Good morning. Andrew here. Larry Summers’s retreat from “public commitments” in the wake of new revelations about his ties to Jeffrey Epstein has us thinking a lot about how the nation currently weighs morality against expediency. Summers’s association with Epstein was known for years, though not in such detail. His step back from public life was announced the day before Mohammed bin Salman, the Saudi crown prince accused of ordering the murder of the journalist Jamal Khashoggi, is set to visit the White House. The prince’s host is President Trump, who was found civilly liable of sexual abuse (which he’s appealing) and whose name appears repeatedly in emails in the Epstein files — but who also won the popular vote last year. What does this split-screen tell us about the importance of character? Has the definition of “disqualifying behavior” fundamentally changed, or just become more selective? Please let me know your thoughts. (Was this newsletter forwarded to you? Sign up here.)
“I am deeply ashamed of my actions”Larry Summers had already apologized for his association with Jeffrey Epstein, ties that have been known for decades. But recent revelations about more extensive correspondence between the men have now led Summers — a former Treasury secretary and Harvard president — to take a big step back from public life. The move raises questions about other consequences that may befall Epstein associates. “I am deeply ashamed of my actions and recognize the pain they have caused,” Summers said yesterday. “I take full responsibility for my misguided decision to continue communicating with Mr. Epstein.” The Times’s Vimal Patel reports that Summers had withdrawn from the Yale Budget Lab and the Center for American Progress. Summers said he’d still teach at Harvard, where he is a “University Professor,” the school’s highest faculty position. The Summers statement came days after House Republicans released emails between the men, as part of thousands of messages involving the disgraced financier and several associates. Some of the exchanges with Summers took place in 2018 and 2019 — after The Miami Herald published a lengthy investigation into Epstein’s abuse of young girls. A decade earlier, Epstein pleaded guilty to charges related to soliciting a minor for prostitution. In one set of emails, Summers confided in Epstein about his efforts to pursue a romantic relationship with a woman he described as a mentee. Epstein offered him advice and called himself Summers’s “wing man.” In other messages, Summers quipped about women’s intelligence — the topic that led to his resignation as Harvard president — and complained about punishment of men who “hit on” women in the workplace. Summers was facing growing blowback from both sides of the political aisle:
Summers still has public-facing associations beyond Harvard. He’s a board member at OpenAI, a paid contributor to Bloomberg TV and a contributing writer to The Times’s opinion section. It’s unclear what will happen to those positions.
President Trump says the U.S. will sell F-35 jets to Saudi Arabia. Trump’s support for the move comes despite security concerns about such a sale to the Saudis, including from Pentagon officials and some Republicans. Congress could still block a deal, though lawmakers have faced long odds in constraining arms deals. Bitcoin slumps again. The cryptocurrency dipped below $90,000 for the first time since April as the sell-off in digital assets intensifies. (One prominent bull, Strategy’s Michael Saylor, bucked the trend, disclosing that his company had bought roughly $835 million in Bitcoin in recent days). The S.E.C. gives companies more leeway to fend off shareholder proposals. The regulator yesterday announced a rule change that gives publicly traded businesses more freedom to exclude such initiatives in proxy materials. The move is viewed as the Trump administration’s latest effort to limit the power of activist investors. The downside of Big Tech’s bond bingeBig Tech is on a debt-fueled spending spree for the ages as a way to power its artificial intelligence ambitions. Not long ago, huge investment pledges pushed the A.I. rally to new heights. But the need to borrow so many billions is beginning to rattle stock and bond investors, Brian O’Keefe writes. The latest: Amazon is the latest hyperscaler to tap the credit market, raising $15 billion yesterday in its first dollar-denominated bond deal in three years. Demand was robust — but news of the deal contributed to a wider sell-off in shares of tech companies. Amazon may not be finished spending. The company recently said it expected capital expenditures to hit $125 billion this year and analysts expect that spending to balloon to around $150 billion next year to help fund its A.I. expansion. Even with its cloud revenue soaring, that’s a big lift. It’s not alone. Consider:
The deluge is just beginning. The global A.I. capex tally is expected to hit $423 billion this year, according to UBS, and reach $1.3 trillion by 2030. And credit strategists at JPMorgan Chase predict that A.I. financing will help push U.S. investment-grade bond issuance to a record $1.81 trillion next year. Bond sales from the tech industry alone will reach $393 billion next year, they predict. But shares in Oracle, and some of if its bonds, have sold off sharply in the past month in a sign of investors’ growing concerns about its long-term A.I. financing plan. Watch credit default swaps, too. Trading in these securities, which function as a sort of debt insurance and can be seen as a sign of bearishness, has been climbing lately. Saba Capital Management, the hedge fund led by Boaz Weinstein, has sold swaps tied to Oracle, Microsoft, Google and Amazon, according to Reuters. That’s a sign that Weinstein, who profited by trading against JPMorgan Chase’s “London Whale” in 2012, is effectively betting that those companies’ financial health will decline. “There’s a lot of optimism about the A.I. trade in the fixed income markets,” Lawrence Gillum, a fixed income strategist at LPL Financial, told DealBook. “But I think you should probably want some additional compensation to take on this type of credit risk, regardless of just how big these companies are.” Relaxing the reins on banksThe Fed is signaling it will scale back its oversight of financial risk and the nation’s lenders. The shift comes as some on Wall Street have sounded warnings about the debt market. Chief among their concerns is lightly regulated private credit, which has become a $1.7 trillion force — but has been hit recently by a string of high-profile defaults. The latest: In a three-page memo reviewed by The Times’s Colby Smith and Stacey Cowley, officials at the central bank informed banks that staff members “should take note of the significant shift in direction” under Michelle Bowman, the Fed’s new vice chair for supervision. Bowman, who was appointed by President Trump, has long argued that lenders face too much red tape. She recently laid off 30 percent of her division’s staff. More from The Times: No longer would examiners and supervisory staff focus on anything other than a “material financial risk” to a lender’s “safety and soundness” or the financial system. They should not become “distracted” from that priority by “devoting excessive attention to processes, procedures and documentation” of activities that did not reach that threshold. Nor should they devote as many resources to “smaller, less complex and less systemic organizations.” In a shift from the past, examiners were given stricter rules about issuing warnings known as “matters requiring attention” or “matters requiring immediate attention,” which have helped to flag risks across the financial system. The memo made clear that the standard for those warnings was changing, and it ordered reserve banks to only independently verify whether an issue was resolved if the company’s internal audit was deemed insufficient. That comes as market watchers amped up worries about other lending. Jeffrey Gundlach, the billionaire bond investor, warned recently that “garbage lending” had begun to flood the market and could spill over into the wider economy. “The next big crisis in the financial markets is going to be private credit,” he told Bloomberg’s Odd Lots podcast. “It has the same trappings as subprime mortgage repackaging had back in 2006.”
A major tech watchdog quiets its barkBusiness leaders and politicians across Europe are getting antsy about missing out on the A.I. boom. Add in criticism from the Trump administration of what it considers Brussels’ regulatory overreach, and the European Union is preparing to soften its approach to policing technology companies, according to The Times’s Adam Satariano and Jeanna Smialek. That could have bigger consequences for reining in Big Tech. What’s happening: Tomorrow, policymakers in Brussels plan to release a simplified set of digital rules that would rewrite parts of a privacy law — the General Data Protection Regulation, or G.D.P.R. — and delay aspects of a bill to regulate A.I. Europe is managing an “existential competitiveness challenge,” Anu Bradford, a law professor at Columbia, told DealBook. Mistral, Europe’s leading A.I. model maker, is valued at $14 billion. That pales in comparison to U.S. rivals like Anthropic, which is valued at $183 billion, and OpenAI, which is valued at $500 billion. Will it work? Bradford said it was “false hope” to believe deregulation would mint a European OpenAI, pointing to California and China as having better mixes of both regulation and innovation. The continent’s smaller venture capital market, tougher bankruptcy laws and stricter labor market rules pose greater challenges to European innovation, she said. The ramifications are global. Europe’s economic scale has allowed its regulatory standards to shape the world, a phenomenon Bradford called “the Brussels effect.” Meta, Google, Apple and Microsoft, for example, have applied G.D.P.R.-inspired policies to their global approach to data privacy. A retreat would result in “watered-down” regulation throughout the world, said Sam Gregory, the director of Witness, a nonprofit focused on the implications of technology on human rights. The move may also prompt other countries still developing A.I. legislation, such as India and Brazil, to soften their stance. As Europe pulls back, all eyes are on Silicon Valley’s home state. In September, California signed a major A.I. safety law. “Within the global context, California’s legislation may take on even greater importance,” Gregory told DealBook. We hope you’ve enjoyed this newsletter, which is made possible through subscriber support. Subscribe to The New York Times.
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