alt Hacker NewsThis makes me think about a really interesting discussion on the awesome History of Business podcast with Adrian Wooldridge[0].
Adrian Wooldridge was essentially arguing that especially with the shift towards more privately owned companies (as in, non-publicly traded) that we've seen in the US, limited-liability companies give an incentive for a large amount of risk.
Essentially there's an asymmetry, because companies going bankrupt have no liability for debts, but they gain all profits if things go well. This has always encouraged risk (and often in a good way), but publicly traded companies are ultimately owned by retirement funds etc, which is not the case for private companies. So the risk of bankruptcy is still covered by the general public, but a lot less of the benefits are felt by the public.
I think we're in fairly uncharted waters for what this risk asymmetry means for the US and global economy. It doesn't sound like something that'll end well, I expect we'll see a lot of public fall out at some stage.
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Institutional investors, including retirement funds, university endowments, etc. invest in private companies, either directly or via private equity. I believe Harvard's endowment, for example, has a significant portion of its portfolio in non-public companies.
> Essentially there's an asymmetry, because companies going bankrupt have no liability for debts, but they gain all profits if things go well. This has always encouraged risk
Companies are liable for debts. I don’t know why you would conclude they’re not. If a company can’t or won’t pay their debts, they go into bankruptcy, which has significant consequences up to the company losing its assets to the creditors.
Lenders are not dumb. They collect interest in exchange for the risk of lending. This is the symmetry that you’re not seeing. The lenders can also structure their lending in ways that if the company can’t pay, the lenders get assets from the company in exchange.
LLCs apply at a lower level (not AI lab scale), and shielding individuals from downside risk is a feature, not a bug. It’s by design. There are a lot of countries where the only way to get startup funding involves signing your personal finances away in the event of failure. Financial ruin if the company doesn’t work out, aside from some minimal protections. Do you know what the small business and startup environments are like in those countries? Abysmal. Nobody can afford to take the risk, so the big establish companies are the place to work.
>Essentially there's an asymmetry, because companies going bankrupt have no liability for debts
That's not what a limited-liability company is, not what it means. Anthropic and OpenAI are not LLCs.
>So the risk of bankruptcy is still covered by the general public, but a lot less of the benefits are felt by the public.
That's not how any of this works. Reading comments like this on HN and from elected officials is disappointing.