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WeWork and Counterfeit Capitalism
- mcormier 7y agoI like the way this Matt Stoller writes words. RSS feed subscribed.
- ocdtrekkie 7y agoMatt Stoller's bio for people who don't know who he is: https://openmarketsinstitute.org/staff/matt-stoller/ https://openmarketsinstitute.org/staff/matt-stoller/ His Twitter is a pretty good follow too: https://twitter.com/matthewstoller https://twitter.com/matthewstoller
- mhbjhv 7y agoWhere can I find his RSS feed? I’d be v grateful for a link
- chrisseaton 7y agoSome of these criticisms are just irrelevant personal abuse - like saying he doesn't think Neumann's t-shirt is fitted well.
- toomuchtodo 7y agoDefending those of poor character and moral fiber (not my judgement, facts reported) from a jab about their clothes is low priority. The other issues presented are far more pressing.
- dymk 7y agoMaking pointless jabs at somebody dilutes your argument and makes you look like a moron in the eyes of bystanders on the margins of deciding who's right.
- coldtea 7y agoIf those are still "on the margins of deciding who's right" on such a clear cut case, then they're a lost cause anyway...
- dymk 7y agoSo you don't care about convincing people, that's fine, but just realize that you're doing your own causes no favors by not caring about how you make your arguments.
- dang 7y agoWe've banned this account for repeatedly violating the site guidelines and ignoring our requests to stop. If you don't want to be banned, you're welcome to email hn@ycombinator.com and give us reason to believe that you'll follow the rules in the future. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- dymk 7y agoI think you’re replying to the wrong account? I’m confused what rules my comment breaks.
- danaur 7y agoI personally think it's good to call out arguments that we disagree with, that are imprecise, or irrelevant. Not as pressing in this case but elsewhere if you leave those arguments uncriticized it gives those you are arguing against more leverage in the form of things they can point out. It's important we hold people to high standards
- WhatIsDukkha 7y agoWhat if its totally irrelevant to the larger issue and the nitpicking of minor parts of an article are just used to distract and diffuse any conversation actual issues?
- _eht 7y agoTaking a jab at clothing generally is so low effort to be actually embarrassing and will invalidate anything else that you are trying to say. IMO.
- coldtea 7y agoTaking some comedic/low effort jabs should not invalidate from one's main (and valid) arguments. IMO. Else it's low effort on the listener's part.
- sremani 7y agoWhat is more embarrassing is picking one statement in huge article and getting hung up on it? As a writer certain things make stylistically sense perhaps only to the author, but that is one substantive article about the state of Capital markets and "Captains" of New Industry.
- calibas 7y agoI'm amazed that the focus is on the author calling a t-shirt "ill-fitting" instead of calling Neumann a liar and a thief. Apparently, Neumann's fashion sense is more defensible than his personal integrity.
- deleted 7y ago[deleted]
- kizer 7y agoThis is just one thread... look at the rest of the discussion.
- fennecfoxen 7y agoYou presume to tell others how to arrange their priorities? Very well. I will say that you are wrong. It is a fine priority to defend people from unfair jabs and accusations. These attacks damage the quality of our public discourse, which is in bad enough shape already. You will find no shortage of fair jabs and meaningful accusations to be aired in the matter of WeWork. They are scathing enough on their own. Random sniping about T-shirt quality detracts from the points that matter.
- kizer 7y agoThank you. Letting rhetoric slip into the mud hasn't served other platforms for discourse well recently (exhibit a: politics).
- kizer 7y agoWe're not under any time pressure in this discussion; there's no need to prioritize. Pointing out "low blows" which and writer should strive to be above is pressing, in my opinion.
- luckydata 7y agoThat's not at all a low blow. It's pointing out one of the many signaling methods this conman used to swindle investors "look at me, I make no sense because I'm so unconventional..." It's crazy to me that a forum full of the self proclaimed intellectual elites can't get the meaning of that sentence without a full blown explanation.
- kizer 7y agoAh, I see your point. That is deceptive; I thought it was just generic vitriol. As for me I only _dream_ of dwelling amongst the ranks of the Valley's intelligentsia... many years to go before I proclaim myself a bonafide intellectual elite.
- deleted 7y ago[deleted]
- mondaygreens 7y agoI don't find the t-shirt bit irrelevant, it's an aesthetic that speaks volumes and has a place in the critique, particularly as contrasted with the aesthetic that will replace it. That's how it's referenced, and not as a direct or adhominem attack.
- jerf 7y agoAt that level of income, clothes are a choice. Simply insulting him about his clothes may not be very helpful, but thinking about the message Neumann is sending with that clothing choice is productive. I'm inferring from the text that that picture is from an investor presentation, though I don't quite know, but if it was, those clothes are rife with meaning. They are as deliberately crafted as any of the words in that presentation were, and you are fully entitled to analyze that and make decisions based on that analysis.
- kizer 7y agoOr, it's just a t-shirt.
- jerf 7y agoThat is pretty much exactly the same thing as seeing a character wearing a T-Shirt in a movie and trying to argue it must have just been what the actor came on to the set wearing that day.
- crumpets 7y agoNo it's not. Actors are meant to pretend to be different people. The CEO isn't supposed to be pretending to be a different person.
- DangitBobby 7y agoI disagree.
- knolax 7y agoOr the curtains are just blue.
- bduerst 7y agoIn a behaviorial finance class I took we learned about a few hedge funds that followed CEO's during the 90's, and shorted their companies whenever the CEO underwent plastic surgery. Turns out that personal appearance insecurity of the CEO was inversely correlated to company performance. From Steve Job's turtleneck to Zuck's zip-up hoodie, CEO appearance is a market signal that some speculators choose to use.
- mc32 7y agoHe has some criticisms but he strays from seriousness with jabs like the one you point out. It sounds like me in high school being sarcastic in a juvenile way —it’s momentarily funny but totally detracts from the main story. In this case issues in self-dealing. In a small biz self dealing may be necessary and may be common practice. After all it’s all your money or your debt. But here it’s in conflict with fiduciary duty of a CEO.
- TremendousJudge 7y agoAlso the bits about these people "Jamie Dimon of JP Morgan and Masayoshi Son of Softbank". Two paragraphs of hearsay about the skills and motivations of these people and not a drop of anything resembling hard evidence. A lot of "he's actually incompetent and the only reason he made good decisions in the past is because he was lucky".
- mrkurt 7y agoIf you follow Matthew Stoller on Twitter (or subscribe to his substack), you'll find lots of specific content about those two. Usually he's snarky about people he's built a wealth of back story on.
- Shivetya 7y agoI did not read that as a criticism of Neumann, I read it as, same shit different day. As in, don't matter how you dress up their CEO the company is still shit
- JackFr 7y agoAnd describing Jamie Dimon as a mediocrity is simply ignorant. JPMorgan has outperformed all the big banks for the past 10 years, and it's not close. JPM is tied up in billions of dollars of loans to WeWork, but those loans are commercial mortgages. Typically those loans are largely underwritten based on the building and real estate rather than focusing the borrower. Presumably the loans were made on the same terms they would be made to a REIT, based on what revenue the building can support. If WeWork fails, well then JPM owns the building.
- alasdair_ 7y agoWeWork doesn’t own the buildings right now - the landlords do.
- grvdrm 7y agoI thought much of the post, if not the entire post, was full of garbage illuminated by this example.
- TrackerFF 7y agoWhile it can sound personal, I think it's more aimed at the general lax and loose silicon valley "new age" way of doing things, opposed to the stuffy old ways of white-collar finance. There's this mantra that you need to suspend your disbelief a bit, when it comes to (tech) startups.
- moltensodium 7y agoIt's ok to make fun of the guy who gets in trouble for smoking weed on private planes and whose new age nepotism hire wife fires people for having bad energy. The reason people like this exist is because nobody has been ridiculing them and saying no. If anything we need way more people making fun of elite billionaires. Sharpen up your wit and sarcasm folks, we're gonna need it in the years ahead.
- buboard 7y agoSeems like this guy acts like rock stars of the past. And it s not like rock stars didn’t make tons of money
- larrik 7y ago> owns buildings personally he leases to WeWork This part bugs me. This is standard procedure for small businesses, having a real-estate business leasing property to your main business. If you want to succeed, you own the building. Otherwise, you are on borrowed time. Edit: alright, great points, thanks!
- paulsutter 7y agoBut not owned by the CEO in conflict with every other shareholder
- ceejayoz 7y agoSmall businesses aren't doing it to soak up investor money.
- socalnate1 7y agoYes it is for small privately owned business with one primary stakeholder. Not giant Softbank funded behemoths.
- ocdtrekkie 7y agoThe thing is, a small business' owner for both of those entities is the same, with aligned interests. And the owner benefits from both being successful. In the case where he personally owns property leased out to a company that's going to be public: The public investors are cut out of all that rental income. And in the case of WeWork, their regular business isn't actually profitable. Which means this dual business structure would be designed to siphon public investment into Neumann's personal property, as WeWork is forced to continue paying it's leases to Neumann while it continues to just lose money.
- lm28469 7y agoYeah sure, when you're a 2 persons business making home made shoes in a garage. Not when you're a multi millionaire basically paying your _personal_ real estate loans through investors money. That's an obvious conflict of interests, I don't even know how these kind of companies are allowed to be honest.
- ineedasername 7y ago
- braindead_in 7y agoCounterfeit capitalism is a nice term. I think neoliberalism will be labeled as such by historians in the future. The collapse of Bretton Woods and the subsequent neoliberal laissez faire economics set off a chain reaction which led to the 2008 sub prime crisis and the current climate crisis. The world will eventually move away from that. Friedman was wrong. Society is not built on greed.
- IanDrake 7y agoCan you connect the collapse of Bretton Woods and laissez faire economics for me? It seemed like you were implying a connection, but I don't see it.
- braindead_in 7y agoBretton Woods system collapsed due the stagflation crisis of the 70's. Economists started re-thinking Keynesian economics and the gold standard was abandoned. That precipitated the collapse. [1] The Chicago School economists were successful in pushing through the neoliberal agenda. They were so successful that both democrats and republicans adopted it en masse. Even Singapore adopted neoliberalism. There is direct correlation between increase in income inequality with the switch to neoliberal policies. [2] [1] https://www.imf.org/external/about/histend.htm https://www.imf.org/external/about/histend.htm [2] https://www.theguardian.com/news/2017/aug/18/neoliberalism-the-idea-that-changed-the-world https://www.theguardian.com/news/2017/aug/18/neoliberalism-t...
- deleted 7y ago[deleted]
- anilshanbhag 7y ago"The company is losing an enormous amount of money and 'has no path to profitability at scale'." - well if there is no path to profitability, how is it still worth 10-15 billion ? "If you know Dimon’s actual reputation, him getting suckered isn’t surprising. From what I heard back in 2009, Dimon is a mediocrity who essentially got lucky his bank was too slow to get in on the subprime scam in 2006; he then used his bank’s incompetence at getting into the bubble as justification for how prudent he was." - Dimon is the most respected banker and he led JPM to become the largest bank in the western world. Well somehow that is mediocre. "WeWork ostensibly became more valuable because Son said it was more valuable, and bought shares for higher prices. " - well isn't this how market pricing works. And then whole blurb on Counterfeit Capitalism - which in essence described capitalism. The stronger player aims to get market share at the expense of a weaker player. The author is just another one with a big mouth writing clickbait articles !
- bbddg 7y ago> And then whole blurb on Counterfeit Capitalism - which in essence described capitalism This is my favorite thing. Whenever someone describes something like "Counterfeit Capitalism" or "Crony Capitalism", it's always just describing capitalism.
- socialist_coder 7y agoI feel like this is similar to how Greta Thunberg recently described capitalism as "fairytales of eternal economic growth". That too is just describing capitalism. The way she is attacked by the Right, and what they say in their attacks, really makes it obvious that they know it's not an environmental issue. It has absolutely nothing to do with the environment or climate change. It's neoliberalism and capitalism and imperalism and "fairytales of eternal economic growth". They know that, and that's why they pretend like they cannot engage her because "she's a child". All climate change activists should switch their message and focus on capitalism, not reducing emissions or climate change. Because the amount of CO2 emission reductions we need are clearly impossible with the current system. And if you leave capitalism out of the argument, it lets neoliberal leaders off the hook.
- ackbar03 7y agoThe whole thing about subprime mortgages and how jp was slow to get in isn't entirely accurate. I mean I guess it could have been the actual reason since there's always a disconnect between management and the ones actually doing the work, but the structured credit team at jp Morgan was acutely aware at the time how the whole cdo business was going out of control. This was because they were also the team who invented the cds and knew the whole cdo business made 0 sense and active chose to refrain. It's documented very well in the book "fools gold" which is a pretty good read.
- JackFr 7y agoHe's simply wrong about that. Describing Jamie Dimon as a mediocrity is ignorant.
- cestith 7y agoI think there's a space for a one-stop business services company. Office space with utilities, with the definition of utilities expanded to include Internet access, catering, software licenses, shared IT staff, and such does make sense. I also think, though, it's a new tweak on the office real estate business and not a groundbreaking tech business that needs to be valued the way a tech company would be.
- pat2man 7y agoWeWork is really just a middle ground between a co-working space and a full blown office. Seems like a no brainer for someone to fill the space. If WeWork collapses I'm sure a dozen other companies will fill the space.
- coldcode 7y agoWhile the writer is a irritating in how he presents info, he does have good points. WeWork never looked like a real business to me, I thought the IPO as presented was such a great work of fiction. In the end the "business" is renting office space. It's not worth any more than that. At least Uber and Lyft provide something new (calling taxis from phones, I guess you could think of that as not terribly new) but it did change how people travel in cities. WeWork is basically shared office space but the business is mostly the founders scamming money out of investors.
- Wowfunhappy 7y ago> At least Uber and Lyft provide something new (calling taxis from phones) It's less than that—they provide the ability to call taxis from an app. You've been able to call taxis from phones for significantly longer, you just had to dial a number. I know this isn't a common way to call taxis everywhere, but it was in some locations. I went to college in a small-ish city called Saratoga Springs. If you wanted a taxi, the expected method was to dial one of the local taxi companies. They'd arrive in a few minutes. It was a little more expensive than Uber and Lyft, but not drastically so, and while I'm sure a bit of that price difference comes from increased efficiency, I think a lot of it is just VC money.
- whatshisface 7y agoUber and Lyft also broke the uncapitalistic taxi medallion system, lowering prices and easing entry for new drivers. In places where taxis weren't being crushed by the government, the equilibrium price was already in place and Uber wouldn't have been able to lower it by much. In places like NYC there was a big difference.
- uxp100 7y agoI think what they uniquely provide is actually tracking the cab to your door. I probably called 3 cabs total before I was aware of uber, and my experience each time was wait for around an hour, even if you had pre-arranged the pickup, and when calling the dispatcher, they would just say the cab was 10 minutes away, no matter what was actually going on.
- BenoitEssiambre 7y agoThis doesn't excuse WeWork being excessively unprofitable but low or negative returns don't directly imply anything "Counterfeit". I like to point out that low or negative real returns on stores of value have historically been the norm. Before financial systems existed, almost all investment had negative returns if you didn’t put work and energy into them. To store value, you had to accumulate stuff, buildings or land. Most options either had high maintenance costs, were subject to risk of damage from natural causes and theft, were very volatile or required hard labor to get production out of. Even more recently, it has often been difficult to get low risk, hassle free, liquid, positive real returns. From a basic science perspective this seems to reflect the laws of thermodynamics that tell us that everything tends to decay without a constant supply of work and energy. In general, most things require maintenance to keep their worth. The 20th century may have been an outlier. Because of unprecedented demographic and technological growth, positive risk free real returns on liquid assets were easy to find. It is possible that under favorable conditions, wealth can have positive returns and even compound into very good long run returns but it is not a guarantee and there is nothing natural about it. It may not continue forever, particularly amidst an aging and retiring population in a world no longer as rich in easy to exploit natural resources. While people are used to get negative returns on very short term purchases, you buy fresh vegetables at the supermarket even if they degrade over time, they can’t seem to accept the normalcy of negative returns on longer term assets despite the tendencies inherent in the laws of physics. In nature, squirrels’ nut caches have a certain percentage of losses from theft and spoilage. Returns tending towards the negative are natural even if they can seem unusual for people just out of the 20th century.
- briandear 7y agoThere are apparently European banks paying negative interest now as well.
- NortySpock 7y agoDividend stocks from an established company should still provide returns; that would be a liquid asset with positive returns.
- 7y ago
- draw_down 7y agoI find the amount of vitriol for this one person, now, suspicious. He ran the company this way (like a goofball) for years, none of this is a surprise. I think if things had gone slightly differently and they held everything together long enough for the IPO to happen, he'd be considered a visionary instead of a crank. I also take issue with the notion that the nature of capitalism has changed or degraded. The point has always been to make as much money as you can, and honestly, this guy played the game to the hilt. Some parties are clearly upset that it didn't work out for them as they expected, but if it had, they wouldn't be taking issue with the t-shirts or any of the other goofy stuff.
- legitster 7y ago> WeWork then used this cash to underprice competitors in the co-working space market, hoping to be able to profit later once it had a strong market position in real estate subletting or ancillary businesses. > This is of course Amazon’s model, which underpriced competitors in retail and eventually came to control the whole market. This is wrong, wrong, wrong. The difference is Amazon saw what the marginal costs could be, and had a specific roadmap to drive investment into bringing them down. WeWork fundamentally has no way to drive down the margin on real estate in any meaningful way. Especially as a lessee. > The goal of Son, and increasingly most large financiers in private equity and venture capital, is to find big markets and then dump capital into one player in such a market who can underprice until he becomes the dominant remaining actor. In this manner, financiers can help kill all competition, with the idea of profiting later on via the surviving monopoly. A bold assumption with no citations. There are just as many counterfactuals to this strategy as there are examples. The scooter market is an especially bad - there is so much capital from so many companies - if you were trying to establish monopolies that would be a bad bet. > Endless money-losing is a variant of counterfeiting, and counterfeiting has dangerous economic consequences. The subprime fiasco was one example. The subprime crisis is completely unrelated! And if anything it was proof that money-making assets should be scrutinized more. WeWork is a garbage, charlatan company. But don't misunderstand what is happening here.
- tlb 7y agoThere are two ways to get to positive margins: Either drive down costs (as Amazon did) or increase price. Part of WeWork's plan is presumably to increase prices once tenants are locked in. The big question is how much lock-in they can achieve. The lock-in is largely caused by employee loyalty. Employees who like beer and camaraderie in the evenings may be hard to persuade to move to a soulless office park. It's a micro version of the way a city gets lock-in. San Francisco office space costs 2-5x more than Sunnyvale, because employees will quit if you move your office from one to the other.
- wolco 7y agoWould 50-80% of employees quit if a company moved to Sunnyvale? Was that a serious fact?
- jknoepfler 7y agoedit: I think the article is deeply confused about whether it wants to talk about how shitty WeWork and it's associated investors are, versus why pumping loss-leading companies full of cash is a bad idea. The former is just yellow journalism and not very interesting (also well-aired already), the latter is important (imo). The point is a simple one, I think. It's well understood that capitalism breaks if an actor is able to consistently create and defend a monopoly. Pumping a loss-leading company full of capital under the expectation that it will loss-lead until it dominates the market is one such strategy. WeWork is a classic example of this strategy in action, albeit an ill-begotten one. We've made this illegal in the past, we should consistently enforce such laws as exist, and improve them to bring them into 2019. Let's not get pinheaded about this thought. I'm personally bootstrapping a company from $0. That means I'm using my "deep pockets" to "loss lead" a company. Nothing about what I'm doing is "anticompetetive" in the relevant sense because of scale. Furthermore, my growth is pegged to my ability to make money (I won't hire unless I can pay a salary out of revenue). I do think capping naked investment in loss-leading companies is probably a good idea. I personally think VC culture results in bloated, unsustainable companies that over-hire overpriced engineers, and that it's long term a very inefficient strategy that is bad for the health of the economy. Obviously this is a weird forum to air that view on, but here we are. At least I'm putting my money where my mouth is.
- perl4ever 7y ago"We've made this illegal in the past, we should consistently enforce such laws as exist, and improve them to bring them into 2019." It seems to me that this sort of thing is the direct opposite of the "quarterly profits mentality" that people complain about. While you can say there must be a happy medium, I don't really believe there is, because every business can be framed in terms of the "short term focus" or "predatory and trying to take over the world" extremes.
- readhn 7y agoIs Adam Neumann - Next Elizabeth Holmes?? I would not be surprised to see SEC involved at some point somehow.
- fullshark 7y agoAFAIK he hasn't done anything illegal beyond (allegedly) smuggling drugs across international borders (also i guess the acts OP mentions to stop self-dealing). This was all fairly known, we all thought it was stupid, but no one cared until the IPO revealed the public markets were more skeptical than anticipated.
- readhn 7y agoThe way he is portrayed in the media almost looks like he is being prepared/setup to be the scapegoat when the house of cards comes down. Someone will have to pay for lost billions. I think there is an orange jump suit somewhere being prepared with "adam neumann" name tag on it.... Theranos 2.0 Pop corn is ready.
- mondaygreens 7y agoA relevant line from the essay that reminded me of Holmes: "The men and women who run them have to be charlatans, because they are storytellers justifying losses."
- asveikau 7y agoI was coming here to see if there were any comments on this and if I might leave one. It seems like a sketchy real estate company is a little bit less consequential than a medical device that doesn't work (potentially killing people). But I find the two points interesting as: What will it take for the Silicon Valley community to start being openly critical of a company and that's OK? For example if you leave comments on here that are skeptical of any given company or its prospects, even rightfully so, you may get a lot of push-back and people assuming you're some kind of mean jerk. But once the founders are shown to be actual frauds, the tone changes to what it might have been in the first place, had we had a bit more healthy skepticism and less "ra-ra, new companies good" kind of blind faith. In that I rate Theranos and WeWork to have something in common. They tipped these ocassionaly overly polite scales towards admitting that some companies act in bad faith.
- jamiequint 7y ago> This is of course Amazon’s model, which underpriced competitors in retail and eventually came to control the whole market. This is false. First, Amazon is far from controlling the whole market. They control close to 50% of e-commerce which itself represents less than 12% of total retail sales. Second, Amazon didn't predatory price, or if it did, it didn't for long, certainly not long enough to achieve its current market share. The author is mistaking Amazon's lack of profit for its propensity to reinvest all of its profit into other businesses (e.g. AWS), or its willingness to take short-term losses in order to reach economies of scale where profits exist (which, as Amazon's retail business has shown, they do).
- johnfactorial 7y ago> They control close to 50% of e-commerce which itself represents less than 12% of total retail sales. Both of these numbers are surprising to me, can you source them? Particularly the first one, which I assume is a global measure, and I'd be interested to know what % of North American e-commerce Amazon controls. I wager I could walk outside my home and ask 100 people on the sidewalk to name one e-commerce site and far more than 50% would name Amazon first.
- TillE 7y agoI would struggle to name a single online general retailer that isn't Amazon. Unless you count, like, Walmart. Basically everyone else has some kind of niche. Amazon sells everything.
- RankingMember 7y agoJet still exists (a Walmart acquisition), but I don't hear much about them and have a feeling they're not doing so great.
- tomjakubowski 7y agoWhy wouldn't you count Walmart or Target? For household consumables I bounce between Amazon and Target's subscribe and save offerings depending on whichever is cheaper.
- Kapura 7y agoI am so glad that the author of this piece doesn't limit his criticism to just Neumann, but he also goes after the people and firms propping up such obvious dumpster fires. Neumann would not be able to siphon off so much investor money if he weren't given legitimacy by big players. This issues at play here are absolutely systemic, and any analysis that doesn't acknowledge that fact is fundamentally flawed.
- imulligan 7y agoHehehehehe:)
- ineedasername 7y agoThe article paints a picture of how this model of funding businesses is growing and will taker over all capital markets. But then points out that mandatory disclosures and a sane public market actually stopped things in its tracks for WeWork. Burning many billions of dollars before the market takes a step back and says "WTF?" is hardly a model of market efficiency, but if the market is now waking up to the problems of this sort of investment then, yes, however imperfectly the market is correcting this bad behavior. I suppose the question then is whether WeWork represents a turning point in this trend, or merely an outlier.
- Havoc 7y agoAuthor makes some good points but also comes across as quite aggressive himself. The entire article is just throwing shade on everyone in sight from their choice of clothing to their timing on the fraud boat...
- ameister14 7y agoIt's interesting to me that so many people are picking up the clothing thing as mean - he literally said: "The new business model will be to beg investors to give money to the new co-CEOs, who will radically change the company by wearing suits to investor presentations instead of ill-fitting t-shirts." That's not really saying 'look at this idiot in his ill-fitting t-shirt' it's saying 'this system supports snakes, and whether they wear suits or an ill-fitting t-shirt, they are still snakes.'
- hourislate 7y agoTo think how close Wall St was to selling this turd to Investors.... JP Morgan says the company was worth somewhere between 46 -63 Billion, Morgan Stanley estimated 43-104 Billion. Their lease obligations are over $40 Billion and the company loses billions every year. The next recession in Commercial Real Estate space will wipe them out sticking Landlords with billions in losses including upgrading buildings to accommodate them. If it weren't for SoftBank using money from the Saudis Vision Fund as well as other sovereign funds like Abu Dhabi's, I have no idea if they would/could exist. These funds are going to take a bath unless they can convince someone to buy into it.
- DSingularity 7y ago“ There are laws, like Robinson-Patman and the Clayton Act, which, if read properly and enforced, prohibit such conduct. The reason is very basic to capitalism.” This is critical in this issue. Societies have grown but our legal systems have not. Justice today is conditioned on the interpretation of judges and on the enforcement of some bureaucrats. These are vulnerabilities and they are being exploited.
- mountainofdeath 7y agoI maintain that Masayoshi Son and the vision funds are nation-state level money laundering.
- alephnan 7y ago> if Adam and Rebekah have not contributed at least $1 billion to charitable causes as of the ten-year anniversary of the closing date of this offering, holders of all of the Company’s high-vote stock will only be entitled to ten votes per share instead of twenty votes per share.
- kevin_thibedeau 7y agoThey just need to start their own charities, base them in WeWork offices and charge hefty fees for their personal involvement in fundraisers.
- deleted 7y ago[deleted]
- samlevine 7y ago> This is of course Amazon’s model, which underpriced competitors in retail and eventually came to control the whole market. Amazon's model is to be better at ecommerce and logistics than everyone else, including Walmart, which itself gained market share through incredible skill at logistics. They reinvest what would be profits into getting better, and frequently succeed at it. Most companies don't actually do that once they're mature.
- senderista 7y agoIt didn't hurt that they actually poached the key supply chain executives from Walmart.
- mountainofdeath 7y agoWelcome to DotCom bubble 2.0.
- deleted 7y ago[deleted]
- Miner49er 7y agoI see no reason to call this "Counterfeit Capitalism". It's just capitalism.
- lordnacho 7y agoI prefer calling it "Poker Capitalism". What he's describing is a situation where a player with a big stack can bully his way to taking the other players' money, even when his cards are not particularly good or well played. In any case I think he's got a good point. The main thing I'd say is that capitalism requires both freedom and true signalling. We focus a lot on the former but tend to forget the latter, despite lessons learned since the 1800s.
- 40acres 7y agoFor me, this whole WeWork fiasco has shown just how valuable the SEC and the S-1 filing process is. Let's be clear -- Neumann was fired because any investor who read the S-1 was mortified and wouldn't touch the company with a 10 foot pole. If anything, this shows how lawless the private markets are and the lack of guardrails that are present to protect private investors -- perhaps this will lead to some reform in the private market and more transparency, but either way I'm glad that the SEC provides such a breath of fresh air when evaluating companies with large valuations.
- iamkroot 7y agoWhy do private investors need protection? Why can't they be held responsible for the foolishness of their actions?
- baq 7y agoWhat if there’s no way to know what’s foolish and what isn’t? The protection we’re talking about here is equal access to information which is a necessary prerequisite for an efficient market.
- Ididntdothis 7y agoBecause with the rise of 401k and lately low interest rates a lot of people were forced into the market who simply don’t have skill or time to learn these skills to make investments in an unregulated market.
- landivar2 7y ago> Part of what’s going on with WeWork is that monopolies and private equity have eliminated profitable opportunities for investment, which is why the Federal Reserve is increasingly powerless. No, you are confusing "monopolies and private equity" with the natural result of Sarbanes-Oxley. If you make going public too costly... companies are less likely to go public.
- ameister14 7y agoThat would make sense only in the context of actively fraudulent companies. A big reason to IPO used to be to gain the liquidity necessary to scale the business. This is no longer as necessary, since private financing allows companies to get billions in funding without trading control and being beholden to what most perceive as the short term thinking of public shareholders.
- human20190310 7y agoI really wish the author had sensed the limits of his argument, because I think the point he's trying to make is basically correct. He's just stretching it to the breaking point by invoking Amazon and the subprime crisis. If he'd left the stretch goals out of it, it would have stood as a perfect foil to the avalanche of "meta-meta-meta analysis of everything except where the money's gonna come from" in the Stratechery article [0] also up on HN now. [0] https://stratechery.com/2019/neither-and-new-lessons-from-uber-and-vision-fund/ https://stratechery.com/2019/neither-and-new-lessons-from-ub...
- legitster 7y agoI can't recommend the Stratechery piece enough (or Stratechery in general).
- RodgerTheGreat 7y agoOn the contrary, given the author's myopic and rosy perspective on surveillance capitalism as espoused in the article "Privacy Fundamentalism"[1] (and apparently amended in a follow-up which is paywalled), I find it hard to take anything on that blog seriously. [1]https://stratechery.com/2019/privacy-fundamentalism/ https://stratechery.com/2019/privacy-fundamentalism/
- askafriend 7y agoBen is one of the greatest thinkers in technology writing today - period. You're only depriving yourself of an important perspective in this case. He's open to arguments and is extremely reasonable. If you're only looking for writing that agrees with what you already believe then you might be disappointed, but if you're looking for extremely thoughtful thinking on strategy and technology then you won't find anyone better than Ben. It's not just a blog, it's a paid publication with a ton of research and effort behind it.
- ryandrake 7y agoWhich is why that article that OP points out is such an odd outlier. In contrast to the normally wonderful and insightful reading on that site, the one on privacy stood out as total defensiveness. I’m not going to condemn the author over just that one but it was weird!
- perseusprime11 7y agoThe business model of these companies goes something like this... In phase 1, sell $1 at deeply discounted rates of 50 cents. Sell a lot of them to show tons of revenue. In phase 2, sell $1 at slightly less disconted rates of 40 cents and show growth in margins. In phase 3, establish monopoly but still sell $1 at 80 cents and show both topline and bottom line growth. Finally, go belly up after not able to overcome the fixed costs in their business.
- novalis78 7y agoHe is making an interesting point but misses the source of this ‘counterfeit capitalism’... it’s not “capital”, it’s a printing press run wild leading to misallocations of hard earned productivity surpluses
- talkingtab 7y agocargo cult - where someone sees bounty falling from the sky and then imitates the behavior without understanding it. Supposedly this happened in New Guinea during WWII where people saw parachutes of food and weapons coming down after the soldiers laid out marker panels. So they laid out marker panels in a ritual. Also this happened in 2019 when companies were constructed without understanding what was required to actually have a business.
- mrfredward 7y agoFunny enough, the founders who are cargo-culting are finding monetary success (Neumann will still be rich when the dust settles, although I'm not suggesting he got all that money out of WeWork by accident). It's the investors who will find out that just making it look like you are investing in a world-changing tech company isn't enough to make it rain.
- commandlinefan 7y ago> This kind of counterfeit capitalism is terrible for society as a whole. Well, so says the author, but he doesn’t make a very compelling case. He hammers WeWork, but WeWork is failing spectacularly and miserably, as Adam Smith’s invisible hand suggest it must. A lot of people have a problem with Walmart and Amazon, but I have yet to see any evidence that either of them has harmed society _as a whole_. He suggests they have the potential to, but rather than throwing out the baby with the bathwater and preventing the world from getting Amazon and Walmart, we can deal with any actual abuses (like illegal labor practices) if they occur - just like we would if they were being done by “Jim’s corner store”.
- ameister14 7y agoThe author seemed to be more pointing out opportunity costs and the inability to build a long-term employment structure as consequences. Lower workforce participation, 'underemployed' workers, the rise of the gig economy (essentially just independent contractors with no insurance) and a concentration of wealth without community investment are others. Some of that is countered by going for illegal labor practices specifically, but mostly it's countered by restructuring the incentives companies work with and constraining their freedom to act generally.
- RobinRes 7y agoThis could be the next bubble. Hundreds of articles have surfaced over the past week on the board room meeting, internal tensions, IPO postponement and layoffs. People have already braced for impact, a post on Blind says they got emails and another article on Crunchbase says ~5000 layoffs are expected.
- cs702 7y agoDespite a bit of exaggeration and unnecessarily salty language, I found the OP to be a though-provoking piece, well worth the read. This passage, in particular, struck a chord with me -- it criticizes all the money-burning unicorns selling products and services below cost: "What predatory pricing does is to enable competition purely based on access to capital. Someone like Neumann, and Son’s entire model with his Vision Fund, is to take inputs, combine them into products worth less than their cost, and plug up the deficit through the capital markets in hopes of acquiring market power later or of just self-dealing so the losses are placed onto someone else. This model has spread. Bird, the scooter company, is not making money. Uber and Lyft are similarly and systemically unprofitable. This model is catastrophic not just for individual companies, but for their competitors who have to MAKE money." Highly recommended.
- empath75 7y agoEveryone in this thread is nodding sagely along with this while not thinking about how this insanity drives up their own tech salaries to insane levels which will collapse soon after the vision fund collapses.
- theflyinghorse 7y agoWould software salaries (in the US that is, we here in Canada get paid nowhere close to American levels) collapse though? There's practically unlimited amount of work that needs to be done and practically unlimited amount of good ideas left in the world to exploit. One fund going out won't do anything to change that.
- buboard 7y agoThey would. The actual value that developers make is only a fraction of what they re paid in US. Look at wages in Europe, eastern europe or china which dont have a bubbly market and get paid the market fair price. Its very difficult for internet companies to make actual profit value when everything is locked down by behemoths sucking all the revenues. Besides , VC subsidies is what attracts developers to SV
- throwing838383 7y agoThis is key: "The goal of Son, and increasingly most large financiers in private equity and venture capital, is to find big markets and then dump capital into one player in such a market who can underprice until he becomes the dominant remaining actor. In this manner, financiers can help kill all competition, with the idea of profiting later on via the surviving monopoly."
- Animats 7y agoHe points out that if we still had Glass-Steagall, which kept banks and brokers apart, we wouldn't have some of these problems. Probably wouldn't have had 2008, either. Bringing back Glass-Steagall was in Trump's platform in 2016.[1](p. 28) [2] That went away as soon as he was elected. [1] https://prod-static-ngop-pbl.s3.amazonaws.com/media/documents/DRAFT_12_FINAL%5B1%5D-ben_1468872234.pdf https://prod-static-ngop-pbl.s3.amazonaws.com/media/document... [2] https://money.cnn.com/2016/07/19/investing/donald-trump-glass-steagall/ https://money.cnn.com/2016/07/19/investing/donald-trump-glas...
- dehrmann 7y agoI got halfway through, but I'm stopping. There's some valid points in here, but I don't find the author credible. > If you know Dimon’s actual reputation, him getting suckered isn’t surprising. Jamaie "doesn't give a shit about Bitcoin" Dimon. So he won't just hop on any bandwagon. > [Masayoshi Son is] an owner of Sprint, and he’s currently trying to force an illegal merger of Sprint with T-Mobile Not sure how it's "illegal," it's a healthier merger than the previous T-Mobile-AT&T attempt, and a lot of people don't think Sprint is a sustainable business than can last as the number four player, so giving AT&T and Verizon a run for their money is the best outcome for consumers.
- inscionent 7y agoNot sure able illegal, useless maybe. Sprint couldn't compete after it merged with Nextel... I'm supposed to believe that it will this time?
- rchaud 7y agoWhat the rich and powerful say in public is often different from what they do in private. People at Dimon's level are absolutely invested in crypto, they're just quiet about it so they don't spook the markets. Warren Buffet often spouts folksy sounding wisdom like "I don't like businesses I don't understand", and then talks about Heinz Ketchup or General Mills. But at the end of the day, he extended Goldman Sachs a $5bn lifeline in September 2008 in a highly complex deal. [0] [0] https://qz.com/67052/heres-how-warren-buffett-made-3-1-billion-on-his-crisis-era-bet-on-goldman-sachs/ https://qz.com/67052/heres-how-warren-buffett-made-3-1-billi...
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- bduerst 7y agoDo you have any proof of that? Because your article about Buffet is neither about Dimon, crypto, or rich people investing in the latter. In fact, I'd say Buffet understood Goldman was undervalued when it plummeted during the height of the housing crisis, because Buffet understands financial operations. That behavior is not contradictory to anything Buffet has said, nor is it proof Dimon invests in crypto.
- 867567838694 7y agoThe writer of this article is bitter as fuck. Wow.
- jcroll 7y ago> And if we restore laws against predatory pricing and centralized financial control, the entire counterfeit capitalism model will go away. What's something the average person can do to help make this a reality?
- buboard 7y agoSounds more like a cargo cult than counterfeit. And he describes it as a social problem. After Theranos, everything is possible, investing seems faith based. And incidentally, Tech is faith-based too , with some bets failing, like VR/AR, self-driving.
- jahlove 7y ago> If you know Dimon’s actual reputation, him getting suckered isn’t surprising. From what I heard back in 2009, Dimon is a mediocrity who essentially got lucky his bank was too slow to get in on the subprime scam in 2006; he then used his bank’s incompetence at getting into the bubble as justification for how prudent he was. This is some backwards logic if I ever saw it. Damned if he did, damned if he didn't, I guess.
- crappy-doo 7y agothe entire "third wave" of "unicorn startups" are counterfeits and it will (once again) all end in tears and recrimination...
- pbreit 7y agoMy sense is that the author has never built anything.
- anonu 7y agoThis article is on fire. I got a particularly good laugh out of this bit: >> Dimon is a mediocrity who essentially got lucky his bank was too slow to get in on the subprime scam in 2006; he then used his bank’s incompetence at getting into the bubble as justification for how prudent he was. I have never heard this theory floated. But to say JPM failed because it didn't fail like all the other banks is the most contorted sort of logic you can find anywhere...
- byeadam 7y ago> If you can counterfeit something for cheap, the counterfeit will eventually take over the entire market and drive out the real commodity. This is definitely true in the case of parmigiano reggiano cheese which is a $1.2 billion dollar a year business from the real cheese. The fake cheese, called parmesan, makes $100 billion. 99% of Parm cheese sold each year is fake.
- ragazzina 7y ago99% in revenue, so probably more than that in volume.
- byeadam 7y agoSo many gems in this. > Across the West, the basic problem of a corrupted productive process is becoming a quiet crisis. The reason is simple. The people that do the work in organizations are increasingly excluded from the decision-making about the work. That is why Boeing is losing its ability to build planes The best managers simply stay out of the way of the people working, but most managers these days are in it to aggrandize themselves and cause suicides. Are you listening Facebook?
- losttheplot 7y agoEngaging in such a strategy used to be illegal, and was known as predatory pricing. The Sherman Act and the Clayton Act are no longer enforced in the post Citizens United world, i.e. legal US corruption: kochtopus, dark money, super-pac, 501-c-3 foundations and institutes, etc.
- yalogin 7y agoThis is the second scam that investors fell for. First Theranos and now WeWork. In both cases the founder is a cheat and a fraud. My guess is investors didn’t want to believe it’s fraud and desperately wanted it to be a real company and so kept funding them.
- tmiahm 7y agoI really enjoyed the author's perspective on this, and I like well-reasoned arguments from people whom I probably don't align with politically. To confirm my assumptions, I checked the About page > Matt Stoller is a Fellow at the Open Markets Institute Ok, what's that? A Koch sounding name, but I'm guessing more Soros because of the repeated calls to government action on this (and the Dodd-Frank connection). A quick search led to a Politico article https://www.politico.com/story/2019/06/14/open-market-institute-silicon-valley-monopolies-1507673 https://www.politico.com/story/2019/06/14/open-market-instit... which contained this nugget: > Despite its small size — 15 or so employees operating out of a shared WeWork space in downtown D.C. — Open Markets...
- ndesaulniers 7y agoMatt Stoller <https://mattstoller.substack.com/about> https://mattstoller.substack.com/about> and Ben Thompson <https://stratechery.com/about/> https://stratechery.com/about/> are two of my favorite bloggers; I find their analyses fascinating!
- lkrubner 7y agoTrying to corner a market is not a new idea. A forgotten incident from the 1980s: the Hunts brothers thought they could corner the market on silver. They spent about $6 billion buying up silver futures. That's about $30 billion in today's money. They briefly controlled the majority of all the silver coming out of silver mines, and thought they could dictate terms to industries that needed silver (such as the photography industry, which needed silver for film development). The price of silver skyrocketed. However, over the last century, silver has become fairly democratic. Most families have some items of silver lying around. When the silver price peaked, millions of families began rummaging around their homes, finding what silver they could, and then selling it. The price of silver crashed, and the Hunts brothers were forced to declare bankruptcy. Cornering a market works if the supply of something is really limited and new supplies can not be quickly created. Maybe WeWork thought it could do this with office rentals? If so, it seems it lost the bet.
- pts_ 7y ago> Son is a powerful and connected political operator Yeah no shit. Most money is built on satisfying egos than actual work. It's a house of cards which will face its greatest challenge with the climate crisis.
- dblank9 7y ago> Adam Neumann is not “quirky,” he is not “charismatic,” and he does not have “an unorthodox leadership style.” He is an untalented and abusive monster who lies to get what he wants. And he was given an unlimited credit line from which he could legally steal. 'Charismatic' is often a trait found in sociopaths. I'd say Adam IS charismatic, but that is often a problem - charisma charms people and blinds them to the bad parts. > Time to Restore Honest Capitalism It takes a long time to scale something, and it inevitably loses money in the beginning. How do we tell the difference between 'counterfeit' companies and real ground-breaking concepts?
- AndrewThrowaway 7y agoIt just fascinates me how a guy with a "quirky" personality can pull something like seven hundred million. How this world is even possible.
- mikeymz 7y agoIt should have been obvious to any layman that WeWork is a house of cards. My previous company moved into (what I think was) the first WeWork in East London in 2016. There is now 15!! I know they have empty floors in some of these buildings as current company got moved due to a rat infestation. If this isn't a flimsy facade I don't know what is
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- imtringued 7y agoWeWork has no franchising business model nor is it acting as a middle man like Uber that pushes the risk to the users of the platform. Instead it is the worst of both worlds. They lease the office space and basically resell it at a loss.
- taylodl 7y ago"Counterfeit Capitalism" - sadly that pretty much sums up my thoughts on SV today.
- tompccs 7y agoWeWork and Uber are viable businesses which are heroically trying to absorb flood of excess capital sloshing around the world today. Both WeWork and Uber have potentially enormous TAMs which can justify insane valuations despite being loss-making. And both WeWork and Uber had charasmatic but highly dysfunctional (from a management perspective) leaders who were able to combine salesmanship with dirty dealing to solve the problem facing the big institutional investors - having too much money and nowhere to put it. You can't parcel up $100bn into tiny packets and participate in hundreds of thousands of series A/B/C/Ds - instead you find a business with a plausably enormous TAM, a founder who is essentially a professional PR/brand builder (so as to reassure your clients), pump them full of cash and wait for the IPO. WeWork didn't quite make it over the line this time, but I wouldn't count them out just yet. There is nothing stopping WeWork or Uber becoming profitable businesses, even if it means they have to forgo volume (for Uber, they almost certainly have to increase fares. WeWork would have to stop building new locations). The explaination for why they don't is the above.
- rsync 7y ago"If you know Dimon’s actual reputation, him getting suckered isn’t surprising. From what I heard back in 2009, Dimon is a mediocrity who essentially got lucky his bank was too slow to get in on the subprime scam in 2006; he then used his bank’s incompetence at getting into the bubble as justification for how prudent he was." I take issue with this. Nothing to do with Dimon or the subprime crisis particularly but rather, what I think is an important logical fallacy. I think (hope) there is a formal name for this - please correct me - but I internally label it the "missed extra point fallacy": "My team played better but they had a weird, missed extra point and so they lost the game - but they are certainly the better team." This is wrong thinking, in my opinion. There was a game. The game had rules. People participated. The team with the highest score when the game ended was, by definition, the better team. I don't know how much credit one should receive for not being wiped out by the subprime crisis, etc., but however much credit that is, Jamie Dimon should get it.
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- josebogado 7y agohola
- tracker1 7y agoLost me at calling the Sprint/T-Mobile merger "illegal" ... I mean, I was pretty interested in the content up until that point. WeWork itself lost me at "no meat" will be reimbursed or paid for. The WeWork CEO is in my opinion a charlatan douchebag, but the author just feels like a twice burnt socialist by the time you get halfway through, and I stopped reading.
- leegr 7y agoHis wife sounds like a psycho
- leegr 7y ago*edit: the both of them sound like psychos