Jim Chanos

got us so concerned in 1988 and 89 in the Drexel junk bond kingdom was the fact that more and more of Mike Bilken's clients had regulated subsidiaries like savings and loans, insurance companies, thrifts, trust companies, where they were buying the same credit that, in effect, others in the kingdom were selling without a lot of arm's length

disclosure.

And so that is something to keep our eye on, I think, is the use of captive regulated subs to buy this stuff.

Sort of like private equity five to ten years ago.

Right.

Or hedge funds 15 years ago.

Yeah.

Look, these things are being sold aggressively.

It's a wonderful product for people that have targeted rates of return needs, endowments, pension funds.

But again, it's just something that worries me when equity rates of return are promised on credit instruments.

Usually there's something you're not seeing.

Well, what we've told clients, because we went through the first time we saw this in 99, 2000, 2001, where there was a lot of circular financing and vendor financing.

Back then it was the telecoms.

But the customers that were taking that vendor financing from the Lucents and Nortels of the world...

were predominantly profitable.

The Celex raised about $45 billion over five years, competitive local exchange carriers.

They had a flawed business model.

Most of them went broke.

And then the fiber optic guys did build-outs, and most of them had to be restructured or went bankrupt.

But we were talking about $100 billion of vendor financing over the five years or so that it was happening, which was a lot at the time, but it pales into comparison of some of the numbers we're starting to hear about, both this year, next year, 27, 28, for the capital needs of the AI companies.