Better Offline - Monologue: AI Isn't Too Big to Fail

Episode Date: April 3, 2026

In this week's Better Offline monologue, Ed Zitron breaks down why AI isn’t too big to fail, why no bailout is coming, and how people need to learn more about history before using it to justify burning billions of dollars. This week’s free newsletter: https://www.wheresyoured.at/the-subprime-ai-crisis-is-here/ Premium newsletter tie-in out later today - save $10 off a year of my premium newsletter: https://edzitronswheresyouredatghostio.outpost.pub/public/promo-subscription/gzqwkv54e1   YOU CAN NOW BUY BETTER OFFLINE MERCH! Go to https://cottonbureau.com/people/better-offline and use code FREE99 for free shipping on orders of $99 or more. Buy our new “FUCK DATA CENTERS” shirts today! --- LINKS: https://www.tinyurl.com/betterofflinelinks Newsletter: https://www.wheresyoured.at/ Reddit: https://www.reddit.com/r/BetterOffline/  Discord: chat.wheresyoured.at Ed's Socials: https://twitter.com/edzitron https://www.instagram.com/edzitron https://bsky.app/profile/edzitron.com https://www.threads.net/@edzitron Email Me: [e-mail] omnystudio.com/listener for privacy information.

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Twirled podcast. We're two men who were completely clueless to reality TV, and we're gearing up for the season finale of Survivor. I know we annoyed a lot of our listeners by our severe lack of survivor knowledge. That is the point of the show. I'm just going to remind you. Again, we are experts. Listen to PodMeets Twirl on the IHeart Radio app, Apple Podcasts, or wherever you get your podcasts. There are times when the mind becomes a difficult place to live.

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Hello and welcome to this week's better offline monologue. I'm your host Ed Zittron. That's right, it's your second damn monologue this week. But next week we're going to have an awesome guest, economist Paul Kodoski. And no doubt some sort of news will break that will make next week's monologue even spicier than this one. And man, is this spicy. Anyway, earlier this week, I put out a free newsletter about the subprime AI crisis. My ongoing theory that as AI companies strive to try and make their rotten economics work, they'll have to start cranking up the price and making rate limits worse. And generally, trying to move things around to make these products anything close to profitable, but they won't even get close. Now, take a little history trip. That's what I'm calling it. When the subprime crisis happened, the subcrime mortgage crisis, of course, millions of people built their lives around the idea that easy money would always be available, and that anyone could get a mortgage and that housing would only ever increase in value. In reality, the value of housing was massively overinflated by the lack of standards of a mortgage

industry, incentivized the sun as many people as possible, thanks to a lack of regulation, and easily available funding. The value of housing, and indeed the larger housing and construction boom, was a mirage. In reality, housing wasn't worth anywhere near what it was being sold for, and the massive demand for housing was only possible with unlimited resources and lacks, well, underwriting, which is the process of evaluating whether someone can get a house. You might know that, but I've been encouraged by Robert and Sophie to be obvious with things. Those buying houses they couldn't afford with adjustable rate mortgages either didn't understand the terms

or believed members of the media and government officials that suggested housing prices would never decrease and that one could easily refinance the mortgage in question. You know, kind of like saying things like, you know, AI's always getting more efficient, the value is always going up, and venture capital will always invest, and that this is the new hypergrowth era. Similarly, AI startup's products are all subsidized by venture capital, and must, in literally every case, allow users to burn tokens far in excess of their subscription fees, a business that only works, and I put that in quotation marks, as long as venture capital continues

to fund it. And when I say that, I'm being quite literal. If you go and use perplexity, you're comfortably able to, even on a $20 plan, burn $30, $40, $100 worth of tokens within a calendar a month. Anthropic allowed you, until very recently, to burn anywhere between $8 to $13.5, but dollar a subscription revenue. While from the outside, these may seem like these are functional businesses with paying users, without the hype cycle justifying the endless capital, these businesses wouldn't be possible, let alone viable, in any way, shape or form. And indeed, they wouldn't have any customers, my evidence being, if they could get customers by charging their actual rates and offering a non-subsidized product, they'd have them, and they would have had them from the beginning.

Let me give you an example. Harvey is an AI tool for lawyers that just raised $200 million at an astonishing $11 billion valuation, all while having to have a lot. and equally astonishingly small, $190 million in ARR or $15.8 million a month. It raised another $160 million in December 2025 after raising $300 million in June 2025, after raising $300 million in February 2025. Where's the fucking money, Harvey? Where are you putting it? Harvey, Mr. Harvey's been very unfair to the venture capitalists.

Actually, they're fueling it. I can't even say that. Remove even one of those venture capital rounds, and Harvey coughs up blood, dies. Much like subprime loans allowed borrowers to get mortgages they had no hope of paying, hype cycles create the illusion of viable businesses that cannot and will never survive without the subsidies. The same goes for companies like OpenAI and Anthropic, both of whom created priority processing tiers for their enterprise customers in the middle of 2025, and the latter of which, just as I discussed in my last monologue, added peak rate limits from 5am to 11 p.m. Pacific time,

you know, just the entire day, and that was after they created weekly limits late last year. Their customers are the subprime borrowers too. They built workflows around using these products that may or may not be possible with new rate limits. Think about it. If your whole business, the whole reason you use this software subscription is to do tasks and suddenly the amount of tasks you can do is limited, is this really, is anything tenable anymore? Especially if you're one of those people who can't actually code and are using this to vibe code. I'm not really sure this works.

But in the case of the enterprise customers using priority processing, their costs massively spiked, which is why Cursor and Replit and several other AI startups suddenly made their products worse in the middle of 2025, adding their own rate limits and changing their pricing. In reality, none of this ever made sense. None of this was actually possible outside of endless resources. Now, traveling back in time, by November 2009, 23% of US consumer mortgages were underwater, meaning that they were worth less than their loans. And I think we're eventually going to see that specifically with venture capital valuations, by the way.

I think there's going to be a point when it's like 90% of AI startup valuations are going to be way lower or nil, actually. And I truly think the subprime AI crisis will be much, much worse for the values. AI companies made up more than 50% of venture capital investments in 2025. I actually don't know how any of them make it. This is something that I think about a lot. My thesis basically says these companies are all dying. I don't see how it works out. They're not getting acquired.

They can't go public because they have the worst economics of all time in the moment you show the markets that it looks real bad. Minimax AI company in China that went public. I think it's $50-something billion of revenue and like $200-something million in losses. A little bit like that. You make them real money. Nevertheless, I really don't know how that works. I truly don't. I sit and think about it. I'm like, is there a way they could get acquired? Is there something else they can do? There really isn't. All they can do is check up their prices and hope that people don't leave. And I think that's what's going to happen if they even bother and if they can even get that far. Now, I know what you're all thinking. And I hear this a lot. I'm kind of tired of hearing it, but I'm honest. And I get why people do it. But despite the subprime comparison, this is not a too big to fail situation. And in this week's premium newsletter, I'm going to dig into that question in depth.

Please do subscribe. The money goes directly to me. It's my source of income now. It's very important to me. But nevertheless, I'm going to give you a sizable preview here because I want this information out there. Another podcast from some SNL late-night comedy guy, not quite. Unhumor me with Robert Smygel and friends. Me and hilarious guests from Bob Odenkirk to David Letterman help make you funnier.

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Hey, I'm Jared Adano. You might know me as that loud guy who yells out, help on the internet. Help! Somebody! But there's so much more to me than me. I'm an actor. I'm a comedian. And recently, I've become quite the helper myself.

And on my new podcast, Hope from a Hippocrat, I'll be changing lives, helping people in need with my sage advice and thoughtful solutions. Sike, I'm a comedian. I'm not qualified to give good advice. Join me and my comedian friends as we riff rant and recommend some of the most legally dubious advice known to man. If I'm calling you, even if you're on your phone, let it ring twice. One ring is too scary.

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Orsha accusing Kelly of sleeping with a merry man. They holding Kay Michelle back from fighting Drew. Pinky has financial issues. I like the bougie style of Housewives show. I think it looks like it's going to be interesting. On the podcast, Reality with the King, I, Carlos King, recap the biggest moments from your favorite reality shows, including the Real Housewives franchise, the drama, the alliances, and the team everybody's talking about. As an executive producer in reality television, I'm not just watching it. I understand the game.

As somebody who creates shows, I'll even say this. At the end of the day, when people are at home, they want entertainment. To hear this and more, listen to Reality with the King on the IHard Radio app, Apple Podcasts, or wherever you get your podcast. So, too big to fail refers to the troubled asset relief program, top, over $400 billion, and specifically the bailouts of AIG in the surrounding finance industry, mostly focused on the commercial paper loan industry that kept major banks and financial institutions going, as well as fucking GE Capital. Oh, and also the PDCF and TSLF finance systems that kept them going too. I'll get to that in a bit, but the bailout was in the trillions. Like, I don't think people realize how and why it happened, so I'm going to tell you.

Anyway, AIG was too big to fail because it had $20 billion in outstanding commercial paper and several life insurance subsidiaries that were billions of dollars in the holes, thanks to AIG literally gambling with the money, not actually at casinos on CDS's CDOs and the like. The knock-on effects of AIG's collapse would have been catastrophic for the money market funds that held commercial paper from multiple companies. And commercial paper is a short-term loan type thing anywhere from one to four days to like, I think, 200-something days. But most of it was either very short-term, and in AIG's case, was also mostly without any collateral. In any way, in any case, that used to be the primary way that banks and finance institutions, GE Capital, actually used to be able to fund their businesses. they would go to the market and go, hey, well, why you lend us some money just for like a few days?

We'll get it right back to you. And for the most part, it worked right up until it didn't. I also want to be clear about what the bailout actually bailed out, because I think people here are too big to fail and they're like, right, they bought the houses that were being foreclosed. No, no, no, that's not what they did. It was like 40-something billion dollars that was meant to go to stop foreclosures. No one really knows what happened to it, which is cool. No, the vast majority of the bailouts were for financial instruments, not houses, not apartments, not helping regular people, but making sure that the toxic financial products associated with the finance industry were absorbed and bought off and that liquidity remained in the market via the primary dealer credit and term securities lending facilities that provided as much as $100 billion

to banks and financial institutions a day. Now, these still exist, the repo facility still exists, but are not used at the same scale. But this, I want you to think about this. Like, every day, $50, 100 billion was just used to give them short-term funding to just get through the day. People should have been in fucking prison, to be clear. People should have gone to jail for this. But this was necessary to stop the financial system crashing, to actually falling apart. Lending, insurance would not have got funded in the same way.

there was basically a credit freeze anyway, but I'm talking nothing would have happened. And even during the great financial crisis, mortgages still were getting written, loans were still getting rent, things still happened. And the financial system is a confidence game, and the PDCF and TSLF existed to stop everything from actually going to zero. And like I said, those few loans were still being written and funded, and they needed to make sure that insurance and borrowing, they still actually happened. because the world runs on debt and insurance. And, oh my God, really reading about the great financial crisis really did black pill me all over again, though, because you read what these fucknuts did. They were just, they were like, yeah, we're going to hedge our bets on the mortgages by buying credit default swaps that we're not, that we assume that AIG will be able to pay.

But you don't need to check. Well, they should have checks. They couldn't fucking bet. Anyway, some estimate the true size of the bailout when you account for that liquidity to be over tentory. billion dollars because the under-discussed part of the AIG bailout was that commercial paper, the commercial paper lending industry that funded most of the finance industry, kind of broke. It took years. The finance industry actually had to unwind their dependence on it. Colgate used to use commercial paper. It's fucking weird. In any case, there really aren't any comparables

to the AI bubble. While Open AI and Anthropic might be very prominent and very annoying, their actual economic existence is relatively small. And the overall AI industry, barely had $65 billion in revenue last year, with much of that flowing between a few counterparties and funded by venture capital dollars. And also, we don't know if all of that was cash, by the way. A chunk of that is the inference spend with Microsoft. Don't know if that's still tokens. If you work at Microsoft and you want to talk to be about the finances or any of these companies, please, please hit me up. I would love to hear from you, easy at betteroffline.com. Nevertheless, had AIG defaulted, it would have left multiple banks without the funds to continue

functioning and killed its insurance companies in the process, sending them into government receivership that wouldn't have guaranteed the policies had the same value or even have been fulfilled. Even with that bailout, the government had to plug a hole in the side of the finance industry for several years, and they ended up bringing it back during COVID as well. While the collapse of OpenAI and Anthropic might tank parts of the market, too big to fail is a that refers to something that has systemic risk to the economy. And these are two very different things because the market still shut its pants during the great financial crisis. That happened. The government wasn't stopping the markets from collapsing by funding the markets. They were keeping the banking

system alive so the markets just functioned at all. And I really need you to know that difference because it's not the same thing. The collapse of AIG would have quickly ripped through the funding mechanisms of most of the U.S. finance industry, and its collapse still materially harmed one of the main funding mechanisms of the U.S. economy. There is no such comparison with AI. AI is not producing productivity benefits at scale. It is not replacing jobs at scale, not that I want that to happen, of course. It's not load-bearing in an economic sense in that the flow of money in the U.S. economy would collapse if Open AI or Anthropic did. And a bailout in general exists to solve a problem rather than pass the buck.

And I also want to be clear, if they were truly too big to fail, I don't know. I don't know. Wouldn't it be that when Anthropic goes down or chat GPT goes down, the economy would stop? Because that's what would have happened if AIG died. God damn have I nearly said AGI like five times. Anyway, I also want to address that Fannie Mae and Freddie Mac, massive mortgage companies that were absorbed by the US government, they are not a comparison as the deaths

of those companies would have actually destroyed the U.S. housing market. Like, they were like $65 billion in the whole. It was very, very, very bad. Like, I need it. Like, the big short is a great movie. It does not do justice to how fucked things would have been. I also want to be clear that none of these companies should have been allowed to function in the same way. Like, any of the banks involved in this should have, like, none of the executives in question should be allowed to work in finance anymore. I think that it was genuinely evil. And the whole situation was caused by, an industry-wide, just gambling industry. That's what it was.

It was truly horrifying, and everyone involved should be in jail or jobless. I think they're fucking awful. Nevertheless, it was necessary to do because of the fuckwit nature of the whole thing, because of the stupid gambling they did, because of the low reserves they had and how brittle everything was, which is their fault. That's very different to the bailant not being necessary, though. Now, getting back to AI, without Open AI and Anthropic, the AI industry would disappear, as with the demand for AI compute. It would lead to billions of dollars of loans going unpaid and the value of venture capital would probably be cut in half or as much as 80 or 90% as happened with the dot-com bubble.

It'd be horrible for the markets. Corweaver would die, Iron would die, and Hebbius would die. I think the Open AI and Anthropics' death would end up ripping through the entirety of Silicon Valley. I think that it would be a payback for years of focusing on growth, rather than. than creating anything. On the banking side, I do think we are somewhat safer, I think, while there aren't heavy reserve requirements, there are actual regulations around high-risk speculation, and the scale of speculation here is teeny tiny compared to, I think it's like $5 trillion in synthetic CDOs or something of that nature. There aren't trillions of dollars

of speculation here. Billions, hundreds of billions, sure. And I'm fairly sure, fairly confident that a lot of these banks and private equity firms and private credit firms have some degree of reserves built in for these loans going tits up in the case of AI data centers. Their debts, these AI companies' debts, wouldn't create a calamity that would stop loans in general or insurance in general from being collateralized or any other basic functions of the US economy. I'll also add the Nvidia and the rest of the Magnificent Seven aren't going to die as a result of the AI bubble bursting. They're not going to need bailouts. I think Oracle's bailout chances are, there. But even then, I'm kind of hesitant to say so because I don't know what they'd be

maybe bailing out the loans that create a little Larry Ellison-shaped tarp just for that fuck not. But I actually don't know if that would happen. Tarp was deeply unpopular. It was deeply unpopular. Deeply, deeply unpopular. And Trump's already having enough trouble. I'm sure he's doing that we're touching the stove competition. But at the same time, I just don't see it happening in the same way. And even then, I still think Oracle would die and get a absorbed into another company, probably Microsoft. Wouldn't that be funny? Man, the antitrust would be crazy.

That being said, I think that the AI bubble will eventually be seen as a smaller precursor, much like the dot-com bubble was, the great financial crisis, to a larger financial crisis created by private credit and private equity in their hundreds of billions of dodgy investments in software and random companies. I am still working out how bad this would be, and I don't want to be an alarmist. I actually don't think it will be as bad as the great financial crisis, but that is a question I'm going to try and answer in the future.

An open AI and Anthropic aren't getting bailed out. It's not happening. I don't care if you think. Oh, the Department of Defense uses them. They're not going to bail them out for that reason. They're not going to put them into conservatorship. It's not going to happen. It would be deeply unpopular and also, to what end? A festering hole in the side of the government.

We already have Congress. Anyway, AI data centers aren't getting bailed out either. I really need to be clear about that. houses were not bailed out, foreclosures will not bail out. Perhaps the ABSs might have some hope, the asset back securities, but even then I don't think the scale of those is anywhere close to the great financial crisis. And to be clear, the collapse of the AI industry will fucking hurt. It will brutalize the banks and private credit firms involved. It will fuck venture capital for years, if not over a decade. Earning seasons are going to look like the dog from John Carpenter's The Thing. It's going to be

horrible for them and horrible for people invested in the market. It's not going to be nice. I am not saying that it's not going to hurt. But that is meaningfully different to anything being too big to fail. And I'm tired of people saying things without actually bothering to understand what they mean. Another podcast from some SNL late night comedy guy, not quite. Unhumor me with Robert Smygel and friends. Me and hilarious guests from Bob Odenkirk to David Letterman help make you funnier. This week, my guest, SNL's Mikey Day and Head. writer Street or Seidel, help an a cappella band with their between

songs banter. Where does your group perform? We do some retirement homes. Those people are starving for banter. Listen to humor me with Robert Smigel and friends on the I-Heart Radio app, Apple podcasts, or wherever you get your podcasts. There are times when the mind becomes a difficult place

to live. This is David Eagleman with the Inner Cosmos podcast, and for Mental Health Awareness Month, we'll talk with singer-songwriter Jewel about anxiety. I started living in my car and then my car got stolen. I was having panic attacks. I was agoraphobic.

This is a month of deeply personal and honest conversations about what happens when the brain goes off course. Listen to Intercosmos on the IHeart Radio app, Apple Podcasts, or wherever you get your podcasts. Hey, everyone, it's Ryder Strong and Wilfredel from PodMeets World. And now the PodMeets Twirled podcast.

We're two men who were completely clueless to reality TV and we're gearing up for the season finale of Survivor. I know we annoyed a lot of our listeners by our severe lack of survivor knowledge. That is the point of the show. I'm just going to remind you. Again, we are experts. Listen to Podmeets Tworl on the IHeart Radio app, Apple Podcasts, or wherever you get your podcasts. This week on Crimless, Rory and I welcome a very special guest.

When I did podcasts, I wear my sleep mask. I like where this is going. So if you guys will indulge me. That's right. The incredibly talented and high. hilarious Will Ferrell on an episode dedicated to crimes committed by people named Will Ferrell. You're good for 300 crimes? Yeah.

We got two. I'm ready to go right up to present day. Listen to Crimless on the IHeart Radio app, Apple Podcasts, or wherever you get your podcast. This is an IHeart podcast. Guaranteed human.