Will AI be too big to fail?

Businesses fail all the time in America. The owners and investors pay the price (yes, the employees too). But if the businesses are large banks that gamble with other peoples’ money, they become too big to fail and instead are bailed out by the government, a form of financial socialized medicine. 

“. . . the 2008 bailout was a political albatross around the establishment’s neck, seen as a rescue of the very rich and connected people who caused mass unemployment and foreclosures. Whoever was in power as this anger built would get singed by it.

 

“More recently, a loud chorus of venture capitalists and tech magnates pressured the Biden administration into bailing out depositors at Silicon Valley Bank. This crash, much like 2008, stemmed largely from inane financial practices, with fintech and crypto firms keeping massive amounts of cash in regular bank accounts at SVB instead of using basic risk management practices.

 

“In the face of direct pressure from David Sacks and Bill Ackman, the administration oversaw what was almost certainly the fastest major federal bailout in history. Fast-forward a year and a half, and it bit Biden’s whole party in the butt. The crypto industry that benefited enormously from the bailout repaid Democrats by spending more money to help elect Donald Trump than anyone had ever spent on elections before.”

The idea of capitalism is that if you take big risks, you can reap big rewards. But it *should* also mean you can incur big damage if you lose the gamble. Today, we privatize success but we socialize failure.

“Despite AI firms outwardly projecting confidence in growth and profit potential, the idea of a bailout has already been floating around, most notably last November when OpenAI CFO Sarah Friar said that the industry’s longevity may require a governmental “backstop” that can “really drop the cost of the financing but also increase the loan-to-value, so the amount of debt you can take on top of an equity portion” to ensure that chip manufacturers don’t face a demand shortfall.”

 

*snip*

 

“When the first domino falls—whether due to companies shifting en masse to cheaper Chinese models or sketchy data center financing blowing up—it needn’t go very far to hit the next one. The major AI companies are all lending to one another, so as soon as one of them goes bust, it could easily trigger a liquidity crunch across the entire industry.

“If and when that happens, the Trump administration will likely defend an industry it has long been in bed with. AI titans spent heavily to elect Trump in 2024; Meta, xAI, and OpenAI have all long since bent the knee to the Trump White House; and Elon Musk was given free rein to shred entire government institutions. And Oracle, perhaps the most leveraged firm in the AI industry, is the source of Larry Ellison and his son David’s wealth, which they have used to purchase CBS News (and potentially CNN) in the hopes of turning it into a more Trump-friendly media outlet.”

When will the corporate welfare train be derailed?

https://prospect.org/2026/08/13/ai-bailout-democrats-great-recession-obama-politics/

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