OpenAI asks U.S. for loan guarantees to fund $1T AI expansion

First, the $1T number seems to be completely pulled out of thin air. There were recent speculations that OpenAI is working on an IPO at the level of $1T, but obviously this has nothing to do with US loan guarantees of $1T. The talk about US loan guarantees originated with the WSJ interview of the OpenAI CFO, Sarah Friar. She was very clear that she can't give any details, because nothing is concrete yet. She did not mention any numbers, at all. The $1T is pure speculation, based on nothing.

Second, Sarah Friar mentioned that the US Government is very receptive to the entire sector, and OpenAI is always consulted. But OpenAI is not lobbying the government for loan guarantees for themselves only. If there are any such loan guarantees (which is very likely), they'll be for AI investments in the US in general, so, for example, Anthropic and Google will also benefit (and probably Nvidia, AMD, Intel, Oracle, Amazon, Meta, etc).

Third, Sarah Friar used the word "backstop", instead of loan guarantees. This might sound like a synonym, but I don't think it is. She emphasized that the financing will be organized by the private industry; the government backstop is there to facilitate that. How could such a backstop look, so it is most efficient for both the taxpayers and for the investors (most of which are also taxpayers)? It could be some first loss tranches in some pools of loans, for example the first 10%. This way, the industry can raise $10BN, while the government is on the hook for only $1BN. Even more likely, the government will provide second loss backstop (the technical term is a "mezzanine tranch"). For example, they'll absorb the losses between 5% and 15% in a loan portfolio. The first loss will be absorbed by some speculative investors, who will be compensated by a very generous yield.

I also expect that new loans will only be raised if old loans perform well. Overall, I don't expect the US government to be on the hook for $1T at any given time, and I would be surprised if they'll be on the hook for much more than $1 BN at any given time.

Tyler Cowan podcast:

"At some level, when something gets sufficiently huge, whether or not they are on paper, the federal government is kind of the insurer of last resort, as we’ve seen in various financial crises and insurance companies screwing things up. I guess, given the magnitude of what I expect AI economic impact to look like, I do think the government ends up as the insurer of last resort."

https://conversationswithtyler.com/episodes/sam-altman-2/

Like snakes eating their own tail. If you or I did it, we'd go to jail.

https://www.youtube.com/watch?v=CBCujAQtdfQ

But the big end of town apparently thinks it's worth a government investment of a trillion dollars for all that repackaging of stolen content.

It'd be really interesting to see how the books actually look. I'm guessing it's not pretty.

If that $1.4T doesn’t have any actual returns for a few years, I would expect significant inflation from what is effectively a stimulus.

Wasn’t that just in the news?

OAI's target IPO is forecasted to be the largest ever, so if that flopped, it would cast doubt over its long term profitability.

When you have the most openly corrupt administration in modern US Presidential history, the interests of the nation are not the yardstick to use to measure the value of a deal.

OpenAI doesn’t need government financial backing for investment. The government has more pressing priorities to address with the money they take from us first.