David Sacks Predicts the Regulatory Capture Playbook to Ban Open Source AI, Step by Step: @DavidSacks: “I got bad news for you, Chamath, an open source ban is coming. They're not going to call it that. They're going to say that we simply have to apply the same standards to open models that we apply to closed ones. Here's how they do it step by step, let me explain how regulatory capture actually works. So first of all, you have to get this regulatory apparatus. Dario wants an FDA for AI, but he doesn't have enough political support for that, so instead they do this Trojan horse of a FINRA for AI. They call it self-regulating, it's not really, but anyway, that gets them off the ground. Now they've created the standard-setting organization. Now they've got pre-release model testing. Then the pressure grows to codify that in law, so that happens next. And then what they do is they say, ‘Look, all these standards need to apply equally to all models.’ But here's the problem with that. Open models and closed models are technologically different. Once you release an open model into the world, you can't roll it back and you can't monitor exactly how people are using it because they run it on their own hardware. Dario says this is what makes open models dangerous. So what they're going to do is they're going to have the standard-setting body say, ‘Well, we have to set the standards for AI safety.’ By the way, Dario and OpenAI, they're going to fund the whole thing. They're going to contribute all the compute. They're going to be behind it. They're going to be the ones coordinating with the government officials because frankly, people in government have no idea how to monitor and control and set standards for AI safety. Technologically, this is way beyond them. So they're going to go to these companies and say, ‘Tell us how to do it.’ And so what will happen is the standards will get set, and then it'll be a very simple matter of fairness to say that the standards need to apply to open as well as closed models. The open models cannot comply in the same way, and gradually they will be shut out of the market.”

Coastal Community Bank took a $68.8m charge in Q2, due to troubles at an unnamed lending program. I've confirmed LendingPoint is that partner: LendingPoint serves primarily near-prime borrowers, offering unsecured personal loans from $1,000 to $36,500, with terms from 24 to 72 months and APRs from 7.99% to 35.99%. In addition to partnering with Coastal, LendingPoint also works with FinWise, another popular partner bank, as well as originating loans under its own licenses in certain states. LendingPoint previously partnered with Midland States Bank, though Midland wound down that relationship, ultimately selling $87.1 million of LendingPoint-originated loans in December 2024, realizing net charge offs and provisions for credit losses of $17.3 million on the sale, equating to nearly ~20% of the face value of the outstanding receivables. Coastal’s $42.1 million loss in Q2 “is primarily attributable to a $68.8 million credit expense related to a single, isolated CCBX partner relationship,” according to the company’s earnings release. The expense is comprised of a $46 million valuation adjustment to a credit enhancement asset and a $22.8 million provision for credit losses, which, the release said, are “not expected to be fully collected under its indemnification arrangement.” With a total of $1.68 billion of consumer loans outstanding in its CCBX business unit, that $530 million book represents approximately 31.5% of CCBX’s consumer loan book, or 23.8% of its overall CCBX book of about $2.23 billion. It appears that, as of the end of the second quarter, Coastal assessed that LendingPoint wouldn’t be able to fulfill its indemnification obligations, suggesting the financial condition of that unnamed partner — LendingPoint — has materially deteriorated. But LendingPoint's problems shouldn't have been a surprise. Signs of trouble at LendingPoint have included: -a botched "system conversion," which, Midland States Bank said publicly, was to blame for servicing problems and deteriorating credit quality; -significant executive churn, with LendingPoint cycling through multiple CEOs, as well as turn over in CFO, CTO, CRO, CTO, and general counsel roles; -Multiple ratings downgrades from KBRA on the lender's rated asset-backed securitizations; -and a publicly traded business development company treating loans it made to LendingPoint as significantly impaired, indicating it is unlikely to be repaid in full. LendingPoint is hardly the first fintech program to cause headaches or financial losses for its bank partner. With the recently reported news that the FDIC is working with banking and fintech trade associations on a potential independent standard-setting organization, the Coastal-LendingPoint situation provides an interesting opportunity for a thought experiment: is this a scenario that standards should attempt to address? And if so, how? Full story on this in Fintech Business Weekly.