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Trump's
Record
Arrests, 8 USC 1324 (Employers): 1 Indictments, 15 USC Ch 1 (Med/Ph): 0
Indictments (Covid manslaughter): 0 Tariff "caves"/suspensions: Four

2025-10-29 07:00 by Karl Denninger
in Technology , 51 references
[Comments enabled]  

Here we go.

Big tech understands this and hence are resorting to some “helping hands” in their investment journey. For example, last week Meta entered in a Joint Venture (JV) with Blue Owl Capital for their $27-Billion Hyperion Data Center campus, of which Meta will own 20% and the rest will be owned by funds managed by Blue Owl Capital. Meta is signing an “operating lease” with an initial term of only four years. They have the option to extend the lease every four years, but they are not obligated to.

To persuade the JV to accept the short four-year leases, Meta provided a “Residual Value Guarantee” (RVG) covering the first 16 years of operations. If Meta decides to leave (by not renewing or terminating the lease) within the first 16 years, they guarantee the campus will still be worth a certain amount of money (undisclosed). This payment is “capped” i.e. there is a pre-agreed maximum limit to how much Meta would have to pay. Again, we don’t know the exact capped limit in this deal.

Why would META do this at all?

Well, to get the JV to take the deal they had to.  So why not just fund it transparently themselves and tell the JV folks to take a hike?  They do have the money and credit access, after all.

Because this sort of structure keeps it off the balance sheet and largely undisclosed (specifically, as to terms.)

When this starts to become visible it is a clear statement that the people closest to the type of transaction and its potential benefits and liabilities -- in this case, META -- are very interested in hiding the full nature of the liabilities, making it sound like someone else is taking most of the risk.  Never mind that involving a JV comes with cost so at the same time you're jacking up the price of what you allegedly claim you need and will produce revenue with.  In other words, if you're confident then you are deliberately overpaying net-net thus you are lighting several billion dollars on fire for sport.

There's no reason to do any of that (particularly deliberately overpaying) if you're confident the benefit outweighs the liabilities and you have the capital (or access to it in the market) on your own.  The latter we know is in fact the case; META does have the capital and access -- not only do they have all of it on hand right now and no problem with market access to additional credit but in addition if this deployment will be accretive to operating results it will only make their cash flow status and operating margin look better.

Therefore a reasonable interpretation of these events is that META isn't confident.  At all.

And that means nobody else is either because if they were they'd force META's hand on this as a potential competitor in the space, so they want to pull the same crap whether directly or indirectly.

Now what happens if "AI" turns out to be a white elephant -- which I fully expect it to be as it is likely, in my opinion, that 90% of the expectations -- and thus revenue -- for it will turn out to be smoke in that most "uses" that are not embedded, single-operational environment will be effectively valueless beyond novelty as they'll all "eat their own and each other's cooking" thus see their error rate spiral upward (this is already well-visible and thus effectively proved on the Internet as a whole, by the way) and, given the shall we say "aggressive" view of service life being touted (I'd call that outright crap as what I've heard paraded around has never been true in my 40 years in the computing business in one form or another) my expectation is that the losses will be catastrophic in regards to whoever winds up with the bag.

PS: If you remove the declared current CapEx on AI from gross GDP advance over the last year the economy is basically flat on its back.  Therefore if this is all -- or nearly all -- incinerated capital then not only is the economy going nowhere but the impairment from those acts will, when people figure it out, result in an economic dislocation that will make 2008 look like a Girl Scout picnic.  And no, the Fed cannot improve it and in fact dropping rates further will make it much worse by accelerating the cash furnace operation and thus damage to the broader economy and inflation.

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we'd not see articles like this.

WASHINGTON (AP) — The first caller on a telephone town hall with Maryland Rep. Andy Harris, leader of the House’s conservative Freedom Caucus, came ready with a question about the Affordable Care Act. Her cousin’s disabled son is at risk of losing the insurance he gained under that law, the caller said.

Now she’s looking at two or three times the premium that she’s been paying for the insurance,” said the woman, identified as Lisa from Harford County, Maryland. “I’d love for you to elucidate what the Republicans’ plan is for health insurance?”

Well, no.

The premium isn't changing -- just the capacity to force other people to pay yours by force.

Where do you think the "subsidies" come from?  Do you believe they're manifested out of thin air?  Of course not.  They come from the Federal Budget and to the extent the budget runs a deficit every dollar of that deficit winds up as inflation, which means every single person pays it -- forcibly, quite-literally by armed force (just try to opt out and see what happens.)  Indeed it is mathematically impossible to make something less-expensive as a whole through any "insurance" scheme for the simple reason that nobody works for free so the more people involved in a given thing the more it costs.

Harris, a seven-term Republican, didn’t have a clear answer. “We think the solution is to try to do something to make sure all the premiums go down,” he said, predicting Congress would “probably negotiate some off-ramp” later.

Well, you could, for example, enforce 15 USC Chapter 1 against every single health care company.  A law that, I remind everyone, was ruled to apply to the entire health care sector in two separate Supreme Court decisions in the late 1970s and early 1980s -- first, when insurance companies and drug firms tried to claim otherwise (Royal Drug) and then again when medical practices tried to claim an exemption (Maricopa County.)  Both times they got smacked at the Supreme Court.

You could also enforce the general consumer principle that everyone pays the same price and you must post a price -- which implicates both 15 USC Chapter 1 and various state and federal Consumer Protection laws.  This, plus more, is contained in a proposal that I first published back in 2011 in Leverage and refined a few times since -- but which has not changed since 2017 because it doesn't need to -- and it would resolve all of the problem including those who can't pay.

No, the resolution isn't "screw them" either; it is an actual answer that gives all citizens access to the care they need but stops the price-gouging where one person pays $500 for something and another pays $5,000.

Note that had we done this in 2017 it would have taken $900 billion, more or less, out of federal spending.  Today it would be much more than that -- probably close to double.  Oh by the way that's the entire deficit so it would also collapse inflation, which is directly caused by said federal deficit.

It would also, however, blow up a bunch of high-flying companies with high stock prices, force into the open the value (or lack thereof) of various treatments, screenings and similar processes, force medical providers to eat the cost of anything they actually caused (which would make them considerably more-careful in that regard for obvious reasons) and at the same time end "defensive medicine."

Remember that we were all told Obamacare would not only let you keep your doctor if you liked him or her (which was a lie) but that it would save the average person thousands a year.  It has instead more than doubled the average person's cost directly and indirectly through subsidies and thus shifting to others and at the same time deductibles have shot skyward so in many cases you get nothing until you've spent $7,000 out of pocket on top of the sky-high premiums.

In other words for all this money you spend you get an effective nothing and with prices collapsed by 80% you could pay nothing in premiums and for less than the current deductible get all the treatment you have now, plus take a vacation to Aruba for two weeks!

Of course firms like United Health (UNH) would sell for $20/share -- not $364.  CVS would sell for $30 instead of $82, Merck for $30 instead of $88 and so on.  Oh, and the so-called "non-profit" care networks wouldn't have entire buildings that do nothing but find ways to bill you for this and that since there would be one price just as there is at WalMart or Publix for everything on offer.

The often-repeated cry is "what about pre-existing conditions?"  My answer to that is two-fold:

  • You can't buy fire insurance on a house that is already burning, or collision on your car after you wreck it.  Thus the answer to that problem is to first stop incentivizing providers to cause conditions because today they get paid if they do.

  • We must bring down the price to where you can afford it if a thing is in fact unavoidable but can be resolved.  Yes, that can occur -- and used to.  I'm old enough to remember that; we had people with diabetes when I was a kid -- my Grandfather being one of them!  He didn't have an $8,000 bill every year for medical care; he paid out of pocket for the doctor and drugs to treat it

If you have no money then see the above linked plan -- it takes care of it.  Simply put once prices are reasonable because everyone, no matter how they pay, is paying the same price and nobody can charge people in the US more for a drug or device than they charge in other countries (because both have been illegal for 100 years, by the way, and now we prosecute those offenses and throw the offenders in prison) then if you can't pay as a citizen the bill goes to Treasury and becomes a tax lien.  If you die broke then the taxpayer eats it -- but the amount eaten is both reasonable and relatively uncommon.

How hard would it be to do this?  Not hard at all, except that the "mavens of industry" and "medical societies" would of course scream about it.  The AMA, for example, couldn't make a huge amount of money by utilizing monopoly control over "CPT" codes that they sell a "license" to use and every single insurance company and CMS in the Government forces upon everyone else.  That pesky 15 USC Chapter 1 law, incidentally, makes such monopolies a felony offense carrying prison time so were it to be enforced all that nonsense -- and all the cost it imposes on you -- would instantly go "poof!"

The simple fact is that neither political party will do this until the people of the country force them to.  Both are lying about the root of the problem; we spend five times what we should on average, having gone from 4% of GDP in the 1970s for health care to 20% today, and this -- above all else -- is what has driven up the cost of living in all respects because the budgetary impact is the direct cause of inflation.

This, and only this, is why you can't afford rent, why your kids can't manage to make a go of it with a couple of kids and a modest house to own, why all the rage is "offshoring" this or that (or "AI"ing this or that) and more.  It all comes down to inflation being fed by a monster that has gone from 4% of our total spending in American to 20% and will keep accelerating until we either force it to stop or it bankrupts everyone including federal, state, local governments and you.

Look at the MTS; last fiscal year (just ended September 30th) CMS (Medicare and Medicaid) spent $2.485 trillion up from $2.222 trillion the previous year.  That's an 11.8% increase and $263 billion in direct impact as an increase to the deficit.  Only about $320 billion was collected last year as a direct tax (Medicare) to offset any of this and the entire deficit was $1.775 billion.

In other words if this spending was brought back to the former percentage of GDP, about 1/5th of what it is now, a literal $2 trillion would disappear off the federal spending side and thus we'd have a $225 billion surplus without changing an additional single thing in our government's tax or spending structure.

There would not only be no inflation the cost of living would drop like a stone.

So why doesn't either party go after this?

Because they're not only not interested in solving this problem they have no interest in addressing the cost of living issues Americans have at all, in any way, because doing so will cause asset prices to correct back to something more-reasonable -- and of course the people who profit from said inflated "values" are who they actually serve, at 99% of the population's expense, and they will continue to do so until and unless the body politic of America forces them to change their point of view.

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2025-10-27 08:03 by Karl Denninger
in POTD , 5 references
 

 

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2025-10-23 07:00 by Karl Denninger
in Technology , 48 references
[Comments enabled]  

You have to live under a rock (or disconnected from the Internet) to not know that AWS had a serious outage the other day.  It was ridiculously wide in impact; many apps on your phone, for example, simply didn't work at all because the back ends are all on.... yep, AWS as Amazon has turned into a near-monopoly provider of said services.

I'll leave the politics of this for another time (monopolies bad, eh, at least according to the never-enforced 15 USC Ch 1) but from a functional perspective this sort of concentration risk is extremely serious.

Allegedly the blame was cast on a "DNS" problem within their infrastructure.  I can't speak to the truth of that; in theory DNS is a simple and necessary database lookup to match the name of an Internet host to the IP number(s) on which it resides.  In practice, across large installations where there are many hosts that can actually serve a request, it can be anything but simple, particularly when the resource in question is a "control plane" (that is, its a set of infrastructure that controls other infrastructure.

For example the system you're reading this on has a real-time copy from the database running to other locations as a backup function.  This allows nearly-immediate "fail over" if something goes critically wrong (e.g. the serving entity suffers a fire or other event that catastrophically destroys or damages their capacity to provide service.)  This sounds like a fairly simple thing and it is right up until that connection suffers a problem for too long because there is only so much space to buffer the data and when that runs out the question becomes "what do I do now?"  The choices are to drop the replication (thus you now lose the redundancy) or block until it comes up (in which case the service stops working because there's no more room for more backlog.)

That's just one example of how this sort of issue can go from being "simple" to suddenly rather-complex; what I noted yesterday morning was that my phone, which has a few apps on it that hit "centralized" services of various sorts (e.g. the robotic cat crapbox that I own) were suddenly consuming ridiculous amounts of battery yet the app wasn't working. Clearly the app was trying to get through, failing, retrying and similar -- all with significant impact on the battery state of my phone which, under ordinary conditions, doesn't happen.  The impact of this across the entire population could be quite severe if you think about it; while a phone being low on charge is typically annoying the power impact across an entire nation isn't necessarily in the "annoyance" level, depending on how large it is.

The surprising reaction for me was that Amazon didn't really take a hit stock wise when the event was underway but the next day it was up more than 2%.  What does this tell you?  Perhaps that the market is rewarding the monopoly on frank display despite the reliability problem.  This bodes rather ill in my opinion for the health of our economy and the tech sector but its what the market is telling you about Amazon generally and AWS in particular as a compute resource.  Whether I agree with it or not is irrelevant.

always cast the slant-eye on any sort of monopolist practice or "market" entity, no matter where it is.  That's simply due to efficiency; a firm that is forced to compete daily against hundreds of alternatives is always strengthened in said field by the crucible of said competition; once you are able to get around that requirement by whatever means it occurs that refining process disappears.  That doesn't mean you're doomed immediately or even with certainty and in the latter case of course if you're protected from any sort of enforcement of the laws that allegedly prohibit monopoly behavior you might not suffer competitive pressure ever again.  Nonetheless the requirement for you to innovate and thus advance your efficiency in order to remain alive and profitable is destroyed when that occurs in every case, and I'd argue that while it may not show up immediately, eventually it always will and does.

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2025-10-19 07:00 by Karl Denninger
in Health Reform , 81 references
[Comments enabled]  
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Its rather simple really: The Democrats beclowned themselves over the last few years with the Biden subsidy expansion.  They inadvertently proved that Obamacare cannot and will never work, nor will any similar structure, to control and lower costs.

Why?

Well, before pandemic subsidy expansion the only way to obtain (poor quality and very high deductible / out-of-pocket) "coverage" at modest to moderate cost was to make less than 140% of the poverty line, including non-taxable income such as that from municipal bonds.  At that level all subsidies ceased; this was called the "subsidy cliff."

This occurred around $40,000 in what is (on your tax form) called "MAGI" or modified adjusted gross income.

Beyond that point -- by even one dollar -- the subsidy instantly went to zero.

This was extremely dangerous, of course, if your income was in any way unpredictable and you might go over the limit.  Make an extra $50 and you quite-literally could have to write a check to the Treasury at tax time for the entire pre-paid subsidy from Treasury to the insurance company over the year which could be thousands or even, in some cases, over $10,000 -- all at once.  Needless to say having to pay back $10,000 to Treasury when your income was $40,000 had a pretty-high probability, if you actually lived off a paycheck, of instantly bankrupting you.  This decision in the original bill was demonstrably destructive to economic progress because you want people to try to make more money (not only because they spend it and that improves other people's lives as well through employment) but also because the more you make the more tax you pay.

Those who were (1) healthy and (2) found the price ridiculous refused to buy at all.  Now yes, that was a gamble -- but its one that if you have no conditions, or can manage them without said "insurance", is entirely logical.  In addition many people, myself included, deliberately modified our lifestyles and earnings to remain well within those limits.  That in turn wildly reduced Treasury's tax income across the board because Social Security and Medicare taxes are on a percentage of income and so is federal income tax.  If I choose to make $25,000 instead of $100,000 when I'm capable of the latter that's a monstrous hit to Treasury and in fact even in no-state-income tax states its a huge hit to state revenue as well because I don't spend as much and thus don't pay anywhere near as much in sales tax.

This of course means that those who do buy are sicker and use more service.  That in turn should make the price go up.

Ok, so that's where we were before the "expanded" subsidies passed during the pandemic under Biden's Presidency.

Subsidy expansion made it reasonable for a middle-class individual or couple to be on Marketplace plans because it capped the premiums for a "benchmark plan" at 8.5% of annual income, and for those with incomes below 150% of the federal poverty level some (worst of course, but still something) plans had a premium cost of zero.  By doing this it also prevented, with certainty, the risk of making a bit too much and getting hammered at tax time with a $10,000 subsidy recapture bill you had to immediately pay.

The cost of course wasn't really zero in that Treasury was writing those subsidy checks every month and in fact if you had a marketplace plan (I do) the before-subsidy prices were and are still shown.

Now here's the thing: As both sides concede, and of course the official data shows, this change during the pandemic resulted in a lot of new sign-ups -- millions of them, in fact.  Those people included many who had no economic argument for buying the plan before as they were healthy, had significant income and thus had to pay full price -- and as a result they refused.  What the subsidy expansion caused is the opposite of "adverse selection" and in a functional market where you are not being robbed would have resulted in very large before-subsidy drops in the cost of said policies by greatly improving the average medical spend across the entire pool of people.

What actually happened is that over those years the before-subsidy price WENT UP.

That's proof -- by actual experience -- that what was originally sold; that having people without pre-existing problems in the pool and contributing (taxpayer money, thus circular in form and function but still going into the medical system) would lower costs for everyone on average -- was in fact false.

What happened instead was that that the totality of costs through the Obamacare system on a per-person basis, after a very small dip in the first year, once again increased continually despite the enhanced subsidies and thus uptake by healthier people.

This shows rather conclusively that the original premise of Obamacare was false.  It also points out that post setting the "penalty" for refusing to participate to zero (thus voiding it and allowing well people to leave the pool without penalty) was not the cause of additional ramps in price because in fact from 2018 - 2022 prices went down slightly -- not much, but a bit, even though those who had no current need prior to the pandemic expansion often refused to buy at all.

So we have on the table, in the totality, proof of both that (1) healthy people opting out entirely didn't skyrocket prices and (2) enticing them to come back by shifting the cost to the taxpayer didn't decrease prices by improving the risk pool.

Since this is on the "open" side I'll leave the blunt-language explanation of what this has now proved for another time, or perhaps a podcast.

What's amusing is that from comments I've heard from both Democrats and Republicans neither side understands what the data says despite both parties devising various schemes intended to do certain things (all the way back to Obamacare generally) and yet exactly none of those things has happened -- instead the parabolic path of cost in totality has continued apace irrespective of changes that should have resulted in very visible and large shifts.

There's only one way out of the box at this point and we are not far away from having health care come apart entirely if we don't take that path given that cost and impact on the budget has gone vertical -- and almost exactly when I predicted it would given what the medical system was doing then some 30 years ago in the 1990s.

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