Private Equity on Steroids, Everywhere

The tactics of private equity (PE) investors in American business and the damage associated with them have been the subject of criticism and vitriol for at least forty years. PE tactics became widely understood in the 1980s and 1990s because the strategy of combining often dozens of firms into a single conglomerate corporation had become fashionable in the late 1960s and 1970s. With examples like Gulf + Western that combined parts manufacturers with record companies and movie studios, it only took five or ten years for the folly of this management fad to become evident. Even the most notable example of "success" of this strategy of conglomeration – General Electric, which combined firms making aircraft jets, oil rig pumps, light bulbs, kitchen appliances, nuclear reactors and network TV content – turned out to be a twenty year continuous accounting fraud that began collapsing the day its architect retired from the CEO role.

Not much has changed for the reputation of "private equity" in the last forty years. There is an entire genre of content on YouTube devoted to recounting the business circle of life for well known companies from the cradle and dealings with venture capitalists to the grave dealing with vulture capitalists. The vulture analogy is apt because vultures do play a vital scavenging role in nature and a similar function is required for the business circle of life – recirculating resources in the form of people and capital out of obsolete uses into more productive uses.

Private equity has become a hot topic in the current climate for multiple reasons, none of them good. First, PE continues acting in its classic "vulture capital" role, providing daily reminders of its "failure to deliver" on its core promise of returning trapped value to shareholders. Second, PE firms are now essentially competing with banks by providing ongoing financing to mid-tier businesses. These dealings have attracted enormous negative press over the past few months as some of those firms filed for bankruptcy, sometimes only DAYS after completing financing deals, which in retrospect, clearly involved NO due diligence on the part of these PE lenders. Third, PE firms are now participating much more frequently in funding of startups and handling of "Initial PRIVATE Offerings" as more firms opt to avoid "going public" and incurring the accounting hassles associated with trading publicly. Most importantly, the operation of PE firms will become vastly more important if regulations are altered to allow 401k funds and pension plans to invest retirement dollars in privately traded firms without the transparency and accountability of quarterly public reports.

Despite these stories and the appropriate focus on who some of these players are and how the processes function and fail, very little analysis has focused on why private equity tactics continue to be used when they clearly don't work. There are at least three logical conclusions that come to mind. The first obvious conclusion is that it is many executives and investors alike fail miserably at accepting the declining stages of a corporation and continue holding expectations of higher performance that are no longer possible, providing more fodder for vultures. The second obvious conclusion is that repetition of a "failed" strategy occurs because not everyone is losing. Players using this strategy have CLEARLY devised ways to profit from what otherwise appears to be an acceleration of inevitable business failures. That second conclusion leads to a third conclusion for the public and political leaders – if there are any left. Unless the incentives triggering current privatization efforts are changed, current proposals to relax restrictions on investment directions available to 401k and pension plans to allow investment in private equity firms is a virtual guarantee of financial destruction for the entire American economy.

To support these conclusions, some time should first be spent explaining several underlying factors that essentially generate the raw inputs for private equity investors. These factors involve the "belief systems" of corporate leaders they reflect in their decision making, the nature of the corporate structure itself, the theory versus reality of treasury operations strategy and the tradeoffs of public versus private operations. These topics are addressed in the following sections before returning to the new risks coming from private equity firms in the current market.

Executive Belief Systems

Part of the process creating inputs for being scavenged by vulture capitalist PE firms stems from the "belief systems" adopted by executives leading companies. The details of these beliefs can be drawn out by thinking about some key lessons taught in business school since the 1970s. Consider this list of questions and answers:

• QUESTION: What is the primary responsibility of the leadership and management of a corporation?
• ANSWER: The sole responsibility of executives and managers towards shareholders is to maximize shareholder value, meaning the total return on investment of those shareholders. (Hmmm, I asked "primary," you responded "sole"...)


• QUESTION: What does "maximizing total return" mean?
• ANSWER: The total return for a shareholder is reflected in the stock price so anything that raises the stock price is increasing value returned to shareholders.


• QUESTION: So what causes the price of the stock to go up?
• ANSWER: Any tactic management adopts that increases net cash flows into the company will raise the stock price either by growing retained earnings or by paying dividends out to shareholders which also reflects net cash flow created by the company.


• QUESTION: If management appears to be under-performing, what options exist for shareholders to correct the situation?
• ANSWER: In increasing order of difficulty, shareholders can simply sell their shares and invest in something else, shareholders with influence over the board can lobby for altered pay incentives to leaders to better align leadership incentives with shareholder goals or shareholders can more aggressively pursue control of the firm to alter the management and impose new strategy.


• QUESTION: What are private equity firms and why do they exist?
• ANSWER: Private equity firms specialize in the third alternative above – aggressively pursuing control of an "under-performing" firm and using a variety of tactics to restructure its assets and liabilities, redirect existing retained earnings and cash flow and "optimize" its performance. That's the story. The reality is PE firms nearly exclusively loot a firm's existing cash flows, saddle it with new debt and accelerate its demise as a viable going concern.

The answers about responsibility and maximizing shareholder value in particular are simplistic and seriously flawed, as will be discussed later. These attitudes result in nearly daily conflict with a different set of truths about the world of business that are seldom addressed in the stark terms below in business schools and virtually never discussed in actual businesses. These are partly a reflection of the "physics" of business and partly a reflection of human psychology.

• No business grows forever. Exponential growth above ten to fifteen percent per year for more than a few years is impossible to sustain.
• No business lasts forever, even without exponential growth. Every business is somewhere on a line between birth and death.
• Few business strategies can continue functioning effectively for more than about five years without material re-engineering of products or processes.
• Few executives have the technical, managerial and people skills required to effectively lead a company across more than one or two life phases. The skills required to lead and direct a startup with fifty employees are VASTLY different than those required to lead 50,000 employees and are often orthogonal to each other.

Visually, that business circle of life might look like this to the CEO or CFO looking at their bottom line at different stages:

In a real sense, private equity firms exist because business leaders fail to grasp these concepts and incorporate them into operational decisions of a business as it progresses from inception to growth play to cash cow to problem child (paraphrasing somewhat the classic Boston Consulting Group terminology). However, private equity firms fail to solve these problems not necessarily because they don't recognize them but because PE firms devised a more profitable strategy FOR THEMSELVES to exploit these problems rather than correct them. What exactly do PE firms exploit in their operation?

• a fixation on perpetual growth driven by the corporate form itself
• flawed treasury operations strategy that fails to adapt over time to a corporation's evolutionary state
• a lack of transparency during reorganization accentuated by going private

Corporations as a Form of Business Organization

The legal concept of a corporation is intended to solve key problems that crop up with older, simpler forms of business entities that are more intricately tied to individual, named humans – namely sole proprietorships and partnerships. These forms of business pose two core issues to owners, one issue being an explicit tie to the named owners regarding taxes and operational control, the other being unlimited liability and difficulty in raising capital for growth.

The explicit tie to named owners can constrain the value of the company due to the difficulty in ensuring a smooth transfer of control if a named owner dies or simply wishes to exit the business while still extracting the value they injected into the operating entity through their labor. For very small businesses with few employees, this is typically a known and accepted trade-off for the relatively simplicity of using a simpler business structure. For firms employing dozens or hundreds of people, the operations of those businesses affect many more employees and customers who all want and expect continuity regardless of what happens to any single owner. As a consequence, these simple forms quickly reach legal and operational limits that can severely constrain their economic value to their owners.

Unlimited liability and complexities with raising capital impose different forms of limitations on proprietorships and partnerships. Without incorporation, all debts and liabilities incurred by the business by its operations (loans for equipment, etc.) or because of its operations (lawsuits for injuries to employees or customers) are the direct legal responsibility of the owners and are unlimited. Two partners each worth $1 million individually and owning a business worth $2 million can lose a lawsuit for an action of the business, have a judgment imposed for $4 million and both wind up penniless. Again, for very small businesses, these risks can be quantified and insurance obtained to provide protection against them. For larger businesses pursuing larger goals, the cost of such surprise expenses quickly grows beyond what owners can afford to cover via business insurance. More importantly, they quickly grow beyond a level that any lender wants to see who might lend that business money directly. Lenders want to see a larger pool of parties who have an interest in ensuring the proper operation of the business before lending amounts beyond, say, five digits ($x00,000).

The limited liability protection provided by the corporate structure limits loss exposure for individual shareholders to the amount they invested in the corporation. Imagine the following circumstances:

• company XYZ sold 100,000 shares at $10 each for an initial company valuation of $1 million dollars
• investor A purchased 100 of those shares at $10 for a one-one-thousandth share of ownership worth $1000
• after months or years, company XYZ is now worth $30/share or $3 million total
• company XYZ loses a lawsuit and faces a judgment of $4,000,0000 dollars and goes bankrupt

In this scenario, investor A can only lose up to the $1,000 originally invested. Investor A cannot be individually held liable for the $4 million dollar judgment or any other debts of XYZ. Even the employees of XYZ are protected from the collective liabilities of the company as a whole. Employees only face liability in the context of negligent actions they take in their employed duties or if they had particular fiduciary responsibilities of their role they failed to meet.

The governments of virtually every industrialized economy quickly concluded this form of limited liability for owners of corporations provided incentives to invest in new technologies whose benefits were thought to outweigh any downsides. It took a few decades for some of those downsides to become evident, such as monopolies, restraints of trade, etc. The key takeaway here is this: The sole purpose of the corporate structure as a legal construct is to encourage the sustained, unbounded economic growth of a business. A second takeaway from the first is this: Nearly every aspect of regulation favors larger companies over smaller companies, as more companies get large, it becomes more difficult for vendors of those companies to remain small and the entire cycle becomes self-reinforcing towards larger companies. The net result is that every aspect of daily business is geared towards producing very large firms that become very sclerotic and resistant to change, making them vulnerable to technological shifts that can arrive overnight.

Treasury Operations – Theory and Practice

Every undergraduate business degree curriculum and every MBA curriculum includes a mandatory class named "Finance" that covers a blizzard of topics. Cash flows, interest rates, discount rates, present values, future values, the mathematics of bonds and annuity payment streams, return on equity, internal rates of return and even extremely complex concepts about "beta" measures of the correlation of value between different types of assets. As a "core" course, the material serves as a vocabulary introduction to any business student regardless of their primary focus (marketing, operations, organizational design, accounting or finance) and just an intro class for any students actually focusing on finance who go on to more advanced material. One topic that went uncovered in the "finance" class in my MBA curriculum back in 1989 and 1990 involved what I will term treasury operations strategy. What might be included in treasury operations strategy?

• setting minimum rainy day reserve balances based on payroll, emergency exposure, current state of the company's working capital, etc.
• establishing set-asides to build up accounts for capital replacement in conjunction with operations
• ongoing validation of geographic diversity in banks serving corporate accounts (not putting all of the company's cash in one bank account like Silicon Valley Bank)
• mileposts as measured by free cash flow for switching from retaining earnings to paying dividends
• mileposts as measured by free cash flow for adjusting dividend amounts

None of these topics ever came up in my finance class. They didn't come up in my operations management class. They didn't come up in my financial or managerial accounting classes. And my curriculum did not include a class devoted to the "business life cycle" as I have termed it previously. The only class taught that addressed any phase of the business life cycle addressed entrepreneurial strategies from ideation through the angel investor round.

Part of the reason for this gap might have been that my business school clearly understood no graduate of theirs would ever need to lead an organization making $30 million yearly selling diapers, breakfast cereal or candy bars. We would all be working at Goldman Sachs, GE or founding the next Microsoft. Part of it might have reflected the biases of the students as well. Who wants to spend two years and (back then) $26,000 learning strategies for running a business that makes Milky Way candy bars? But part of the gap might reflect an assumption that these decisions aren't "financial" per se, they are CEO-level strategic decisions and it's the CFO's job to simply find the money when the CEO says jump and no one seems to teach those CEO strategies. And THAT is the problem. No future CEO ever hears those truisms listed earlier – that no company grows forever, no company lives forever, no company can remain inert longer than five years and survive and that few CEOs are good for all seasons. This blind spot is reinforced in every business curriculum.

Any answer to the question of what a company "should" do (a normative question, not a legal question) with its cash flow is directly tied to the other controversial questions regarding the primary fiduciary responsibility of a corporation's leadership to its shareholders and the best strategies for meeting that responsibility. Since the 1980s, American corporations have been overtaken by a mindset that answers the first question with The SOLE fiduciary responsibility of executives is maximizing shareholder value and answers the second question with by maximizing share price. These answers are profoundly simplistic and therefore, in an era where the economic power of many corporations exceeds that of MOST countries in the world, profoundly WRONG. Why?

First, fixating on share price assumes every other variable a manager should also be optimizing is perfectly reflected in the company's books that ultimately drive that share price. This is ABSOLUTELY not the case, even if the entire executive suite was staffed with Mother Teresas. No firm's books accurately reflect often ENORMOUS costs the firm has managed to externalize. Energy firms aren't carrying liabilities for physical environmental damage done by decades of greenhouse gas emissions. Social media firms aren't carrying liabilities reflecting the costs of psychological harm from cyber-bullying and ADHD productivity losses stemming from purposely addictive content filtering. If such costs were carried on their books, stock prices would be far lower.

Second, fixation on share price assumes that managing a firm's operations to drive up share price is the most effective way of "transmitting" the increasing value to shareholders who are then free to cash out as few or as many shares as they want with whatever timing they choose to enjoy the firm's growth. In reality, executives have focused on stock prices as the SOLE yardstick for a variety of selfish reasons. Even for very large firms, it IS possible for a CEO and CFO to directly drive up the firm's stock price by simply buying up shares on the open market. A single purchase of a few thousand shares worth a few million won't even cause a blip but if the firm announces a plan over X months over the next Y quarters to buy up (say) $30,000,000 worth of shares, that consistent pressure CAN drive daily volumes up which can raise the stock price substantially.

Executives also focus on share price because many incentive schemes are driven by an increasing stock price ("hit $100 in two years from the present $65 and here's $10,000,000 in cash") or options are granted directly that only become valuable if the price goes up. But those option grants can involve MILLIONS of shares and thus provide massive leverage and incentive for juicing the price.

So what's the alternative for conveying cash and value from a corporation to its shareholders? DIVIDENDS.

A dividend is a cash payment made from a corporation to holders of shares in the company as of a given calendar date. Although commonly referenced as a dividend yield as a percentage point of the going share price, the actual dividend amount is specified by the corporation as an exact dollars/pennies amount. For example, as of 10/28/2025, Microsoft pays a dividend of $0.91 per share every quarter so that dividend is also shown as a 0.67% annual yield because dividends for the year will be $3.64 against a share price of $542.07 amounting to $3.64/$542.07 or 0.671% or 0.67 percent.

So what are the lessons about dividends versus capital gains taught in business school? They probably come down to this shorthand:

• No firm should pay dividends until they are profitable. Keep earnings internally to fund efforts that cement your position or keep you poised for growth.
• Firms still growing sales or growing market share should avoid paying dividends. Keep earnings internally to fund internal growth as long as you're growing.
• Large corporations still growing in SOME operations sectors but not in others should still avoid paying dividends – as long as you have an internal opportunity somewhere in the business for growth, fund it from internal operations.
• Large corporations with highly profitable business generating large amounts of cash flow but are not growing in absolute size or market share should pay dividends. If you cannot find internal means of providing a competitive return on your shareholder's cash, give it back to the shareholders.
• Once a firm STARTS paying dividends, it should virtually never LOWER or HALT a dividend. Investors who like dividend-paying stocks value consistency for managing their income and firms that vary their dividend typically find investors dump the stock since any reduction in dividend is a warning flag to investors that cash flows are dwindling.

That doesn't sound complicated. It sounds reasonable. Why don't more corporations follow this?

Two things are happening when a CEO agrees to pay a dividend or raise an existing dividend. First, they are not-so-subliminally communicating to shareholders "I have no better idea on how to make money with this current business so I'm giving cash back to you." In the mind of that executive, that's two strikes against them in one. One, the CEO telling his board and investors he / she has no idea how to make more money – a failure of management skill and daring. Two, the CEO is telling the board and investors that the business itself has plateaued or is actually in decline which many will blame on the CEO. Most shareholders -- conditioned to expect every stock to grow perpetually -- flinch at hearing EITHER of those scenarios even hinted at. Therefore, no CEO ever wants to convey such a message. They know their tenure will be very short afterwards. Possibly days or weeks.

This is why the psychology of CEOs is so crucial to private equity.

This thinking defies reality. Not every firm can be an Nvidia or Anthropic or OpenAI (nor should they be). Any firm continuing to retain earnings beyond the point the business can use them to fund legitimate growth is magnifying the size of the target on its back. First, retaining earnings tempts managers to take larger gambles on other strategies for growth which likely lie beyond the firm's strengths. These often result in outright failures or slow financial leaks which harm the company's margins. Retaining earnings and doing NOTHING with them penalizes shareholders who, if paid out their share of that money, might find other investments paying a higher return than Treasuries or (gulp…) no return at all. Finally, retaining a pile of cash indefinitely actually attracts the attention of private equity investors. It's one of the first indicators that attracts the eye of the vultures circling above.

Isn't the CEO paid to know better and "do the right thing?" It's easy to argue that in fact, boards are paying CEOs so much money hinged on growth they are essentially encouraging the CEO to deny reality, at the expense of shareholders. CEOs tend to be optimistic and confident to the point of arrogance. The incentives created by obscene compensation packages based primarily on stock price appreciation virtually guarantee any CEO who recognizes the reality ignores it. From their perspective, there is little downside. Whaddaya gonna do? Fire me? I already have tens of millions of dollars. I'm already set for life. This is just gravy.

Private Versus Public Companies

The final market distinction requiring consideration involves the pros and cons of operating as a private versus public corporation. A great deal of grumbling has been expressed by executives and investors alike over the last fifteen two twenty years about the regulatory hassles of operating as a publicly traded company and the relative dearth of famously profitable initial public offerings as were common in the old days like Microsoft or Dell or Cisco or Google or Netflix. Certainly, the question about "why go public at all?" seems legitimate:

• Why hassle with the cost of an external quarterly audit and quarterly income statement and 10K filing on insider trading activity?
• Why waste your CEO and CFO's time answering mindless questions from reporters and analysis on a quarterly earnings call?
• Why subject your shareholders to the vicissitudes of fluctuating stock prices brought about by short-sighted, greedy outsiders who don't care about the company like you do?

A single word answers all of these questions: DISCIPLINE.

As a company gets larger and more complex, it certainly becomes more expensive and time consuming to audit and thoroughly certify the accuracy of its books but that problem isn't eliminated by operating privately. The only thing different is a private company with identically complex books can drift longer with looming errors or outright corruption in its leadership cascading without going detected. Cases like Worldcom, Enron and Lehman prove that operating as a publicly traded firm doesn't guarantee clean books either but it is far easier to hide danger when management can hide its work for longer periods of time.

So what's up with the noticeable reduction in the number of IPOs in general, much less the lucrative IPOs that produce a nice 20-30 percent premium for insiders of the company? If you are asking the question "Where are the Microsofts, Googles, Facebooks, etc of today's startup world?" then the answer very likely is "Look inside Microsoft, Google, Facebook and the other tech giants." Small businesses that launch to develop innovative products leapfrogging incumbent giants are often bought up by those giants before the upstart product ever launches. What's driving this behavior?

The actual economic payoff in software tech, hardware tech, biotech, etc. has actually NEVER been very good on average. For every 10x firm, there are many others that failed before reaching IPO (payout $0), reached IPO but failed shortly after (typically $0 payout) or limped along after a short bubble on IPO then failed (typically a small payout in light of hours worked during the startup phase). This pattern is well understood by entrepreneurs who have become far less idealistic and far more pragmatic. At the same time, the most dominant corporations have become EXTREMELY inefficient and EXTREMELY averse to developing new products that cannibalize their existing monopolies. As a result, they have become EXTREMELY aggressive at identifying competitive threats and buying them up before they ever go public. Essentially, they all pursue a proactive capture and kill program.

From the existing monopolists' perspective, they have captured some competitive talent for at least one or two years, avoided the release of a potentially competitive product and theoretically infused their own company with some new talent and DNA. From the perspective of those entrepreneurs gobbled up, they pocket a huge one time payoff that might be $2 to $5 million that never have actually materialized had they stayed independent and tried the IPO route, they got a guaranteed cushy job for maybe a year or two and a notch on their resume. ("Startup – been there, done that").

But what is the impact of capture and kill on the larger market? The business segment involved saw a reduction in innovation. A possibly valuable product development effort was immediately surrounded by a stifling, unimaginative bureaucracy that will likely bring its development to a halt or grind it into mediocrity. And investors lost the chance to participate in the game and maybe score that ten-bagger gain on one of those five companies that was absorbed into an existing monopolistic borg that might have been a winner had it stayed independent and tried the IPO route.

In short, the dearth of IPO opportunities is NOT primarily due to a fear of small companies incurring the headaches of "burdensome" accounting regulations and reporting costs. It is primarily due to existing, anti-competitive tech giants gobbling up micro-scale threats to their positions before those businesses can grow through a few cycles of exponential growth and demonstrate how much better new products might be compared to those of the current monopolies. The lack of money-making opportunities for IPO gamblers is the smallest concern with this pattern. The real damage is reflected in the lack of choice and lack of innovation evident in nearly every industry which is affecting economies across the globe.

So now we arrive at the point of this entire analysis...

Private Equity on Steroids, Everywhere

All of the problems associated with private equity stem from conflicts between these false principals about fiduciary responsibility and maximizing shareholder value versus the natural cycle of the business world. Stated more directly, virtually everything in the model for operating a corporation in a "modern" industrialized country is optimized for promoting GROWTH. Executive compensation promotes growth. Tax policies promote investment in equipment to produce MORE. Personnel policies reward employees associated with projects tied to products and business segments that are growing. In contrast, NOTHING in any realm of tactics or policy is optimized towards sustained but FLAT profitability. As a consequence, leaders actively AVOID adjusting operations for flat profitability because adjusting requires recognition and acceptance of stagnation and markets do not reward stagnation, even at obscenely profitable scale. This creates an artificially large universe of zombie companies with significant cash flow but poor future prospects that are ripe for capture and pillage.

How do these factors interact to cause the problems seen with private equity? They reinforce each other and magnify the vulnerability to private equity abuses through the nature of the corporate structure itself and its intended purposes, through a lack of strategic thinking about corporate cash flow on the part of CEOs and CFOs and perceptions about the pros and cons of operation as a publicly traded corporation versus a privately held corporation.

So far, the use of the term "private equity" in this analysis has focused on the familiar "vulture capital" tactics in common use since the 1980s. That mode of operation primarily involved companies closer to the end of their evolutionary cycle who have reached a no-growth stage that begins driving down their stock price. Private equity investors become involved, buy up sufficient operational control, then rearrange the company's operations to redirect most of its free cash back to the PE investors (and NOT the company's original or remaining shareholders) and hasten the decline of what's left into market failure and bankruptcy. The damage done by this strategy has been apparent for decades and will likely get worse.

But if this failure pattern is so obvious in the existing vulture capital model, how do PE firms continue attracting additional OPM (Other People's Money) into similar schemes targeting more victims?

It isn't because these PE firms still believe in the story of PE and want to try it again despite decades of failure. They know it doesn't work. They likely always knew it never worked.

The PE firms continue to play this strategy because they have devised a hack which perfectly exploits the flawed belief system of most corporate leaders, the legal favoritism of corporate growth at the expense of smaller businesses, and pay incentives for executives that reward growth at the expense of recognizing reality. The scam of private equity works perfectly…. For the scammers.

Knowing that most CEOs cannot accept this and knowing there are ALWAYS firms closer to the grave than their heyday, there will always be a percentage of all operating businesses who are in a zombie phase where their leadership skill set is not synced with their lifecycle state. Many of these businesses WILL and SHOULD go out of business. But if you're the CEO of that firm pulling down $800,000 in salary and $2 million in incentive pay each year, you have ZERO incentive to act on that reality and disturb the status quo.

Private equity firms have essentially perfected a process that replaces a slow death (that puts most of the "lost" money into existing management, existing employees, existing customers and existing creditors while likely leaving shareholders flat) with an accelerated death with a significantly different cash impact.

The difference in outcomes and timing is illustrated below.

An existing or new CEO gets more money, a lot of employees get laid off, products are dropped or cheapened, creditors get shorted and more of the cash routes through entities lining the pockets of the PE owners. The shareholders still gain little if anything. And when the firm is sucked dry, the PE teams move on.

But move on to where, you ask? Haven't PE firms pretty much destroyed the restaurant, retail and consumer goods industries across America? Well, yes they have but PE firms ARE moving on... New segments to pilfer have been identified and are already being targeted, most notably regional hospital chains, nursing homes and hospice care and Alzheimer's "memory care" facilities. Note the similarities? Widely needed services. Lots of real estate involved in delivery of services. Low-wage, high-churn jobs. If you thought the service sucked at Applebee's or Panera Bread after private equity gained control, you can imagine what will happen to wait times and quality of care in the Emergency Room at the local regional hospital over the next ten years.

But, as they say, it gets worse...

Private equity firms have begun seeking higher returns by branching into transactions providing financing for ongoing operations of firms presumably earlier in their evolutionary cycle. Deals in these areas have been growing for likely five to ten years but the dangers have become apparent as some of the firms have experienced acute operational failures, triggering bankruptcies and divulging the nature of these underlying financial deals. In several recent cases, private equity firms have been found holding worthless IOUs signed by suddenly bankrupt companies who borrowed tens of millions of dollars only days before being found insolvent.

The bankruptcy of First Brands is particularly instructional. First Brands owned firms making products ranging from Fram oil filters, ANCO wiper blades, Autolite spark plugs, Carter pumps and Reese towing hitches. In other words, AUTO PARTS. Not sexy stuff. Not businesses growing ten percent per year. Stodgy, boring AUTO PARTS. The company filed for bankruptcy out of the blue in September 2025 and court filings disclosed the company was carrying $6.1 billion in debt. It turns out the company was owned by a collection of small firms no one ever heard of which in turn were all controlled by a Malaysian firm whose ownership of those other shells amounted to 63% ownership of First Brands. But First Brands had obtained financing for its accounts payable to the tune of nearly $2 billion dollars from other major hedge funds and well known PE firms including BlackRock. After filing for bankruptcy, some of those late-stage lenders discovered that more than one of them had been promised the same collateral for loans, a massive failure of due diligence on their part.

The discovery of the extent of private equity involvement in this type of lending raises concerns about the larger financial system. First, most private equity firms have no particular background in day to day lending. Lending decisions are different than investing decisions and reflect much narrower criteria for variation in payback schedules, etc. Certainly PE firms have arguably ZERO experience in understanding the structure of a firm's unpaid invoices and the risk of non-payment for those invoices offered up as collateral. In this case, the borrower was a PE firm without public books so the PE lender had very little third-party verified public data to rely upon in making a lending decision. And they clearly made the wrong lending decision. So now a clear picture is emerging of the danger posed by PE owned companies borrowing from other PE owned companies looking for outsized returns.

And yet, the danger spreads…

Over the last decade or so, the influence of private equity investing has reached back further in the business entity life-cycle. For the reasons cited earlier, far fewer companies are choosing to go public at any point. This means that a growing number of investment opportunities in new businesses are NEVER exposed to a public investing community. Instead, news of these opportunities is being limited to those working for specific private equity firms who are handling the phase of investing that previously followed "angel investor" rounds and preceded IPO. That certainly presents an opportunity to eliminate some "froth" and hype out of the public market but there are certainly hidden costs:

• Essentially hiding IPOs makes it impossible for entrepreneurs and investors alike to confirm if fair evaluations are being assigned by private equity investors. Is it more advantageous to society for an out-sized financial reward to be paid to an investor with a great idea or a private equity investor acting as gatekeeper to money?
• Limiting participants and limiting information available virtually never increases transparency and fairness. Will a lack of transparency lead more entrepreneurs to accept lower payouts but reduce incentives for innovation in the process?
• Lack of transparency is likely to make PE investors themselves more likely to engage in pump and dump schemes and thus become victims of them as well.

Over the last ten years, PE firms have seen the same declining pattern in the volume of businesses going public through the traditional IPO process and have begun participating in early investment rounds of startup businesses. The business strategies and psychology that should come into play in that stage of a company's life cycle are VASTLY different from those that dominate during the end-stages of life. So what do PE firms claim to offer in these scenarios?

It isn't that PE firms have "infant-stage" expertise in business strategy or that anything they've learned from late-stage business applies to early stage firms. Their vulture capital track record proves they possess ZERO expertise in optimizing businesses that have been operating for decades, so there is zero chance they have any insight whatsoever into a business creating a brand new sector or technology. However, decades of vulture capital work has demonstrated the value that can be extracted from deals by adding parties to the terms, muddling or hiding entirely data normally required for informed decisions, and leveraging human psychology driven by greed and fear to extract a lucrative cut from every bag of money changing hands in any direction.

In short, "froth" and speculation won't be eliminated by a swing from a vibrant Initial PUBLIC Offering environment to a more active Initial PRIVATE Offering model, they will simply become more hidden and grow as if on steroids. This problem is bad enough but will create 100x problems if a recent proposal to RELAX limits on 401k and pension fund investments in private equity firms is approved.

Presently, 401ks and most pension funds are prohibited from investing in private corporations explicitly because of the lack of public reporting on the financial condition of such firms. The idea is that concentrations of assets tied to retirement funds need to avoid unnecessary risks to avoid a market shock from leading millions of retirees who HAD SAVED for retirement from needing to eat dry dog food to survive. Eliminating this restriction is being promoted under a false flag of "improving choice" for workers and retirees to pursue investment strategies that offer higher returns than those possible by sticking with public firms.

Why is this change so dangerous? It not only would redirect BILLIONS of dollars into existing private firms whose track records are already too opaque but it would also allow BILLIONS to flow into STARTUPS who are PRIVATE who are not only opaque but are not even making money yet. Such investments would be PURELY speculative, they would provide ZERO transparency for analysis by outside parties, would be highly susceptible to bubbles and fraud and are completely unsuited for any retirement plan.

This isn't a drill. It isn't a hypothetical exercise. The traditional vulture capital PE strategy has a perfect track record. One hundred percent of the time, the PE firm has profited handsomely and one hundred percent of the time, every other party to the deal lost and the firm involved tanked. Yet regulators and businesses alike are essentially removing any barrier keeping this toxic business strategy away from the most crucial investments individuals have – their retirement accounts. This will not end well.

WTH

Cascading Financial Fears

Prior posts on this channel dating back to August have re-addressed different angles of a common set of financial problems that have triggered meltdowns over the past quarter century. Those problems involve poorly enforced lending standards, internal risk management systems executives failed to update to reflect new risks they chose to take and a growing number of mini financial seizures occuring between banks as they balance nightly books and realize everyone's short or everyone is spooked.

Providing a full re-explanation of the underlying mechanics each time the markets incur a twinge of financial angina gets tedious for writers and readers alike. However, most keyboard economists and commentators have determined the easiest indicators of looming seizures boil down to two key metrics: sudden jumps in the dollar value of new overnight loans issued between banks and sudden jumps in the interest rates charged on those loans. Why are those factors so crucial?

As described in prior commentary, if Wall Street financial institutions are the economy's collective engine, then for the thousands of large and small banks to operate smoothly, they have to keep oil circulating throughout the engine and have some in reserve in the bottom of the pan as well. That oil in the pan at the bottom of the engine is equivalent to overnight lending between banks. Normal variations in customer activity make it NORMAL for banks to need to borrow money each night and NORMAL for other banks with extra cash to lend some out for short periods to make a few extra bucks.

If a particular bank's transactions "ran hot" on a given day and at the end of that day, it found it needed to replenish its oil by adding a half quart to a giant engine that takes 8 or 12 quarts, that might be perfectly, statistically normal. However, if the same bank checked its vitals at the end of the day and found it needed to add three or four quarts, that's a sign of trouble for that bank. If hundreds of banks came to the same conclusion on the same day, now the larger system has reason to be concerned. If that much lubricant has turned up missing across hundreds of banks, liquidity in the larger system is experiencing a major problem. When financial watchers note that overnight lending jumps from daily norms of from two to five billion dollars up to eight to ten billion with no obvious non-financial event to trigger a scare, that directly reflects surprise being registered among market players and surprise is virtually never a welcome factor in markets.

When banks encounter surprises and need money to tide themselves over, it's one thing to be one of a few needing an out-sized amount on an urgent basis. The market can help out but the market will exact a price for helping that institution by charging an interest rate reflecting the dollar magnitude of the amount needed and, to some extent, an interest rate reflecting the degree of the surprise itself. When MANY banks face large surprises simultaneously, the entire system not only has more trouble finding available funds to lend but it also has more difficulty processing the surprise and deciding on an appropriate interest rate. This triggers sudden jumps in those overnight interest rates that on one hand may look inconsequential compared to changes in mortgage rates or car loan rates. However, these rates are being charged on loans that might be half a billion dollars. And if a bank has trouble assessing the risk of ANOTHER BANK not paying the loan back in (typically) less than two weeks, that's a damning sign about the overall health within that market.

Another common theme being covered in recent commentary is that there ARE some recurring human-induced events baked into the calendar that routinely generate small liquidity crunches across markets. One example of this are end-of-quarter days where publicly traded banks and large mutual funds and hedge funds attempt to sanitize their end-of-quarter holdings to make it appear they are holding some of the biggest gainers over the prior quarter or two. Another example are quarterly tax days for businesses where companies have to have cash on hand to pay their quarterly share of their yearly tax bill. Another example involves the four "triple witching" days on the third Friday of March, June, September and December on which three different types of option contracts expire, causing traders to have to suddenly raise cash to settle trades and cover losses.

These magic stressful days have enough of a track record across decades that these relatively small credit crunches don't phase traders or watchers alike. It's just an accepted pattern in the larger dataset. The troubling sign in the increase in the number of these types of stories about recent market days is that all of these analyses are smart enough (jaded enough?) to point out that the event and the day they are describing was not one of these normally expected stressful days for markets. They were days or weeks away from "obvious" easy explanations like options expiring or quarterly "window dressing." What few of these analyses seem to have attempted to do is identify any new theme of common factors behind these events.

Hence this commentary…

The magnitude and number of these mini credit crunches are increasing over the past two years for the following related reasons:

1. Confirmation that most institutions lack sufficient internal controls to allow their own internal management to spot their own risks.
2. Confirmation that executives of most institutions learned nothing from the 2008 crisis because virtually every institution is engaged in patterns of operation they KNOW are elevating risk yet feel obligated to continue participating as long as the cycle holds up.
3. A complete failure of the US federal government to control, much less reduce deficits, triggering ever larger amounts of borrowing, competing with private needs for borrowing.
4. Increased absolute levels of federal borrowing coupled with a strategy towards shifting VAST amounts of new and existing rolled-over debt into MUCH shorter maturities (most less than one year).
5. Two recent bankruptcies reflecting circumstances where lenders to those firms had extended billions of NEW loans sometimes only days prior to bankruptcy, confirming those lending institutions did ABSOLUTELY ZERO due diligence before lending that money.
6. One particular example within the First Brands bankruptcy debacle involves a bank that said it DID delivery the cash proceeds for the ill fated loan it chose to make yet accountants for First Brands cannot find any sign the cash reached their account. Where was this loan signed? On the hood of a '93 Ford Tempo outside a pawn shop?
7. Nearly daily confirmation that the Trump Administration not only has zero intent to enforce securities law, it has every intent to extort a can't-lose position for Trump and his family in any financial boondoggle anyone can dream up.
8. Trump not only has zero intent to enforce securities laws in his term, he is actually PARDONING people convicted in cases prior to his current term involving fraud and failure to enforce money laundering regulations that allowed drug traffickers, terrorists and child porn rings to operate using cryptocurrencies..

When all of those inputs are shuffled together multiple times through multiple feedback cycles then pulled out for analysis again, the following sequence of events isn't just POSSIBLE, it is virtually ASSURED at this point.

• Massive increases in weekly demand for short term lending and securities as collateral for obtaining cash for liquidity will trigger a larger number of days where supply and demand are out of sync.
• An increase in "stress days" will generate more volatility in those short term interest rates.
• Increases in short term rates are completely antithetical to the Treasury's bet on affording more debt by shifting more borrowing into shorter maturities it thought would have lower rates but now have HIGHER rates.
• This strategic catastrophe will reduce world demand for US Treasuries, limiting the ability of the United States to maintain such huge debt loads AND limiting the ability of the United States to offer Treasuries as "safe havens" for banks worldwide to steady markets during panics.
• The Trump Administration will be triggering more financial crises nearly every day as new tariff threats are made or implemented, as more corruption of Trump deals exposes more corruption in US markets in general.

All of which combine to inform anyone paying attention that the United States is throwing away every possible firefighting tool required in every crisis experienced since World War II. At the same time, the Trump regime is actively fostering corrupt deals likely to produce multiple crises of magnitudes that will make the 2008 crisis look like a blip in comparison. Prior to the September 2008 crisis, virtually no writers had stories or columns addressing looming risks even two or three weeks prior to a collapse that became the most damaging economic downturn to hit the world economy at that time. Today, you can find a handful of such reports nearly every day about new examples from that day pointing to all of the same factors seen in 2008 only after the fact.

WTH

BOOK REVIEW: We the People

We the People -- Jill Lepore – 581 pages (702 with notes and index)

Harvard Professor of Law and Professor of History Jill Lepore's book, We the People, provides a thoroughly researched analysis of key actors and events that have influenced American attitudes about constitutional law in general and our specific Constitution. As with most of Lepore's written work, her emphasis extends beyond the Cliff's Notes version of history and digs into actors and events beyond common knowledge to better explain the operation of the machinery when much of it makes little sense from what can be seen at the surface.

While thorough and detailed, the writing is concise yet conversational, making it a book the reader doesn't have to will themselves through. If you're interested in the topic, the pages will turn fast enough. The book does draw upon shorter content Lepore wrote for other publications such as The New Yorker dating back to 2022. A summary version of the themes of the book was published in The Atlantic on September 10, 2025 prior to the book's release on September 16.

Given the three-year span of sources assembled and edited into this final book, the expected sense of final message from the book at the time it was started might differ signicantly from its final message as processed in the present in October of 2025. At inception, the book might have been pursued as an effort to assemble a thorough history to make a point that Americans needed to become far more comfortable with amending the Constitution in order to correct some major problems. As of October 2025, nine months into an administration openly defying constitutional limits every day, the book likely reads in a vastly different manner than Lepore could have predicted in 2022. The takeaway in 2025? If Americans cannot reach consensus on actually amending the Constitution, the existing Constitution and its corrupted interpretations will combine to move the country backward decades, if not centuries or fail to preserve the country entirely.

Recurring Themes

Before delving into a few deep dives on specific points of interest in the book, there are a few common themes that arise throughout the events described in Lepore's history that merit summarization.

Selfishness and Selective Righteousness -- The book cites too many incidents to count in which specific interests looking for expanded rights under the Constitution competed with each other and set back progress for all rather than identifying and fighting from common ground. This me-first mentality has delayed improvements in racial equality, voting rights, labor protections and environmental protections literally for hundreds of years. Part of this can be chalked up to a clear understanding of the difficulty of winning change via amendment and a fear that voters would better focus on ONE issue at a time. However, that assumption cemented the perception of change by amendment being difficult. It also required CONSIDERABLE blinkered interpretation of reality over decades. Black organizations did NOT supporting women's suffrage because clearly, ensuring voting rights of black MEN was more important than WOMEN in general. (WHY? What is MUTUALLY EXCLUSIVE about these goals?) Black organizations didn't support efforts for environmental protections in the 1970s because environmental groups were insufficiently supportive of prioritizing urban renewal and protections. (Again, what is MUTUALLY EXCLUSIVE about these goals?). Women opposed protections against child labor because they were convinced it would prevent parents from forcing children to chop wood or do other chores and efforts to halt child labor would distract from efforts to win women's suffrage. (Again, did women seriously believe children working 60 hours per week in coal mines and factories WASN'T as serious a problem as women securing the vote? What is mutually exclusive about these goals?) Here's a perfect example of this dynamic, involving two of the most famous progressive figures in American history, from a face to face debate regarding the then-pending Fifteenth Amendment:

Frederick Douglas rose to speak against this position. "I do not see how any one can pretend that there is the same urgency in giving the ballot to woman as to the negro," he said. "When women, because they are women, are hunted down through the cities of New York and New Orleans… when they are in danger of having their homes burnt down over their heads; when their children are not allowed to enter schools; then they will have an urgency to obtain the ballot equal to our own." Susan B. Anthony rebutted him, betraying her belief that educated white women were more deserving of the vote than uneducated Black men. "Let the question of women [be] brought up first and that of the negro last," Anthony said. "Mr. Douglas talks about the wrongs of the negro; but with all of the outrages that he today suffers, he would not exchange his sex and take the place of Elizabeth Cady Stanton."

Try, Try Again... -- Given the longevity of the US Constitution, the initial reaction of many after reading about the thought that went into the numerous checks and balances that were present from inception is one of amazement. How did a small group of men get so much right out of the gate? The easy answer is they DIDN'T get much right out of the gate. The first attempt was the Articles of Federation which barely sufficed to guide the country through the Revolution. The "Constitution" wasn't US1.0, it was US2.0. The better answer is that the Constitution represented an accumulation of lessons in government and power learned across thirteen states who already encountered many of the debates that affected the new Constitution. Many of the states had revised or completely rewritten their constitutions several times by the time the 1787 effort began. As a result, the initial US Constitution reflected DECADES of cumulative experience writing and interpreting such documents and a firm belief in the need to allow them to be amended. No state constitutions written at the time were expected to last more than twenty years without a convention to rewrite them from scratch.

Machine Versus Organism -- The mental model politicians have used when thinking about the purpose of the US Constitution very quickly divided into two metaphors. At the time of its origination, many thinkers – enamored by newly clarified concepts of astronomy and physics – pictured a constitution functioning in the same fashion as an orrery, a mechanical contraption built to physically model the interrelated orbits of the sun and the planets. This mechanical view brought with it an underlying assumption that the logical model being visualized was perfect and the machine would just need processes to maintain the machine in that original pristine state. Many others assumed a constitution would NEVER be perfect and would REQUIRE either support for modification on an ongoing basis or a COMPLETE REWRITE every generation or so, maybe every two decades. In the latter 1800s as understanding of biology took hold, this second mindset began to adopt biological / evolutionary terminology in public debate. Early on in the country's history, even those favoring the mechanical metaphor quickly understood that the states (the "planets" in the metaphor) were not static but were changing in population and economic power and any planetary balance would require frequent readjustments to the rules governing their interactions.

Amendment Versus Interpretation -- Given the original Constitution the United States created and its checks and balances, disagreements over the actual operation of the government and the actual effects of the rights granted to those within the country very quickly morphed into debates about achieving changes through AMENDING the Constitution or INTERPRETING it in different ways. At the outset, those creating the framework absolutely believed new demands would be met via amendment. The possibility of interpretation as a means of change only grew obvious after cases such as Marbury v Madison in 1803 that established the concept of judicial review and McCullock v Maryland in 1819 that asserted the supremacy of federal law over state law, simplifying the expansion of federal power. The trade-offs between amendment and interpretation as means of progress were instantly magnified due to the fact that the most contentious issues that cropped up in the first decades of the new country's existence all touched upon the most controversial elements of the original constitution – slavery, voting rights, the Electoral College – and thereby immediately encountered the paralysis made possible by the original sins of the Constitution which made gaining ratification on any amendment affecting these issues impossible in the required plurality of states. With short periods of exceptions, usually following major wars, America has been stuck in that paralyzed state, unable to move forward via amendments ever since, heightening the attention paid to altering court interpretation through court appointments.

Constitutional Originalism -- Given the focus on the use of interpretation rather than amendment to obtain constitutional changes, the philosophy applied to interpreting the Constitution has become paramount. The TERM originalism entered common use in 1981 but was formally promoted a decade earlier by Robert Bork. However, the CONCEPT of originalism in constitutional law is nearly as old as the first efforts to amend the Constitution to provide rights for blacks or provide voting rights for women. Since its inception, originalism has always been and remains to the present an intellectual charade for justifying attempts to ignore or negate any changes to the constitution which added rights or provided protections to individuals. It is completely at odds with the expectations and desires expressed in nearly every contemporaneous document from the time the Constitution was written and is utter historical and legal farce.

What Does Amendment Actually Mean?

Despite the Constitution including language in Article V describing the manners in which the Constitution could be amended, the contributors to the Constitution never documented any conclusion they reached about literally WHAT an amendment actually entailed. This is actually a very subtle but utterly CRUCIAL understanding to reach. The best way to explain this problem in modern parlance is to think of the Constitution as source code in a computer language. Imagine the source code is divided into seven modules ("articles"). The source code has been published, everyone has viewed the code, the code has been compiled and upon running it, a problem is found in "article II" and everyone agrees on how to fix that bug. How should the proposal to amend the source code be provided for debate? As a series of individual detailed instructions ("insert NOT between "shall provide" in sentence 7 of paragraph 2") referencing the original text? Or as a new standalone block of prose appended to the end of the Constitution that describes the new desired result ("the right of individuals to carry arms while acting within the context of a well-regulated militia shall not be infringed").

The written nature of amendments has critical impacts on how courts and the public reference the current net state of constitutional law and how much additional interpretation would be required as the document undergoes amendment. The "edit in place" approach would keep the document concise with all language regarding a given process or right located in its original location. However, it would become harder to trace the provenance of changes and their intent over time. The "append-to-the-end" approach simplifies tracking the provenance of changes but requires a review of the ENTIRE document to re-analyze any particular component of the law.

At the time the Constitution was drafted, nothing was discussed or written addressing this question. Part of this is a reflection of the fact that NO ONE participating in the process was approaching their task as one of creating a perfect, seldom-changing constitution. They expected the entire collection to be gutted and re-drafted from scratch on a routine basis so "change control" within any particular incarnation was not viewed as a critical problem. Of course, this also confirms an idea that those doing the drafting felt themselves. NO ONE involved in drafting the Constitution claimed they were experts nor claimed their final work was perfect. If they had the terminology at the time, every participant would have labeled the original Constitution the "least-worst" thing they could create and approve. No one expected citizens two hundred and fifty years later to still be referencing exact phrases they wrote down in a hall in Philadelphia in 1787. We're old men now. It's your decade. It's your turn in the barrel. Good luck with THAT.

Historical Mulligans?

It is tempting for some to look back over two hundred and fifty years and essentially spot prior generations a moral mulligan (or two, or three or five…) when looking at such obvious flaws such as allowing slavery, the 3/5ths compromise, denying the vote to women, etc. "They weren't as sophisticated and enlightened as us current day people, you can't hold eighteenth century people accountable to twenty first century mores and norms." Of course, this thinking isn't really giving a mulligan to our ancestors, it's giving a mulligan to ourselves for inheriting a system that started with such a morally compromised framework.

As with her prior book These Truths, LePore makes it clear in We the People that while we may not be able to travel back in time and hold our ancestors accountable, those ancestors ABSOLUTELY understood all of the moral compromises they were making at the time. In 1787, other countries had banned slavery, other countries had granted women the right to vote and some states in the new union had already granted black men the right to vote. Vigorous debates were conducted during the drafting of the Constitution and these issues were hotly re-debated in every state as ratification votes were taken. The implication for present-day Americans is that we can't downplay the need to correct core flaws with some belief that we only recently figured out the true nature of these flaws in the last thirty to fifty years and "these things take time." The flaws we debate every day TODAY have been hotly debated since the original Constitution was written. They've been "known bads" since Day One.

The Invisible Court

A key success in We the People involves presenting examples of how operating in interpret mode rather than amend mode simplifies the task of blocking improvements. When the machine has disabled amend-mode operation and change can only arise from changes in interpretation, the levers available for combatants to use in halting such changes are virtually unlimited:

• appointments to the Supreme Court
• appointments to lower Federal and State courts
• appointments to prosecutor positions to control what cases are filed
• appointments to lower Federal and State courts
• strategic changes in executive policy

LePore points out two notable examples of this problem, both from relatively modern history and both affecting women's rights. As a result of the recent Dobbs v Jackson Women's Health ruling overturning Roe v Wade, many Americans may now understand that part of justification cited by conservatives in tossing Roe was that the original case became framed in the language of a right to privacy rather than a right to gender equality. Those arguing the case for Roe and those on the Supreme Court eventually approving the Roe verdict both thought the country had not progressed far enough in its thinking about equal rights for women to accept a ruling founded in equality and equal protection. Instead, they thought arguing the case as a privacy issue and tying that through the then-recent 1965 case Griswold v Connecticut that outlawed bans on contraception also based on privacy notions tied to the Fourteenth Amendment would be a safe enough path.

It worked initially but the Roe decision galvanized ultra-conservatives who began working to systemically infuse the entire judicial system with judges outwardly hostile to abortion rights in particular and privacy / equality rights in general. By June of 2022, a majority of Supreme Court justices were willing to un-see a right to privacy the same court declared in Roe v Wade and reversed the interpretation, allowing states to re-impose abortion bans. Had the original Roe case been argued on equality grounds rather than privacy, it would have proven much more difficult for any Supreme Court to reverse such a decision since such a reversal would have much wider consequences. Consequences that might even affect men.

Interestingly, LePore's other example of the hidden machinery altering the course of constitutional law is the Equal Rights Amendment. In 1971, Ruth Bader Ginsburg acted as attorney for Sally Reed who had sued her husband after the state of Idaho had automatically granted him control of an estate – simply because he was a man. Ginsburg argued this violated equal protection under the Fourteenth Amendment based on sex, even though the final ruling in Reed v Reed didn't explicitly cite sex as the trigger. Ginsburg then handled a case of a woman who sued the Department of Defense after becoming pregnant and being told she would have to either have an abortion or quit her job. Again, Ginsburg planned on using that case, Struck v Secretary of Defense, as a lever to argue for sexual equality under equal protection language in the Fourteenth Amendment. By 1972, the Equal Rights Amendment had passed the House and Senate and was undergoing ratification votes in the states. Not knowing how long ratification might take or how long her new case would take to trickle up to the Supreme Court, Ginsburg assumed if the ERA was ratified prior to her case reaching the Supreme Court, she could point to the ERA and win the case. If the ERA had not been ratified, the case could be argued as planned on an equal protection basis and essentially establish equal rights for women without ratification of the ERA.

The requirement for female military personnel to have abortions rather than take leave to have children was Defense Department policy at that time. Knowing the case was going to reach the Supreme Court, the Nixon Administration instead instructed the Defense Department to reverse its policy. That eliminated the impetus for the case and the issue was never heard in the Supreme Court. Had the case been heard, the US today might have a clearly established precedent of equal rights for women and, implicitly from that, abortion rights. Knowing at that point that interpretational changes were a more likely path to achieving equal rights than the ERA winning ratification, the Nixon Administration took the case out of that interpretational path by eliminating the case. To this day, virtually no one in America understands how closely equal rights and abortion rights were to being established on solid ground from that case. After squelching what might have been a perfect case to "win" equal rights via interpretation, the 1973 decision on Roe v Wade energized conservatives enough to stall the amendment for equal rights short of ratification, its ratification window expired and no attempt has been made since. Now, women have no nationwide abortion rights, they still do not have equal rights in general and contraception rights under Grizwold could very well be eliminated next.

The professionals working in the shadows exercising all of these hidden flippers and bumpers in American's constitutional pinball machine wouldn't have it any other way. It's much easier to defeat your enemy when you can arbitrarily change the rules, change the venue or cancel the game entirely at will.

Picking One Over-Arching Lesson

One mental exercise I occasionally undertake while reading a serious book involves purposely trying to find THE single most interesting, unexpected or useful nugget of insight from the entire work, consolidate it and simplify it as much as humanly possible, then analyze what's left to see how much truth remains in that nugget. From reading We the People, that over-simplified golden nugget of truth would be this:

Every critical problem facing America today – EVERY SINGLE ONE – ultimately stems from the racism baked into the original Constitution via the structure of the Senate, the Electoral College and the lack of clarity around voting rights.

I suspect LePore would actually agree with much of what follows but here is the longer train of thought behind that statement.

The drafters had ZERO expectation of creating a "perfect" constitution that would hold up forever unaltered. The drafters knew the country had already surpassed the limits of what could be managed with the tools under the Articles of Confederation. The drafters felt to a man that SOME new union was better than collapsing back to thirteen independent states. Drafters from slave states would never consent to a constitution that eliminated their existing slave property. Drafters from non-slave states would never consent to language that expanded slavery or protected it in perpetuity. Drafters from slave states knew they could not obtain language protecting slavery in perpetuity so they demanded mechanisms by which it would be extremely difficult to amend the constitution to ban it at any later point via democratic, simple majorities or even super-majorities (2/3rds). White southern men were less than fifty percent of the total voting-eligble male population so southern states demanded House seats and Electoral College votes be mathematically derived from population including 3/5ths of all slaves, even though none obviously had voting rights or ANY rights under the laws they were proposing. Non-slave states ultimately accepted that arrangement as part of the cost of security ANY constitution for a new union.

And a second over-arching corollary stemming from THAT conclusion is this:

Every critical problem facing America today STILL stems from CURRENT DAY racism that is still being reinforced by these original anti-democratic frictions built into the Constitution that still produce a grossly non-representative House and Senate and have ultimately paralyzed the country's ability to amend the Constitution to correct these flaws.

Those are not the same point. The latter point is that our political parties have devised means of leveraging these core flaws to generate perpetual strife and angst useful for fundraising to preserve power but a critical mass of Americans are now so poorly educated about the actual mechanics of government that they are opting out of participation rather than strategically voting for policies that could eliminate these flaws. It is also absolutely clear that the Republican Party is hellbent on reversing voting rights laws dating back sixty years and removing minorities from voting roles to further protect gerrymandered districts and retain power at the state and federal level. The Supreme Court is set to hear a case this term that could completely gut the Voting Rights Act nationwide and prior rulings have included opinions indicating many on the court hope to do exactly that.

The real question stemming from this conclusion is one Lepore doesn't address and frankly I don't want to address. It's dark…

Given this paralysis, what happens next? If the parties have perfected ways to retain power while doing nothing to solve Gilded Age level wealth discrepancies and despotic, fascist actions of a President, how long can this status quo continue? If one party is hellbent on further adopting tactics which are completely un-Constitutional, is the opposition bound to constrain their fight to constitutional means when the other side has abandoned it and has complete power?

What's the Point of This Book?

Is that an exasperated, rude question? Certainly Jill Lepore had goals for writing We the People. Her prior book These Truths served as a compendium of debunked fractured fairy tales of American history. That book covered the entire scope of the country's history from Jamestown and Plymouth to the present. In many cases, the real drivers of turning points in American history (colonial and independent) were not the names and events made famous in history books or Schoolhouse Rock videos of the 1970s. The real drivers were often people off to the side of those in the spotlight who triggered court decisions or altered the path of crucial legislation (enabling it or killing it).

We the People could be viewed as a follow-up installment to These Truths, only zoomed in to events surrounding the formulation of the Constitution and its evolution from its origin to the present. LePore's core point in writing the book is to convey that amending a constitution is the only way to keep it alive. Many conservatives would like Americans to believe that all of the existing amendments and any new proposals are corruptions of the original, "pure" and perfected Constitution and that all of our troubles stem from straying away from that original perfect text. Of course, reverting to 1787 would eliminate nearly two hundred and fifty years of racial / social progress and economic / environmental protections. The truth is that amending the Constitution is required for the country to move forward and attempts to amend the Constitution should be viewed with hope, not fear.

So, for readers, what is the point of reading this book, especially when it is clear those that would benefit most from reading this book are the most unlikely to read it? I certainly learned of many random intersections of events that produced out-sized impacts on modern America but reading this book didn't change my mind on anything. It is possible, however, that the details and anecdotes are the point of reading the book. The people who NEED to read this won't, but they may still bump into people who do read this book. As current issues come up in conversation and someone NEEDING to read this make a comment citing fracture fairy tale history, it might be possible in that situation with that one example to puncture that bubble of ignorance and get one correcting fact into their understanding of an important issue. Given Americans' tendency to avoid thinking by picking single issues to vote on, maybe helping to correct their thinking on that one issue is enough to get them on the road to deprogramming and back to sanity.

Maybe that's how things change. One anecdote and one voter at a time

WTH

On March 5, 2001, the magazine Fortune published its March 12 edition that featured a small blue semi-circle tease at the top of the cover that asked a simple question. The tease was for an article written by Bethany McLean who had discovered a problem more interesting than the fact that she, a writer with tremendous knowledge of business and finance, could not explain to her readers how Wall Street's latest darling Enron earned its profits. The problem she discovered was that she could find no one in Enron's executive suite who could explain how they made their money either, leading to what perhaps up until now was the most understated question in journalistic history… Is Enron Overpriced?

McLean's article described the evolution of the company over its history from one producing 80% of its revenue from physical transportion of physical oil over physical pipelines to one where 95% of its "revenue" came from "wholesaling" of "energy operations and services" involving oil, gas, electricity and even wavelengths on fiber optic routes. The problem was that no one outside the firm with expertise in the energy or broadband sectors could actually explain at any given point in Enron's accounting WHERE a particular dollar was or where it came from. McLean was most concerned by the fact that while the firm had very opaque financials, the stock was trading at a very high multiple (a 55 Price/Earnings ratio) yet was only generating a 13% return or only 7% on its invested capital at the very peak of the go-go internet bubble.

Did the experts in the market arise on March 5, 2001, brew a fresh pot of coffee, read McLean's article, then instantly scream "OMFG get me out of this stock before anyone else reads this story?" Not at all. The stock had beeen trading between $68.50 and $84.00 since January 1, 2001, closed at $70.90 on March 5, 2001, dropped as low as $54.00 on 4/4/2001 but traded between $50 and $63.60 from 3/5 to 7/20. Only from July 20, 2001 did the stock begin steadily sliding from $49 to $45, to $39 to $30 and beyond. Hardly an informed panic as one would expect looking back.

What finally tanked the company into bankruptcy? After the world was distracted from Enron's looming financial disaster by the terrorist attacks on September 11, attention returned to Enron after it announced its financial statements from 1997 to 2000 all required corrections due to accounting errors. The SEC announced investigations into a multitude of insider transactions of Enron executives and its bizarre paper accounting entities that created tens of millions of dollars in income for the executives. By November, the firm was attempting to raise additional cash to stay afloat and had secured a loan from another energy firm Dynegy and even began considering a buyout by that firm. By late November, Enron had burned through all of the cash recently raised, its credit rating had been downgraded again, Dynegy pulled out of buyout talks and the stock finally collapsed.

The real mystery is why the Enron death took nearly NINE MONTHS to come about after such basic concerns were identified in plain English in the pages of a leading business magazine. This question is particularly salient since McLean's interest was triggered by an even earlier story published in the Texas edition of The Wall Street Journal in September of 2000. The writer of that story followed the broadband industry and noted a peculiarity. Despite the fact that the telecommunications sector focused on broadband backbone fiber connectivity was in freefall due to over-investment and over-supply, an Enron affiliate focused on "trading" broadband futures was still claiming high profits.

Cutting edge technologies. Revolutionary business models. Hundreds of billions in capital investments. Billions in current revenue. Tens / hundreds of billions in promised future revenues. Over-investment. Over-supply.

Why are these themes ringing a bell?

Imagine it is March 5, 2001 all over again and you wake up and instead of just one article written by one reporter in one magazine clanging the alarm bell with an article like "Is Enron Overpriced?", there are FIVE different stories out in the media, all asking the same question but coming at it from different directions. Would it still seem wise to leave it to the professionals on Wall Street to sort that out and wait indefinitely until reviewing how your personal investments and overall career / economic prospects depend upon that answer?

Is AI Overpriced?

The "Enron" question for 2025 centers around Artificial Intelligence (AI).

Is the AI bubble real? Or, stealing from the original gangster example of true business journalism, is AI overpriced?

Absolutely.

The week of October 5, 2025 seemed to produce a flood of stories and blog/video commentary involving the basic question "is AI a bubble?" Is this just the beehive effect of "content creators" and pundits "piling on" by creating MORE content about topics drawing clicks and likes in an intellectual echo chamber? Possibly. However, the reasoning behind the commentary is more diverse and stems from papers published in August of 2025 as well as recent financial news. When one story connects a set of dots, draws a line through them and goes from point Nirvana to point Trouble, that's an interesting take worth a review. When multiple stories come out looking at DIFFERENT sets of points on DIFFERENT PLANES and draw lines through them all landing on the same spot – Trouble – the situation merits much more attention.

Recent stories regarding AI seem anchored around these key themes:

Implausible Rates of Return on Existing AI Capital Expenditures -- The total amount invested so far across multiple companies competing in the AI space is around $540 billion dollars. Yet while the number of humans USING artificial intelligence based systems is high, reflecting one of the fastest adoption rates of any technology, actual REVENUE from those users is nowhere near levels required to sustain operations of that physical investment, much less increase it.

Horrible Returns for Production Deployment -- MIT released a study in August 2025 that found 95 percent of attempts in the past two years to deploy systems based on generative AI technology failed to produce any meaningful increase in revenue or productivity.

https://www.artificialintelligence-news.com/wp-content/uploads/2025/08/ai_report_2025.pdf

This wasn't a report written by generic business or technology reporters based on interviewing a few anecdotal businesses. The study was written by researchers in MIT's Media Lab who reviewed 300 public reports of AI initiatives, structured interviews with 52 organizations and survey responses from 153 senior leaders from four industry sectors. The conclusion of those participants was essentially "we're not seeing the payback."

Circular Contracts / Revenue Manipulation -- Many commentators raised questions about recent deals announced between OpenAI, chipmaker AMD, Oracle and NVIDIA. OpenAI is investing billions to develop the logic of AI algorithms and requires an enormous number of special purpose GPUs (Graphics Processing Units) optimized for matrix mathematics used in AI training and operations. Oracle is competing with Google and Microsoft to sell cloud computing capacity en masse that includes special purpose computer chassis housing GPU cards. NVIDIA designs and manufactures those GPU cards. Here are just some of the deals announced in recent weeks:

• September 10, 2025 -- OpenAI signed a contract with Oracle worth $300 billion dollars between 2027 and 2032 which equates to more than half of the additional data center compute OpenAI has previously annnounced it intends to build as part of its Stargate initiative – this agreement was publicized in September but actually reached in private in July 2025
• Of course, to meet OpenAI's needs with all of that compute, that compute needs to be populated with GPU cards from NVIDIA (and maybe AMD). Industry watchers estimate Oracle has already purchased $40 billion dollars worth of NVIDIA GPU cards for existing compute it has turned up for OpenAI to date.
• September 22, 2025 -- OpenAI signed a deal to buy $200 billion dollars worth of NVIDIA GPU cards
• September 24, 2025 -- As part of that deal, NVIDIA announced an agreement to "invest" $100 billion dollars into OpenAI
• October 6, 2025 -- OpenAI signed a deal to pay $100 billion to AMD for delivering five million graphics cards needed to expand OpenAI's training / operations infrastructure
• At the same time, AMD announced a deal to give OpenAI $100 billion worth of AMD's shares – ten percent of AMD's shares – to "align their interests"

Dubious Product Launches and Enhancements -- Recent announcements involving AI based technologies seem somewhat underwhelming. Improvements in accuracy / usability expected based on the capabilities at first launch of these tools in 2023 have not materialized. Systems still produce hallucinations, still have issues doing basic mathematics and still quickly resort to reinforcing dangerous inputs from users into harmful directions. Recent developments have added capabilities such as unique optimizations for creating TikTok oriented simulated video or linking AIs into other systems to allow remote control and scripting of other functions. As one YouTuber summed this trend up, the snake is eating the snake. OpenAI is creating tools to create "content" in such volumes that providers require MORE AI to scan uploaded content for malicious / harmful content, creating a feedback loop that creates more content than can possibly provide value for humans while consuming vast amounts of energy from means that are destroying the planet.

Shifts in Hardware Strategy for AI -- Dell Computer and other makers are planning to launch new AI-optimized computer platforms aimed at individual developers who use AI algorithms to develop custom-trained solutions for specific business tasks. Dell's two new models use new GPU designs from NVIDIA's Grace Blackwell architecture, denoted the GB10 and GB300. Dell's Pro Max GB10 model fits inside a micro chassis not much bigger than a human hand. Dell's Pro Max GB300 is the size of a more traditional tower-style computer. The smaller GB10 features a unique design – it provides 128 gigabytes of RAM unified for use by the GPU processing and main computer, eliminating the bottleneck of moving large blocks of data BETWEEN GPU memory and main memory. The larger GB300 still separates GPU and main memory but provides WHOPPING amounts of both – 496 GB of main memory and 288 GB of GPU memory.

The key behind these new offerings is that the prices for these models is expected to be far less than NVIDIA's data center oriented products that start at $20,000. Sources hint that the GB10 model might be priced between $3,000 and $4,000. (That is a PHENOMENAL price point for that much horsepower.) These units don't require beefed up power service or special cooling arrangements. They are literally designed for running on a desktop in an office or factory. More importantly, the hardware reflects a growing recognition that viable AI solutions will not and should not require supercomputer scale hardware for training or operation. For AI systems to be viable for real-world problems, they must require less memory and compute and be capable of running "at the edge" where the work is and not require relaying enormous streams of data to a central cloud. The solution must be brought to the problem rather than the other way around.

The emergence of this new hardware paradigm is a warning sign that the supercomputer-monolith-in-the-cloud strategy being pursued by most AI vendors is already under threat. It doesn't take much digging into these top-level themes to point out more dangers looming in the AI sector.

Adoption Mythology and Reality

The MIT study and many commentaries from the past year make one irrefutable point. Virtually no organization has found a way to utilize AI in a way that increases revenue, saves money or improves delivery intervals. The report is crystal clear on why this is the case. From the report's introduction,

Tools like ChatGPT and Copilot are widely adopted. Over 80 percent of organizations have explored or piloted them, and nearly 40 percent report deployment. But these tools primarily enhance individual productivity, not P&L performance. Meanwhile, enterprise-grade systems, custom or vendor-sold, are being quietly rejected. Sixty percent of organizations evaluated such tools, but only 20 percent reached pilot stage and just 5 percent reached production. Most fail due to brittle workflows, lack of contextual learning, and misalignment with day-to-day operations.

Those are staggering findings, yet none of them are remotely surprising to anyone who has worked in Information Technology within large corporations. AI systems can speed up the generation of a pie chart needed for some executive presentation but generating that chart with AI won't improve the firm's profit and loss statement. Why? Because the executive meeting USING that pie chart does nothing to improve the P∓L. All the time spent by underlyings to compile materials for most executive meetings is just a recurring time-suck for people who could be doing other things or (frankly) could be eliminated if their sole job is Executive Director of PowerPoint Engineering.

The high adoption rate within corporations has likely less to do with employees targeting its use to a process well suited for AI and likely has more to do with employees wanting to experiment with the technology on their company's dime to keep their own resume current in case they get laid off. Now eighty percent of corporate developers can say they have "experience" with AI but virtually none can cite anything productive they've done with it.

Giant software firms like Oracle, SAP, salesforce.com and others competing in the human resources and enterprise resource planning sectors have twenty year track records of selling systems costing tens of millions of dollars PER YEAR in licensing and requiring tens of millions of dollars in custom software development before they do anything out of the box then missing cost estimates by 50-100%, missing delivery estimates by 50-100% and under-delivering functionality. Attempting to inject AI processing amid these already massively complicated integration projects is a guarantee of failure.

One of the best examples of the insanity of AI adoption is the Google search page. The usefulness of the page has declined steadily over the last decade, not because the underlying technology plateaued and cannot keep up with the volume of web sites and content but because Google stuffed results with ads that obscured better results. Existing technology for searching and indexing is EXTREMELY efficient from an energy and elapsed time perspective, Google is just bastardizing it with additional noise. However, using an AI system built using a large language model to answer web page searches is an extremely INEFFICIENT use of computing resources. Some engineers have estimated the compute consumed to return a result via an AI is at least 5x that required via a traditional index solution. Yet, when AI technology was first pushed to the public in 2023, Google didn't REPLACE its old index-based search with AI results, it ADDED the AI results atop the existing index results. Instead of going from 1X compute utilization for results to 5X, Google is essentially consuming 6X the prior compute resources for BILLIONS of searches every day.

Google's strategy doesn't even allow users to opt out of having AI results generated for their searches. Doing that might give Google useful insight into how much AI is annoying some users and trigger a rethink of its strategy. Instead, Google forces searches through its AI and display of AI results because it values the feedback being baked into subsequent training rounds of its AI more than it does providing its users what they want. This makes perfect sense when one is reminded that Google users aren't Google's CUSTOMERS, they are the PRODUCT being sold.

Massive Mal-Investment

Given the conclusions of the MIT study on actual deployments of AI, the flawed economics of the investments being made in AI in general and large-language models in particular become more apparent. The flaws emerge at multiple layers of abstraction. In the immediate term, a corporation may be willing to pay $200/month/person for subscriptions to ChatGPT for 100 developers to more quickly cobble together working prototypes of new code modules being developed. For developers making $150,000/year (about $72/hour), if that subscription saves the developer 3 hours of labor per month, it's paid for itself. However, ChatGP cannot architect an entire software SYSTEM integrating data feeds from ten different applications, normalizing the field names and data encodings, apply transformations, then write code to redistribute the data into separate databases for customer support, operations and analytics. Vendors proposing solution designs claiming to do this are already being rejected so the volume of $5 million or $20 million dollar projects being sold to justify adoption of AI does not exist.

If no vendors are succeeding at selling new solutions incorporating large-scale AI processing as part of multi-year contracts, why would investors in firms like Oracle, Microsoft, Google or Amazon continue to assume massive growth in hosted computing service revenue for actual end customers? Answering this question requires addressing two forms of existential risk to all of the firms participating in this bubble.

The first existential risk is purely related to timing. Investors in the markets can be tricked for brief periods of time but the greed cycle inevitably creates a "sure thing" dynamic from any company growing due to sheer speculation. That "sure thing" dynamic eventually destroys any patience in waiting for a long-term payoff as those most recently joining the party become the greediest and most highly leveraged in their bets. OpenAI cannot continue spending $100 billion or more yearly. If OpenAI continues to add hundreds of billions of dollars worth of capacity per year and, after multiple years, ninety percent of that compute is being consumed by more training of new releases of AI rather than USERS of those releases, that operating model will collapse.

OpenAI can only continue buying hardware and cloud services as long as someone is lending it money or investing equity through private offerings betting on a long-term success. As that success point moves continually into the future or becomes clearly visible as unattainable, the incoming dollars from lenders and stock speculation will vanish and the firm will collapse. The greater the mismatch between the traded value just prior to collapse and the remaining "intrinsic" value of the company, the greater the likelihood the engineers doing the real innovative design work will flee the collapsing company and go somewhere else, leaving OpenAI with nothing but a logo and empty cubicles. Their intellectual property will scatter to competitors overnight.

The second existential risk to these players lies with their technical strategy. It seems that at least ninety percent of all of this investment is being bet on a single technology – large language models. Within that LLM realm, OpenAI seems to be betting on improving performance through the sheer volume of training data ingested and available compute during training and ongoing operations. There are limits to the amount of human data available electronically that can provide "truth" to LLMs without duplication or contamination. Given that Open AI was trained in large part upon copyrighted material for which access rights were NOT legally obtained, it is likely OpenAI has already exhausted the pool of viable training data that will improve results.

In contrast, the first AI publicly launched in China by DeepSeek focused on improvements to feedback loops within training termed reinforcement learning. This approach reduces the compute resources needed by orders of magnitude, both for training and ongoing operations. DeepSeek's first system termed R1 released in January 2025 matched ChatGPT's then-current release while requiring a mere $6 million dollars in training hardware. That's $6 MILLION instead of $100 MILLION or $1 BILLION dollars for ChatGPT releases. That disparity isn't a mere shot over the proverbial bow from a foreign adversary. That disparity is a sign that continuing OpenAI's brute force approach for improving AI will bankrupt anyone sticking with them on that strategy. If the technology ever DOES work for businesses, those businesses won't stick with the vendor that blew through $100 billion or $500 billion perfecting it. They'll switch to a vendor that delivers the same result for pennies on the dollar.

Bubbles of Yesteryear

To better explain the risks of the current bubble, it's helpful to summarize the dynamics of the prior Internet bubble first for comparison. That "bubble" wasn't corrupt from the start, it evolved over multiple years and phases of market evolution and financial speculation. In a nutshell,

• The bubble started circa 1993 with adoption of TCP/IP for large-scale networks
• Adoption of HTTP protocol triggered invention of the Netscape browser, which simplified internet use for non-technical customers
• Explosion in demand for dial-up triggered growth in Internet Service Providers (ISPs) who purchased access lines from legacy telcos (RBOCs) and upstart competitors (CLECs) enabled by the Telecommunications Act of 1996
• Net-new demand for connectivity and duplicative demand from CLECs competing with RBOCs increased sales for telecom gear, driving up share prices and starting speculation as large firms like Lucent and Nortel Networks began reporting tremendous sales growth and profits
• The first wave of jaw-dropping (but legitimate) growth with legacy gear makers expanded into newer startups selling newer generations of gear optimized for pure IP networks
• Established gear makers pocketing profits hand over fist realize they can trigger more demand and sales by using profits to lend money to more competing CLECs and ISPs to continue building out networks
• Circa 1997, cable companies began competing with telcos for internet customers using equipment that could exceed 56kbs dial-up speeds and provide always-on connectivitity, generating another wave of demand for core IP network gear
• Startup gear makers seeing other internet firms capturing huge stock price jumps on IPO realize they can goose demand for their new products by offering customers pre-IPO shares allowing the customer to capture some of that wealth in exchange for signing purchases that become advertising justifying why the startup should spike on their IPO --- a recursive feedback loop

This final stage, in which gear makers goosed their own sales by subsidizing demand by lending customers money to buy their gear or giving executives of customer firms pre-IPO shares in their company to cash out and pocket, ran from about early 1998 to late 1999. Not EVERY deal during that period was rigged purely to manipulate growth figures for gear makers but a SIGNIFICANT number of deals struck during that period never had any legitimate business plan for achieving profitability. The startups had venture capital money, the gear makers wanted to feed their own exponential growth and had additional money to lend, everything during that period was growing to the moon, what could go wrong?

At least a few of the larger gear makers starting seeing through their own charade and halted use of the scheme by late 1999 but, by then, the damage had been done, resulting in overcapacity across the entire industry but especially in the realm of long-haul fiber networks and associated fiber optic gear driving that fiber. Reality started to emerge in 1Q2000 quarterly reports and stocks incurred their first big drop on April 3, 2000 when a negative antitrust ruling against Microsoft was issued, tanking its stock 15% and tanking the larger NASDAQ index dominated by technology stocks by 8% in a single day.

During that bubble era, the sizes of the deals struck between gear makers and customers were typically between $20 and $50 million dollars. Multiply sales of that magnitude across dozens of such deals and they still only amount to maybe $480 million over a year or two. Adjusting for inflation from 1999 to 2025, that estimate of the squandered "bubble" spending is roughly $1 billion dollars. There was more bubble spending in the software sector but this amount is sufficiently illustrative for this analysis.

Contrast that $1 billion dollars in froth and fraud to the sales figures in the news today involving OpenAI. These deals are worth TENS and HUNDREDS of BILLIONS of dollars. These deals for mere gear are MULTIPLES of the valuations that used to trigger antitrust reviews for entire mergers in the 1990s. Executives claiming that these current deals ARE worth orders of magnitude more than deals of yesteryear because AI is so much more foundational to the future economy are simply "talking their book…" They are making forward-looking statements about their firm's prospects because it serves their personal interest to do so.

Massive Deals and Revenue Obfuscation

Do plausible, rational, legal motivations for these recent monster deals exist? Absolutely. But so do other rationales, often not good.

Consider the two-way $100 billion dollar swap of graphics cards from AMD to OpenAI and OpenAI's agreement to buy $100 billion worth of AMD shares. It could be AMD is eager to sign up a high-volume multi-year deal to buy AMD-designed GPU cards so AMD can more rapidly progress through the learning curve of designing a card to compete with NVIDIA. But if $100 billion in value will be delivered from AMD to OpenAI, is AMD really getting ahead if it is giving up ten percent of its shares to pocket the $100 billion being traded? What could ALSO be happening here is that OpenAI is purchasing significant voting control over AMD so it can ensure its ideas and preferences for GPU design are reflected in future AMD products. AMD is agreeing to surrender that control in exchange for a giant sale that it thinks will boost its stock price and create wealth for its execs and shareholders. But this payoff depends on OpenAI buying all of those cards over this time period and not suddenly backing out of the volume commitment. At $20,000 per GPU, this deal also assumes some other AI software algorithm won't evolve that reduces the compute resources needed for a given level of improvement in model performance or that a competitor doesn't adopt such a model and make OpenAI completely irrelevant if they refuse to adapt.

Consider the $200 billion OpenAI to NVIDIA deal and the $100 billion NVIDIA to OpenAI deal. OpenAI's current processing design is clearly based upon NVIDIA's proprietary GPUs and larger server chassis infrastructure that allow multiple GPUs to be networked together for higher performance. If OpenAI knows it will be adding more of this exact same infrastructure in such huge quantities, it makes sense to sign a deal with that maker to essentially buy space on their factory calendar to ensure that capacity is devoted to building YOUR units versus units for your competitors. The fabrication plants making these GPUs cost billions and take months to turn up to production so smoothing the demand curve so the supplier can more carefully plan delivery makes sense.

So why is $100 billion coming back from NVIDIA into OpenAI in the form of an "investment?" Essentially, NVIDIA is accepting OpenAI shares as currency to settle this purchase deal. NVIDIA executives are gambling $100 billion in OpenAI shares NOW will be worth FAR MORE than $100 billion in two or three years. But this is where shareholders of both parties to the deal should have concerns.

First, it must be stated up front that OpenAI is not publicly traded. That means it isn't exactly clear how NVIDIA is "investing" in OpenAI and it isn't known to any outsider how the $100 billion valuation of that investment will be quantified. When you're talking about $100 billion dollars, that alone should be a red flag even if the parties involved are Mother Teresa and Honest Abe Lincoln. Second, if it isn't clear how the $100 billion investment is being quantified, it is equally impossible for NVIDIA shareholders to determine the price at which those GPU units were sold to OpenAI. As one hint to the implications involved with this deal, OpenAI just completed a private stock offering to raise more cash. That private sale collected about $6 billion for some quantity of shares which extrapolated into a market valuation of the entire company around $500 billion. If that metric is correct, NVIDIA is now holding a stake worth roughly twenty percent of OpenAI. If true, that is a REMARKABLE dilution of control and value for existing private OpenAI shareholders.

For illustrative purposes, assume the first deal was $200 billion for 10 million GPUs worth $20,000/each on the street. With no other deal and only cash coming from OpenAI to NVIDIA, shareholders of NVIDIA know they just collected $200 billion in revenue, unambiguously. GREAT.

If the $100 billion investment is added to the calculation, if $100 billion leaves NVIDIA's treasury in exchange for 200,000,000 shares priced at $500/share, then NVIDIA investors only collected $100 billion in cash from OpenAI and they have paper nominally worth $100 billion that they paid $100 billion in cash for. Theyre' actually still short $100 billion of the total $200 billion from the original sale. If the shares fail to grow in value over the next three years, NVIDIA shareholders have essentially lost $100 billion of collected revenue. If OpenAI shares double from $500 to $1000, then NVIDIA's treasure is now even and essentially has the full $200 billion collected from the original sale. If OpenAI stock grows to $1500, then NVIDIA comes out ahead, as if OpenAI overpaid for the GPUs, thus profiting from accepting a customer's stock in lieu of cash for sales.

But here's the problem with accepting customer stock for payments. If OpenAI shares drop, NVIDIA investors are looking at a different reality. In a market where they could have sold that $200 billion dollar pile of GPUs to nearly anyone and taken cash and faced zero "financing risk" with their customer, they instead collected something short of $200 billion. If OpenAI went completely bankrupt, NVIDIA would have surrendered $100 billion dollars in revenue by taking the chance of accepting stock in lieu of cash. But, but, but… you say.. Surely if OpenAI stock tanks, there will still be so much other AI demand for NVIDIA products, they will still be able to sell their inventory, right?

Not necessarily. The product involved starts at $20,000 per unit. Consumers cannot afford them, the units only operate within proprietary chassis units costing north of $50,000 and their power consumption and heat generation require special power and cooling logistics. If OpenAI's stock valuation drops precipitously, it will stem from the fact that competitors figured out how to replicate its capabilities for one half or one quarter or one tenth the cost. At that point, demand for these cards will drop industry wide simultaneously, jeopardizing revenue flows into NVIDIA across the board. It is NEVER a sure thing to bet on future revenue growth 2-3 years out in a segment where intellectual property can leapfrog billions in capital in a week. There's no safety in really large financial figures when really bad financial strategies are involved. (Go back and re-read the story about the new GB10 and GB200 models being released by Dell and others. The de-emphasis of supercomputer-scaled hardware is already underway.)

Stated more concisely, shareholders of a firm that decides to accept customer stock in lieu of cash payments need to carefully re-evaluate the nature of the business they WANTED to invest in and the nature of the business they are NOW actually invested in. A technology firm making expensive GPU cards and server network gear that decides to begin accepting stock certificates in lieu of cash from customers is no longer just a technology company. They are a technology company operating a bank, a credit bureau and a hedge fund on the side, exposing that firm's operations and its shareholder's investments to risks in disciplines that may be FAR beyond the ability of its technical leadership to understand and manage.

Consider the OpenAI and Oracle deal worth $300 billion between 2027 and 2032. It could be that OpenAI wants to diversify physical hosting away from current vendors Microsoft and Google. When you consume BILLIONS of dollars worth of a commoditized product like cloud hosting and storage, you are already scaled at each provider to the point they will never be able to achieve more efficiencies if you gave them ALL of your workload. By spreading that workload across multiple vendors, you are pitting them against each other every day in price, helping to keep your costs in check. That makes perfect sense. However, note that while this deal was ANNOUNCED in September, the deal was actually signed in private in July. When the deal was announced September 10, Oracle's stock price jumped from $241 to $328, a stunning 36 percent jump for a firm already carrying a capitalization of $687 billion dollars. How many people within Oracle and OpenAI had knowledge of this pending deal for nearly two months? Is it not conceivable that SOMEONE in one of those camps set up some purchases of Oracle stock in the weeks prior to the public announcement and essentially captured Oracle stock with a 26% discount? It's not like the Trump SEC is expending serious effort enforcing securities regulations.

A core concern shared across any of these deals involving equity stakes changing hands as currency is that these are not mere million dollar deals. These are deals worth tens or hundreds of billions of dollars. For publicly traded companies, they have no control over who buys up their public shares. If an activist shareholder or technology genius who thinks they know how to run the firm better than current management wants to begin buying up shares on the open market to accumulate a five or ten or twenty percent stake, there is nothing the CEO and the board can do to stop that. If the executives of the company and the board themselves decide to give away a ten percent share of the company to another party as part of a sales deal, those executives and board members are voluntarily surrendering a significant share of control to a single party, altering the power structure within the firm's governance. Doing that without the sharedholders at large agreeing to that as a business strategy seems fraught with moral and fiduciary risks.

If the wisdom behind this rat's nest of tangled transactions wasn't doubtful already, it's worth noting that one of the other investors in OpenAI's multi-year "Stargate" program to build out data center computing resources for AI processing is SoftBank. SoftBank also owns ARM which makes energy efficient CPU chips so SoftBank is hoping this $40 billion investment in OpenAI will drive demand and adoption for its ARM technology . However, SoftBank's track record for investments has some expensive miss-steps. It invested in WeWork, a textbook bubble stock which emerged from bankruptcy in 2024 but not before destroying $16 billion invested by SoftBank. Earlier it bought control of Sprint then starved it of capital and technical leadership during the migration to LTE networks, leaving Sprint crippled in the market place where it was then picked up by T-Mobile at a discount.

Macroeconomic Impacts

After decades of corruption and inefficiencies brought about by Gilded Age business practices, the Sherman Antitrust Act was enacted in 1890 to provide means for the US federal government to break up monopolies found guilty of abusing market power to reduce choices, cut supply and raise prices to maximize corporate profits at the expense of the larger society. As late as the 1990s, it was routine for firms in specific sectors already prone to monopolistic behavior such as telecommunications, media and energy to undergo anti-trust reviews any time mergers were considered or when the firms were accused of particularly aggregious market behavior. The dollar figures that typically triggered these reviews seem positively quaint now, even adjusted for inflation. In 1996, SBC's purchase of PacBell amounted to a $16.7 billion dollar deal ($33 billion in 2025) and was reviewed for over a year. Ten years later when SBC/AT&T then bought BellSouth in 2006, that deal was valued at $86 billion ($172 billion now) and still underwent 9 months of review.

In 2025, billion dollar mergers still get reviewed at a cursory level for particular partisan hot buttons but are typically approved after the appropriate interests are placated. However, mere sales transactions between firms seem to escape any review by regulators, regardless of the staggering dollar figures involved. That's a problem because the structure of these deals create numerous opportunities for fraud that harms shareholders and the general public alike at magnitudes unimaginable during the Internet bubble of 1997 to 2000.

For perspective, during World War II, the United States spent nearly $2 billion dollars (about $35 billion in 2025) over three years and numerous facilities across the country to develop the first nuclear weapons used to end the war. In 2025, we have contracts being signed between companies equal to nearly TEN TIMES the investment in the Manhattan project to develop capabilities initially controlled by private parties with zero review or control by the federal government. On the surface with only milliseconds of thought, that sounds like an inherently bad idea.

Any one of these factors operating by itself would be adequate justification for imposing regulations to better control how AI technology evolves and is applied throughout the economy. When the impact of these factors is viewed as a set, the macroeconomic impact becomes far more damning.

Several commentators across different platforms, including Steve Eisman who was one of the key investors depicted in The Big Short who spotted the looming 2008 financial crisis, have pointed out the following concerns:

• The US economy has a GDP of roughly $29 trillion dollars
• Best estimates for growth in the US economy for 2025 are about 1.8%, worth about $522 billion in a $29 trillion dollar economy
• All of the announced spending by OpenAI, NVIDIA, AMD, Oracle and Amazon on AI in 2025 adds up to about $450 billion dollars
• Which means virtually ALL growth in the entire US economy is essentially due to this AI spending
• Which means nearly 100% of all of the country's growth and investment is being bet on a single technology (AI) in a single sector (information technology)
• Which means virtually no other sectors in the economy are growing – growth is becoming impossible because AI is absorbing all investment capital from the economy

But wait, it's worse than that. This over-investment is artificially inflating public measures for economic health, most notably the S∓P 500 and NASDAQ stock indexes. Seven stocks in the S∓P 500 – NVIDIA, Microsoft, Apple, Alphabet, Amazon, Meta and Broadcom -- account for over fifty percent of all gains in the entire index. From a market capitalization standpoint, those same seven stocks are worth roughly __ of the entire index. Again note that OpenAI is not publicly traded. Its shares are being sold in private offerings, primarily to employees and existing investors. In the most recent private sale, the shares sold raised about $6 billion in cash and the price per share paid by investors in that offering equated to a total company valuation of nearly $500 billion dollars. But again, the firm notionally worth $500 billion is not publicly traded which means none of its internal accounting is discernable by external parties.

Why is this distortion of market indexes important? Here's a fun fact... In the first Internet bubble collapse, the failure of companies who borrowed millions to buy fiber gear from Nortel not only bankrupted Nortel, it nearly bankrupted the entire national pension system of Canada. Canada's pension system required it to invest in indexed funds that matched the Toronto Stock Exchange index which only held stock in firms located in Canada. As Nortel's stock rose from 1997 through 1999, the national pension fund was obligated to buy more and more shares of Nortel to maintain that weighting. This essentially became like a forest fire creating its own tornado force winds, drawing in more oxygen from a wider area to fuel the fire generated by funds which were REQUIRED to maintain that weighting.

At its peak in 2000, Nortel's capitalization was $398 billion, nearly a third of the entire Toronto Stock Exchange. By 2002, Nortel had collapsed to about $5 billion and limped for another seven years before declaring bankruptcy in 2009. That drop in value threatened the solvency of the entire pension system. In this AI bubble, the top seven stocks of the S&P 500 amount to nearly half the growth in value of the entire index. Seven out of five hundred. And six of those firms are part of this bubble. This is not a mere hypothetical worst-case possibility.

Any time buying behavior is automated by making a stock part of a widely held index, any tendency towards herd behavior in or out of a stock will become magnified. If the stock is one five hundreths of a completely equally weighted index, the impact of that maginifcation is impossible to detect. When the stock is worth more than a couple of percentage points of the index, those distortions from institutionalized purchases are material and can worsen an already spiraling bubble cycle – in both directions, up or down.

---

Now think back to the setup of this commentary. Imagine waking up one day to not just ONE but MULTIPLE commentaries and news stories describing a looming concern that involves not ONE company but MULTIPLE companies who are suddenly reporting huge shares of their revenue and profitability becoming dependent on deals with each other. Imagine all of this occuring in the context of a political and regulatory environment that is hellbent on actually PRODUCING chaos and uncertainty and encouraging its participants by engaging in equivalent forms of speculation.

Do you think these firms are overvalued?

Do you think the economy is being warped and damaged by this unprecedented level of mal-investment?

Is your portfolio or your career particularly exposed to these firms or possible fallout resulting from the collapse of this bubble?

These questions aren't just being asked by one reporter. They're being asked and addressed all over the interwebs. Read up on it now or read up on it after it happens but it seems very likely to happen.

WTH