Minnesota lawmakers slammed Elon Musk after his company xAI filed a complaint in federal court attempting to block a state law that would curtail the use of apps and websites to create nonconsensual sexual imagery of people—including minors.
SpaceX’s stock fell another 7.2 percent last week. At its 115 Friday close, SpaceX was 15.0 percent below its issue price and down more than 45 percent from its peak the following week. Those who got out early did quite well, while those who bought in the week after the IPO probably aren’t feeling too good just now.
Tesla, Musk’s other big company, did even worse last week, shedding 17.8 percent of its value. That corresponds to a loss of $218 billion in market capitalization. With SpaceX losing $116 billion in value, Musk has likely set a record for losing more money in a single week than any person in history.
But it wasn’t just Musk who had a bad week; the hyperscalers also were not doing very well. Alphabet and Amazon both lost 7.8 percent of their value last week. Amazon lost 6.0 percent, while Microsoft’s stock was down 3.0 percent. Apple managed to almost break even, losing just 0.2 percent of its value.
The big factor in these drops is likely the higher than anticipated capital investment the companies seem to be planning. The increase in spending, coupled with the strong performance of the newest Chinese AI releases, makes it more questionable that the hyperscalers will be able to recover their investments.
The slump of the hyperscalers seems at odds with the strong showing of chipmakers last week. To a large extent, this was just reversing their downturn from the previous week. At the end of the day, if the hyperscalers run into trouble, it’s hard to envision a scenario in which the chip makers aren’t also hard hit. They may still be large, profitable companies, but the massive bonanza their investors now seem to envision will not materialize without a serious AI boom.
It’s always difficult to know the extent to which market movements are based in reality. If you want to see a story of how things are likely to end badly for the hyperscalers and their funders, read Ed Zitron’s Substack. (See also my Mostly Economics interview with him.) He examines at some length how the hyperscalers have created special purpose vehicles (remember Enron?) so as to keep data center- related liabilities off their books.
Ed draws a very bleak picture of a massive bubble of debt that cannot possibly be serviced based on plausible revenue projections from the two major AI companies, Anthropic and OpenAI. I’ll throw in that Ed doesn’t even bring Chinese AI into the picture. That seems to me a very big deal, since Chinese AI companies are already eating up a large and growing share of the market. And even insofar as the U.S. AI companies can hold onto a substantial market share, they will be forced to lower their prices to be competitive.
The layers of finance that Ed describes can be confusing. He compares them to the complex derivative instruments that the financial wizards of the subprime era used to ostensibly minimize risk. For those with the time and energy, it’s worth reading through Ed’s story to get the full picture.
But there is a simple shortcut. If the creation of Special Purpose Vehicles is not a way to hide liabilities, why do it? If Meta, Google, Microsoft, and the rest are confident their bets will pay off, why not just keep them on their own balance sheets like any normal investment? Perhaps there is a benign explanation for going through all these financial hoops, and spending a lot of money to do it, but I am not sufficiently sophisticated to imagine what it could be.
One part of this picture that jumped out at me in reading Ed’s account is that the ability to support this web of debt is likely to be highly sensitive to interest rates. The 10-year Treasury rate was hovering near 4.0 percent when Trump and Netanyahu attacked Iran at the end of February. It is now close to 4.7 percent and more likely headed higher than lower if the war escalates. Trump’s latest round of tariffs is also likely to push interest rates higher.
It would be an interesting irony if Trump’s war and his tariffs proved to be the proximate causes of the crash of the AI bubble.
Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.
Why are Republicans so weird?
Seriously. There was a time when our disagreements were over taxes, war, and reproductive rights. Those were profound disagreements, but they took place in a shared reality. We agreed on the basic facts, even if we fought bitterly over what to do about them.
Now they’re a toxic blend of corruption, incompetence, weird obsessions, and spectacular self-owns. They aren’t just governing badly. They’re making a mockery of everything they touch.
For example, does Elon Musk really have nothing to focus on beyond Hollywood casting decisions?
Then there’s Trump’s handling of E. Jean Carroll, the advice columnist whom he was found liable for sexually abusing. Trump remains obsessed with the $5.6 million judgment against him. At this point, it obviously isn’t about the money. Five million dollars means nothing to him. It’s about continuing to punish the woman who dared hold him accountable.
My God, he is vile.
Meanwhile, there is always a never-ending list of this administration's malicious incompetence.
Trump’s aesthetic tastes have always been a crime against good judgment. I would gladly pay pay-per-view prices to watch the next Democratic president rip every gaudy gold ornament out of the White House and the rest of Washington.
Trump is running out of space for his garish gold garbage
Electing the right people matters. Who wields power matters. Competence matters. Finally, Republicans don't have a monopoly on weird.
Markos Moulitsas is founder and editor of the blogging website Daily Kos and author of three books.
Reprinted with permission from Daily Kos
A coalition of progressive groups, led by the huge union SEIU-UHW, managed to get a one-time five percent wealth tax on the ballot this fall. The tax would apply to the assets over $1 billion held by the state’s 200 or so billionaires. This is a great opportunity for the people of California to tell billionaires what they think of them.
Over the last half-century, billionaires have become increasingly aggressive in stealing from the rest of us, as well as being more open in expressing their contempt for ordinary people who work for a living. It’s not uncommon to see billionaires like Peter Thiel and Elon Musk opining on issues like the need to deny the vote to inferior people, as in non-billionaires. And Elon Musk is, of course, best known for his boosterism of neo-Nazi political parties around the world.
In addition to pushing their hateful views on politics and society, the billionaire gang has also been using their wealth to increasingly dominate politics. Musk was the most open on this topic, spending almost $300 million to keep Donald Trump out of jail put Donald Trump in the White House. He promises to again be a big spender for Republicans in the midterms, as do many others in the billionaire club.
The billionaire crew has also been aggressively buying up media outlets and turning them into MAGA megaphones. Loyal Trump ally and Oracle founder Larry Ellison bought up Paramount and CBS and is now trying to buy Warner Brothers and CNN. He also was handed control of TikTok after Trump wrestled it away from a Chinese company. Newly registered Trump sycophants Mark Zuckerberg and Jeff Bezos own Facebook and the Washington Post, respectively. And Elon Musk bought Twitter, now “X,” to push his far-right politics.
And they use this power to give themselves big tax breaks and also government handouts. The latter take the form of government contracts as well as regulatory provisions to protect their companies.
The wealth tax is an opportunity to fight back against the billionaires. According to the proponents, the tax will raise over $100 billion over the next five years. (The billionaires have five years to pay the tax, but it is based on their assets as of December 31, 2025.) That calculation even allows for substantial avoidance.
This is real money even in the context of California’s budget. Its annual budget is currently a bit over $350 billion. If the state collects $100 billion over five years, it will be a bit less than six percent of projected spending. That will make a noticeable difference to the state budget, especially in a context where the federal government is making major cutbacks in state assistance in healthcare and other areas.
The referendum provides people with a clean vote on what they think of billionaires. The politicians who represent their interests are experts in providing smoke screens. They constantly warn people that if they vote against the billionaires’ candidates, their boys will be turned into girls in school at recess. Or that the immigrants who are mowing lawns or selling tacos from food trucks are actually rapists and murderers. But the referendum on the billionaire wealth tax allows even people who have these concerns to vote to reduce the wealth and power of the billionaires.
To my mind, this sort of wealth tax is not the perfect remedy for inequality. I was concerned that the tax would lead to an exodus of billionaires from the state. While California might be better off with fewer Elon Musk-types dominating public debate, it does collect substantial income tax revenue from the very rich. If too many billionaires fled the state to avoid the tax, it could end up a net revenue loser over the long run.
But the date for flight has already passed, so the state might as well impose its billionaire tax on the vast majority who have stayed in the state. There is also the issue of the tax’s constitutionality. I have seen what seem like solid arguments from legal scholars that the tax does pass muster, but I don’t know anyone who will take a bet on how the MAGA Supreme Court will rule. In any case, it would be foolish to surrender prematurely.
In most of my writing, I have argued that it is best to structure the market differently so that we don’t end up with a small number of ridiculously rich people. Reducing the importance of government-granted patent and copyright monopolies is the most obvious way. That would prevent the fortunes of billionaires like Larry Ellison and Bill Gates, but there is a much longer list of reforms to finance and other sectors that would lead to a market that creates far less inequality.
Perhaps after the collapse of the AI bubble, we will be able to have a serious discussion of ways to structure the market that are both more efficient and lead to less inequality. But for now, we can focus on taking back some of the money we handed to the rich, and the California billionire’s wealth tax is a good place to start.
Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.
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