Breaking Points with Krystal and Saagar - 8/11/26: China Shuts Down Billionaire, FP Defends Flock, Hidden AI Bailout

Episode Date: August 11, 2026

Krystal and Saagar discuss China shuts down billionaire wealth funnel, Bari Weiss FP defends Flock cameras, hidden AI bailout on the horizon. David Dayen: https://prospect.org/author/david-dayen/    To become a Breaking Points Premium Member and watch/listen to the show AD FREE, uncut and 1 hour early visit: www.breakingpoints.com    Merch Store: https://shop.breakingpoints.com/   See omnystudio.com/listener for privacy information.

This is an I-Heart podcast. Guaranteed Human. Behind every night spent making the kids' lunches, there's a lot of suspense. Will they finally eat the veggies? Will the pastos survive the first bite? Will the lunchbox come home empty, half full, or come home at all?

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Listen to Podlandia. A.O. Rewatch on the Iheart radio app, Apple Podcasts, or wherever you get your podcasts. On Solita, we share the messy reality of traveling alone as a woman. Your duolingo is not going to come back to you when. a man is inside of you. Oh no. I'm Julie Pinheiro and I travel by myself because it's a rare space where I can say yes without asking anyone else first. I'm on a mission to reclaim the word Solita, trading the pity for possibility. Listen to Solita on the Iheart radio app, Apple Podcasts, or wherever you get your podcasts. Hey guys, Saga and Crystal here. Independent media just played a truly

massive role in this election and we are so excited about what that means for the future this show. This is the only place where you can find honest perspectives from the left and the right that simply does not exist anywhere else. So if that is something that's important to you, please go to breakingpoints.com, become a member today, and you'll get access to our full shows, unedited, ad-free, and all put together for you every morning in your inbox. We need your help to build the future of independent news media, and we hope to see you at breaking points.com. Turning out to China, this story absolutely captivated me and is really making me think a lot about their system versus ours. Let's put it up here on the screen, C-1. So in China, the headline that the

Wall Street Journal writes is this billionaire becomes China's Charles Schwab, quote, then Beijing crackdown. Leif Li Fu-2 brokerage has become a central target in the government's campaign to control the flow of Chinese money offshore. So Leif Lee said his inspiration came from Charles Schwab. Within a decade, he built a company that spanned all of China, Hong Kong, Asian markets, and the U.S. his American Idol, Lee pivoted from simple trading to managing clients' wealth through mutual funds and advisory services. Now, Lee's ambition is colliding with Chinese authority. His company, Futsu Holdings, has become a central target in the state's crackdown on the flow of Chinese money offshore. Authorities in May handed the NASDAQ listed FUUU a $271 million penalty for offering

brokerage services and mutual funds to customers in mainland China without a license, and that action included a personal fine for Lee. The news obviously sent their share price down 30% in a single day and now has a market cap of less than $15 billion. But the quote, the fall in the share price has knocked hundreds of millions of dollars off of Lee's net worth, which is now at roughly 5.7. What they point to, though, generally, is that this regulatory action against this company is a way for the previously, China's tech elite, as they explained, were able to list their companies in and then mint fortunes offshore beyond the reach of Chinese authorities. What this does is they have completely shut that down, any foreign flight of capital. And they said that they will continue to tax

offshore trusts previously, which is a very popular tool for a lot of these Chinese investors. But the reason why that they went after this company specifically and like kind of the story of this entire takedown is that Chinese authorities at the end of the day are like, no, you do not get to offer securities and tax advantages to a bunch of our rich people without suffering the consequences and operating under a license. So, you know, before that, this guy was like a global celebrity. And the Wall Street Journal takedown really of this is like this is the story of there's a lot of Chinese billionaires which basically were inspired to recreate many of the rapacious capitalist industries of the United States. Literally the guy says Charles Schwab was my idol.

Right? They did the same with Google. They did the same with Uber. I think it's called D-D over there. Like, you know, basically because China would ban our services, they would just recreate them. But what the Chinese state saw is that those fundamentally were threats to the power of the state. And so while they let them grow and initially they were happy with a lot of their wealth accumulation, they eventually come to see the Jack Ma's and Alibaba's and this Futsu and all of these other billionaires. as tools of like a globalist class, which are fundamentally loyal to capital

and to the rest of the world into the state. And so what they've done is they've come in and crack down dramatically and sent a message to their entire billionaire classes. Like, you work for us. And whatever we tell you to do, when we tell you to jump, you're going to say how high. I mean, you know, it's complicated.

Like, you know, we want freedom, et cetera. But like, how can you not admire? Like this system where you've got these filthy rich people all they're doing is just helping, you know, like this company, it seems like a big part of their cell was just like, hey, if you're rich, let me get your money off into a tax haven. And they came, they're like, oh, that's not happening at all. And they just shut it down completely. And they all snap into line. Like, that's about preserving the primacy of the state. Now, obviously, there's an undemocratic state. But the tool and the mechanism of that is something which you can't help

but admire the seriousness, which would they take their endeavor of sovereignty. They're like, We run shit, the government is a person ultimately that you will be accountable to. You do not get to create these private nexus of wealth, which ultimately will challenge our authority. And like, that's how it should be, in my opinion. You can't help but admire the lack of corruption that this indicates, because you could not imagine a service that not only was run by a powerful, very wealthy person, but then is servicing all of the powerful wealthy Americans that our government would come in and say, no, you can't do that. We're shutting this all down. Sorry, entire billionaire class would never happen here because of our own democratic failures and the way that oligarchy has been allowed to buy our political system and money has been equated with speech. So you look at that, you're like, wow, that's possible for you. That is wild, regardless of whether you think it's the right policy or not. But to your point, it's not just that they were moving their money into tax havens. It's also that they were investing their money in other global companies outside. of China. So, you know, they were buying stocks in American AI companies. A lot of this was heavily invested in, you know, the AI American stock boom. And so this is also, no, you can invest,

you can invest in Chinese companies here at home. That's what you are allowed to do. And we're going to actually enforce it and make sure that that is the case. They've also instituted policies, not just in this regard, but to make sure that their top graduates are not, by and large, going into Wall Street-type financial engineering, that they are much more focused on. STEM and technology. And as a result, the number of engineers that they graduate every year vastly exceeds. I mean, it's not even close. It's multiples of times more than what we graduate here in the United States. And then that also has led to, okay, now you've got the best in the brightest minds, not going in to create some new exotic derivative that basically

crashes the economy and exploits poor people. They're going to develop technology. And that's why China on almost every technological frontier development is leading us. I was just seeing in humanoid robotics, they have like 98% of the market. Like, we're not even competing there. The only thing we focus on is AI where our frontier labs are a little bit, a little bit ahead of them. But even that, you ask, how long is that going to be the case? There's nothing that says that we're going to maintain that lead forever. So it's just a completely different orientation of their and priorities of their political systems. The crackdown is meant to funnel Chinese individual investors into licensed platforms where the people can trade only on China's

domestic stock exchanges. Citizens are also permitted to invest overseas, but mainly through government approved methods that return any profits in Juan. So they're like, look, sure, you can, you know, invest abroad. It will be under a domestically licensed platform. The profit has to be delivered in Juan because we don't want currency problems. Again, like what they're focused on principally is sovereignty. At that's, at the end of the day, like, that's what our biggest problem is. here. Like if we have the biggest tension that, and we've always had this, is between the capital, billionaire, globalist class, which cares much more about making money than about their own citizens. That has always been our dance with democracy and with capitalism. Part of what we've seen over the last

25 years is many of these people believe of themselves as transnational entities, of which their only job is to preserve shareholder value, and they don't give two shits about the American worker. And the only person that that American worker can look to is their government to make sure that those people are kept in check and to make sure that some of this extraordinary profit will also have ancillary benefit to the median American beyond your 401k going up when 50% of the country doesn't have 401k. Compare it then to our system, which kind of looks like the old Chinese system. Let's put C2 up here on the screen. Here's Trump. This is the latest story from Trump. quote, the curious case of Guren Bobby Zow shows the ease with which investors with shady backgrounds

and unknown motivations can funnel money to the president. They say Trump crypto took $100 million from a businessman with red flags. And they specifically point to this photo at the World Cup where you have Zach Whitkoff, who's the son of Steve Whitkoff in a private suite at the World Cup with this investor. Bobby Zow, two years earlier, apparently, quote, was a failed hardwood flooring retailer in Britain who had come under investigation for money laundering and presided over the collapse of a small crypto startup. Out of nowhere, he became one of the biggest buyers of tokens from World Liberty Financial, dropping a total of $100 million to a firm called Aqua One, kept it quiet for months other than briefly speaking as Mr. Bobby on an audio stream on X.

However, as they dig into, the curious case of Zhao illustrates the ease with which buyers from unknown backgrounds motivations can use the anonymity of crypto to shower Mr. Trump with money, the president's recent financial disclosure form shows he collected $1.4 billion from crypto businesses last year, the majority of it from anonymous sources. It is not even clear how closely they scrutinized his past and a money laundering investigation in England with. publicly available information as were portions of Zhao's troubled business history were public record at the time that they decided to accept his money. Now, look, to be clear, like, he did give the money.

He did not respond to a request for comment. We don't know about pay for play. I'm not really sure why anybody gives somebody $100 million as a president of the United States for no reason, just my opinion, whenever it comes to businesses. I just saw today, you know how Trump's company is selling the $100,000 a month for first access to its true social market moving post. They have 10 customers already. So 10 times 100,000 a month. That's a healthy little profit line that you've created there purely off of your own information and tool of power in the state.

Like this is what China was like in the 1990s. And it's like we've seen a reverse of what that system is looking like. And this dude, no one knows where this money came from. Literally. He had left a rap sheet of failed businesses, was basically deported from the UK because his visa had expired and then he had this sort of money laundering allegations hanging over his head and they were like, no, you got to go. He turns back up in Dubai and suddenly out of nowhere and we have no idea where the money comes from is flushed with this $100 million to give to World Liberty Financial. And of course, Trump and the sons and the Whitcoffs who are also involved in this, they don't ask a single question.

This thank you for the money, sir, amazing, doing business with you and keeping it moving right along. And as the public, we have no idea what this man expects to get from that $100 million or whoever he is representing, whoever he is the front person for. We have no idea what strings this money is coming with. And this is just another day under the Trump regime. This sort of story you could literally tell this story every day of the week of some utterly shameless level corrupt, skeezy deal. And much of it has to do with crypto in terms of the massive amount of increase in wealth, the billions that he has been able to accumulate just since coming back into power in Trump 2.0. So very extraordinary.

There's another story we wanted to highlight here, which is. is wild. So we covered before. Dear to our hearts. Jared Kushner and Ivanka were on the yacht. You can't even tell this story without just sounding anti-Semitic on a Rothschild yacht. And discovered, like they're Christopher Columbus, this island, Albanian island, that, oh, my God, it would make Ivanka's dreams come true to develop into some sort of luxury property. And she's talking about this thing we played the video before.

Well, the people of Albania were like, no, this is our island. we don't want you there. And as part of this island deal, they are also buying, buying property on this nearby peninsula. And now we're finding out more about the incredibly sketchy, to say the least, characters who are involved in this transaction that Kushner quote unquote bought this land from, put this up on the screen from the Wall Street Journal. Okay, the suspected gangster causing headaches for Kushner's Albania deal. I won't go through all of the insidounce here, but the TLDR is this dude,

Art Torshihu, is accused of not only being a money launderer, not only of having created forged fake documents to claim that he owns this peninsula land that the locals say he does not actually own, and this is apparently a common problem, by the way, in Albania. He also is an accused drug trafficker and human smuggler. Okay, that's who Kushner is, quote unquote, buying this Albanian property for.

So, you know, just the sketchiest, most corrupt dealings. You can possibly imagine whether it's here, whether it's in the Middle East, whether it's through crypto, whether it's through Trump and the pardon, the pardon for sale shop that he has set up in his second administration. The list goes on and on. But no surprise that you've got this kind of incredibly sketchy gangster who is deeply enmeshed in this Albanian situation. As you said, my favorite part of this story, by the way, is what you highlighted, is that one

chunk of land was secured by one of Shehu's lawyers in 07 by presenting property officials with a mistranslated Ottoman-era land record, while translated from Ottoman-Turkish, an archivist substituted the original owner and inserted his name instead, court later found. That is apparently how property is disputed in Albania, which is incredible, incredible. All right, let's get to the next one. Behind every night spent making the kids' lunches, there's a lot of suspense. Will they finally eat the veggies?

Will the pastos survive the first bite? Will the lunchbox come home empty, half full, or come home at all? And will you finish episode 8 before you're done slicing the cucumbers? Get Bell Pure Fiber Internet with Craved Netflix and Disney Plus from $94 a month. Price guaranteed for two years on Internet with a two-year term and auto pay credit. Visit bell.com for details and to check availability. Bill, connection is everything. Hey, this is Hayes Davenport.

And Sean Clements. We host the podcast, Hollywood Handbook. Every episode we're trying to help our guests improve their careers by mainly focusing on how they can help us improve our careers. The show is famously super accessible so you can easily jump into any of our 650 episodes and understand what's going on. We recommend some of our recent episodes with Ben Stillard. The definition of what is a movie has kind of changed anywhere, too, right? What do you think it is now? It's images and words being spoken, captured.

by some sort of technology. Danny McBride. He loves Nova. Oh, that's fantastic. And you make it on, you make your own. That's great. I call him Terro Reed. It's a good name.

They're all named after cast members of American Pie. Yeah. I call, I don't, I never looked up if she was in this, but I call him Leachie Sobiesky. Yeah. I don't think she was an American Pie, but I still like that. Haven't looked it up. She was prominent around the same time. Yeah.

Then Mary Steenbergin. Why are you guys talking to me? I'm worried. I'm worried. Why are you talking so down to me that you think I don't understand your little play game? I just really. I get it. I'm trying to set you up for success here.

Listen to Hollywood Handbook on the I Heart Radio app, Apple Podcasts, or wherever you get your podcasts. I'm Nick Tuturo. You probably know me from NYPD Blue, the longest yard, or Spike Lease Black Klansman. But I'm also from Queens, which means I know pizza. And on my new podcast, delivering happiness. with Nick Totoro, I deliver pizza from Prince Street pizza to a new guest. Are you delivering pizza now? Then we sit down

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Turning now to flock cameras, which in my opinion is the new data center issue. Every locality in the nation having a discussion around this privacy invasion and the ubiquity of these cameras everywhere. And they're pairing with police powers. Now becoming a matter of significant political controversy all the way up to the federal level. Of course, that's going to invite certain people to defend them, one of them being Barry Weiss's free press. Let's take a listen. Do you ever feel like this is watched? That's the panic behind a new fear sweeping across America.

People are freaked out about surveillance from our employers, our nanny cams, and our phones watching our every move. And right now, this anxiety is being taken out with electric saws in cans of spray paint on tools used by law enforcement to keep us all safe. The target? Blocked safety cameras. In upstate New York, someone cut down to fly off. safety camera with an electric saw. In Oakland, California, another was covered in kaint. And in Idaho,

someone rammed one with their truck. And in good old Florida, a man just sits in his lawn chair with a cardboard held up for the lens. Since January, roughly 23 cities have canceled their contracts or shut off their block camera over Fourth Amendment concerns. There's even an open source intelligence website, DeepFlock, that's finding these cameras so people know exactly where to vandalize them. There's what's actually under attack. In 2025 alone, the system will only 10,000 missing About 27 people a day or about one every hour. Over 40% of agencies said flock help recover

over half of the stolen vehicles in their jurisdiction. In Indiana, an infant abducted at a shopping center was found in under two hours. In Ohio, a missing girl was located in under 30 minutes. And this is the tool that people are treating like the enemy. It is fair to have concerns by how companies use and track our data, but that's not what these cameras are for. To be blunt, they're not interested in you.

Unless you're a kidnapper, a thief, or someone who intends to do harm. They're not interested in you unless, what is it, you know, you need to comply. If you've got nothing to hide, then why do you worry? This is, you know, vintage privacy arguments from like the War on Terror era. But this is where it actually bears investigations. It's like, okay, are these claims even true? Let's put the next one up here on the screen. And we've gone through some of this before one in three alerts wrong. High error rates and data concerns force cities to drop flock. A 32% LAPD false positive rate and immigration. data fears have pushed 82 contracts across 28 states to collapse. They say that an LAPD audit reveals that flock safety cameras produced a 32.3% false positive stolen vehicle alert rate, and at least 82 municipalities have canceled them. More than 5,000 cities now currently have flock cameras, which are scanning license plates. Again, most residents never voted for it.

30 localities apparently just deactivated them since early 2025, and that number continues to grow. But I feel like the LAPD in particular, being one of the largest, what is the second largest city in the nation, being one of those who is going to come out and say, hey, purely based on business reasons, I'm not going to put morality in the LAPD. I don't think those two things to go together. They're not, like, worried about privacy or any of that. For them, it's pure business. They're like, yeah, we used it and it got a false positive rate for stolen vehicle. We've covered some of the stories here. Terrifying incidents of people being pulled over and finding themselves, like, either held at gunpoint or others being accused of false or having a stolen vehicle we covered previously.

The guy who drives cars like for a living for dealership plates, he got surrounded by police on some sort of a false incident. And I think there's just like a bigger question. Like she talks about like, oh, these companies are not interested in you. But they do have all of the data. So they are interested. And also it's not the government that has a data. It's the private company themselves.

They claim, you know, that they have to abide by X, Y, and Z privacy record. Is there an audit of it? like what are the internal controls? What exactly, what recourse do I have as a citizen to make sure that that is not being improperly used? And this is everywhere. She also says D-Flock is an organization for people to vandalize. That's, again, by that definition, Waze is a terrorist tool. Because I know where every cop is on I-95.

That framing was so dishonest. That's what I mean, right? So they're like, oh, by just knowing where it is, that in and of itself is a tool of vandalism. I'm sure cops hate it when we mark them on ways. We do it because we don't get a speeding ticket. That doesn't make you a terrorist. Right. Right.

Yeah, of course. And all of this has required obfuscation and hiding from people what is actually happening in their own towns. So they do see Deflock as, you know, the CEO of the company who later apologized, called it a terroristic organization because it is providing people with just transparency and information about what is happening so that they can politically organize and act on it. It is so dishonest in her little, you know, vertical video to not talk about any of the instances of misuse that have been documented. I'm not even talking about the false positives where police really think they got the bad guy and then they come and we'll show you one in a minute and create very dangerous situations.

By the way, not to mention this is a waste of police resources because they're going after the wrong person. Meanwhile, the person whoever they're trying to get is getting off scot-free. I'm talking about the 50 police officers who've been charged with abuse of this system using this to stock. Tell me that flock is not interested in you unless you're a kidnapper or a thief, etc. Tell that to the woman who was stalked by her abusive ex, whose child was also stocked by the abusive ex, whose future partner is also stocked. I mean, so it's such incredibly dishonest and selective framing. She also uses the stats that come directly from the company.

Just this is like basically a flock camera press release that they put together for the free press. To give you another example here of, you know, a really dangerous situation because of a flock error. This is a local news story about the wrong person being aggressively pulled over on an interstate cops jumping out, guns drawn. And it wasn't even the right person. Let's take a look at that. This is D4. Good morning. Yeah, quite the mix of. Brookfield police say they pulled over a car. because a flock camera flagged it for connection to a Milwaukee homicide investigation. Well, it turns out quite the mix up, not just wrong person, but also wrong car. Take a look again at that video that you see here.

You can see multiple squads on I-94 in Waukesha County, officers with guns drawn, and a passenger sticking their hands out the window. Police pulled over the car after a flock camera flag. I did again for Milwaukee homicide, but when Brookfield police called Milwaukee, Milwaukee said they no longer needed the car or the people inside, so officers let them go. That's according to Brookfield police. Wow. How long until this gets someone killed?

I mean, if you're a normal person, it reminds me of the ice stops with like the, you know, unmarked vehicles where people think they're being carjacked, like if you're a normal person, look, these are marked cars, so to be fair here. But you're not expecting to have this aggressive. on an interstate and they're pinning you in and coming out guns drawn. Most people don't know how to react in that situation. You make one wrong move. Next thing you know, you've got a person who's killed. And the death on the, you know, conscience of the officers, too, by the way, all because of this stupid tech that got something wrong. It is a very disturbing situation. And I get that there's

no doubt they're helping to solve some crimes. There's no doubt about it. You're right. But you have to ask the question, where do you draw the line? Because that logic will work forever of, okay, well, if we just put cameras on every street. If we just put cameras in every building, if we just put cameras, you know, activate your phone camera in every house, then no one could ever get away with anything. And then they'd have 100% compliance with the law. Is that worth it to you? So where are you going to draw the line? And I think many Americans at this point are drawing the line before we get to flock cameras. There was a man who was arrested in West Virginia for vandalizing a flat camera and the Facebook post about his arrest, but D3B up on the screen,

29,000 plus comments. And all of them are like, oh, couldn't have been him. He was with me. We're helping orphans. Yeah, it couldn't have been him. He was helping me make a tank set up for some snakes. He was saving my neighbor's dog from a fire all day. Couldn't be him.

Arrested for doing community service is wild. Couldn't be he was canoeing with me that day. This is literally, I can't say 100%, but this is like 99% of the comments that were left on this post to give you a sense of how much this has disturbed the population at large. And I think that the private angle really matters here. It's a company with no, like, for example, their trust center says every search is recorded, logs and review tools to help agencies check usage.

The thing is, though, is that the audit and review system is run by the agency using the camera. It's not by an independent party. And none of us voted for it. Like, look, I support, actually. If we're going to have, you know, a radical reduction in petty crime, which would be my dream here in the United States, I need to make that case. We all need to buy in and be like, all right, guys, we're going to have these camera systems everywhere. We will no longer have petty crime or any of this.

But this is why I think this is a good, bad idea. You get to vote and to decide if I lose, so be it, right? And that's important. That sort of discussion would require the people who wanted them to say, and here's going to be the checks. Here's how we're going to make sure that when the police department implements this, there's not going to be abuses of police officers randomly stalking their ex-girlfriends, the mother of their children, or whatever. And so you would have those systems put in place and said this is the Wild Wild West. People didn't have any idea this was happening. There was no democratic accountability or a check.

So now you have this, I think, increasing. I mean, I haven't seen any polling on it yet. But you were talking about how you searched this in every local news station is picking up on this. I was going to end on that. Because it really is, like, becoming this flashpoint. And it ties back to the Francesca Hong thing. She's picked this up in her campaign, too. Very savvy.

Free advice for any politician. When I was researching this story, every single location. I'm talking about Wyoming flock cameras. Chicago, flock camera. Texas, flock camera. Every single is a negative headline. Everyone is about communities getting upset. Vandalism, about debates.

You know, local news organizations are running polls. Should we have flock and Cheyenne or something? It's like small, not small, but by our standards is small. Like, this is not a national, national issue yet, but it's like data centers. I can smell it. Like, when there's local news, these people, like, they know exactly, like, what's capturing attention, right? That's why they cover crime and they cover local. Yeah, exactly.

They live there. Like, they know what gets attention. If they're all riding up flock, and it's all negative, free advice for any politician out there. And like I said, if you want to defend it, like the free press and all that are doing, it needs to be taken to a ballot. A locality must vote on whether they want themselves to be surveilled all the time.

They need guarantees, independent audits, and none of that's happening. That's what's so terrifying about this. There's no... It's like opting in just because the cops like it, they get to do whatever they want to do.

Like, that is the inverse of what a civilian force who would grant extraordinary control should be able to be able to do to us. So that's my last thing. We have to have a Democrat. actual process surrounding this. And if we come around on it, then that's fine.

But I don't think that that's going to play out right now. Let's get to David Day, and he's standing by. Behind every night spent making the kids' lunches, there's a lot of suspense. Will they finally eat the veggies? Will the pesto survive the first bite? Will the lunchbox come home empty, half full, or come home at all?

And will you finish episode 8 before you're done slicing the cucumbers? Get Bell Pure Fiber Internet with Craved Netflix and Disney Plus from $94 a month. For two years on internet with a two-year term and auto pay credit. Visit bell.ca for details and to check availability. Bell, connection is everything. Hey, this is Hayes Davenport. And Sean Clements.

We host the podcast, Hollywood Handbook. Every episode we're trying to help our guests improve their careers by mainly focusing on how they can help us improve our careers. The show's famously super accessible so you can easily jump into any of our 650 episodes and understand what's going on. We recommend some of our recent episodes with Ben Stiller. The definition of what is a movie is kind of. changed anywhere too, right? What do you think it is now? It's images and words being spoken, captured by some sort of technology. Danny McBride. He loves over. Oh, that's fantastic. And you make it on, you make your own. That's great. I call him Terro Reed. It's a good name.

They're all named after cast members of American Pie. Yeah. I call, I don't, I never looked up if she was in this, but I call him Leachie Sobiesky. Yet I don't think she was an American Pie, but I don't think she was an American Pie, I still like that. Haven't looked it up. She was prominent around the same time. Yeah. Then Mary Steenberg. Why are you guys talking to me?

I'm worried. I'm worried. Why are you talking so down to me that you think I don't understand your little play game? I just really. I get it. I'm trying to set you up for success here. Listen to Hollywood Handbook on the Iheart radio app, Apple Podcasts, or wherever you get your podcasts. This is Chelsea handler from Dear Chelsea.

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a potential backdoor bailout mechanism that may already have been established. The headline here is the AI bailout could be baked into the AI bubble. Private credit companies are key owners of AI-related assets. Many of their parent private equity firm's own life insurers that are dumping grounds for bad loans, and subject to state bailouts. American Prospects, David Dan, joins us now to explain. Welcome, sir. Good to see you. Hi, how you doing?

Great. So just explain to people as basic as you can, the mechanism here and what your concerns are. I mean, it's not going to be that easy, but here we go. Yeah, take your time. So, yeah, private equity over the last several years has purchased a number of life insurance firms. Some of the more famous ones are Apollo, which is a big, private equity firm buying Athene, KKR, another big fee firm, has a couple different life insurers. And these life insurers operate very differently, particularly their portfolios, are very different

than a normal life insurer. A lot of these private credit loans are making their way into the balance sheets of these life insurers. And, uh, This then gets tied into the way that life insurance insolvencies are resolved. So it's not through the traditional bankruptcy system. And there's good reason for that because life insurance policies are relied upon by people and families when one of their loved ones die. And the public policy does not want those to just simply go away if a life insurer becomes insolven. So there's a lot of risk on these PE-owned life insurer balance sheets.

In the event of an insolvency, the way it works in almost every state is that there are after-the-fact assessments, almost like deposit insurance with the FDIC with one key difference. In deposit insurance, the assessments are made before a company goes bankrupt. So all banks pay into the this fund, and when there is an insolvency, that bank, those deposits are covered by the amount of money in the fund. With life insurance, if there's an insolvency, only the surviving companies end up paying for the insolvent firm to back up those policies. However, there's sort of this bailout written into it. Those surviving firms in 44 states, then can get a tax credit that is equal to 100% of the assessment that they make.

And therefore, it's state taxpayers who end up on the hook for these insolvent life insurance companies. The theory here is that private credit, which has a lot of AI-related assets, make these insolvencies a bit more likely. And if that's the case, then essentially the popping of the AI bubble could trigger this process by which state taxpayers would essentially be paying for the sins of these life insurance companies owned by private equity. Got it. Okay.

So when we put all of this together, all of this financing, this deck of cards, we can put E2, for example, up on the screen, this was just announced. Yesterday, Wall Street Giants partnering with NVIDIA on a $500 billion AI financing deal, Apollo Blackstone Goldman among the groups working with the chipmaker to raise capital for data centers. Apparently, it is one of the largest capital raises, I think private capital raises, in Wall Street history. How do these two things fit together?

Well, obviously, there's just a ton of money flooding into this space. And if you think about some of the events of the last few weeks, the release of more Chinese AI models that show that actually you don't need this kind of capital expansion to create functional artificial intelligence funnels. The extreme expense that private companies are paying for things like ChatGPT, for things like entropic models, and then abandoning this process because the price has risen so heavily on tokens, which is the way that companies pay for AI. You put this all together, and the incredible, as I'm sure you guys have reported,

the incredible backlash to data center buildouts. Many of these private credit loans are based in the financing of construction of data centers. And so you put all this together, and there are a lot of ways where the current model of throwing hundreds of billions of dollars at capital expenditures which finance data centers which create frontier models could go away, right?

I mean, there are a lot of ways where that could go sour. And whether it's Wall Street money from, you know, private banks or whether it's money that has been loaned through these special purpose vehicles that are tied to private credit, any way in which the data center mass capital expenditure becomes problematic could threaten any of those sources of capital. And the difference between this being a situation with banks and being a situation with private credit loans that have been dumped en masse into these life insurance company portfolios is that,

with banks, you'd have to sort of put together some sort of bailout authority, you know, much like TARP in 2008, or the Federal Reserve would have to, you know, engage in some action. Whereas in, in, with respect to the life insurance companies, if they go insolvent, this is just triggered because this is already the law in most states in the union. Can you explain for people what private credit is and why it has ended up being such an important source of financing for the AI build-out? Private credit is essentially the credit arm of private equity. So most private equity firms now are these sort of full-service entities and platforms,

and private credit is their lending arm. Most private credit loans are to portfolio companies of that private equity firm. That's not completely out of the woods either because a lot of private equity. firms, for example, bought software companies that are threatened if the AI revolution actually goes well. And these software companies are no longer needed. You know, we've had this software apocalypse in the markets where software companies have seen their stocks just absolutely plummet.

That has led to a lot of redemptions from companies or for investors. who are in private credit. The way that private credit is financed is the same way that private equity is financed, investors, institutional investors, give money to the private equity fund. The private equity fund invested, in this case, in loans, in the case of just normal private equity,

the money is used, along with borrowed money, to buy companies. So it's just another way to engage in this financing. And a lot of these loans are, are somewhat suspect. It's hard to value them. They have sort of bespoke credit rating agencies that are paid by the private equity firms that give them good ratings.

Not a lot of people know what sort of goes into the secret sauce of these private credit loans. And certainly the National Association of Insurance Commissioners, which is a state-based organization of state insurance commissioners, has no idea what are in these loans. And one thing, a paper that is put out by two researchers, one from Texas, one from Yale, looked at some of the portfolio balance sheets of these private credit companies and found that specifically with respect to life insurers, whereas a normal life insurer has a pretty modest mix of mostly corporate, very blue-chip corporate loans and treasuries,

about 13% of a normal life insure is in private placement, like alternative assets, private credit loans, things like that. When it's a private equity owned life insurer, about half of those loans are in private credit and things of that nature. And so these are just much riskier bets. And it does seem that these life insurance companies, their balance sheets have become sort of dumping grounds for loans that couldn't be, you know, maybe they're not being, not performing well, or they're engaged in forbearance where the,

you know, the borrower doesn't have to pay right away, things of that nature. And so this has raised a lot of concern from a lot of key observers. Wow. Yeah, kind of scary, I think, hearing you talk about, because it's almost an ingenious way, very similar to how they were able to keep. keep the mortgage-back security fraud going for so long and to have a built-in bailout. I mean, what are the signs that we should look for? I mean, are there any regulatory ability to crack down on this? Or is the cake just baked? Well, I mean, that is the main issue here is that we have not seen this sort of system of

life insurer insolvencies en masse in our history. Since this thing has been set up, this kind of procedure whereby the surviving firms pay for the policyholders and then they get a backdoor bail out through these tax credits. It just hasn't happened. In 2008, AIG was a major insurance company and it went basically insolvent. But because the Federal Reserve stepped in and later on Congress blessed that through the TARP program, we did not see this potential, you know, this insolvency procedure in action. So it's very untested.

The people that I talk to, these people who wrote the paper, these researchers from Texas and Yale, don't think it will actually work, because think about if at the height of the financial crisis, every state had to undergo this process to bail out AIG. Like, think about how hard that would have been. Yeah. And at a time of extreme stress, and that's what we would see if there was, you know, sort of a macroeconomic level of stress throughout the economy and one of these life insurance companies, Athene or one of the others, went under.

You'd have to have 50 state programs to try to resolve this thing. And so it's dangerous. Obviously, there's a lack of sort of regulatory juice on the part of these insurance commissioners. There's a hope that we could get more of an insight into that. And there's a number of recommendations in the paper that I write about in this story about how to do that. Very important story. I really recommend people read it. I read it two or three times to make sure that I understood the dynamics here.

But it does remind very much of the financial crisis where there were all these linkages beneath the the surface and also the ratings agency. It's also being asleep at the switch or compromised in a lot of regards. It has a lot of echoes for some of what went down there. David, Dan, thank you so much. Great to see you. Thank you, David. Appreciate it.

All right. Thank you guys so much for watching. We appreciate it. There'll be a great show for everybody tomorrow. Wednesday. See you then. This is an IHeart podcast. Guaranteed human.