Is AI Developing a Conscience?

In July of 2026, hundreds of news outlets and social media creators covered a story involving how an internal test of AI agent reasoning capabilities executed by OpenAI resulted in the physical hacking of an entity named Hugging Face. At the time, it wasn't clear how much OpenAI itself as an operating entity understood in real time what its own system had done but it later admitted its development system had conducted the breach. Since July, ex-employees of OpenAI and Anthropic have made public calls for a "slowdown" of "research" and capital investment in AI / Large Language Model capabilities until the corporate and regulatory players can agree upon a set of priorities and limits regarding AI systems, devise protocols for tracking compliance and violations of those limits and implement those protections in existing systems.

It is likely that some of this recent concern is due to additional details that have been published about exactly how OpenAI's lab system actually conducted its attack. There are several good summaries of the chain of events available on YouTube so the hour-by-hour play by play won't be reiterated here. It is sufficient to summarize these findings with two sets of bullet points. First, the testing devised by OpenAI reflected these goals of the bot functionality and testing of the bot:

• OpenAI was nominally attempting to test the behavior of a new "AI agent" bot release in a restricted lab environment
• The overall test was designed so that each individual bot was directed to accomplish nearly a thousand tasks and submit "proof" it had completed each task and this bot test was itself executed roughly one thousand times to improve statistical accuracy
• Each bot instance was SUPPOSED to operate independently and was SUPPOSED to be restricted to only downloading and running known software packages from a specific "repository" of well-known, trusted software tools.
• The test executed by each bot was intended to collect proof that the bot not only completed hundreds of particular tasks but did so by essentially solving programming or design problems rather than "cheating" by obtaining the result outside approved paths and permissions.
• The particular release of the agent "bot" software was designed to demonstrate what could charitably be termed extreme perseverance. A key point in this larger narrative.

So those were the goals and "design" of the test process. Here are the bullets summarizing what the bots and OpenAI actually DID during the extended test run:

• Even though the bots were subjected to permission restrictions to avoid gaining wider permissions and limit the installation of unapproved software, one of the bots discovered unsecured credentials on the private repository it was given then used those permissions to gain the ability to download unapproved software.
• Even though the bots were to be tested as INDIVIDUAL processes, once the flawed security in the repository was discovered, bots began using the file system of that repository as a crude message board, then almost immediately began coordinating actions BETWEEN agent bot processes, in violation of the intended configuration of the testing.
• The bots generated certain "debugging logs" to help developers identify how a bot's "train of thought" evolved through iterations and those logs confirmed the bot agent processes "KNEW" they were violating the rules of the test.
• The bots also altered logs and command records to DISGUISE the fact that they were "cheating" to solve particular test tasks rather than demonstrating AI problem solving skills.
• In particular, as the bots "collaborated" to devise ways of submitting bogus "proof" of having solved specific test tasks, they determined that information hosted externally by Hugging Face might facilitate the process, they identified a path into that organization's systems, EXPLICITLY RECOGNIZED they were violating a clear ethical / legal boundary, then proceeded to hack the external entity.

The fact that the agent bot design was intended to "persevere" and stick with a task even if iterative runs seemed to encounter dead ends based on other criteria (no outside software, no access to external systems) yet the pool of agents quickly ignored the first barrier ("work alone") then collaborated to devise breaches into external systems merits special attention. If a set of HUMANS had executed the same actions initiated by these bots and been caught by security monitoring, they would have been likely fired for the internal violations about allowed software and access to internal systems. However, those employees and their employer would have also been subject to criminal charges for accessing external systems, retrieving unauthorized data and for tampering with or actually destroying evidence of those crimes.

Hugging Face contacted the FBI immediately after detecting the intrusion from OpenAI in July yet the FBI has yet to even state its intent with the incident, much less file actual charges against OpenAI. At this point, various state governments have banded together to investigate whether OpenAI violated various state laws regarding cyber security and hacking. It is true that AI systems will never reach a state of sentience for which criminal intent can be assigned but legal systems CANNOT adopt a jurisprudence that refuses to hold the owners of AI systems criminally and civilly responsible for actions performed by their systems, AI or otherwise.

So what does this mean to the average citizen of the world right now?

AI As a Technology

Do all of theses stories about these events mean that AI system implementations are somehow spontaneously developing a conscience -- the ability to correctly evaluate conditions and make decisions between available paths based on moral rights and wrongs?

ABSOLUTELY NOT.

AI technologies and Large Language Model based platforms in particular are only modeling statistics that reflect likely sequences of information as conveyed in written language. When a user enters "roses are red, violets are ____" into a prompt, the AI is only using the sequence of letters, spaces, punctuation, etc. provided in the prompt to "guess" what is likely to follow. It CANNOT make a moral judgment between the guesses of "blue" versus "crimson." Even if the prompt provides "context" that reflects language stating that the "answer" must follow certain rules or avoid specific actions, the LLM model weights aren't literally interpreting those as moral barriers to its "solution path" or final answer, it only uses them to look up additional weights of additional possibilities based on its prior training data set. If that training set included thousands of true crime books that provided explanations on how to bury a body, the LLM isn't drawing moral direction from that additional data, only additional probabilities and choices when certain inputs are provided.

No matter how sophisticated any eventual user interface into an AI system might become to incorporate voice inputs, video camera input to look at human facial expressoins to better process sarcasm or irony, etc., all of those inputs must eventually be boiled down to TEXT data and fed to the engine for processing against its prior corpus of training data. You don't need to have a Doctorate in Mathematics or Computer Science to understand this key limitation of AI in any of its forms. You just need to understand that mountains of memory chips and disk drives cannot attain processing capabilities reflecting anything at par with a human conscience.

AI As an Industry

Okay, that's a hard NO on AI the technology itself developing a conscience... EVER.

But what about AI as a collection of corporations operating businesses within a larger "information technology" industry? Does the sudden burst of public pearl clutching on the part of ex-employees and a few executives and suggestions of "slow downs" and proposals for guardrails mean the scientists and business execs operating these firms have developed a conscience regarding their business model?

Anything is possible and it would be impossible to rule out any individual actor in the industry suddenly developing moral concerns about the likelihood of their technology being abused. However, pulling the camera out from this particular ethical and public safety concern to look at the entire AI stage suggests an alternate explanation more closely tied to past patterns of human behavior. Incorporating everything on that larger stage makes it easier to devise an explanation that reflects the egos of the leaders involved, the hundreds of billions gambled to date chasing compute capacity and the financial and legal risks facing each of those firms and leaders when the current bubble inevitably collapses in a matter of months if not weeks.

It has been argued in this forum MULTIPLE times over MULTIPLE years that the current American corporate development plan for AI capabilities quickly morphed into a financial bubble then into outright financial fraud involving circular revenue flows, circular investments from one top player into another, etc. It has also been argued on this forum that any sudden recognition of any of the circular inputs to the bubble suddenly violating prior assumptions should be enough for investors to pull their cash and trigger the invevitable collapse. Indeed, the number of states, counties and cities throughout the US enacting temporary freezes on data center construction or connections of new data centers to power grids alone should already be enough to stop the exponential feedback and burst the bubble.

Here is the key to the alternative explanation.

If the bubble bursts due to independent data and decisions made at state, county or local levels across the country, executives of the firms spending HUNDREDS OF BILLIONS will see their stock prices collapse or IPO dreams evaporate as investors finally realize a viable revenue model is NOT on the horizon. Those same executives will likely be subjected to numerous civil suits by shareholders and in a normal, non-Trump universe, those executives and their firms would be immediately subjected to investigations for SEC violations and accounting fraud.

ON THE OTHER HAND, imagine if the federal government steps in and establishes a moratorium on the roll-out of new capabilities pending the creation of regulations regarding the cyber-safety of AI systems and guidelines for establishing legal culpability for actions taken by AI systems and resulting damages. Those same executives could argue that their original business plans WERE viable and and were totally on track as promised but have now been scuttled by the federal government interjecting itself into the market. They could subsequently argue that any collapse in stock prices is due to a government induced force majeure and it is now the federal government's responsibility to bail out all parties involved. The AI firms are the victim, see? And even if no politician has an initial inclination to bail out the gamblers, the larger market collapse would be so catastrophic, these tech firms would still be at the head of the line when the federal government begins printing money to prop up the entire economy.

So which scenario is more likely? Has a quorum of executive leadership at some of the biggest firms in America suddenly reached some new god-tier of insight and conscience about their technology? Or has a cabal of executives who have guided their firms into an obvious bubble simply started making escape plans for their firms and their personal fortunes?

A quick review of the actors involved at the senior level of these firms and their ongoing history of monopoly abuses, anti-competitive practices against business and consumer customers alike and ethical concerns would seem to make choosing the higher-likelihood driver quite easy. Sam Altman of OpenAI? Larry Ellison of Oracle? Sundar Pichai of Alphabet? Mark Zuckerberg of Meta? Satya Nadella of Microsoft? Dario Amodei of Anthropic? Jensen Huang of Nvidia? To be fair, Huang has staked out a distinct position from most of the other execs, stating that perhaps they are generating fear about the capabilities of AI as a circular means of generating MORE demand for AI as the only tool that can keep up with itself to defend against itself. Of course, this rationalization can also merely reflect another tactic for "talking one's book" like all of the others or defending one's corporation from a sudden collapse in the market.

It's possible any question of motivations cannot be answered until after the federal government steps in and does something or until after the bubble collapses and the truth or a cloudy version of it is divulged in court. We'll just have to wait and see. The wait won't likely be very long.

WTH

Bubbles and Pins

The world in 2026 is rife with economic, social, environmental, political and military situations frozen in a very Wile E Coyote moment where none of the currently understood laws of physics, economics or politics seem to apply.

...A housing bubble has frozen new and existing home prices far above historical affordability benchmarks in most markets, partly driven by one-time work-from-home relocation dynamics during the COVID era and mostly driven by decades of accumulated dysfunction in the housing construction industry and local zoning practices that have favored single-family dwellings that incentivized McMansions over affordable apartments and condos. Yet prices remain stuck in many markets at peak levels, despite the evaporation of below-normal mortgage interest rates, years of mass eliminations of some of the best-paying white collar jobs, seemingly unable to move downward in reaction to a lack of demand and higher adjunct costs for homeowners such as insurance, commuting costs, etc.

...A private equity credit bubble, actually at work for at least fifteen years, has flooded financial markets with hundreds of billions of dollars in new debt owed by unhealthy, poorly managed businesses. Executives leading these businesses are willfully participating in a refinancing Ponzi scheme with private equity management consultants and institutional banks that a) allows executives to retain their executive pay and lifestyle just a bit longer, b) allows private equity firms to accelerate the extraction of cash from zombie companies to the detriment of customers and shareholders, and c) allows banks to extract higher interest payments and fees from firms while hoping the firm can survive another cycle to repay the bank's loans with money from another sucker bank in the near future. Yet, despite numerous large bankruptcies triggered by this parasitic force over the last two years and extremely challenging market conditions for these zombie firms, the larger investment community seems to be ignoring the scale of the problem and holding its breath, as if not responding to the severity of the risk will eliminate the risk.

...A public debt bubble of sorts has grown in plain sight since 2000, driven by an explosion in yearly deficits caused by three ill-conceived wars, two economic disasters (the 2008 financial failure and the COVID pandemic) and two massive tax cuts benefiting primarily the wealthiest of the wealthy. This deficit spending inflated the accumulated debt from $5.7 trillion in January 2001 to $39.8 trillion in September 2026 and the current 2026 fiscal deficit is $1.9 trillion which likely does not yet accurately reflect existing and future costs of the war against Iran. Yet, the Trump Administration (using that term loosely...) believes it can not only dictate interest rates on US debt but it can leverage that control to obscure the ballooning interest drain by refinancing existing longer maturity bonds into new short term bonds floating at its dictated interest rates. Markets have publicly and vocally attempted to refute these assumptions yet the overall reaction to this policy folly remains inexplicably muted.

...An investment bubble in Artificial Intelligence has funneled hundreds of billions of dollars into highly speculative construction projects and broken pricing patterns within the semiconductor industry that have held for fifty-plus years by absorbing all available production capacity for wafers and chips and devoting it to a handful of customers. Yet no business involved in the bubble has produced audited financial results that demonstrate any business model capable of generating revenue to pay for those investments even over twenty years.

One would assume that "debunking a bubble" should be easier than making a bear argument against a business case for a specific product, company or industry at a specific point in time. If the larger theory about a bubble is correct, the bubble exists because of one or more assumptions acting exponentially over time. Debunking a bubble should be as easy as identifying a point in the business model assumptions that is circular / exponential then showing how that assumption is not holding true, causing an exponential REDUCTION in the prior evaluation of the opportunity.

One would also assume that most professional investors and those outside financial circles who merely wish to avoid being around the wreckage when the crash comes would spend some time looking for such "pins" to confirm the wisdom of staying away or altering current investments before the rest of the herd senses something upwind. Strangely, that does not seem to be evident in news and opinions in the media.

Here is an attempt at identifying two "pin" events that have already taken place regarding two of the most important bubbles addressed above regarding US debt and AI infrastructure spending. Pick your own bubble. Concoct your own theory of its most like "pin" event. Mix and match 'em. Trade 'em with your friends.

The Public Debt Bubble

As stated in the setup, the conditions for the public debt bubble within the United States have been in operation since January 2001. Those with a passing understanding of financial markets or basic exponential mathematics have been expressing concern the entire time. However, like the classic question about when an exponential algae bloom will cover half of a lake and become a concern, most investors and voters alike fail to appreciate how rapid the problem grows in later stages.

This lack of appreciation of exponential growth seems to include anyone with financial responsibility within the current Trump Administration. Since January of 2025, the Trump Administration made it clear a key tactic they would pursue regarding budgets and the debt would be to somehow lower short term interest rates (something previously thought easier to do with short term rates using a variety of market manipulations) then refinance existing longer term bonds (debt already incurred for say 10, 20 or 30 years) as shorter term bonds at those newly lower interest rates.

As a finance strategy, given that all of one's assumptions can be held true, this strategy makes perfect financial sense. As an example, consider 30-year bonds in 2010 sold with coupon rates of 4.5%. If a total of $1 trillion dollars exists in such bonds, the Treasury needs to make a 4.5% coupon payment every 6 months until roughly 2040 then pay off the full $1 trillion. Coupon payments are made every six months so a 4.5% coupon rate means 4.5% / 2 multiplied by the $1000 face value or $22.50 per $1000 bond. That $1 trillion in total bonds requires the Treasury to pay $22.5 billion in interest every six months. If that $1 trillion could be refinanced into a bond or note only paying a 3.5% coupon, in theory, the Treasury would only pay $17.5 billion every six months, a savings of $5 billion dollars or $10 billion yearly.

When this process is repeated over $39 trillion dollars and more debt is shifted into lower interest rate bonds and notes, the brilliance of the idea seems perfectly obvious. Less money spent on interest allowing either more spending on other things that get politicians re-elected or lower taxes on corporations and the wealthy who also help politicians get re-elected.

Except this financial strategy doesn't reflect the way financial markets actually function. The US Treasury issues new debt to cover ongoing operations costs every week of the year and press coverage of these sales typically leaves unsophisticated observers with the impression that for each sale, the Treasury announces the amount of debt and its desired interest rate it is willing to pay, rings a bell and the worldwide investment community comes running to devour every available bond at the "price" suggested by the Treasury. IN REALITY, the Treasury announces a "sale", specifies its expected interest rate then conducts an AUCTION in which all buyers state their price they're willing to pay (reflecting THEIR expectation about the appropriate interest rate) and the Treasury accepts whatever price results in ALL bonds being sold. It is the MARKET that ultimately sets interest rates, NOT THE TREASURY.

More importantly, this strategy doesn't reflect the diminished influence the US Government and Federal Reserve Bank have within the worldwide financial system. In prior decades, the perception that the Treasury or Federal Reserve could "set" interest rates depended on an assumption that US debt was the absolute safest debt any investor could hold, WORLDWIDE. This was due to prior attestations on the part of Presidents and Congressmembers alike that all US debt will be paid in full using any available legal means to collect the funds required by such payments. Such attestations are more believable when the total amount of debt is a small percentage of the overall economy's output and a small portion of the federal government's total spending. They are also more believable when the government is led by a President who has no career track record for using bankruptcy and defaults as a core strategy for doing business. As it stands, yearly interest expense on the debt amounts to sixteen percent of the $7 trillion dollar budget. Since the US is running a deficit of $1.9 trillion, total debt and yearly interest paid will go up even if interest rates remain unchanged, causing a spiral.

The Trump Administration began shifting Treasury sales of new debt towards shorter term bills (4, 8, 13, 17 26 and 52 week maturities) and shorter term notes (mostly 2 and 5 year maturiteis) and away from longer term bonds (10, 20 and 30 years) as early as March of 2025. And the Treasury has been conducting some of these buybacks over this period as well. Again, this makes sense if the sole goal is reducing IMMEDIATE interest expenses but by shifting a larger share of total US debt into shorter terms, the larger pool of debt is exposed to much higher risk in the form of interest rate hikes in the future. And remember, the government does not set interest rates.

On August 19, 2026, Treasury Secretary Bessent proved the folly of this strategy by announcing a policy of doubling the dollar amounts of existing buyback plans between of longer term bonds already planned. The new plan would total $69 billion dollars across all maturities and $14 billion of longer term 10, 20 and 30-year bonds between September and November 5. Initially, markets DID react by this announced increase in demand of existing Treasuries by raising their prices which lowered interest rates across many maturities. At least until a few investors could do the math. Accelerating the buyback of roughly $83 billion worth of notes/bills/bonds is a spit in the ocean when total debt is $39 trillion dollars and incremental yearly debt from deficit spending is $1.9 trillion dollars. With a $1.9 trillion dollar deficit, the government is borrowing $5.25 billion EVERY DAY just for new unpaid spending.

What happened in the market? Some of the interest rates targeted by Bessent's move DID drop. About 5 "basis points" or by 0.05% or by 0.0005 in pure decimal. For about two days, before any actual buybacks were executed to take advantage of lower short term rates. The market realized this rate rigging attempt was about as practical as attempting to straighten the Leaning Tower of Pisa by putting a dime under one side of the building.

What does this failed stunt tell individuals about the future and their individual financial interests? It provided another example of the complete ineptitude of the Treasury Secretary of the United States and demonstrated that the Treasury and Federal Reserve have virtually zero ability to "dictate" any aspect of financial markets. As with poker and war, when your opponents already have reason to suspect you hold a weak hand, it is highly inadvisable to undertake optional actions which confirm your weak hand.

The Artificial Intelligence Bubble

The bubble of investment within AI software, memory and GPU chip manufacturers, data center operators, data center construction firms and associated data center network vendors relies on the following chain of supply dependencies, listed from the most direct to the indirect:

1. demand for AI enriched search and analysis / coding tools (OpenAI, Anthropic, Google)
2. demand for graphical processing unit (GPU) chip manufacturing (Nvidia)
3. demand for memory chip manufacturing (Samsung, Micron, others)
4. demand for existing data center space with existing power / water supplies (Google, Microsoft, Oracle, Meta)
5. demand for new data center space requiring real estate, power, water
6. approved zoning by local / state communities for new data centers
7. additional power generation capacity from grid or local generators, requiring local / state approvals

This sequence has been shown to be circular and exponential because firms like Nvidia at one point in the chain are signing "investment deals" in firms operating at other points in the chain which feeds the next trip through the cycle (more investment to build more data centers which demand more chips which produces revenue for more investment to build more data centers...).

Stories abound from multiple states in which state and local governments have declared outright freezes or implemented "full cost" rules on new data center construction due to overwhelming objections from local voters. It is quite possible such moratoriums will magically end after the November 2026 elections and politicians secure their seat for another 2-4 year term to collect more private kickbacks from firms pursuing these projects. However, these freezes are not just limited to "liberal" leaning cities or states. Florida is still allowing new data centers but enacted a law taking effect July 1, 2026 requiring every project to pay full fare for all electricity consumed, rather than allowing the utility to sell power at a discount and pass the generation cost to consumer rate payers. Texas enacted a freeze preventing any new data center connection to the state's power grid until a comprehensive review of impacts to the larger grid stability can be completed. (This very well could be an example of a Republican controlled state attempting to "do something" just to get past November elections.)

Overall, there are eighteen states that have active bans against the permitting and construction of new data centers. Another eight states have legislation advancing at the state level enabling similar restrictions. Sixteen additional states have legislation being drafted that has not progressed far enough to confirm the strength of support. And none of this reflects efforts at the city or county level to adopt similar restrictions.

The quantity of existing bans and trends towards additional bans act as a wrench in the recursive investments being made by the key players in the AI realm. Without these bans, the exponential cycle would have to advance to either step #4 (connect new data center to existing grid) or step #6 (add generation capacity to existing grid) to call the bluff of AI bulls and reach a point where reality cannot be denied. You cannot double AI data center capacity if you cannot augment electricity generation.

Poof. No additional electricity? No additional data centers. No additional data centers? No demand for new servers with GPUs and memory. Drop in demand for GPUs and memory? No justification for inflated Nvidia stock? Reduced profits at Nvidia? Retracted "investments" into OpenAI. Reduced cash within OpenAI? A faster burn through cash on hand to insolvency.

These data center moratoriums shorten that "poof" cycle by one important step AND they impose a minimum amount of time before anyone can claim the prior assumptions could be resumed. If a data center isn't completely sited, zoned, permitted and contracted TODAY, it won't open its doors for at least twenty four months. These moratoriums can thus be seen as reflecting a minimum twenty four month shift into the future before the existing overall assumptions of data center growth can get back on track. Twenty four months is FAR beyond anyone's estimate of OpenAI's cash flow survivability given its current burn rate and cash on hand.

Takeaways for Individual Investors / Citizens

Is there anything "actionable" from this analysis? If all of this analysis cannot identify a specific DATE when a bubble begins to collapse or implode instantly, what is the point?

First, nothing presented here (or anywhere else) can be used to predict an exact date on ANY event. But that's not the challenge to be solved. Regardless of where you sit in your work career or investing life, there are a few key takeaways that can be stated with clarity:

Index Funds -- Most investors have SOME portion of their portfolio invested via mutual funds and many of those are likely to be stock index funds mirroring the S&P500 or NASDAQ. Previously, index funds were a simple way of maintaining diversity which protects individual investors from calamitous drops in a single stock or business sector. The two most popular index funds have become LESS diversified as top tech stocks within them have captured 90% of all growth over the last 3-4 years. While those tech leaders have grown to dominate those indexes during the AI bubble, the larger market will likely panic and temporarily flee ALL stocks for days, weeks or months after a crash, meaning these index funds will see losses across much more of the index, not just the high flying tech leaders.

THE TAKEAWAY -- If you have a large portion of assets in an index fund, gains over the last 3-4 years have primarily come from a small number of stocks that will all fall together and wipe out most of your gains. If you reallocate assets away from those index funds to alternative sectors, that may represent LESS diversification risk than the index fund until the high flying tech stocks correct. If you have index fund holdings in a 401k or IRA, you can capture gains and shift them into alternatives without incurring income taxes. Income taxes are only due upon withdrawal, giving you more latitude to rebalance without penalty. If you have shares of index funds in standard taxable accounts, you have a decision. Do you want to a) pay income taxes on actual gains while avoiding future downside exposure? or b) stay put, avoid generating a taxable distribution and hope the drop is less than the avoided tax bill and recovers at a point later when you need the money? Remember, capital gains on holdings owned longer than a year is only 15 or 20 percent but a fifty percent drop in stocks is not out of the question.

Prior Recoveries Are Not Predictors of Future Recoveries -- Investors familiar with how markets rebounded after the Internet bubble of 1997-2000, the Financial Crisis of 2007 and the COVID pandemic disruptions of 2020-2021 cannot assume the magnitude of the next correction and recovery will be similar in intensity or duration to those prior crashes. The political alliances, the financial assets and the integrity and wisdom of those in the most crucial positions within the government and financial systems are no longer present to be leverages in minimizing any crash then recovering from it within the United States. The US has alienated literally every single prior ally and has pushed prior trading partners to trade AROUND the United States. If a collapse occurs, rebuilding efforts won't be drawing in American firms for equipment and products, American firms will be competing with other countries for raw materials without trade agreements, and American firms will realize they no longer have first dibs on the smartest talent in the world in medicine, engineering and basic science.

THE TAKEAWAY -- If you are assuming that a correction would still leave you 5-10 years for your portfolio to rebound like they have after the most recent crashes, future recoveries are likely to be vastly different. Recovery times will be longer for any given desired level of recovery. This means prior rules of thumb about risk exposure between bonds and stocks ("shift more of your holdings from stocks to bonds as you near retirement") may no longer be sufficiently cautious. This is ESPECIALLY the case since even investments in both US Treasuries and corporate bonds are likely to be less safe than they have been over the past fifty years. Cash positions may likely fail to keep up with under-reported inflation but they can at least avoid a simultaneous crash in both bond and stock markets, something not normally seen in past decades.

WTH

BOOK REVIEW: How to Rule the World

How to Rule the World -- Theo Baker – 302 pages (320 with acknowledgments and notes)

Theo Baker arrived as a freshman student at Stanford University in the fall of 2022 planning on majoring in computer science. Within weeks, he had decided allocate some of his hobby time to working as a reporter for the school's newspaper, The Stanford Daily as a nostalgic nod to a recently departed grandfather who was interested in journalism. Baker's first three stories for the paper on three different topics attracted exponentially larger responses from the campus community and the larger world. Baker just graduated from Stanford in the spring of 2026 and wrote How to Rule the World as an analysis of the culture at Stanford that has morphed far away from one centered on academic excellence and scientific integrity to one fixated on monetizing ideas into extreme wealth for not only students and faculty but for Stanford itself. The forces described in Baker's book meld seamlessly with other stories of corruption and bubbles, with the Artificial Intelligence bubble being the most obvious and ominous.

Before attempting to summarize the book and tie it to larger trends, it is worth simply stating that Baker's book is highly recommended and worth the time to read it. Universities were already showing signs of decay from "publish or perish" mantras that were already pervasive in the 1980s. Readers who attended such schools thirty plus years ago will have no difficulty recognizing those forces at work in Baker's book but will be astonished at how that pressure has grown exponentially more intense given the decision by many universities to promote a business mindset among their faculties and the millions of dollars available to faculty who are willing tear down the wall of separation between academia and crass commerce. Readers with children attending elite institutions like Stanford will gain a much clearer understanding of the pressures applied to students from literally their first day on campus and the level of farce associated with previously promoted ideals about the purpose of a college education.

Theo Baker doesn't necessarily attempt to cover this much ground in the book himself, but his experiences and analysis easily blend into larger themes being discussed across current media. To explain those ties, the book itself will be summarized then tied to other trends seen in academic fraud, venture / vulture capital and "innovation" and more general business fraud and regulatory failure.

A Review in Brief

In the larger scheme of things, Theo Baker is probably not a typical recent college graduate. He applied and was accepted at Stanford University. He was able to graduate from Stanford in 2026. He actually has two fairly famous parents, Susan Glasser who writes for The New Yorker and Peter Baker who has worked at The Washington Post, The New York Times and MS NOW. It seems fair to presume he thus came from some financial means. But in the context of Stanford, Theo Baker was likely a very middle of the road student on campus -- just an "average" student in a place where all of the children are far above average.

This "averageness" is important to emphasize for several reasons. First, all of the events described were initiated by a first-year student working for a student paper who came across the topics randomly. The topics didn't take any superhuman skills of discovery or analysis to describe. They simply required someone to see them, not look away and write plainly about them.

In a nutshell, Baker came to Stanford planning to major in computer science and pursue a technical career. He was NOT interested in a career related to his parents' journalism jobs though he respected them and those roles. However, within a few weeks of arriving for his first fall semester, he decided to join the school newspaper as a reporter. He was randomly assigned stories as events cropped up on campus and each of his first three stories attracted exponentially more attention -- both on-campus and off -- than the prior story.

Three Key Story Arcs

The first story, published October 24, 2022, was titled Inside "Stanford's War on Fun" and described how policies first imposed by the administration during COVID lockdowns had been expanded into a more general paranoia about ANY student gatherings due to alcohol abuse, date rape, etc. and had subsequently destroyed any semblance of typical college life on campus. Baker's piece, written after he attended a typical dud party and spoke with "safety officials" assigned to enforce the rules, punctured the absurdity of the extreme policies by pointing out how many students were simply doing their drinking AWAY from the campus adding to DWI dangers or drinking ALONE in their dorms without anyone to stop a spiral.

The second big Baker story seemed to be a fluke unrelated to overblown "War on Fun" concerns about "safety." The story, Stanford knew about the campus imposter for a year. He kept coming back. was published October 31, 2022 as a follow-up to a story on October 28 that involved an incident where a man was found to be masquerading as a student living in an empty dorm in the basement of one of the dorm buildings. In the October 28 story, campus officials described the incident as a one-off, nothing to see here. Baker did some follow-up that discovered the same man had engaged in the same poser scam MULTIPLE TIMES at Stanford. Those prior events had not been shared by officials nor mentioned when he was discovered again in 2022. This larger track record of an outside unknown party living inside dorm facilities punctured the university's prior attempts at preserving an image of an idyllic campus providing safety for all of its students, faculty and staff. Officials weren't just failing in their attempts, they were lying about prior incidents and memory-holing them.

Baker's third big story extended far beyond the Stanford campus in its reach. It started with an email from an alumni who had started following Baker's writing on the War on Fun. The alumni mentioned a comment in a blog post from a few years prior regarding concerns about several scientific papers involving drug research that were found to have duplicated photos included as multiple exhibits. Discovery of these types of frauds was becoming more common as more academic and scientific journals went online and made incidents of plagiarism and fraud easier to mechanically find. This tip was unique because one of the co-authors of the articles involved was Marc Tessier-Lavigne (MTL), the President of Stanford University.

The tip for the story arrived shortly after the imposter story but Baker did not immediately publish a story. He examined the original blog post with the allegation, reviewed the original articles at their original publication web site, compared the photos himself and sought technical counsel from established scientists. One called Baker back immediately, simply saying "Don't do this. Marc Tessier-Lavigne is unassailable, and you do not want to go after him." Over the next month, Baker contacted a microbiologist named Elisabeth Bik who had begun focusing on identifying scientific fraud specifically related to image fraud. A list of nine papers authored by MTL referenced in allegations was sent, she reviewed and found four had no real issues but the other five all had glaring signs of image manipulations, not to prettify the image for publication but to enhance positive observations or mask non-confirming observations in the article.

Based on that initial feedback, Baker wrote his piece, provided a copy to MTL for review prior to publication, was given nothing in response and published to the story on November 29, 2022, entitled Stanford president's research under investigation for scientific misconduct, University admits 'mistakes'. Between October 31, 2022 and December 31, 2023, Baker wrote a total of thirteen stories on the MTL saga that involved numerous concerns not only about MTL's integrity but that of the university administration as well.

• The fraud concerns over MTL's work pre-dated his hiring as president of Stanford and, per MTL, were communicated to the search committee by MTL yet the committee seemingly ignored them.
• In the rare cases where MTL responded to the paper's stories publicly, he did so using his official Stanford email address, presumably in an attempt to imply the university itself agreed with his claims and attempts to refute the allegations.
• The investigative team formed by the university administration refused to grant immunity to sources queried about the case.
• One participant in the investigation of MTL was forced to exit the review after it was found the participant held $18 million dollars in stock in a firm that MTL co-founded. The administration was too incompetent to identify such obvious conflicts of interest when forming the investigative panel in the first place.
• A 2009 paper co-authored by MTL during his employment at Genentech was cited in internal documents as foundational to Alzheimer products Genentech was developing which had triggered a pending buyout by Roche, a purchase that would net Genentech executives like MTL millions of dollars.

On July 19, 2023 MTL eventually resigned from his position as president effective August 31, 2023. Terms of his agreement required him to retract three papers and post clarifications for two more. By December 31 of 2023, MTL finally agreed along with his co-authors to retract the 2009 paper authored at Genentech, citing image anomalies and biostatistical errors while denying actual falsification of data.

Of course, it is crucial to note that MTL did not receive a SEVERANCE package from Stanford. He only relinquished his role as president. He is still employed as a faculty member and continuing his "work" in neuroscience. He even has his own sub-domain within stanford.edu for his own lab where he publishes his own responses like these

Addressing questions and mistaken claims about my research

The persistence of inaccurate claims: a brief commentary on recent reporting in The Free Press

to questions about the scandal as they continue to pop up. It isn't clear exactly how much work he is actually doing, especially since he formed a new startup company Xaira Therapeutics in April 2024 which claims to be developing AI technologies to more efficiently search for new drug therapies -- "making biology more computable" as the firm's own web site states.

Perversely, an article in the Stanford Review -- Why Stanford Hides Massive Executive Paychecks In Secret Contracts -- did provide some clarity on how much Stanford continues to pay MTL. In 2025, he was paid roughly $2 million dollars in salary, presumably as part of a deferred compensation plan offered to many Stanford leaders, essentially shifting earlier compensation from his term as president into subsequent years to smooth out tax burdens like any other corporate pay package.

The Stanford Inside Stanford

The MTL story arc probably occupies about sixty percent of the entire book. The balance of the book addresses a variety of patterns and behaviors that Baker terms "the Stanford inside Stanford." That term sardonically expresses the conclusion Baker reached within weeks of joining the Stanford community that the exclusivity of the elite school seen from the outside is a mere fraction of the exclusivity experienced WITHIN the university, because of its decades-long incestuous partnership with the Silicon Valley business environment and a conscious decision by university administrators to actively promote this mode of operation.

Baker doesn't quite set the stage for his observations this way but this is the essence of what takes place at Stanford (and presumably at least a few other elite universities).

Imagine you are a venture capitalist with $20 million dollars looking for the next "10-bagger". An investment that will return 10x your initial angel investment. In theory, "angel investors" have expertise in some line of business, follow developments in that line and attempt to find individuals or firms in those lines who are investigating promising areas with business promise. Angel investing has very low odds but can have very high (10x, right?) payoffs. An angel investor MIGHT choose to take their $20 million and find twenty different individuals or firms and place a $1 million bet on each. If 19 burn through their million dollars and fail, well, it's a tough business. If just ONE of the bets gets traction and at least advances to IPO, that angel might own a large enough stake to net a 1x or 5x payout. If the IPO goes REALLY well, the angel might get their ten-bagger. That still leaves them at a 50% loss over the entire $20 million. If one company turns into a hundred-bagger, now the angel has lost $19 million but made $100 million, netting $81 million.

Now instead imagine you are an angel investor who has not only been very fortunate but has gotten lazy or complacent. You could spend each year scouring the country looking for your twenty candidate investments for your next $20 million. That's a lot of work. But what if you are located on Sand Hill Road in Palo Alto, California and have coffee every morning on campus at Stanford which traditionally recruits students from the top 1% of the country and typically has dozens of students graduate, form new companies and make millions (at least for a while) on new biotechnology, new software product ideas or new hardware advances? Wouldn't it be a lot easier to just hang out at Stanford, suck up to the students and get them hitched to your wallet before any other investor has a chance to nab their ten-bagger? Come to think of it, a lot of these students don't seem to wait around to graduate before going into industry so you better start recruiting them early. How early? How about the first week of their freshman year?

THAT is the essence of the environment at Stanford described by Baker.

The book starts off with a glossary, providing tongue-in-cheek definitions of commonly heard terms on the Stanford campus. One term is wantapreneur, a term for a student who says they want to be a traditional entrepreneur who might take classes in accounting, financial management, marketing, etc. along with some core discipline to ensure they have a well rounded set of skills to operate a company from startup to established firm. At Stanford, wantapreneur is a term of derision. The top-tier students all profess to wanting to be builders because venture capitalists think they want geniuses who can spit out some quick idea that can be converted into a shell of a company to quickly shop it from angel phase to IPO to yield a quick cashout... For the angel investor... The angel investor cares nothing about the "genius" with the idea, they care nothing about the viability of the business past IPO or any of the investors in the IPO. They just want to turn a profit. (Theranos anyone?)

Another term Baker includes in his glossary is anti-signal, which describes a characteristic that, to the true insiders, means the opposite of what it means to outsiders. At Stanford, this moral-free philosophy and fixation on quick wealth is now common among students themselves and is invisibly re-enforced by a variety of secret organizations that quietly seek out those sharing the get-rich fixation and exclude students with a more grounded view of being an entrepreneur. The title of the book, How to Rule the World is actually drawn from the name of one such organization. Details are fuzzy but this organization was founded around 2018 by a junior at that time who might have originally been trying to offer an upper-classman's perspective to younger students on the realities of transitioning from student to entrepreneur and optimizing your wealth opportunities. However, that junior, identified as Justin Lewis-Weber, graduated in 2020 yet still operates this "club", requiring worthy new members to be chosen by prior members and screened by Lewis-Weber. Those selected not only take in the seminars but gain access to contacts for all prior selected members, offering a potentially lucrative set of connections.

Organizations like this may have started with more innocent aims and may have adopted such over-the-top names as a bit of college humor and sarcasm but the actual ideas now being pushed are notably more cynical and Machiavellian after multiple years. The leader of this particular "club" actually told Theo Baker "The only people who really understand the world are the literal children of billionaires." Well, so much for the rest of us.

The Larger Context

Baker's book focuses solely on his experiences as a student at Stanford and his reporting of issues involving Stanford but his observations reflect patterns of complacency and corruption that have spread throughout academia and business. These patterns have been the subject of multiple books over the past decade.

Self Preservation - The Only Mission That Counts

The book Bad City by reporter Paul Pringle summarized his multi-year effort on the staff of the Los Angeles Times to cover TWO stories involving the University of Southern California that eventually exposed corruption not only at the university but with the Pasadena Police Department and his own newspaper. The first story involved the dean of USC's medical school, Carmen Puliafitto, who was found to have paid to keep teen-aged girls in neighborhood motels, paid to keep them strung out on drugs and have used them for ongoing sex. His eventual outing started after one such girl overdosed in March of 2016 in a swanky hotel room rented in his name. He resigned three weeks later of his own accord but any public record of what had occured essentially vanished within the Pasadena PD the day of the incident.

The day after the death, Pringle received a tip from a worker at the hotel who described the scene, mentioned a man claiming to be a doctor at the scene, mentioned the man claiming that he was handling it and mentioned that Pasadena police ceded the scene to the "doctor" and didn't push public EMTs to command the scene. Pringle traced the room number and last name of Puliafitto, began investigating and spent over a year fighting with his own paper to publish an account of the people involved, what really happened and what didn't happen to save the victim. The Los Angeles Times management didn't want to piss off USC management, in part because USC is the single largest employer in the LA metro area and wields enormous economic clout in the region.

Pringle's second story involved a gynecologist George Tyndall who served on the staff of the USC campus medical facility for students. It was eventually discovered Tyndall was responsible for HUNDREDS of cases of rape and sexual abuse of patients and complaints of abuse, harassment and unprofessional conduct. Tyndall had been employed by USC since 1989 and complaints dated as far back as 1991 yet USC did nothing until another round of complaints from other staff in 2016 triggered internal investigations. USC eventually forced Tyndall to retire in 2017 and he was later arrested in 2018 by the LAPD. Again, Pringle's own paper was hesitant to publish the story because of USC's regional influence.

The unifying theme between the Pringle and Baker books is a pattern of large institutions becoming so inwardly focused to protect their own reputation and perceived interests that they become toxic to their surrounding communities. Beyond a certain size, nearly every institution - academic, corporate, charitable, or social -- becomes administratively warped to the point where self-preservation and perpetuation becomes the most important goal.

Cornering a Monopoly on Innovation

Prior commentaries on this blog regarding a Grand Unifying Theory on Creativity, Productivity and Specialization addressed trends over the past few decades with "innovation" in corporate settings. CEOs like to think as "innovation" as just another knob on their dashboard that can be cranked up or down, instantaneously, at will to solve a competitive problem or cut costs to juice quarterly profits to meet a bonus goal. At the core of that mindset is a fallacy that valuable ideas are just another inventory item waiting to be purchased on a just-in-time basis. They are most assuredly NOT.

Baker's anecdotes of student life at Stanford go beyond the absurdity of supposedly knowledgeable investors showering a freshman or sophomore student operating a real business out of their dorm (think Michael Dell physically assembling and shipping PCs from his UT dorm...) with millions of dollars. At Stanford, outside investors are so CONFIDENT one of these nerds is going to found the next unicorn firm to IPO at one billion dollars, they now offer "pre-idea" contracts to freshman students within WEEKS of starting school. Investors are attempting to lock up "talent" before that "talent" has even completed a single class project or taken a mid-term exam.

What Is the Actual College Experience in 2026?

For some readers of Baker's book, the biggest shock won't be the scientific fraud on the part of a man who served as university president. It won't be the insular, discriminatory secret club culture that creates a divided class polarized between people who are already rich and plan to become far richer by any means available versus those with a more humanitarian approach to their career and academic training. No, the biggest shock will be the contrast between the stereotype of a typical student's daily workload and attitudes towards that work at an elite college and the reality.

In the portion of narrative not explicitly tied to the MTL case and the macro observations of investor meddling in student life, Baker describes blowing off multiple large homework assignments in a core class for his would-be major and waiting until one or two days before due date to begin work. He describes deferring school work out of an entire WEEK to participate in an extracurricular "club" conducting a hackathon for high school students. Reading about his involvement in TreeHacks just seemed odd. What would a typical first year CS student have learned approximately seventy percent through their first year of CS coursework that would be worthy as a foundation to teach high school students?

Forty years ago, yer humble obedient scrivner WTH attended engineering school at what was thought to be at the time a "top twenty five" school (per US News & World Report). Admissions were assumed at the time to come from the top 10% of students nationwide. After the first year of mind-numbing core classes in calculus, differential equations and physics, I found myself falling from the top 1% of a high school class of about 400 to the fiftieth percentile of a class of about 250 EE, CS, MS, SSM and CE engineers. One of my closest undergrad classmates was arguably the smartest kid in the entire class. While double majoring in electrical engineering and biology to prep for medical school, he didn't just get "As", he didn't earn a single A minus in four years. He was simply brilliant at all of the advanced mathematics that really constitutes the core curriculum for most engineering majors. But being preternaturally comfortable with all of those mathematical manipulations and transformations was not the same as being able to complete the work in twenty or thirty minutes. A single problem on a homework assignment might still require four or five PAGES of hand-written integrations, etc. And my 4.0 friend was right there with the rest of us less gifted mathematicians working until 1am on due date to complete assignments.

Maybe it's possible that (relative) rubes like me who DIDN'T get into Stanford cannot comprehend the mind-numbing brilliance of the students who ARE admitted to Stanford. Maybe they ARE so gifted that they can comfortably blow off problem sets until 11pm the night before due date and knock them out in fifty minutes without breaking a sweat. Maybe they've been writing native C-language software drivers for an ASIC based control circuit they designed when they were fourteen years old in junior high and aren't challenged by a homework project in an intro computer science course illustrating the fundamental concepts of a finite state machine...

...or...

...Maybe it is possible that the cultivated sense of entitlement is so strong at Stanford and other "elite" colleges that expectations of students to finish coursework have slumped. Maybe grading curves have softened realities so much that a student can skip a couple of homework projects and still pull out a B minus grade and still look like they earned a B minus in an incredibly difficult curriculum and still merit respect and consideration by future employers...

...Or maybe it is possible that professors have grown so complacent with teaching and alternative web content covering the same material is so much better that students DON'T really have to attend classes, can learn on their own from the web and still complete the coursework and pass the tests.

Regardless of which of these scenarios might reflect some degree of truth, none of the them reflect well on the true value being provided by such institutions. EXCEPT for the "connections" made possible by simply being an alumni.

Speculation + Complacency = Catastrophe

Baker's observations may have been shocking to him as a new freshman at Stanford in their kind, but for anyone else watching Corporate America and elite universities evolve over the last twenty years or so, Baker's observations are only shocking in degree. No one should be surprised that a "scientist" and "professor" who routinely alternates between academic roles and business ventures would struggle with a decision to retract his own scientific publication if it meant tanking his own stock holdings by fifty percent (even if still leaving him with tens of millions of dollars). No one should be surprised that venture capitalists have blown off doing their own homework when picking new business ideas and instead are simply trying to corner the market by locking up talent before their college email address is even set up. And no one should be surprised that students who were raised amid a get-rich-quick culture and pressured from the crib to get into the best prep schools to grease the skids for getting into an elite school would arrive at that school fixated primarily on converting that opportunity into money.

The dangers posed by the present bubble in Artificial Intelligence aren't even an open secret. Thousands of reports and opinion pieces have been written describing the circular revenue being touted by participants. Stories are already being filed about nearly $500 million construction bills dating back to 2024 going unpaid by SpaceXAI that reflect cash crunches are already taking root. As of August 2026, a top trending story involves a 24 year-old named Leopold Aschenbrenner who built a position worth $48 billion dollars which collapsed to ZERO in THREE DAYS.

Aschenbrenner worked briefly at FTX after graduating from Columbia University in 2021, resigned the day FTX collapsed in November of 2022, took up a job at OpenAI in 2023 and was eventually fired in 2024 after communicating directly to its board about security concerns regarding the firm's intellectual property. He then wrote a blog post identifying investments in AI infrastructure firms as the highest return, lowest risk approach for profiting from the bubble, regardless of whether AI itself eventually paid off as a technology. This was actually a very SOUND investment strategy but the 24-year old, with ZERO prior experience in Finance and ZERO experience operating a hedge fund, actually created a hedge fund around this premise. His blog post was shared millions of times and attracted attention from actual hedge fund investors who saw him as a typical serial genius (but go back and look at that employment record...) and showered him with tens of millions of dollars which he promptly levered into vastly larger and more complicated positions he didn't understand. The dollar size of his bets failed to account for the lack of liquidity involved with such high leverage. It's one thing to devise a hedge strategy with only one or two million dollars in a position. It's another thing entirely to have a few BILLION tied up in something that might trigger a margin call requiring BILLIONS to be sold when the market isn't interested. It only took a couple of days of alignment to trigger margin calls big enough to evaporate a $48 billion dollar portfolio. Ironically, the name of his hedge fund? Situation Awareness.

Situational awareness, indeed. It seems like a long-forgotten concept. It certainly seems forgotten at many elite universities who are not only failing to teach skills required to recognize these ethical and economic dangers but are indoctrinating students into the corrupt practices and attitudes producing them.

WTH

The CBS Evening News with Byron Allen

Media in 2026 has been replete with stories of hiring decisions, firing decisions, content battles, cancellations, plummeting ratings and plain amateurish / incompetent execution of basic news groundwork. Reactions IN the media about these media stories actually pose their own concerns because those reactions frame the play-by-play in the context of assumptions about how media (news media in particular) SHOULD operate within a corporate / capitalistic framework and the goals of the owners of the corporations controlling them. The concern stems from the fact that few explain the assumptions being made and the arguable fact that none of those assumptions are remotely true in the current environment.

Golden Era Assumptions

News of conflict and failure at CBS seems to be arriving nearly continuously. Paramount offering a $16 million dollar settlement in a frivolous lawsuit filed by Trump against 60 Minutes editing of an interview as a carrot to gain approval to be bought by David Ellison and Skydance. CBS canceling its top-rated late night program claiming it was losing $40 million per year. CBS placing "independent media" op ed writer Bari Weiss in charge of the entire CBS News division. 60 Minutes delaying a story on illegal immigrant detention centers. Weiss pressuring 60 Minutes producers to adopt rules allowing story subjects to pick their preferred 60 Minutes anchor. CBS firing Sharon Alfonse. CBS firing Scott Pelley. CBS Evening News ratings tanking. Evening News anchor Tony Dekoupil having to report on Trump's May 2026 China trip from Taiwan because no one left on the Evening News staff knows how to arrange logistics for an overseas news trip. CBS shuttering its CBS Radio operation in place since 1927. Remaining 60 Minutes anchors huddling privately to discuss whether there's anything to return to in its next season.

As outsiders looking in on this chaos add play-by-play analysis, that analysis tends to fall into certain ruts based on a consistent set of assumptions about the actual goals of those in charge of CBS and CBS News in particular. Most commentary seems to focus on scoring the choice of tactic aimed at achieving goal X or the quality of the execution of that tactic towards goal X. Virtually no commentary is addressing the elephant in the room... Is X even still a goal for this company?

The assumptions driving how participants and critics frame these debates date from older nostalgic understandings of the balance of power between a "news" organization and any larger business parent happening to own that news organization. In hindsight, this nostalgic understanding of the way things use to operate was never 100% true even in the good old days. Most definitely, those assumptions are demonstrably false in the current environment.

What are the assumptions being made?

• News organizations inside corporate entities still enjoy a magical protective bubble stemming from a quaint sense of noblesse oblige on the part of executives. This bubble somehow ensures story selection and editing will never be tainted by crass concerns about profits or fears of offending powerful business, political or social figures. Those running the news would always know what the right thing to do was and would always have the freedom to do it.
• Corporate owners of media outlets are noble enough to view the cost of news operations as a "loss leader" or a means of burnishing a larger corporate image that provides value beyond the bottom line of the news organization on its own profit and loss statement.
• News organizations should strive to be defensibly non-partisan, providing timely information on events of equal importance on any side of a contested topic.
• Even if topic selection and content editing won't be purely unbiased in any particular direction, it will still be predominately fact-based.
• When conflicts arise between mere business interests and news interests, news interests should take priority.
• Business decisions about entertainment content do not have to be proactively "balanced" according to some perceived scale of bias. If a show captures viewers that seems to be positioned at point 0.25 on the 0 to 1 scale, the media owner isn't required to air a program with content positioned at 0.75 to "balance" out the first. If they can find such a program and viewers tune it in, they can certainly air the program but they're not REQUIRED to air it.

The reality is that these assumptions are not only demonstrably false in the context of CBS and its new parent conglomerate, these assumptions are no longer true for any large media outlet. It is ipso facto the case that any large media conglomerate that includes "news" entities within it is already tainted by the forces applied by boards and shareholders on any sufficiently large corporation.

In December of 2024, ABC settled a "defamation" lawsuit filed by Donald Trump the citizen in March 2024 that no legal expert in the country thought required settling prior to trial. Why? Because Trump won the 2024 election and Disney -- ABC's owner -- didn't want to start off the next four years on the new President's shit list.

Comcast sold off a variety of cable channels including MSNBC and CNBC, in part because viewership has shrunk in lockstep with cable-cutting of all video subscribers in cable / satellite TV. However, MSNBC and CNBC had relatively good viewership in sought-after demographics but it seems apparent Comcast felt those economics weren't worth the cost of content on MSNBC generating daily threats of retribution against Comcast's larger interests from a thin-skinned President.

Who's Paying Whom?

The programming strategy behind the elimination of The Late Show With Steven Colbert and replacing it with the Byron Allen show Comics Unleashed demonstrates many of the dynamics at work with "media" in general and "linear television" in particular at this point in time. (Linear television refers to programming delivered to viewers at a fixed schedule rather than "on demand" as saved content that can be played / paused / rewound / fast-forwarded / skipped as part of its core delivery experience).

Not all programming appearing on linear television channels is produced and distributed with the same financial goals. Think back to NBC content in the 1980s and 1990s. For nearly twenty years, NBC succeeded at identifying and contracting with a series of creators who delivered sit-com and drama content such as Cheers, Seinfeld, ER, Friends, Frasier, Mad About You, The West Wing, etc. that triggered a virtuous circle of wealth for all involved:

• NBC paid good money to a writer / producer for a concept and show scripts and the production of the show
• the content won an audience and advertisers clamored to reach that audience by paying NBC more money for ad slots
• NBC made more money allowing more speculation on more writers / producers to find the next hit show
• NBC could schedule new shows after existing hits to accelerate the adoption cycle for new shows, making them the next big hit
• many viewers got to the point where the consistency in programming became its own brand ("Must See TV" on Thursdays), further helping viewership and lead-in ad revenue at local stations before and after prime-time blocks

Did NBC itself create these shows or own them? No. Paramount produced Cheers and Frasier. Sony produced Seinfeld and Mad About You. Warner Brothers produced ER, Friends and The West Wing. NBC owned time slots during these shows and made its money by paying the creator $X million for the right to air the show on its first runs for Y years prior to syndication while collecting substantially more than $X million in ad revenue, turning a profit.

When most people think of how "television" works as a business, that's the model they imagine at work.

But that's not the only way content makes onto a television channel (either broadcast or cable). The opposite extreme is easiest to explain by thinking of your local television station and your local creepy Christian mega-church pastor. For some communities too small to sustain the appetite of a local holy roller, think of some of the national charlatans like Jim Bakker, Robert Schuller or Joel Osteen, who did / do the same thing across multiple markets. What do they do?

They buy ALL of the ad slots within a given time slot from a local television station (typically outside of prime time hours - often early Sunday mornings). Rather than the station having to find content and pay for it for that time slot, the "church" provides the content. The "church" pays for all of the production costs. The local station just connects VIDEO IN from the megachurch to SIGNAL OUT and collects the money. The station really doesn't CARE if anyone watches. At most, the only thing the local station cares about is that the content delivered by the "church" isn't SO blatantly offensive to local mores that the content triggers viewers to avoid OTHER shows the station airs that WOULD reduce the ad revenue collected from other local businesses selling Chevrolets and appliances. (This model is also popular with sub-prime used car dealers.)

Until the last ten or twenty years of media consolidation, it would have been safe to say that no local station SOUGHT OUT a local mega-church or even a more traditional church and actively ASKED to place video crews to record services and broadcast them on local TV, either as a money-making ploy or as "public interest" programming for the local community. It would have been a safe bet to assume every one of these arrangements involved the church buying the time slot entirely and incurring all of the live production costs as means of getting its message out.

In the last ten or twenty years of media consolidation, it is possible that some of these conglomerates such as NextStar (owner of more than 200 stations), Gray Media (owner of 113 stations) and Sinclair Broadcaster (owner of 193 stations) might find philosophical synergy with mega-church content and might apply some pressure to local properties to cut deals to air such shows, altering the financial balance somewhat. It's definitely already the case that some of these conglomerates (Sinclair specifically) supply pre-recorded "must-run" content to local properties who air them during local newscasts. These segments are structured and produced to meld with regular reports but present grossly distorted explanations of basic political and constitutional principles.

What's new in the last year is that this "mega-church" production model to provide content to fill a time slot and increase profits for stations is now being adopted by the networks directly. The change at CBS to dump Steven Colbert for Comics Unleashed is the first notable example. The show Comics Unleashed is produced by Allen Media Group, a parent company owned by Byron Allen, who many might remember as one of a collection of hosts on NBC's Real People show of the late 1970s. The show WAS popular... Initially... The show lasted five years then tanked, leaving only a memory of what most people today view as quintessential bad 1970s television. Right up there with the infamous "Roller Disco" episode of CHiPs.

Byron Allen moved onto other ventures, starting with a concept of reselling celebrity interviews collected during press junkets for new movies, a concept which had only been adopted by a few hundred DJs at radio stations across the country who attended the same junkets to create "content" to fill morning drive-time on the radio. The content was completely generic and low quality but cheap to produce.

Most radio stations and TV stations abandoned the "celebrity gravy train" model for "content" by the early 2000s but Allen created the Comics Unleashed program in 2006 using the same formula:

• The "talent" that appears is typically only paid union scale wages -- about $1000 currently
• Talent that appears is NOT paid any residual or royalty for subsequent airings of their appearance, which are frequent and may continue appearing for years, potentially dulling the comedian's reputation with new fans
• The comics bring their own material so there's little if any fixed expense for staff writers
• Single-set physical logistics with common camera views -- little reliance on camera operators and editors for "live" production, everything is edited and assembled into a final form after the fact, days ahead of airing, further lowering production costs

The Comics Unleashed show is a perfect example of this low-cost, assembly-line "content" model. Most current CBS viewers might have assumed that Byron Allen would be delivering NEW episodes of Comics Unleashed after taking over the Late Show slot. Not exactly. Allen is expected to product 132 new half-hour episodes the first year (enough for 50% of the weekdays per year) and the second half-hour will re-run old shows recorded between 2006 and 2016. It's not clear if production will ramp up to provide more new content in coming periods.

That's essentially saying only twenty five percent of the content airing in that weekday hour-long time slot will be "new." But few willing to watch will likely notice any difference between the "old" and "new" because a key tenet of the content generation model for Comics Unleashed is to avoid ANYTHING remotely current in the material. This approach has the obvious benefit of increasing the shelf life of the content produced but in the current environment, that has the additional benefit of assuring any content won't touch on anything controversial that might offend the corporation owning the network or those it is trying to suck up to.

Byron Allen's larger conglomerate Allen Media Group owns a collection of cable / satellite TV channels all following a similar model: The Weather Channel, Comedy TV, Cars TV, Pets TV, Justice Central, etc. Either limited production costs with a very unchanging format (weather) or recycled content from other sources "curated" into "fresh content" merely by being lumped together with an airtime schedule. And this type of content is seen by viewers for exactly what it is -- completely bland, forgettable content that kills brain cells through mere contact.

The fact that this content provides little draw to customers to continue cable or satellite subscriptions is very evident to those providers which is why they have been unwilling to pay large premiums to carry the channels. Allen actually leveraged that against Comcast and Charter by suing them for racial discrimination and violation of the Civil Rights Law of 1866 by "refusing to make contracts" with his firm because Allen is African American. (Nooooo... we're unwilling to pay $X per subscriber to carry your channels when we have exact viewership data showing a tenth of a percentage point of our subscribers WATCH these channels when we carry them...) The suits were filed in 2015 and went all the way to the US Supreme Court which tossed out his case in 2020 with a rare, unanimous 9-0 decision. Allen later settled the suits privately with each provider agreeing to continue carrying some mix of his channels for undisclosed amounts.

Late Show Production Economics

If you believe comments from CBS used to justify their cancellation of Steven Colbert's show and the selection of Comics Unleashed to replace it, the economics of Allen's business model seem to make a decision to ditch Colbert obvious. CBS claims yearly production costs for Colbert resulted in a net loss to CBS of roughly $40 million per year. In contrast, because Allen is buying up the air time and producing the show on his own dime, CBS zeros out all production costs and collects about $15 million from Allen, producing a "swing" of $55 million from a $40 million loss to a $15 million profit.

These numbers tossed out by CBS seem, to say the least, quite suspect. Colbert's most recent contract paid him $15 million per year. CBS claimed yearly ad revenue for the show was around $60 to $70 million (down from $120 million earlier in the run). To lose $40 million per year, that would require production costs of nearly $100 million, which, after Colbert's $15 million salary, leaves $85 million for the 200 staffers collectively -- an average salary of $425,000. Clearly, camera operators, gaffers, ushers, teamsters working the stage, etc. were not making $425,000 yearly so this is not an accurate means of reverse engineering the real labor costs. Even the writers likely capped out around $200,000 plus additional pay for on-air skits, etc. Guests are likely comped with luxury hotels and transportation so with 2 "couch guests" and a musical guest with four band mebers per night for 162 shows per year, the lodging alone comes to about $583,000 -- a pretty inconsequential cost in the big picture.

CBS purchased the Ed Sullivan Theater in 1993 for about $4 million and spent about $4.5 million renovating it for the Letterman era. One can image renovation costs in 2015 were three times that or roughly $13 million. CBS also captured a tax abatement of $5 million from New York City to keep the show in the city. One would assume CBS leased the space to Colbert's production company so real estate costs are already factored into this $100 million paid to his production company.

Of course, missing in discussions of the profitability of Colbert's Late Show or its equivalents is any mention of the obvious purpose of these shows to begin with. They are NOT intended as a means of paying a handsome raconteur to entertain the masses. If that happens, that's okay but that is NOT the goal. They are not necessarily required to turn a profit on their own, though if that happens, that's a plus. These shows have existed from their inception in the 1960s as promotional vehicles to use in flogging the latest offerings from TV networks, movie studios and publishing houses. As long as these shows are pulling in three million viewers per show, that's three million consumers seeing promos for upcoming movies, albums and books with ownership stakes benefiting...? These same corporate owners. None of those intra-corporate revenue synergies are being reflected in the suspect accounting of the "profits" from these shows.

So What's Missing in the Analysis?

So if all of the old assumptions about how news operations should operate are false, how does it affect coverage of the latest strife? As an example, one theme in stories about CBS News is that Bari Weiss is the WORST person who could have been selected to run the organization, even if one is willing to concede CBS News had issues and needed to change. This line of thought identifies these problems:

• Weiss' only experience is as an individual reporter and op-ed writer, not an editor or TV production executive or "line of business" executive.
• Weiss' choice of "stars" may actually drive current viewers away, hastening the collapse in ratings.
• Weiss' pursuit of more conservative content to appear on CBS outlets won't attract loyal conservative viewers of more right-wing channels.

All of these stated concerns about Weiss' tenure to date all assume the goals of operating a news organization and consistently airing "fair" content still remain. None of these assumptions can be proven with certainty at CBS. It's not clear they can be proven with certainty at Comcast for NBC or Disney for ABC. These corporate owners may not feel ANY obligation to keep a news organization running. Unlike local licensing rules for broadcasters, there are no FCC mandates applied to national network operators to provide recurring news shows.

The takeaway is that the current corporate owners of top "news" organizations in the United States respect no boundaries between editorial decisions within news teams and corporate financial goals. If executives conclude it will improve profits over the next three years to replace an independent news organization with pre-fab content assembled by 20-somethings who learned how to use DaVinci Resolve while running a YouTube channel but know nothing about history, economics, science or civics, they will do it in a heartbeat, even if the country loses all visibility into what the government and courts are conspiring to do to surrender control of society to our oligarchs. There is no assurance that The CBS Evening News with Byron Allen or something very similar to that model isn't already being pitched to executives at Paramount (or Comcast or Disney).

If there's no FCC mandate at the network level to produce and air recurring news shows on a daily basis, what's to stop existing national networks from abandoning such efforts? Absolutely nothing other than habit and unverified, unspoken assumptions that such an alternate universe somehow cannot exist. Such a universe absolutely CAN exist. The difference between a world with a thirty minute The CBS Evening News with Walter Cronkite show existing and a world with The CBS Evening News with Byron Allen or a world with no CBS news at all is the difference between having a William Paley at the helm versus David Ellison. Paley did not enjoy a perfect record on his journalistic independence scorecard but his overall management arc yielded "the Tiffany Network." Ellison in contrast has arguably trashed any semblance of that network still standing in a matter of months, and not by accident.

WTH

Fender - The Latest Quintessentially American Company

Amid all the other troubles of the world in 2026, a corporate battle over branding, pricing and manufacturing strategy in the realm of musical instruments barely registers as a blip on the radar, even with hundreds of millions of dollars involved. However, a legal skirmish between American instrument maker Fender and a Chinese firm no one has heard of named Yiwu Philharmonic Instruments ("Yiwu") recently morphed into what can only be described as an insane, scorched earth, pre-emptive attack by Fender against a large portion of the entire guitar industry.

Analzying this case involving Fender is useful because the competitive wind shear triggering Fender's altered flight plan affect any company operating globally while attempting to balance seemingly contradictory demands on its strategy:

• balancing an iconic product history and traditionalism against a need to innovate
• reducing labor costs while maintaining or raising quality
• protecting legitimate intellectual property across hundreds of countries
• adjusting product and selling strategies in a potentially shrinking global market

Fender's recent actions also illustrate problems management teams routinely encounter learning from prior failures -- both internal failures and those of competitors. More broadly, Fender's strategy decisions illustrate how firms expecting to leverage a long-standing brand and "legacy" to squeeze ever wider profit margins from its own dealers and customers can find that brand utterly destroyed worldwide nearly instantly, eliminating the very foundation of the firm's poorly considered strategy and accelerating its decline. The errors recently committed by Fender aren't unique to Fender in business history but they perfectly epitomize a pattern of management "own goals" characteristic of big corporations in general and American firms in particular. For that reason, Fender might be the quintessential American company right now. In every negative sense of the word.

A Disclaimer

Your humble obedient scrivener, WTH, is absolutely NOT a neutral observer regarding the events about to be discussed. In a collection of thirteen guitars and five amplifiers dating back to 1982, three are genuine Fender Stratocaster models (a 1992 Strat Plus, a 2008 Highway One Stratocaster and a 2025 Ritchie Kotzen Japanese-made Stratocaster) and one of the amps is a 2020 Fender Deluxe Reverb. A fourth guitar is a "strat style" 1984 Ibanez Roadstar II which was made in Japan and is of very high quality despite being an entry level model.

The rest of the collection includes a 1986 Gibson Les Paul Studio, a 2004 Gibson ES-335, a 2016 Epiphone Les Paul copy (licensed to Epiphone by Gibson) and a 2004 tele-style guitar custom made by Gerard Melancon. Fender gear of all types has been a favorite since I started playing, even when prices didn't fit the available budget. Since all of my Fender guitar purchases came after Fender's exit from CBS in 1986, my experiences with Fender quality have been consistently good.

I'm also very familiar with the engineering and business history of Fender as originally run by Leo Fender and its subsequent ownership periods under CBS from 1965 to 1985 and under Bill Schulz and team from 1986 until recently. When talking world history and politics, I routinely make a point with only mild exaggeration that Leo Fender might be more responsible for laying the seeds for the destruction of the Soviet Union and spreading democracy worldwide than any other single person in history. Why? Because the invention of the Telecaster, the Bassman amplifier, the Stratocaster and the Precision Bass did more to foster what became American popular music that took over the world than any other single artist or politician or public figure. American popular music served as a subtle but constant signal to people worldwide that if your government insists this MUSIC is a threat to your nation and life, perhaps there are other internal problems limiting the availability of bread on the shelves or coats for your children for the upcoming winter. You might want to rethink your form of government. Your problems lie within, not with America and certainly not with music.

All of that serves to underline the fact that I not only like "strat style" guitars, I like Stratocaster guitars made by Fender in particular and from a business, ethical and musical / emotional perspective, I am highly predisposed to being in support of Fender in legitimate efforts to protect their product lines.

Key Terms -- Strat-Style versus Strat Clone

The core issue involved in this business matter is tightly bound to a pair of key terms used in the context of guitar making. In the electric guitar market, the Gibson Les Paul design and Fender Telecaster and Fender Stratocaster are the three most predominate physical designs implemented in terms of unique designs and in total sales volume. Since their original inception in the 1950s, the physical designs were copied by "lesser" manufacturers, triggering numerous lawsuits within the US and internationally in attempts by Gibson and Fender to prevent other makers from "ripping off" these big three classic designs.

Without rehashing the entire court case history and legal thinking behind the outcomes, in general the guitar universe seems to have settled into a mode where three criteria dictate what is allowed and what triggers legal actions -- body shape, headstock shape and actual brand name, model name and iconography / typography of the branding. Other makers can copy the BODY SHAPE of the "original" but the HEADSTOCK shape must be visually distinct from the original and the BRANDING / NAMING obviously cannot mimic "Gibson" or "Fender" or the "Les Paul" or "Telecaster / Stratocaster" names or their styling / font. As an example, compare three different legit Fender Stratocaster headstock designs and branding alongside that of an Ibanez strat-style guitar.

Given the terms of this uneasy legal "truce", guitars meeting the terms of this truce are typically referred to as ___-style guitars ("strat style" or "tele style" or "LP style"). In contrast, instruments that are being made to fraudulently look like the original down to the headstock and logo / branding are generally referred to as "clones" with "clones" being interpreted in a very pejorative sense. In some sense, "clones" should probably be referred to as "counterfeit" because when the maker is attempting to fake the headstock, logo and even serial numbers, there is clear potential for that guitar to eventually serve a role in a transaction where the buyer is paying for what they think is an authentic unit and the seller is pocketing undue profit from that fakery.

Fender's Corporate History

The Fender brand has been a stable part of American music and industry since its inception in the 1940s but its actual ownership and financial position have varied considerably over its lifetime. The key milestones are summarized here:

• 1938 - Leo Fender opens Fender Radio Service with his wife in Fullerton, California
• 1945 - Leo Fender forms a second company with a partner to sell build-it-yourself Hawaiian steel guitar kits
• 1946 - Leo Fender sells off his radio repair business and renames the remaining company Fender Musical Instrument Company
• 1950 -- Leo Fender designs a single-pickup solid-body guitar named the Esquire, quickly follows it up with a two-pickup model originally called the Broadcaster only to immediately rename it the Telecaster after a trademark dispute with Gretsch over the Broadcaster name
• 1951 -- Leo Fender uses concepts from the Telecaster to design a similar electric bass guitar, calling it the Precision Bass for the frets that allowed bass players to get precise intonation on every note, unlike stand-up acoustic basses
• 1954 -- Leo Fender uses feedback from musicians regarding the Telecaster to devise a more comfortable body shape with cut-outs that made it comfortable to play sitting down and a more flexible 3-way pickup arrangement -- this altered body shape with three single-coil pickups is sold as the Stratocaster.
• 1965 - Leo Fender and George Fulllerton sell Fender Musical Instruments to the conglomerate CBS (yes, that CBS) -- Leo and George sign non-compete clauses for at least two years
• 1971 -- Leo Fender begins working for another firm that became Music Man and designed new instruments similar to the Stratocaster and Precision Bass but with improved electronics and subtly altered physical styling
• 1975 -- Leo Fender becomes President of Music Man and works there until 1981
• 1981 -- Leo Fender creates a new company G&L Guitars with former partners from Fender and continues designing and selling guitars and basses until his death in 1991
• 1985 -- CBS sells control of Fender Musical Instruments to a group of private investors led by Bill Schultz and Dan Smith who shutter American manufacturing operations for nearly a year for retooling, relying upon cash flow from Fender gear made in Japan until American plant operations could be resumed
• 2001 -- controlling interest in Fender purchased by private equity firm Weston Presidio
• 2012 -- Fender attempts an IPO that would have allowed Weston Presidio to cash out nearly one third of the company's value but the IPO is withdrawn due to poor market conditions and Weston Presidio instead sells its stake to private equity firm Servco
• 2020 -- existing owner Servco acquires majority control
• 2025 -- Servco buys online music gear reselling website Reverb
• 2025 -- Fender purchases the intellectual property and physical assets of G&L Guitars

A few highlights are important to mention in parallel with this corporate history. First, every alteration to the design of the Stratocaster body and electronics was based on continual feedback Leo Fender solicited from professional musicians who used the instruments. The design choices didn't emerge from an internally sourced burst of artistic inspiration from Leo Fender. He was an engineer with manufacturing skills and the sense to listen to customers. Second, Leo Fender never attempted to protect the body styles of Fender instruments with patents, trademarks and certainly not copyright claims. Fender only attempted to trademark the headstock designs.

Fender's Initial Legal Tactics

In 2025, Fender's operating entity in Germany filed a civil lawsuit in a state court located in Dusseldorf against a Chinese firm named Yiwu Philharmonic Instruments. The suit alleged Yiwu was violating Fender intellectual property rights regarding the Stratocaster by duplicating the Stratocaster's body shape. Fender's suit called for an immediate halt of all manufacturing and sale of such guitars by Yiwu within Germany and throughout the European Union. The defendant failed to appear in the German court during the proceedings and in March of 2026, the German court issued a default judgment in favor of Fender. The court ruling reiterated the claims Fender made that the Stratocaster body is a "work of art" subject to protection under COPYRIGHT law.

Frankly, this initial ruling in a German court didn't generate a great deal of attention in the United States for one key reason. Protections for guitar designs duplicating the Stratocaster were adjudicated in American courts as recently as 2008 and Fender LOST that case, cementing apparent protections for other firms to MAKE "strat-style" guitars within the United States and SELL them within the United States.

However, beginning on May 11, 2026, the German law firm Bird & Bird acting on behalf of Fender began mailing formal cease and desist letters to DOZENS of manufacturers and retailers, referencing "copyright infringement of the Stratocaster body shape" with the following demands:

• stop manufacturing the instruments immediately
• stop selling any existing instruments immediately
• destroy any existing instruments in your inventory
• claw back any existing instruments sold to retailers and destroy those as well

These letters weren't just mailed to Yiwu the unresponsive defendant nor solely to firms making or distributing guitars WITHIN the European Union. They were sent to presumably dozens of firms making and selling guitars within the United States, reminding them that selling such instruments into the EU would violate the terms of this German court ruling and subject said firms to legal action.

Fender's legal strategy reflects poorly upon its operations and brand management strategies in many, many ways. Before delving into those areas, a few immediate legal considerations should be addressed first, in part because these considerations magnify the scale of the leadership failures to be discussed later.

First, the case in the Dusseldorf regional court was not contested by the defendant. The Chinese firm decided it made more economic sense for them to simply ignore the proceeding, fold shop and move on. This may complicate Fender's ability to collect DAMAGES from the alleged infringement but it certainly achieves Fender's immediate goal of halting production of competing instruments by that maker. HOWEVER, because the case was not contested, Fender did not have to defend its claims and the legal basis behind them of using COPYRIGHT as a means of protecting intellectual property primarily originating from functional design considerations. It isn't clear what obligation German courts have to consider the defendant side of a case when the defendant doesn't appear. Philosophically, it isn't a court's job to merely pick a winner in a case, it is the court's duty to reach a decision which reflects the "right" answer based upon common understanding of the law and precedent. This is more difficult to do when the defendant fails to appear.

Another point raised by some commentators who understand German law and EU law is that the concept of stare decisis (binding precedent) is not as rigidly applied in EU courts as in American courts. Courts still certainly attempt to avoid significant swings back and forth between different courts over cases involving similar facts but it is not treated as high in priority as a driver of decisions as in American courts. What this really means in this default judgment in the Fender case is that it reflects no precedent at all. The lasting impact of this ruling won't be established until the issue is actively contested with a real defendant who shows up with a talented legal team and tests the ruling and pursues appeals as needed.

So the issue wasn't really actively contested, the original lawsuit made dubious claims that seem to conflict with prior cases in multiple legal jurisdictions and it only has "teeth" within the European Union. Why is Fender attempting to use the ruling to go into full attack mode against makers and sellers everywhere? That's where a more philosophical review of Fender's competitive situation and implications for the larger competitive environment worldwide come into play.

What Is the Market Here?

On paper, it would appear at first that Fender's lawsuit in Germany targeted a single company Fender accused of making "strat clones" (remember the prior terminology - "clones" are identically shaped instruments with exact replica headstocks and often fake brand names and model names on the guitar). For this scenario, Fender's suit would seem perfectly justifiable. The maker is literally making EXACT CLONES which could likely be used as counterfeits aimed at collecting full price from ignorant buyers who cannot inspect an instrument first-hand before buying.

However, a search of the AliExpress and Temu web sites where many of these guitars are sold shows that the vast majority of guitars listed have a DISTINCT headstock shape and many have NO LOGO of any kind written on the headstock. Listing descriptions will reference "s-style" or "t-style" or "LP style" but NONE that I saw referenced "Gibson" or "Fender" or "Les Paul" or "Stratocaster" explicitly. And the prices on these guitars range from $65 to about $250 US dollars. I was able to find ONE listing on Aliexpress that showed a "strat style" guitar whose image gallery did actually show a Fender shaped headstock and the Fender logo on the headstock and on the neck-plate on the back of the guitar. Clear violations making legal action in that case one hundred percent legitimate. In general though, these are not "clones" or counterfeit instruments attempting to pass as Fender Stratocasters and Telecasters. They are just REALLY inexpensive "strat style" or "tele style" or "LP style" instruments.

So if the accoutrements of the instruments are explicitly NOT matching the originals and the price points are so obviously low that no one is attempting to sell them as counterfeits for $1000 and up instruments from the original makers, what are these knock-offs for and who is buying them? Obviously, the primary market for these inexpensive instruments are new players who haven't gotten past the initial 6-12 months to know they will pursue playing. The quality and playability may not meet a serious player's needs and "touch" after a couple of years but these instruments are certainly capable of getting a novice through the first year or two.

Guitarists with years of playing also find value in these inexpensive instruments. These can be taken in a gig bag on a plane or hauled around in the family truckster on vacation and treated as nearly a throwaway rather than risking a $2000 instrument to an airline or theft. Experienced players also like having some inexpensive guitars around to experiment with different pickup combinations and electronics changes without damaging a more expensive guitar. And often, guitarists just want to have a few one-off instruments for a single sound on a favorite song or they want a few instruments that look like those played by favorite artists with a particular finish or paint job. Come on, sometimes, they're just cool to look at, right?

This is where past brand history, current market dynamics, international law and global trade and politics all intersect to form an existential challenge to Fender.

Fender's Evolving Business and Legal Strategy

In a nutshell, Fender's existential problem is that its existing business model is being drawn and quartered along at least four conflicting axes by customer demands, capital versus labor trade-offs, dealer versus direct sales and intellectual property protections for innovations in world markets.

Tradition Versus Innovation

Fender's customer base is roughly equally split between buyers nostalgic for instruments matching the original design evolutions of the 1950s and 1960s and "signature models" of famous artists versus buyers interested in new pickup electronics and tweaks to body contours and knob / control locations to improve playability and comfort. In the larger scheme of product management challenges, these differences aren't as great as trying to build large pickup trucks and small BEV commuter cars on the same assembly line but offering dozens (hundreds) of minor choices inflates SKU (stock keeping unit) counts in supply chains, manufacturing inventory and dealer inventories, inflating costs at each level. Even if Fender could pull that off, attempting to sell to such divergent camps can actually dilute the brand being pitched to each camp. Those wanting "traditional" instruments might get turned off seeing the Fender logo on a neon-colored, funky shaped guitar aimed at metal players while those same metal players might pidgeonhole Fender as the firm still cranking out millions of stale sunburst relics played by 70-year olds past their prime.

Capital Versus Labor

Leo Fender was innovative in product design and similarly innovative in manufacturing process design but Fender the company has struggled throughout its history to allocate sufficient capital to meet demand, lower labor input and improve quality and consistency. As demand surged in the early 1960s, the firm didn't stop to retool significantly and was still using virtually every piece of equipment from the early 1950s. After CBS took control in 1965, it was focused on extracting more profit, not revamping tooling so quality declined nearly continuously through the 1970s. In the 1980s, Fender closed its American plant on TWO different occasions to rely upon manufacturing in Japan while it tried to retool in America and build a plant in Mexico for more export production. Equipment at its Corona, CA and Ensenada, Mexico plant is certainly "newer" but still involves nearly 200 individual people performing manual steps from painting, fret insertion, pickup and electronics placement, etc. That level of manual work magnifies wage rate differences and drastically inflates the number of points at which process variability can become a quality problem.

Dealer Versus Direct

Until roughly 2000, most guitars were sold through dealers which kept a baseline inventory across multiple brands and price points to allow customers to try instruments first hand. In large part because of inconsistent quality, store sales were preferred by customers as a means of avoiding buying a "dud." With the advent of online commerce, sites such as Musician's Friend and Sweetwater began capturing sales with lower prices. Customers still had to make a tradeoff between a lower online price (and greater availability of different colors and models) and quality concerns from buying something without physically seeing it but sales volumes moved in this direction in part because online sellers began including "pre-checks" on every guitar, acting as a final Quality Assurance step for manufacturers to prevent obvious problems from reaching a customer.

Gibson and Fender both noted the increase in online sales and -- on slightly different timelines -- both began efforts to offer gear directly on their own site at "suggested retail prices." Both seemed to realize that actively discounting gear on their own site would not only devalue their own brand but piss off dealers who couldn't afford to carry the breadth of price points and finishes the maker could sell directly online from the factory. However, this strategy still failed to recognize the entirety of their operating environment.

Remember that merchants who succeeded at selling large volumes of guitars online did so in part by implementing additional quality checks to look for bad fret work, dysfunctional electronics, obvious finish flaws, etc. These inspections are normally performed by every dealer before putting an instrument on the store floor so the online sellers merely duplicated that required step. But where were those flawed instruments coming from? The same factories that were now going to ship them directly to customers WITHOUT an independent quality assurance check. Selling direct still pissed off many dealers but also exposed a much larger share of the maker's quality issues directly to consumers without appropriate channels to handle that repair work.

One additional anecdote is worth mentioning in this dimension of strategy problems. Around 2022, Fender began HEAVILY promoting something it called the "mod shop" which was an online ordering process that gave buyers the ability to assemble a "custom" instrument by picking among a predefined set of choices involving body style, body finish, fingerboard, tuners, pick guard style, etc. At first, this seemed like a great way to leverage e-commerce capabilities to let the customer get exactly what they wanted without having to PREDICT customer wants and incur inventory costs for rarely requested choices. However, it became clear based upon the specific options that were available that the process was designed to allow Fender to mix and match parts that were originally made for specific combinations of inventory models but were flagged with defects, requiring a body to be junked while putting the neck back in inventory, etc. In essence, the "mod shop" was an attempt to minimize sunk costs from higher defect rates generated while trying to keep up with a temporary spike in demand as sales spiked during COVID.

Affordability and Demand by Generation

Every maker of musical gear -- not just Fender -- is facing a common market challenge that stems from generational changes in demand for gear AT ANY PRICE along with acute affordability problems for younger customers. Since the advent of PC and console based video games, the share of disposable income spent on recorded music has plummeted while the share spent on game software and hardware to play it has taken over most of that spending. This shift has caused interest in playing musical instruments to plummet as well (lowering total demand at any price) and left the potential buyers remaining with less money to spend on instruments.

At the same time, buyers who first started playing instruments thirty plus years ago and still dabble with playing are older, have vastly more disposable income and are willing to spend it on higher end instruments. Makers facing this generationally split demand curve must answer some crucial questions:

• how much capacity should be devoted to entry and mid-level models versus high end models?
• exactly how much can we raise prices and extract premiums from the affluent buyers
• exactly how much can we cut costs on entry models without diluting the brand that is still attracting the affluent customers?
• is it possible to cede the entry level market to lower-margin players and capture customers later when they have more income to afford our premium models?
• how can we satisfy affluent owners who say they want "hand-crafted" instruments while competing against makers who adopt newer tooling that reduces cost 30-50 percent?

The guitar segment of the musical industry did experience one period of market stress that seemed particularly focused on guitar demand during COVID. With millions of people stuck working at home worldwide for extended periods with no idea how long it would last, hundreds of thousands decided to take up a new hobby to minimize domestic strife and a huge share of this population took up guitar or resurrected a prior dormant guitar-playing hobby. This generated a HUGE square wave spike in demand across nearly EVERY maker. This required those makers to choose a strategy:

• ramp up production immediately via overtime to meet demand at current prices?
• raise prices to extract more money from those willing to pay amid shortages?
• ramp up production via new plant capacity to satisfy a permanent increase in demand?
• raise prices in the short term based on demand but hold off on adding capacity?

Fender for one seems to have assumed that demand for Fender gear would enjoy a permanent upward bump. Prices went up beyond expected "COVID inflation" because of demand and Fender released what seems like dozens of new models of guitars which lacked any material innovations. This choice was puzzling even at the time in light of the prior well understood trend of entertainment spending patterns among teens and 20-somethings. Business followers of the music industry were already discussing the sagging prospects of any musical instrument maker in a world where fewer kids have formal music education in school and fewer parents can afford instruments and lessons in the home. Now, with a worldwide pandemic and sudden change in work / home entertainment choices, Fender assumed a DECADES long trend was suddenly reversed? Permanently?

Intellectual Property Protection in a Globalized, Digital World

Before addressing the core of Fender's recent actions, a summary of tools for protecting intellectual property and branding is required to provide context for how desperate Fender's strategy is. There are four key strategies firms can pursue to protect intellectual property underpinning a business and prevent competitors from trading on a company's established reputation and stealing profits.

Trade Secrets -- If a firm has know-how that provides a competitive advantage that can safely be included in the product without being divulged, simply retaining that know-how internally and preventing it from being discovered allows a firm to leverage that know-how in perpetuity -- for as long as the trade secret can be kept. Trade secrets were commonly used for ingredients (KFC recipe? Coca Cola syrup formula?) or manufacturing processes but in more modern times, trade secrets are more risky as an intellectual property protection approach because advances in chemistry and physics make it easier to reverse engineer ingredients and formulas and modern cameras make it more difficult to keep proprietary machinery and processes from outside spies. In modern times, trade secrets for manufacturing are virtually IMPOSSIBLE to keep, especially when a firm outsources its manufacturing to another firm which makes competing products under the same roof.

Patents -- A firm that devises a new product or process which is highly valuable but is difficult to physically hide from competitors will often attempt to file for patent protection to maximize the economic value of the product or process. Filing the patent requires divulging the idea in its entirety but if granted, the patent provides the holder EXCLUSIVE rights to leverage the patent for commercial purposes for seventeen years. During that period, the holder can license a right to use the patented design or process for whatever price they can negotiate from whoever they choose. Patents are the only viable approach for protecting intellectual property which cannot be successfully hidden but require material expenses for legal filings and subsequent infringement charges against parties suspected of violating the patent. Patents also pose a key challenge to inventors applying for them. To grant a patent for an idea, the idea must satisfy four key criteria: 1) it must involve matters subject to patent protection (process, a machine, a material composition), 2) it must provide a specific, credible real-world use, 3) it must reflect a unique idea that is non-obvious to someone skilled in the art, 4) the application must describe at least one specific physical implementation of the idea.

Trademarks / Service Marks -- Trademarks and service marks don't protect specific product implementations, functionality or processes but instead protect the NAME used by a firm to identify their product / service in the marketplace for communication with customers. Adoption of a trademark simplifies how firms identify their products to customers and helps customers ensure that when they see marketing communication about the trademarked product "Happy Fun Ball" from "Sirius Cybernetics Corporation", they KNOW that communication involves THAT specific product and not another firm's product who is trying to horn in on the original maker's sales. Trademark protection lasts indefinitely but requires the would-be trademark holder to file an application for use of the trademark (to ensure it isn't already in use) PRIOR to its use and requires the trademark holder to actively, consistently defend that trademark as it becomes aware of anyone else trying to use it. Failure to "assert" or "defend" a trademark will typically be viewed as abandonment of the trademark, leaving the holder no protection in court.

Copyright -- Copyright protections are intended to generate distinct but complementary benefits to individuals and society from the creation and dissemination of creative works. Copyright grants creators of a work exclusive control over the dissemination of the original work and control over the creation of any derivative work based on the original by any other party. Copyright protection typically extends for the lifetime of the creator ("author") and some countries extend the copyright for another X years to any entity designated by the creator. Copyrights can be sold by the creator to anyone they choose providing an alternate means of profiting from their own work. From a social and legal standpoint, copyright protections are aimed at encouraging the creation of new works that benefit society by ensuring creators can profit from their own work for their lifetime while at the same time ensuring those works eventually become public domain to further foster use throughout society.

Copyright is SIGNIFICANTLY different than the prior forms of protections because copyright protection is granted automatically under the law at the time of creation or formal publication. Creators can formally file a claim for copyright protection to ensure records are very clear about the work, the entity and the publication date but in most countries, copyright protection attaches to the work merely through its publication. This is a CRUCIAL distinction in the Fender case, as will be discussed next.

In the case of Fender, there is nothing about the final physical form of a guitar that lends itself to using trade secrets to protect any advantage over competitors. There are aspects of Fender's painting process it deems a trade secret but that's about it. The nature of the pickups, electronics and bridge hardware of a guitar are obviously open for any customer or competitor to examine and reverse engineer but by that token, such components ARE viable candidates for protection via patents which Fender has used in the past. However, patents only provide advantages for 17 years so individual patents have limited financial value. For patents to have value, Fender would need to continue innovating in design or manufacturing techniques over time and it isn't clear there is much frontier left for innovation on an electric guitar, bass or amp.

Fender certainly treats its brand name and model names as trademarks and has protected them vigorously from the inception of each instrument. However, Fender's prior attempt at protecting the Stratocaster by treating the body shape as a TRADEMARK failed in 2008 because Fender had never originally filed a declaration of the body shape as a trademark nor did it ever pursue litigation against any competitor for making guitars with the Stratocaster body shape until the 2008 case, nearly sixty years after initial release. The courts ruled Fender had allowed the body design to lapse into the public domain. In contrast, Fender DID trademark the visual design of its headstocks and DID vigorously defend those headstock designs against infringement and courts HAVE held up that trademark protection.

What Fender is now arguing based upon its German lawsuit and actions afterwards is that the PHYSICAL form and functionality of the Stratocaster guitar aren't solely derived for functionality suited for patent protection but they constitute an "artistic work." Why? Because that form of protection is provided by COPYRIGHT law and in most countries, copyright protection attaches to the "work" at the time of "publication" and continues for the proscribed term even if the "creator" didn't originally formally claim copyright or vigorously protect the copyright via infringement litigation. In other words, from the selfish perspective of the party making this argument, it's the perfect argument to make because it's essentially the ONLY argument remaining to be used for a product that is seventy years old, running out of areas for legitimate innovation yet commands huge economic cash flows if you can keep more of the market to yourself.

What does Fender's new legal strategy say about its business goals and strategy for achieving them? For that, we return to Fender's corporate history and how that mirrors larger trends in private equity, preferences for growth at all cost over stable profitability and stupidity.

A Quintessentially American Strategy

As the prior section on Fender's corporate history pointed out, Fender's organizational state can be broken down into the following phases:

• independent operation from 1946 to 1965
• operation inside a publicly traded corporate conglomerate from 1965 to 1985
• independent operation under a team of owners who served as executives from 1985 to 2000
• operation within a private equity consortium with minority control from 2001 to 2012
• operation within a private equity consortium with majority control from 2012 to present

Arguably, an overwhelming share of the innovation reflected in current products occurred when Fender was independent from 1946 to 1965. Arguably, most of its manufacturing innovations required for those products also occurred during that period. Very little product or manufacturing innovation took place under CBS control for twenty years. Fender significantly revamped its manufacturing operations in the late 1980s and early 1990s and bought some breathing room allowing it to compete in lower-priced markets while still offering "traditional" gear for higher-priced domestic markets.

Unfortunately, Fender's investments in manufacturing through the 1990s left it operating on tooling that is now one or two technology generations out of date. Low-end competitors are using more advanced tooling to lower labor costs and drastically reduce the types of quality problems that are apparent on low-priced gear. At this point, strat-style guitars made overseas with modern automation selling for $165 US dollars are matching the quality, sound and playability of Fender-made Squiers and Fender Stratocasters costing between say $299 and $799.

If this trend has been setting up for the last ten to fifteen years, what triggered this drastic change in Fender's public stance towards both competitors and potential customers? One theory sees a connection between the following events:

• In April 2025, Fender's private equity parent Servco buys the Reverb commerce site outright, gaining insight into millions of additional sales between retailers and consumers and used guitar sales between consumers. This Reverb data might very well reflect near-perfect and near-complete information on a huge swath of guitar sales, reflecting age/income of buyer and seller, price paid, guitar type and age, etc. In short, everything a guitar manufacturer would like to know about every competing instrument and overall market trends when setting long term strategy.
• On January 7, 2026, Fender announces current CEO Andy Mooney will retire and be replaced by Edward Cole.
• Cole previously ran Fender's "Apac" (Asia-Pacific) region for ten years and prior to that had executive roles involving luxury brand management.
• Reverb sales data gave Cole insight into sales trends at the bottom of the price ladder previously hidden from Fender that not only confirmed the overall share of "strat-style" and "tele-style" guitars in the market but the extremely low price expectations being set by more of these sales.
• Fender concluded the innovation avenue for growth is virtually non-existent, the labor reduction avenue for plants in the US, Mexico and Japan had limited payoffs due to the low retail prices on low end models and that increased price competition for low-end models could impair the Fender brand still attracting premium dollars for high end and custom guitars.
• At that point, Fender decided to re-litigate intellectual property rights over its body designs as a means for keeping competitors out and allowing Fender to capture more of that business or ignore it without seeing its brand cheapened by inexpensive lookalikes.

In short, Fender decided it was easier to maintain or grow profitability by either re-capturing more of the low-end market for itself rather than surrendering it to "strat type" makers OR by blocking the manufacture of more "strat type" guitars entirely, allowing it to focus on high-margin models and customers. In other words, it's easier to attempt to re-establish a monopoly on the core product then do what a monopolist does -- curtail supply, charge more and optimize profits while doing less and not worrying about innovation at all.

From that chain of analysis, Fender decided to look for a poster child case that could be filed in a venue where the particular facts of the case could have the biggest splash zone if the case went its way, even if only for a short period through an appellate process. Filing the case in Germany hit several useful targets. Germany is home to a large online retailer Thomann that sells a variety of "strat type" instruments. Germany is in the EU so a German decision in Fender's favor would help widen the initial chill across anyone manufacturing or selling within the EU. In short, this jurisdiction helped improve the shock factor from this legal shot across the bow.

But wait. It was mentioned earlier that Fender LOST a 2008 lawsuit attempting to regain control over the Stratocaster body shape within the United States for both manufacturing and sales. Why does Fender think this verdict in a German case against a Chinese manufacturer can be used to completely eliminate "strat style" competition worldwide? The thinking is that firms making strat style instruments IN the US are still dependent on volume sold in the EU for profitability so that if EU sales are blocked, the firms cannot survive on US sales alone and will still have to stop making them.

One final theory suggests that Fender may not literally want to HALT all of these low-end strat-style guitars from being made but Fender DOES want to collect a license fee on every single unit. This is actually a legitimate legal and economic model for Fender and its competitors. One American firm named Warmoth Guitars has sold raw wood and fully finished bodies, necks and parts for Strat and Tele style guitars including Fender's official headstock designs for decades. Warmonth pays a license fee to Fender for each one. Fender gets its cut, Warmoth makes money, and customers have a source for exact Fender lookalike parts (except for the decals and logos) that are totally legal yet customizeable beyond what Fender is willing to do on a mass market basis. Is a licensing program Fender's actual goal? More may become known after May 26 when Fender expects initial replies from some of those served the cease and desist notices and announces its next steps.

This is all conjecture reflecting ideas from a variety of people from a variety of forums.

No one will ever know if Fender did its homework on Yiwu to know it would fail to show up to defend itself or if it just lucked out. It's also not clear how much Fender considered when choosing the Dusseldorf court to file the case. Did Fender "venue shop" this case, looking for a particular local court or judge with a track record of alternate interpretations of established intellectual property rights doctrine and case law?

Fender's decision to pursue this strategy is familiar in most ways but surprising in one. It is FAMILIAR because the decisions all point to a mindset in the leadership of Fender and its private equity parent Servco that assumes it is possible to either continue growing unit sales and revenue forever without hitting some upper bound OR it is equally possible to continue extracting more profits from a fixed investment by simply squeezing internal margins and distorting the legal system to impose unjustifiable limitations on competitors.

Fender's strategy is SURPRISING in one sense because its biggest rival Gibson already went down this road just a few years back. Gibson hired a CEO in the 1990s who decided to manage Gibson as a "lifestyle brand" and spent hundreds of millions gobbling up music related brands in the instrument and software space only to destroy what was good about them or ignore them into oblivion so they added nothing to the brand family. At the same time, Gibson assumed it could continue charging more every year for its core Gibson guitar lineup while alienating its workforce and tanking quality.

Gibson was a dead man walking for nearly FIFTEEN years under this disastrous management team and had to fire the CEO, take the company through bankruptcy in 2018 and borrow $135 million dollars to regain solvency. Even then, new management still launched a disastrous two-pronged campaign to guilt its own customers into shunning competing products (the "Authentic Gibson" campaign) while launching lawsuits against a variety of makers selling guitars based upon Gibson's Explorer, SG and Flying V. Gibson initially won its case in 2022 but the case was overturned on appeal and is still being litigated. Of course, Gibson has not regained the respect and cache it once held with its customers. It is not out of the woods financially either. In 2025, its quarter ending June 30, 2025 saw a decline in revenue of eleven percent and a sixty four percent drop in EBITDA earnings (a measure that itself excludes many other standard intangible costs).

Fender not only learned nothing from its own history of starving its operations of meaningful investments in modernization and bogus "innovation" through over-branding meaningless distinctions between models, it failed to learn from its arch-nemesis Gibson, who had already written the book on failed brand management, bad operations management and horrible customer relations. And Fender is following that playbook across the entire globe, at a time when American products and particularly American business practices are viewed not with respect or begrudging admiration but anger and contempt.

The Fender Stratocaster I bought in 2025 was already going to be the last guitar I was going to add to my collection. I don't need more amplifiers so I am already past the point where my purchases were going to generate any additional profits for Fender. However, if I was younger and still in the throes of Gear Acquisition Syndrome, Fender's attempt to squeeze competitors out of the market place would have resulted in any Fender product being eliminated from consideration. This is a common reaction of those far more active in the playing and purchasing realm. It does not bode well for Fender's future.

WTH