England and in the Netherlands and

France and Germany and Spain and

Denmark, they lost their shirts, but the

railways were still there. And that

literally like physically napped kind of

knitted together the United States and

kind of transformed the economy. Um,

which goes to show that these mania look

the very painful after the 1871

financial crash when lots of railways

went bankrupt. It caused the collapse of

a bank called Jay Cook which was kind of

it was the equivalent of JP Morgan going

bankrupt today overnight. It was it was

catastrophic at the time and it caused

what was you know long called the Great

Depression until the actual Great

Depression happened and we now call the

downturn in the 18 uh70s the long

depression. Uh but it still transformed

the United States because all those

railway waves were still there and

uh you know I think it shows mania and

and financial crisis although painful

sometimes they're a good thing that like

a weird thing is that the optimal number

of financial crisis is arguably not zero

as painful as they are to live through.

>> That's an that's an interesting argument

probably. I mean I mean basically to to

to guarantee that there would be no

financial crisis, you'd have to have

regulation speculation basically be

banned. And I could see I could see the

definitely the downsides of that. Robin,

I understand how someone could get into

a mania about a stock. They buy the

stock at 100 and it goes to 900 and they

get extremely emotionally very excited,

but just in terms of I can't wrap my

head around a mania, a credit mania. I

understand they exist, but like the idea

of earning uh sofur plus 4% on a risk or

thing, it just doesn't, you know, it

doesn't really get my my my my blood

pumping, you know? Maybe something's

wrong with me.

>> No, I mean, sadly, there's never been

there have been meme bombs. Uh but there

aren't any meme bombs around today. I

guess maybe TLT is the closest.

>> Oh, yeah.

>> Or the levered version of TLT. Um, no.

So, back in the day, most bonds were

actually perpetual bonds.

>> Mhm. Uh so they were quite you know they

lasted until the government or sometimes

a company uh paid them back. Governments

especially issued perpetuals and they

were quite often sold at a discount. So

they were sold at let's say 90 cents on

the dollar uh at an interest rate of

four but then of course

>> 90 or 1 n

>> 90 yeah or 60 cents on the dollar or

whatever right. Uh but they were sold at

a discount which is why you could have

price appreciation for the bond as well.

And you know this is a different era.

People didn't have Bloomberg terminals.

It was you know quite difficult for even

some smart bankers to calculate

literally what was should be the right

price for this bond. So you'd see bonds

trade way above par. We see that in

modern day but like it just shows that

the bond could go up and down a lot. So

people could get quite excited and in an

era where you know what else could you

buy to make money. So, let's say if

you're in uh Change Alley, it's kind of

the Wall Street of of Britain in the

17th and 18th century, and you're buying

a bond for a newly independent Latin

American country. Well, you might be

buying, let's say, a Brazilian bond,

this new fantastical country you've

never heard of called Brazil, but you

know, the banks are saying it's

fantastically full of potential. You're

buying that at, let's say, 50 cents on

the dollar. Well, and then you're also

getting the coupon. Maybe you're also

getting the equivalent of 10 cents a

dollar on interest all the time. So

you're getting that plus the price keeps

going up because everybody else is

discovering this new country called

Brazil. So that's why you can get

wrapped into it. I mean in the 19th

century there was a famous fraudster

called Gregor McGregor that literally

invented an entire country so you could

sell a bond and he just took the money

and ran to France. Uh but you know

people didn't know better back then.

>> Fraud fraud is the business that has the

highest profit margin.

>> Yes. Very much so. So if you can get

away with it, Gregor McGregor made out

like a bandit. But to be fair, like I

mean his efforts, you know, there are

frauds and then there are frauds. This

guy invented an entire country. He

invented a capital, a coat of arms, an

entire system of government, geography.

Had maps made. He had songs made. He

just basically invented an entire

country out of cloth and managed to

trick hundreds of people to literally

move to this country and also invest in

the country's bonds. But they ended up

at something called actually the

Mosquito Coast. And most of them died

there sadly. So you know quite tragic

end but you know the joke is that the

difference between tragedy and comedy is

time. So hopefully after 200 years we

can we can laugh at the the debacle of

pouet and Gregor McGregor.

>> Yeah I I don't think I want to go to the

mosquito coast.

>> No it's not nice. It's somewhere in

Guatemala now. But that's where he

invented this country of of of golden

honey everywhere apparently.

Robin, one thing when you mentioned that

how many of the canal bonds went bad,

how many of the railroad bonds went bad,

but ultimately like, okay, the old man

and the family made the loans and

eventually the grandson was able to like

recover 70 cents on the dollar cuz he

held it. It just made me think that just

people holding the bonds like in their

closet drawer and then eventually being

paid back. that is much more stable than

like a highly sophisticated financial

institution holding these securities on

leverage which is what BDC's are

basically even though it is a lot of it

is term debt.

>> Yeah. I mean the reason why we always

call like financial crisis back in the

day used to be called panics because

usually it was banks that held these

loans these bonds and and even though a

bond was you know is technically

designed it's supposed to be tradable

quite often when everybody wants to sell

and nobody wants to buy well good luck

trading it and there was no deposit

insurance they had deposited money they

borrowed money themselves so that's why

you know banking crisis and panics you

know they they were intertwined for a

long time uh now it is different. But

yes, sometimes if you buy something

unlevered, you know, you can lose money,

but you can only lose what you put into

it. Uh, and that's why leverage is so so

dangerous and, you know, has shown that

again and again and again in every major

and minor market cycle.

>> So earlier you talked about the great

financial crisis 2008 GFC, but you said

it wasn't one of your favorites. What is

one of your favorites in the book

>> and why?

>> Oh god, it's like choosing my favorite

child. I know. You know, it's it's very

difficult. I mean, I do like Gregor

McGregor and Poyet. I mean, it's just

incredible, right? But I mean, 1873, the

the railway man crash is kind of epic

because it was epic in size. It was epic

in in its casualty. Jay Cook was he was

the John Pay point Morgan before John

Pay Morgan. He was Titanic. He was the

guy that bankrolled the North's victory

in the Civil War. Um and suddenly he

just went bankrupt out of the blue cuz

he he'd gone over his skis on on

transcontinental railway bonds. He'd he

decided against his better judgment

initially to back one of these big

companies and and it just soured on him.

So because the mix of like the the

enormous ambition of these

transcontinental railways cuz they

weren't just like one they were like a

series of Apollo programs all happening

at the same time and it did genuinely

transform the United States into what we

know now know today. It used to be kind

of a coastal country. It was like north

and on the eastern coast and the west

coast and it went up and down but

suddenly it became a country that

changed its axis. It was west to east.

uh you could actually travel from you

know California to Maine in a few days

at least or at least a week rather than

months it would take before. So I think

the mix of both the economic impact the

political

uh importance you know this really did

transform it kind of united the United

States physically for properly for the

first time and you know how nasty it

ended it was a a gigantic financial

crisis that we don't remember that much

these days but you know it was it was

huge almost everywhere lots of companies

went bankrupt in the United States is

expressions like hobo came from that era

um because there were so many homeless

people and and soldiers, unemployed

soldiers also after the civil war that

lost their employment at the railway

lines. Um so I think that's probably my

favorite, but you know change

>> a hobo on the railroad tracks. You can't

have that if there's no railroads.

>> No, exactly.

>> It kind of seems to me like as

speculative as data center buildout is

once the data centers are built, they

are producing revenue now. Seems to me

that railroads back then were a little

bit more expected like to actually

literally you have to have a guy putting

the the wooden tack in and then you know

foot by foot across the entire country

and before the and then it has to be

built then the train has to be built.

You have to market it before the revenue

built like that does seem to be a

greater endeavor than building a data

center which is now very very difficult

and takes time and tons of capital of

course but uh it seems a little easier.

>> Yeah. I mean, don't forget I think the

the difference between railways in

Europe and the United States is an

interesting one because like in Europe,

railways connected existing towns. Like

you built a railway from Liverpool to

Manchester for example or from Berlin to

Paris. In the United States, railways

built towns. It created entire towns. It

created entire states. Bismar, the city

is literally only main named Bismar as a

marketing gimmick for the company that

built that railway line, the Northern

Pacific, uh, as a marketing gimmick to

appeal to German investors because the

charts of Germany at the time was called

Auto Fon Bismar. Um,

and you know, these were in the middle

of nowhere. I mean, as you know even

better than me, I mean, the United

States is a vast country and back there

very little of it was settled. So, you

know, it's incredibly hard work. I mean,

obviously, this is manual. People had to

literally hammer down the nail. They had

to dig out the grow, the roads. You have

to keep it smooth as well, right? So,

it's some backbreaking work. Then there

are all the the ravines, the mountains,

the forest, everything you have to go.

And this in the middle of nowhere, it

was lethal. Like thousands of people

died.

As much as the data center construction

is is is pretty epic today, I am not

aware of sort of mass casualties in the

in the construction of a data center in

New York yet and and and you know this

was

um you know the equivalent of building

the pyramids essentially very epic,

hugely dangerous and incredibly lethal

but you know transformative in the long

run.

>> Yes. And you're using the word epic in

the British sense or the way the British

people use the word great. Like it

doesn't mean that it's a good thing. It

just means it's big at scale.

>> Oh yeah. Yeah. No, I mean I think the

railways are good. Pyramids, you know, I

mean lots of slave labor there as well.

I mean in in in the railways there was

you know a lot of it was free workers

but you know not always. and they were

treated incredibly shabily, especially

like lots of workers were imported from

China for example and would you know

basically killed in the thousands. Lots

of Irish workers uh and you know it was

you know a positive thing in the long

run but you know not quite up to modern

labor standards put that way. Uh but

yes, epic in the

titanic country transforming projects

that unfortunately do sometimes always

have a darker side as well.

>> So uh a few months ago I interviewed the

Ilio Leoad Aamemed the author of a book

of 1873. A few months later I'm

listening to the Microsoft earnings call

and CEO Sachin Della says you know we at

the Microsoft the executive team we're

reading in 1973 so we're thinking about

this. So let's say in a few months the

next Microsoft call um you know the the

team they they say we're we're we've

been reading a fabulous debt epic story

of how bonds built the modern world.

What are some lessons that you think

they should know? The people who are

spending hundreds of billions of dollars

borrowing hundreds of billions of

dollars and probably according to the

off you know balance sheet lease

commitments it's going to be over a

trillion uh trillion and a half as you

say. What are what are the lessons that

that they should know?

>> Well's book is is phenomenal. Uh, it's

really good. You know, I take I tackle

the railway mania and the US. My book is

a bit more US- ccentric. His is is more

global and focus maybe a bit more on

Europe and the Grunder Crack in in in

Europe, which is spectacular.

>> Um, but I hope people realize that bonds

are an incredibly powerful financial

technology. It's kind of the financial

technology. It's kind of loans 2.0. I

mean, they were both both banks and

bonds were born in Renaissance Italy a

thousand years ago. Uh, but it's only

now really that the bond market has I

I'd argue supplanted the banking system

as the dominant credit engine of the

global economy. And the reason why

actually some of the basic building

blocks haven't changed that much over

the hundreds of years is because it's

incredibly powerful. You know, it's

fixed in interest so you can calculate

things easily and it's tradable and that

gives you and it's decentralized. It's

kind of the original, it's the OG

decentralized finance because you can

sell not just a one or two banks, borrow

for a couple a club of banks. You can

sell bonds to thousands even millions of

investors indirectly. That's why you can

pull individually tiny pieces of savings

into one big gushing river. And that's

kind of what the hyperscalers are doing.

So I hope like a Microsoft uh or any of

these CEOs and CFOs reading it would

realize that actually bonds you can

iterate on the fund fundamental

technology and people are and do but it

still works and that transparency the

the sobriety that comes with doing

something through public fixed income

markets rather than leases

uh opaque financing uh arrangements uh

private credit loans loans negotiated,

you know, off the side. Um, that comes

at a cost. That that that's flexibility.

That's great. But if you have big

projects like the railways, the most

valuable thing to do is to just sell

bonds. The bond market is supremely able

to to handle that. uh and and has shown

that again and again and again ranging

from you know Napoleonic wars, canals,

railways and AI centers to today and I'd

much rather that goes into the public

fixed income markets than than than stay

in the shadows.

>> Why is it in the shadows? And you talk

about this flexibility, you know, the

private property people, they say, "Oh,

our borrowers love flexibility." I don't

even really know what that actually

means.

>> I agree. I mean, flexibility, this

sounds great. Like, yeah, you want

flexibility? Yes, definitely. You want

freedom? Yeah, definitely. But in

practice, it comes at a cost.

>> I mean, broadly speaking,

>> if Microsoft wants to, let's say, sell

10 billion, wants to borrow 10 billion

to build a new data center, what is the

cheapest way for a large mainstream

public company to do so? Is it to sell

to like 10 private credit firms or maybe

a handful of private credit firms to do

it without a rating doing it quickly? We

can do opt opportunistically that way.

Yeah, sure. But you're definitely going

to pay a lot less to borrow by just

issuing a plain vanilla for general

purposes corporate bond. And the reason

why they aren't doing that is because

they want to maybe obscure how these

companies have become kind of been gone

from being lean mean cash machines into

being capex hungry utilities. And maybe

that pays off. Uh I mean the returns of

some of these data centers are pretty

phenomenal right now. Um, but they're

not doing it for purely financial

reasons. Uh, and I think flexibility is

probably a convenient excuse

um to hide, you know, that this is more

about making them seem healthier than

they really are. Yeah. I I think one

thing that like Coreweee, you know, Neil

Cloud is doing is delayed draw term

loans. So, oh, you don't have to

actually borrow the money until you need

it. So, it's like it's like a credit

line. Um yeah, I mean the the real king

of debt I would say is is cororeweave

that that there's just reported. I I've

never seen a bigger gap between ibbita

and net income loss. It is quite extreme

and it's it's it's a little railway

railway like what what do what do you

make of uh just I mean core's massive

massive borrowings?

>> Yes, it's heavily indebted. Um

there is in every cycle one or two or

maybe a handful outliers. Look, I'm not

worried about like Facebook and Alphabet

or Amazon going bust.

>> Yeah.

>> Uh, you know, they they Yeah. If they

take all these liabilities on balance

sheet, like it's not great for

investors. Uh, I worry about the the

financial hangover, but like it is

fundamentally different in that this is

not the error. These companies do have

solid real products and they're just

shoveling all that money and a bit extra

into AI. And even if AI somehow goes to

zero or nothing happens, I think it's

manageable. It's okay. But there will be

of course in any cycle a few extreme

outliers that just like borrowed way too

much money, did too many dumb things.

We're kind of too invested in this or

didn't have any other products or or

fallbacks. Essentially, people are still

going to be going on YouTube uh even if

Google wastes a few hundred billion

dollars on on on AI data centers. uh and

that's going to save them with a

coreweave or some of these other

companies. Do they have that backup? I

mean, maybe crypto mining, I don't know,

but

I'd worry about those essentially uh

more than I do uh the big hyperscalers.

There are a few of the hyperscalers that

look a little bit diceier, but uh

broadly speaking, they're probably

probably okay. Yeah, you uh perhaps

referring to Oracle definitely the most

indebted relative to to its its revenue.

>> Yeah, Oracle in a hyperscaler terms

there's the rest and then Oracle. Oracle

is not like a tiny bad company or

anything like that, but it's just it's

not doesn't have nearly the financial

and corporate heft of the others. And

you know, it's clearly the weakest of

the of the litter.

>> How long do you think this capex bubble

burst? You know, I I think we all know

that this is not going to be infinite.

Trees don't go to the sky. There will

be, you know, a bust a correction. Like,

do do you think it, you know, it's going

to be soon or in a few years?

>> I I mean, obviously, I have no clue.

>> People signing the check don't know.

Yeah.

>> Yeah. It's it's like you say, trees

don't grow to the sky. Capex bubbles can

continue for a long time until it

becomes very obviously unmanageable. Uh

right now there are a lot of people in

that industry and this is maybe both

what worries me but also can keep the

show going for a lot longer. There are a

lot of people now with a vested interest

in keeping this going like that that AI

industry has become remarkably

incestuous

with just an incredible tangle of

financing agreements, co-investments,

supplier and customer relationships that

kind of bind it all together but also

can kind of keep things going for a long

time. they all have an interest in kind

of managing this and that makes me

worried about what the Den Moore funding

looks like. Um, but it also means it can

continue for a while longer. And then it

I guess you know the the chicken answer

it just comes down to the technology

like to what extent AI genuinely is

transformative. Is it glorified chat

bots or is it going to cure cancer? Is

it, you know, going to put, you know,

people in Mars? And, you know, where we

fall on that spectrum is probably what's

going to decide uh just how much those

investments pay off. But the scale is is

pretty astonishing now.

Okay. So, as as someone who is a

journalist and is talking to people all

the time and is very well informed,

what are you hearing about how the

revenue is at OpenAI and Anthropic? I

think that literally like over half of

what matters is is that is that topic.

Are are you are you hearing good things

or bad things or medium things?

>> So I haven't spoken to anybody directly

about uh the revenues at OpenAI and

Anthropic. So I only know what my

colleagues have have reported uh in the

paper. Uh I think I think it's broadly

understood that anthropic looks

financially a lot healthier than OpenAI.

Um and that's one of the reasons why

they're probably going a little bit more

aggressively for an IPO now.

Um

but I'd question with private companies

how real sometimes revenue is and not

like fending numbers but just like I

mean if you just look at the the net

income of some of the hypers the public

companies now look at how much is

actually classified as other income

which is essentially revaluations of

their investments like yes

>> a lot of the money that Microsoft and

Google and Amazon have

are basically marking up the value of

their stakes in anthropic, open AAI and

SpaceX and other companies. Uh if you

take that away, then some of those

earnings look a little bit not bad, but

definitely not as good.

>> Yes.

>> Uh and with like OpenAI and revenue, how

much of that is actually cash like free

cash by rules, everything? And you know,

until I've seen the accounts, I don't

know. Even when we've seen the accounts,

sometimes it's hard to know. Uh, but I

can tell you I'm really looking forward

to the S1's for OpenAI and Anthropic.

That's gonna be a popcorn moment for me.

>> Definitely. Robin, how durable do you

think the credit raging agencies are?

So, Moody's, S&P, Fitch, the former two,

which are are publicly traded companies

and up until recently were viewed by,

you know, the Compound Bros, the hedge

funds as these extremely durable

businesses. Their valuations have fallen

a lot because, oh, AI could displace

them. I just wonder, you having spent so

much time researching and doing and and

and writing this this book, just your

insight on the value or lack thereof,

like is just just a sticker that really

isn't that valuable um you know, over

time? Like do you think in there's a

giant credit cycle, are people going to

be like, "Oh my god, I need my Moody's

rating before I buy it."

>> So that's a great question actually and

uh because I I spent a lot of time, a

depressing amount of time uh writing the

book thinking about this. There's an

entire chap just on the history of the

rating agencies and it is kind of weird

like how many cowpies they've stepped in

over the years and and how they endure

and I think I think that's the secret to

answering your question that yes I don't

know about 2070 that's a long way off

but I think people will be shocked at

the resiliency of their business model

because people don't actually pay S&P

and Moody's and Fitch for their credit

work. It's not like if you're the CIO of

PIMCO and you sit there, well, I'm I'm

going to look at what Moody's says about

this bond. I mean, you care about the

rating agent uh the rating, but you

know, for for investment mandate

reasons. Uh but the credit work you do

yourself and that's clearly like with AI

like a lot of that is happening. A lot

of that happened before the current

excitement about large language models

like I've been covering AI for I mean

before it was cool you know natural

language processing and machine learning

I used to cover quants all the time uh

and it was fascinating to see how people

were learning to you know automate the

ripping apart of a credit perspectus and

putting their end your own models and

then automating all that. Uh and this

was 10 years ago. Uh but the rating

matters not as because of like you want

Moody's to tell you what to think of

this investment because they famously

don't try to give investment advice.

They just give a probability of default.

The Moody's rate I mean the Moody the

credit rating agency ratings are a lot

better than people think. Like there are

outliers when people say well this

company was rated a half a year ago and

it went bust. But they are they are

highlighted because they're actually

pretty rare. Broadly speaking, the the

letterbased model as a signify of s

chance of default is actually pretty

accurate. Like even the financial

crisis, all those shoddy securitized

monstrosities that were given AAA

ratings. Well, actually even quite a lot

of the AAA tranches ended up being money

good. they traded down maybe to 20 cents

on the dollar, but a lot of those

actually were pretty okay.

>> Uh, and AAA companies, AAA governments,

you know, tend to, there aren't that

many of them around these days, but it

it tends to work. And I think the reason

why the rating agencies actually endure,

will continue to endure is because this

phrase I once came across somebody in

the industry use, but he talked about

like the need for a language of credit

like we need shortand. We're humans. We

we both very smart and very stupid at

the same time. And we like these

shortorthands. We like rules of thumb.

We like simplistic models. And it's just

nice to have something like this is a

single B, that's a double A, that's a

triple C. And the reason why the rating

agencies despite having like very

different, they talk up all their

difference, they still have basically

the same letters as well. And that's

because it gives us a cohesive language

to talk about credit. And sometimes it's

wrong. Like all language can be, all

models don't work. You know, it's just

like um there's a famous British

statistician who said that all models

are wrong, but some are useful. The

rating agency models are not as wrong as

people think and it's still pretty

useful. And as much as you can automate

all sorts of cool with AI, I think

that will endure and and the craving for

just a brand, a name like Amoody's or an

S&P uh is is going to stay there. And in

fact, in places like the United States

is enshrined in law. Uh despite all the

controversy around the financial crisis,

you know, the nationally recognized

rating agency designation is is still

there. It's still in the books. And

that's why, you know, it's kind of one

of the most stubborn oligopies in the

history of business probably.

>> And if you're an insurance company

buying something, you h you you have to

buy something, a certain percentage of

your assets have to be investment grade,

even if the rating is totally wrong. And

also, I think of the the Charlie Mer um

anecdote about how he was in World War

II. And I think he was he was tracking

the weather and he ultimately was saying

to his superior like, "Hey, my forecasts

are really bad. You I shouldn't you

shouldn't be asking me for these

forecasts." And that the military people

said, "We need these forecasts for our

military planning." So even though the

forecasts are wrong, we still need them.

>> We still need them. We still need

something like that. Yeah. I mean, it's

like so many things in finance that look

weird. I mean, in the world really, they

look weird or dumb or or dangerous. is

quite often like you still come to this

kind of well if it didn't exist we'd

have to invent it. Ratings

as weird and dumb as they sometimes can

seem we still need something like that

and if they didn't exist we'd have to

reinvent them all over again. Uh the

insurance issue is quite interesting

drawing back to private credit there of

course there is always a danger of

shopping around for the greatest rating

and broadly speaking the big three have

done a pretty good job over time. not

always but over time to as much as you

know they could be a little bit more uh

commercial let's say certainly before

the financial crisis broadly speaking

not letting the standards arose too

comically far but clearly there I I I do

worry about so-called private label

credits that insurance companies are are

getting on private credit loans uh and

saying they're investment grade when

really the reality is I suspect a lot uh

iffier.

>> What does an investment grade private

loan really really mean?

>> Uh I think most of the big serious uh um

insurance companies are very aware of

this issue and are aware of it and if

they do use private label label credit

ratings um that they take it with a

pinch of salt or they know the the

issues they be dragons maybe. Uh but

there are also a lot of private uh

insurance companies that are owned by

private equity.

>> Yes.

>> And those private equity insurers

companies sometimes own also some of

these private label companies. And I do

worry about that they the the tangled

private capital ecosystem of private

credit, private equity, private ratings

and private equity in owned insurance

companies. I think that is something

that could at some point bear watching

as well. Have you looked into these

things called funding agreementbacked

notes?

>> No, but it sounds amazing. Tell me more.

>> It is basically when an insurance

company, probably a like a life

insurance company

issues debt, but the debt that they're

issuing, they can call it a policy, a

life a life insurance policy.

>> Yeah.

>> Yes. No, actually, I do remember reading

about this and I was delighted to learn

about it.

It shows that there is nothing more

creative on this planet as a financial

engineer who wants to optimize risk and

reward and game the system to do so. Um,

is it you know

one of the the dangers of of my job

journalism and and your job and I guess

everybody's job is that that we we look

very much backwards and it's always

cooler to seem pessimistic and and cool.

or this is the next big thing and this

is the next co or whatever.

>> And you know, luckily those kind of

crashes like 2008, they don't happen

very often. Uh I actually have like

literally on in front of my desk, I have

a little cartoon that shows it's from

2008 that shows like somebody going onto

an airline and the captain comes across

the tano saying, "Oh, you know, there's

a bit of turbulence. Uh buckle up." And

there's a passenger who screams, "Oh my

god, we're all going to die." And the

passenger next to him says, "Look, just

it's a financial journalist. Don't

worry." He's just panicking. And I just

have it there in front of my desk to

remind myself and not always thinking

everything is the next 2008. Not

everything is a big crisis. Uh so these

these notes, look, I think it's the

optics are bad. The fundamentals are

probably not great. Is it going to be a

disaster? Probably not because, you

know, Yeah.

It might be bad, but you know, we can't

have reward without risk. You can't make

money without losing money. That's kind

of what keeps the the train on the

roads. And you know, people sometimes

create stupid things, invent new things,

game the rules, and they get their faces

ripped off. It blows up in the next

downturn. Uh but the good inventions,

they survive and they evolve and they

thrive. I mean, securitization is one of

them. Securization was a a dirty word

not that long ago, like I just a few

years ago. And now we're looking, even

the Europeans are talking about it like,

"Oh my god, we wish we had America's

mortgage back security market. Oh my

god, that would be amazing." And I

remember when even American politicians

were were badmouthing it. Um, stupid

things happened in 2008, but we learned

from it. And you know, at some point,

um, we'll realize what was really stupid

that we're doing right now, what was

actually just fine and what was just

moderately stupid. Uh, and then I get to

write a book about it a few years after

that. So, you know, it's all it's all

gravy for me as a financial journalist.

>> People should buy the book, A Fabulous

Debt, the Epic Story of How Bonds Built

the Modern World. Buy it for yourself.

Buy it for your your kid. buy for your

parents, grandparents. Thanks so much.

>> No, thanks for having me on, Jack.

>> Thank you. Just close the door.