On Friday, I followed up with a mailbag issue about an article I wrote in August called “Buy Now, Pay Later.” Thanks to some divine intervention, news that broke after we hit the send button warrants further attention.

But first, let’s warm up with some recent financial history.

The Dirtiest Players in Any Boardroom

That former entity of everlasting infamy, Enron, named its first big secret partnership after a Wookiee.

Back in 1997. Andrew Fastow, Enron’s dirty CFO, needed a place to stash debt and sickly assets where Wall Street’s analysts couldn’t see them. So he built a company called Chewco, as in Chewbacca. It bought into an earlier deal called JEDI. Later came LJM and a set of hedges called the Raptors.

Somebody in Houston loved Star Wars. The shareholders would later love it less.

These were special purpose vehicles, or SPVs. On paper, an SPV is a separate company that holds assets and borrows against them. On Wall Street, the pros have a better name for them: Somebody’s Problem Vehicles.

Enron’s SPVs held the losers. But Enron kept the glory, temporarily, at least. The debt vanished from the parent company’s books. As a result, the stock kept climbing. Then, in late 2001, it all collapsed at once. Enron wiped nearly $600 million of profits off 4 years of income statements and filed for bankruptcy that December.

With that in mind, let’s visit Seattle.

Sell It, Then Rent It Back

On Friday, the Financial Times reported that Amazon is shopping around about $8 billion worth of Nvidia’s state-of-the-art Blackwell chips.

These aren’t spare chips in a warehouse. They’re already installed and humming in more than a dozen data centers across 5 US states. Amazon would sell thousands of them to a new SPV. The SPV would raise most of its cash by selling bonds. Then Amazon would lease the same chips right back and keep using them.

It’s like selling your truck to your brother-in-law, then paying him rent to drive it to work. Except your brother-in-law borrowed the money to buy it from you from somebody's pension fund.

Amazon didn’t comment on the piece, and the talks could still change. But the shape of the deal is clear enough.

Amazon Isn’t Enron

No, Amazon isn’t going to collapse. It didn’t run fake trading floors that fooled CNBC or have a filthy, dirty board like Enron did.

Enron had booked fake profits and hid real debt. Enron’s own stock propped up its SPVs, so when the stock fell, the whole house of cards collapsed. That was out-and-out fraud, and Fastow and former CEO Jeff Skilling went to prison for it. Former board chairman Ken Lay had the good sense to kick the bucket before his sentencing.

In contrast, Amazon’s chips are real and running AI workloads as you read this. The accounting rules also got tougher after Enron, and again in 2019, when most leases had to show up on the balance sheet. Airlines sell and lease back jets all the time. Retailers do it with stores. It’s legal, commonplace, and in the financial newspapers.

So what’s the big deal, then?

A Hot Potato?

Amazon expects to spend about $220 billion this year, most of it on chips and AI data centers. It tells investors those chips should earn their keep for at least 5 years. If you recall, that’s the “useful economic life” of those assets, or how long Amazon can spread the cost through an annual depreciation expense (rather than taking a huge charge on the books at the time of purchase).

Here’s the issue: NVDA now rolls out a new chip family about once a year. The next one, Vera Rubin, is already on deck. Each launch knocks down the resale value of the last one.

So whoever holds the chip when the next one is released eats the loss (if an impairment review determines the chips already in use are no longer worth their balance sheet value and are written down). 

But selling the chips wouldn’t make that loss go away. It would just move it. So the bill comes either way. And now, the biggest buyer on earth is looking for someone else to hold the bag.

Another time…

In 2007, the big banks had their own SPVs. They called them structured investment vehicles. These held mountains of mortgage-backed securities (MBSs) off the books. The banks swore up and down the risk belonged to someone else.

Then the housing market wobbled and fell over.

In December 2007, Citigroup pulled $49 billion of those assets back onto its own balance sheet. It had to because its name was on the door, and its customers had bought the paper. Within a year, Citi needed a $45 billion taxpayer rescue.

That’s the thing about SPVs: like errant teens, their risks always find their way home to their parents. Sometimes they even bring friends.

Who buys the bonds this time?

The usual yield-chasing suspects like private credit funds, insurance companies, and pension funds. They’re desperate after years of the Fed punishing savers. Unfortunately, they’re the same people who manage your retirement.

Wrap Up

No, Amazon isn’t about to collapse. It’s a tremendous business, one I use here all the time. So there’s no reason to panic.

But when the smartest buyer in the room wants to rent instead of own, they may be telling you what they think those chips will be worth in 3 years.

Of course, AMZN could just want to conserve cash, as their debt load nearly doubled in the first half of this year, from $68.8 billion to $133 billion.

But the reveal will be: if they do this deal, how much do they pay for it? The higher the amount, the more credence is given to the “unexpected obsolescence” reason rather than funding.