alt Hacker NewsWhat 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.
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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.
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)
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?
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.