
WeWork and Counterfeit Capitalism - cjbest
https://mattstoller.substack.com/p/wework-and-counterfeit-capitalism
======
legitster
> 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.

~~~
janee
> with the idea of profiting later on via the surviving monopoly

I don't understand...if you undercut your competitors so you're the sole
survivor, I don't see how profiting is a obvious end result.

When you return prices to market value wouldn't competitors just appear again.
Is predatory pricing really such a bad thing, I'd assume the market would just
corrects itself later?

~~~
legitster
This is a big topic in business school - never compete on price for that exact
reason.

Although things like Uber may be a different beast. They basically got big
enough that cities were willing to push aside all of these special interest
rules that kept the taxi industry crappy. So by dumping their product and
acquiring customers, they were able to change the legal environment and
infrastructure around them.

But they are also at a huge disadvantage because they changed it for everyone
behind them as well. Lyft doesn't have to burn money as fast and gets all the
same benefits for scale. Under their current market position, the minute Uber
starts raising prices, they die.

~~~
clairity
> “This is a big topic in business school - never compete on price for that
> exact reason.”

no. business school teaches you that you can compete on price (cost strategy),
or on value (differentiation strategy).

if you compete on price, you’re betting that you are, or will be, the most
efficient provider in the market (e.g., walmart and its supply chain
dominance). it’s completely viable/acceptable to compete on price. what you
don’t ever want to do is price on cost, rather than on value provided.

you can also compete on being better in many other dimensions, which is lumped
into the broad differentiation strategy category. you are then betting that
you are better on your dimension _and_ that customers really value that
dimension (more than price).

~~~
anongraddebt
Technically it's not competing on price. It's competing on cost, a result of
which is often, but not necessarily, a lower price point. Business strategy
courses explicitly teach you that simply competing on price (that is, simply
lowering prices in hopes that you'll beat the competition), will blow up in
your face.

A classic example (presented to my MBA class) was the two adjacent pizza
parlors in NYC competing on price and driving the selling price of a pizza
down to less than a dollar, whilst a shop a block away and around a corner was
able to keep normal pricing.

~~~
airstrike
I had the same example in my class... purple pride represent?

~~~
anongraddebt
Something something... "Go Cats!"

------
40acres
For 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
Why do private investors need protection? Why can't they be held responsible
for the foolishness of their actions?

~~~
Ididntdothis
Because 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.

~~~
TheSoftwareGuy
Most 401ks are invsted in public companies, not private ones

~~~
Ididntdothis
The comment was about SEC and S-1. This is very relevant for 401k investors
who were supposed to be the suckers to buy this crap.

------
human20190310
I 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-
ub...](https://stratechery.com/2019/neither-and-new-lessons-from-uber-and-
vision-fund/)

~~~
legitster
I can't recommend the Stratechery piece enough (or Stratechery in general).

~~~
RodgerTheGreat
On 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
Ben 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.

~~~
RodgerTheGreat
The article I referenced boils down to dismissing fears of online privacy
invasion as alarmism. Exploring his own site's dependencies, Ben concludes
that the third parties phoned home to for every visitor are probably harmless.
He recommends that discourse focus on striking a balance between technology
being convenient and secure, and not worrying too much.

This essay reflects a _profound_ failure of imagination with respect to the
present and future of online tracking, and the risk it poses to consumers and
citizens. This is an issue which is at the heart of the business models and
strategy of the world's most powerful corporations, so in my opinion having
this blind spot (or, perhaps, degree of ethical flexibility) seriously
undermines the veracity and objectivity of his analysis in many areas.

~~~
legitster
Wow. That is a SERIOUS mischaracterization of the article and his
conculusions. The third parties in question were services like Stripe (since
he monetizes with subscriptions, not advertising) or Cloudflare. His whole
point was he takes privacy seriously, but fundamentalist policy punishes good
and bad actors equally.

But even all that aside, by your own words, it's not his treatments of the
facts but his failure to account for the worst possible hypothetical situation
that you have imagined in this specific area that is most important to you
that makes him an unreliable journalist on any-and-all subjects? I would
challenge you that this is an unhealthy purity test for him to pass.

~~~
munk-a
Except that using CDN services is a privacy hole in itself - I don't know
whether Cloudflare[1] currently collects or sells tracking data on usage
(including referrer information) but there is definitely a technical
capability there and no legal impediment. If they don't do it now then
whenever a vulture capitalist scoops them up you can be sure they'll start.

1\. To be clear, I am specifically referring to cloudflare because it's the
service under question. I have no opinion on Cloudflare or knowledge of any
specific and current privacy issues.

------
jamiequint
> 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
> 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
I 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.

~~~
tomjakubowski
Why 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.

------
BenoitEssiambre
This 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.

~~~
lwb
His assertion here is that "Endless money-losing is a variant of
counterfeiting". I just don't see how that claim stands up to any real
scrutiny. Counterfeiting is a totally different thing.

To your point about negative real returns: just because it's been that way in
the past doesn't mean that it's not a tragedy or that it's not possible to
have reliable assets that keep their value over time. This is an especially
desirable quality in currencies, and why gold and now bitcoin are so
important.

~~~
BenoitEssiambre
>This is an especially desirable quality in currencies

This is an especially UNdesirable quality in currencies.

A deflationary currency cannot become mainstream without causing a huge amount
of instability.

Deflation at some point causes people to build stashes of tokens instead of
investing in real businesses with real production capacity.

When this trend becomes widespread enough, it causes global production
capacity to drop. That's right, when enough people do it, token hoarding
displaces investment in businesses and factories and lowers global production
capacity. This means token hoarding causes a future drop in things available
to buy with these very tokens.

Eventually when token stashes become too big and seemingly valuable, there
will be people who want to buy real things with their stock of tokens. These
tokens will be chasing fewer goods which will mean prices for stuff will rise
(tokens will lose value). This may happen suddenly when people with large
stockpiles of tokens notice that value is dropping and see that there are tons
of other tokens waiting on the sideline ready to make it drop even further.

Hoarders are likely to rush to get rid of their stockpile all at the same time
before they're worthless which will cause their fall to worthlessness. This
kind of drop brings the tokens closer to their natural intrinsic value of zero
and resets the cycle, which can then start again, such is aggregate economics.

The 1920s and 1930s suffered from this type of production drop but with gold
tied currencies instead of cryptocoins. It happened to a lesser extent in 2007
when western world central banks failed to keep inflation rates high enough.

It's important for the world's sake to not let deflationary currencies become
too popular. When savings or financial promises are insufficiently tied to
future production or to accumulation of real goods, there will be
disappointment when many people try to exchange them for real stuff. That is
true for crypto currencies as well as government currencies (that is why the
system is designed to make banks invest people's money in real businesses and
minimize the proportion of money that is stockpiled idly).

It's true that crypto currencies are currently not widely held enough to
significantly affect the aggregate economy but speculation already keeps them
volatile and the knowledge that as they get more popular, there will be more
macroeconomic pressures towards volatility will keep the speculation wild and
cryptocoins unstable.

Currencies that are not designed to lose value over time can not be stable.
Intrinsically worthless tokens engineered to have better than market real
returns (risk adjusted, liquidity adjusted,) compared to real productive
investment will always fluctuate increasingly wildly as they get more popular.

~~~
lwb
I'd love to hear some research on these claims.

Especially this:

> Deflation at some point causes people to build stashes of tokens instead of
> investing in real businesses with real production capacity.

I am deeply skeptical of this claim. I would still rather invest in a real
business than get a 0% return on my stash. If a free market for currency
existed, no way in hell would I choose to store my wealth in a depleting
asset.

Plus, any argument about hoarding cash should consider the multitude of
billionaires that exist and whose presence is not crashing economies around
the world. (Yes, most billionaires have most of their wealth in business
investments, but they still have bigger piles of cash than you or I can
reasonably fathom.)

What you're espousing seems to be standard Keynesian economics but you should
know there are other schools of thought :)

~~~
BenoitEssiambre
Yes but what about the not so rare times explained in my original comment when
returns on tangible private marginal assets become negative (on a risk
adjusted, liquidity adjusted basis)? During the financial crisis of 2008, the
tailor rule put the natural rate (a rate correlated with private marginal safe
asset returns) at as low as -4%. In those conditions, having a currency that
returns 0% risk free gets you way above market returns and blocks a lot of
private market assets from existing. It's indirectly, a huge subsidy to people
shutting down projects, laying off people and hoarding government paper
instead. It's basically the government shielding savings from the private
markets and causing untold economic damage through economic idleness and
unemployment. It's a subsidy on job destruction.

At least a private currency like bitcoin or gold will tend to become volatile
in these conditions (which increases its risk and reduces its "risk adjusted"
return). But if ever crypto coins were to become popular enough for
governments to deem it worth it to use their powers to reduce their
volatility, it could certainly put the economy into a gridlock like it did
when they tried to artificially stabilize gold.

The fact that crypto coins in a free market tend towards increasing volatility
makes them not very good as a medium of account to negotiate contracts and
conduct business. It makes them not useful as a currency.

~~~
lwb
> The fact that crypto coins in a free market tend towards increasing
> volatility makes them not very good as a medium of account to negotiate
> contracts and conduct business.

Crypto volatility is not solely or even primarily because of the coins'
deflationary natures. In fact some cryptos ("shitcoins") are not deflationary
at all, and have their value regularly inflated by a central authority.

Note that my comment said Bitcoin specifically and not crypto in general. The
ultimate deflationary currency, gold, is not volatile at all, which leads me
to believe that crypto volatility is because of external factors like market
manipulation, shady ICOs, etc.

> It's indirectly, a huge subsidy to people shutting down projects, laying off
> people and hoarding government paper instead.

As a counterpoint, consider how an inflationary currency causes income
equality. Poor people typically hold their net worth in cash whereas the rich
have the ability to invest in income generating assets. An inflationary
currency ensures that the poor remain poor, because their primary asset is
being constantly depleted.

~~~
BenoitEssiambre
Gold is very volatile (sure not as much as cryptocoins) and this is for the
best as gold volatility prevents it from hurting the macro-economy.

You think poor people get a better deal getting a few bucks a year of returns
on the little savings that they have while being forced to indirectly fund a
much larger subsidy on rich people's wealth, a subsidy that is given
specifically to the those who get out of the private markets in favor of
holding government paper, that close down businesses and lay these poor people
off?

~~~
lwb
I won't be responding to follow ups to this conversation as it doesn't feel
very fruitful but there's a couple things in your comment that just don't
follow for me.

How is an asset that holds its value a subsidy? How are poor people indirectly
funding that subsidy by holding an asset that doesn't inflate? Really seems
like you're projecting qualities onto something that just aren't there.

Plus there are other factors in wealth inequality besides cash holdings --
wages (minimum or otherwise) that don't keep up with inflation being the most
notable.

~~~
BenoitEssiambre
>How is an asset that holds its value a subsidy

If it is stabilized by a government to hold its value while marginal assets on
the private markets only offers negative returns (adjusted for risk and
liquidity), the government stabilized asset is effectively a forced subsidy.

It's a subsidy to those who hold the subsidized asset from those who don't
hold any (though long term it's a bit unpredictable who exactly ends up
footing the bill, it depends on whether it happens through inflation or taxes
or price distortions etc.).

What is super destructive about this type of subsidy is that it displaces
private investment. The world shifts from people owning real shit, such as
factories, inventories, business infrastructure, machinery, houses, cars, etc.
to collectively holding government manipulated tokens. While for an
individual, holding the tokens is more advantageous, for the aggregate it's
super destructive as it becomes a negative sum game.

Tokens are just IOUs. They don't have intrinsic value. When everyone wealth is
in the form of a promise that everyone else owes them something, no one really
has anything.

More here:[https://medium.com/@b.essiambre/the-world-deserves-a-pay-
rai...](https://medium.com/@b.essiambre/the-world-deserves-a-pay-
raise-302f25efd82a?source=friends_link&sk=cb180b2cf186b263b6c6c70ad29bc36e)

------
cs702
Despite 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
Everyone 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
Would 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
They 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

------
hourislate
To 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.

------
dehrmann
I 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.

~~~
rchaud
What 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-billi...](https://qz.com/67052/heres-how-warren-buffett-
made-3-1-billion-on-his-crisis-era-bet-on-goldman-sachs/)

~~~
bduerst
Do 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.

------
coldcode
While 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
> 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.

~~~
uxp100
I 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.

~~~
erik_seaberg
I briefly drove airport shuttles and we'd sometimes rescue people who had been
screwed over by taxi dispatchers. I don't think drivers faced any consequences
for never showing up _at all_.

~~~
saalweachter
I personally don't blame the drivers, most of the time.

My impression is that taxi companies, wanting to be profitable, keep the
largest number of drivers on call that can be maximally utilized -- not the
smallest number needed to guarantee a certain SLO. So when you call dispatch
and they tell you "30 minutes", that's a bald faced lie. It's not that the
taxi driver got lost or stopped for a coffee break on the route, it's that
they did not have any taxi drivers available for the next 80 minutes, and knew
it.

The drivers don't get punished because they did nothing wrong; there may have
never been a driver assigned to go pick you up.

It's like when you go to the grocery and there is one checkout open and ten
people in line; it's not that the cashier is slow, it's that it is more
profitable to make you wait than to have _two_ cashiers sitting idle after you
leave.

~~~
Wowfunhappy
...and I guess Uber's main innovation there was, make the drivers independent
contractors, so you don't have to pay them for the time they're idle. :\

~~~
moduspol
And (perhaps more importantly) actually give the end user a reasonable
estimation of what's going on and how long it'll take for the driver to reach
you.

------
samlevine
> 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
It didn't hurt that they actually poached the key supply chain executives from
Walmart.

------
ackbar03
The 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
He's simply wrong about that. Describing Jamie Dimon as a mediocrity is
ignorant.

------
chrisseaton
Some of these criticisms are just irrelevant personal abuse - like saying he
doesn't think Neumann's t-shirt is fitted well.

~~~
toomuchtodo
Defending 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.

~~~
_eht
Taking 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.

~~~
calibas
I'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.

~~~
_eht
>fashion sense is more defensible than [...] personal integrity.

You take issue with this?

------
Kapura
I 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.

------
landivar2
> 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
That 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.

------
perseusprime11
The 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.

------
lkrubner
Trying 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.

------
rsync
"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.

------
byeadam
> 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
99% in revenue, so probably more than that in volume.

------
ineedasername
The 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
Author 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
It'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.'

------
tompccs
WeWork 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.

------
cestith
I 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
WeWork 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.

------
jahlove
> 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.

------
commandlinefan
> 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
The 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.

------
mikeymz
It 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

------
alephnan
> 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
They just need to start their own charities, base them in WeWork offices and
charge hefty fees for their personal involvement in fundraisers.

------
yalogin
This 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.

------
imtringued
WeWork 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.

------
byeadam
So 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?

------
Animats
He 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/document...](https://prod-static-ngop-
pbl.s3.amazonaws.com/media/documents/DRAFT_12_FINAL%5B1%5D-ben_1468872234.pdf)
[2] [https://money.cnn.com/2016/07/19/investing/donald-trump-
glas...](https://money.cnn.com/2016/07/19/investing/donald-trump-glass-
steagall/)

------
anonu
This 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...

------
AndrewThrowaway
It just fascinates me how a guy with a "quirky" personality can pull something
like seven hundred million. How this world is even possible.

------
ndesaulniers
Matt 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!

------
losttheplot
Engaging 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.

------
jknoepfler
edit: 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
"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.

------
buboard
Sounds 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.

------
readhn
Is Adam Neumann - Next Elizabeth Holmes??

I would not be surprised to see SEC involved at some point somehow.

~~~
fullshark
AFAIK 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
The 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.

------
pts_
> 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.

------
talkingtab
cargo 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
Funny 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.

------
throwing838383
This 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."

------
mountainofdeath
I maintain that Masayoshi Son and the vision funds are nation-state level
money laundering.

------
mcormier
I like the way this Matt Stoller writes words. RSS feed subscribed.

~~~
ocdtrekkie
Matt 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)

------
867567838694
The writer of this article is bitter as fuck. Wow.

------
dblank9
> 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?

------
novalis78
He 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

------
lordnacho
I 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.

------
leegr
His wife sounds like a psycho

------
tracker1
Lost 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.

------
mountainofdeath
Welcome to DotCom bubble 2.0.

------
leegr
*edit:

the both of them sound like psychos

------
jcroll
> 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?

------
pbreit
My sense is that the author has never built anything.

------
DSingularity
“ 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.

------
taylodl
"Counterfeit Capitalism" \- sadly that pretty much sums up my thoughts on SV
today.

------
Miner49er
I see no reason to call this "Counterfeit Capitalism". It's just capitalism.

------
braindead_in
Counterfeit 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
Can 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
Bretton 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-t...](https://www.theguardian.com/news/2017/aug/18/neoliberalism-
the-idea-that-changed-the-world)

------
imulligan
Hehehehehe:)

------
anilshanbhag
"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 !

~~~
gwbas1c
Selling below cost to drive out competitors is not capitalism: It's called
dumping, and is illegal.

~~~
leg100
You have naive and warped view of what constitutes capitalism. Dumping,
protectionism, state subsidies, what have you, have had a long and varied role
to play in the history of capitalism.

------
larrik
> 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
But not owned by the CEO in conflict with every other shareholder

------
tmiahm
I 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-
instit...](https://www.politico.com/story/2019/06/14/open-market-institute-
silicon-valley-monopolies-1507673) 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...

