Misdiagnosis or Misdirection?
Peter Thiel is right that we're in an economic war, but wrong about who's fighting it. The conflict is between two incompatible forms of capitalism: one that creates value through production, and one that extracts it through financialization. In 1971, when Nixon closed the gold window, we began the systematic transformation of every aspect of economic life into a financial product.
Thiel recently diagnosed what he calls the central crisis of our time: a "rupture of the generational compact" between Boomers and younger Americans. Speaking at various forums and most recently telling The Free Press that "capitalism isn't working for young people," the high-profile Palantir backer argues that two specific failures have broken the traditional wealth-transfer mechanism between generations. First, student debt has buried Millennials and Gen Z under $1.7 trillion in loans, preventing them from accumulating capital. Second, housing prices have exploded beyond reach, with Boomers hoarding real estate wealth while younger generations are permanently locked out. In Thiel's telling, this is an existential breach of the social contract where each generation is supposed to leave the next one better off.
This framework has gained enormous traction because it explains something visceral that younger Americans feel daily. The numbers validate their rage:
Americans under 40 held nearly 12% of all wealth in 1990 but just 5% today. The median home now costs 5.6 times the median income nationally—up from 3 times in 1970—with many metro areas exceeding 7 times. College tuition has increased 1,200% since 1980, driving student debt to $1.8 trillion, a sevenfold increase since 1995 while wages stagnated. Meanwhile, Boomers control 52% of all U.S. wealth despite being just 20% of the population.
When Thiel says younger generations got "scammed" into taking on debt for degrees that don't pay off while being priced out of the asset that historically built middle-class wealth, he's articulating the defining grievance of everyone under 45.
The Real Divide
But the generational framing misses the real rupture entirely. The divide isn't between age groups—it's between builders and financial engineers. For the first time since World War II, finance no longer serves production; it has replaced it.
The compact that once tied capital to creation has been severed by a machinery of pure financial extraction that profits from packaging and repackaging debt rather than funding actual value creation.
Young Boomers who missed the asset bubble are as screwed as Millennials. Gen X entrepreneurs trapped in zombie portfolios share more with Gen Z founders than with their generational peers who went into private equity. The dividing line is whether you create value or extract it through financial engineering.
Economist Michael Hudson has spent decades documenting how finance turned from enabling production to parasitically extracting from it; what he calls the victory of rentier capitalism over industrial capitalism. But while Hudson's diagnosis is precise, his prescriptions rely on government intervention: debt jubilees, public banking, policy reforms. These solutions require political will that may never materialize. The real antidote isn't waiting for the state to save us. It's building new structures that make financial extraction obsolete through market mechanisms, not political ones.
The Financialization of Everything
Consider two college graduates separated by fifty years. The 1970 graduate entered an economy where finance served its actual purpose: banks lent to businesses that made things, mortgages stayed with local lenders who knew their borrowers, and investment meant funding production. The 2025 graduate enters a world where finance has become the product itself. Student loans are securities to be bundled and sold. Mortgages are raw material for derivatives. Venture capital doesn't fund innovation; it manufactures paper returns through circular valuations.
This transformation began in 1971 when Nixon closed the gold window, unmooring money from any connection to real assets. What followed was the systematic transformation of every aspect of economic life into a financial product. The 1974 ERISA Act opened pension funds to Wall Street management, though it excluded public pensions from its protections. The 1982 Garn-St. Germain Act deregulated savings and loans, allowing them to engage in commercial lending and riskier investments. The 1999 repeal of Glass-Steagall completed the transformation, allowing banks to merge with investment firms and insurance companies.
By 2002-2007, financial sector profits reached 40-44% of all U.S. corporate profits, up from less than 10% in 1947.
But here's the key: these profits didn't come from funding productive enterprises. They came from securitizing debt, packaging risk, and extracting fees from the movement of money itself. Finance had discovered it could make more money from money than from anything money might actually build.
The Education Grift
The student debt complex perfectly illustrates pure financial extraction. When Reagan cut federal education support by 25% in the early 1980s, shifting emphasis from grants to loans, he created raw material for Wall Street. Universities could raise tuition indefinitely because loan availability sets the price ceiling. The loans were immediately securitized and sold, meaning lenders had no stake in whether students could ever repay. Tuition rose 175-300% from 1980 to 2020 while the security holders collected their yields. The extraction machine doesn't care if the education was worth it; it already got paid.
The Housing Market Harvest
Real estate underwent the same financialization. Traditional mortgages, where a local bank lent to a local family and held the note, became extinct. Instead, mortgages became inputs for mortgage-backed securities, then synthetic CDOs, then CDOs-squared. Each layer of financialization extracted fees while adding nothing. When it collapsed in 2008, financial engineers like Blackstone swept up the wreckage, converting foreclosed homes into rental empires. By 2024, institutional investors owned one in seven single-family rentals. They don't provide housing; they financialize it.
The Health Care Racket
Healthcare underwent perhaps the most perverse financialization. The 1973 HMO Act, sold as cost control, actually created the legal framework for turning medicine into a financial product.
Private equity discovered hospitals in the 1990s, but the real acceleration came post-2008 when cheap money needed yields. By 2023, private equity owned over 30% of emergency rooms, nearly two-thirds of air ambulances, and controlled practices covering 40% of certain specialties like anesthesiology and radiology.
They don't provide healthcare; they extract from it. The playbook is identical everywhere: load the practice with debt, cut staff to boost margins, bill aggressively, then flip to the next PE firm.
Between 2010-2020, private equity-owned nursing homes had 10% higher mortality rates while extracting billions in fees. Insurance companies evolved from risk pools into denial machines. UnitedHealthcare's denial rate reached 33% by denying more claims through AI systems.
Even nonprofit hospitals play the game: they held $283 billion in investments while pursuing patients for medical debt. The Cleveland Clinic runs a $12.5 billion investment portfolio while garnishing wages for unpaid bills. Healthcare spending reached $4.9 trillion in 2023 (17.6% of GDP), yet life expectancy has stagnated.
The money is feeding the extraction machine. When KKR buys your local hospital, they're securitizing your illness.
Venture Capital is Becoming the Apex Predator
Venture capital masquerades as innovation funding, but it is becoming the apex predator. The fundamental structure of ten-year funds demanding 10x returns through power law exits has nothing to do with building companies and everything to do with manufacturing valuations. VCs don't celebrate when portfolio companies become profitable. They celebrate when they raise their next round at a higher valuation. The product is the markup.
It is worth noting that while Thiel diagnoses generational rupture, his own funds, including Founders Fund, Mithril Capital, and Thiel Capital, epitomize the financial extraction machine. He's one of the architects, with his network cross-investing in each other's portfolios, sitting on each other's boards, and coordinating the valuations that justify their paper markups and faux NAVs.
I have written extensively about the emergence of continuation funds, which reveals how deeply this rot runs. When traditional exits disappeared (IPOs frozen, acquisitions blocked), VCs invented a way to sell portfolio companies to themselves at marked-up valuations, collecting fees on both sides. It's financial engineering eating itself: no product, no exit, no value creation; just fees extracted from moving paper between funds. LPs get liquidity relief (at discounted prices), GPs get management fees on the same assets twice, and founders remain trapped in cap tables that will never clear.
Even successful tech companies become extraction machines because financial engineering demands it. Google and Meta became internet traffic monopolies because venture returns required it. When your investor needs 100x, competitive markets won't suffice. You need monopolistic positions that can justify endless markup rounds. If that sounds familiar, it should. It's literally Thiel's playbook from his book, "Zero-to-One". We like to think technology is the problem, but in reality, it's what financial engineering forces technology to become that is the problem.
The Final Extraction: Your Retirement Savings
The Trump administration's unprecedented August 2025 executive order potentially opening the door for 401(k) accounts to allocate to venture capital funds, shows how the extraction will reach across all generations.
This move could transform $7.4 trillion in retirement saving, money saved by workers of every age, into fresh fuel for the VC machine to prop up paper valuations and pay management fees on funds that will never return capital.
Employees and entrepreneurs who've spent decades contributing to 401(k)s would see their savings funneled into the same continuation funds and zombie portfolios that sophisticated institutional investors are desperately trying to escape. The financial engineers openly admit that 90% of returns come from less than 10% of investments, making this unsuitable for retirement savings. The point is fee extraction.
This is financial engineering without even the pretense of building anything. No products, no companies, no innovation. Just retirement savings transformed into management fees for funds that are already failing. The 55-year-old factory worker's retirement becomes collateral damage in the financial engineers' game of musical chairs.
The Machine Economy Looms Large
We don't have much time before artificial intelligence and autonomous systems become the permanent infrastructure of the global economy.
If the same financial extraction model captures machine intelligence, the consequences will be irreversible. But this time, it won't just be securitizing mortgages or student loans, it will be financializing intelligence itself.
Imagine every AI inference packaged into a security, every autonomous vehicle interaction bundled into a derivative, every machine-to-machine transaction becoming raw material for financial products. The financial engineers will extract from every computation, every decision, every byte of data processed by artificial intelligence.
This is why the builder versus financial engineer divide matters more than any generational conflict. The next several years will determine whether machine intelligence serves production or becomes another layer of financial extraction. We're either building infrastructure that creates value or infrastructure that only exists to generate fees.
The Free Market Correction Nobody Sees Coming
The generational war narrative keeps us fighting the wrong battle. Perhaps deliberately. While young and old argue over who deserves what share of a shrinking pie, market forces are already generating the antidote to financial extraction.
The correction will emerge from a simple market reality: extraction models are increasingly capital-inefficient. Continuation funds burning LP capital, unicorns dying in their stables, fourteen-year hold times with no liquidity. These aren't sustainable.
Smart capital is already flowing toward structures that align with actual value creation rather than financial engineering. Revenue-based financing that pays investors from real cash flows, not paper markups. Venture studios that build companies rather than flip them. Crowdfunding that connects capital directly to businesses without layers of financial intermediation.
The democratization of venture deal-flow access accelerates this shift. When builders can access capital directly, why pay the 2-and-20 tab to financial engineers? When investors can back real businesses generating real returns, why gamble on power law fantasies? If infrastructure can be owned by a plurality, why let financial engineers securitize it?
The machine economy will amplify these market forces. Distributed ownership is a competitive advantage, not an ideological choice. When autonomous systems need local knowledge, local permissions, and local maintenance, centralized ownership becomes a dangerous bottleneck. The masses that own their infrastructure will outcompete those that rent it. The builders who maintain control will outperform those who sold it to the Venture Capital Cartel for growth capital they didn't need.
Financial extraction is the root bubble from which all others of our generation grow. And if we know nothing else, we know bubbles inevitably burst. The extraction economy is eating itself, consuming its own feedstock until nothing remains to financialize.
The divide has never been generational. It's structural, and it exists between those who build and those who extract through financial engineering. Builders of every age who recognize this have more in common with each other than with the financial engineers in their own generation.
That's the alliance that matters. Because it's morally right, and because it's economically inevitable. The extraction economy is eating itself. The real builders who understand this aren't hastening a Girardian collapse. They're building the next wave.
Want to go deeper? This essay scratches the surface of how venture capital became an extraction machine—and what we're building to replace it. In Venture Capital 2.0: Building, Funding, and Scaling Startups in the Post-Power Law Era, I map the complete anatomy of the VC crisis: why the power law is mathematically broken and how we as an industry can align capital with creation instead of extraction.
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