
The WeWork debacle should be an indictment of modern finance - jajag
https://www.theguardian.com/commentisfree/2019/oct/28/wework-finance-workspace-unicorn-economic-model
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SpicyLemonZest
I don't understand why it's an indictment. SoftBank decided to spend billions
of dollars on a stupid risky bet, which is fine, they're allowed to do that.
Then they tried to offload that risky bet onto the general public in an IPO.
The system of modern finance said "hold on, this is a stupid risky bet, you
can't use our money for it". So now SoftBank has to either accept the loss or
make the bet successful without the help of the rest of the financial system.

That's what's supposed to happen, no?

~~~
itcrowd
"I don't understand why it's an indictment."

You are not reacting to the content of the opinion piece. Three points are
made in the piece that "indict modern finance", none of them being about
SoftBank's "stupid risky bet" or how that should be regulated/banned.

> But the crisis at WeWork [..] exemplifies the increasing volatility of the
> economic model that inflated the unicorns of the past. And it involves three
> trends [..]: the expansion of the gig economy, the relatively low cost of
> commercial real estate, and the increase in financial flows from sovereign
> investors in search of political capital.

(edit: not sure I agree with the content of the article, but I'm quoting the
gist of it)

~~~
SpicyLemonZest
I saw the points, but I don't understand the fundamental premise underlying
them. How can WeWork's valuation can be analyzed in terms of market trends
when the market didn't set it or agree with it?

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whack
I've been hearing surprisingly often the sentiment that WeWork is _"
undercutting its competitors in a race to the bottom, using investor capital
as oxygen to sustain losses while other serviced office-space providers ran
out of breath and expired"_. This seems surprisingly disingenuous. The numbers
show that WeWork is charging its clients at a gross margin that is comparable,
if not greater, to traditional rivals like IWG [1].

WeWork might be operating at a net loss, but that is only because they are
reinvesting all their money into growing their capacity. It seems unfair to
accuse WeWork of winning simply by undercutting its rivals so as to starve
them of oxygen. It also seems unfair to accuse WeWork of destroying the
economy via unprofitable business models, and to accuse its CEO of being a
complete charlatan, when they have successfully built a legitimate billion
dollar business from scratch [1].

Is WeWork overvalued in its recent valuations? I think so. But that is the
folly of its investors, and investors alone. The commentary that companies
like WeWork are somehow fraudulent and worthless and ruining the economy,
seems ridiculous.

[1] [https://news.crunchbase.com/news/gross-margins-wework-and-
th...](https://news.crunchbase.com/news/gross-margins-wework-and-the-public-
comp-question/)

~~~
gerbilly
> It seems unfair to accuse WeWork of winning simply by undercutting its
> rivals so as to starve them of oxygen.

I think it's a great jumping off point for criticism actually.

Those other companies that they are trying to asphyxiate are started by
people, with dreams and families and employees.

It's a terrible scorched earth strategy that I'd love to see made illegal if
there were only some way to police it.

~~~
socalnate1
I don't think you fully read the comment you are responding to. The point was
that WeWork actually isn't undercutting its rivals.

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dickeytk
It simply shows what happens when investors lack due diligence. It also shows
that the process for going public works: it lays bare the problems with
private businesses that current investors are unable or unwilling to uncover
themselves.

The only thing that worked out badly is how the employees are being treated.

------
cjf4
WeWork is ultimately a feather in modern finance's cap. Wall street didn't buy
the scam, and now the company is re-calibrating. Isn't that the way it should
work?

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cnst
> • Nesrine Malik is a Guardian columnist

Can anyone explain what does the above mean? Are they an employee, or a
contractor?

I just suddenly became curious since they're portraying contractors as some
sort of second class citizens, which they aren't at all, at least not in the
software industry.

~~~
katmannthree
>contractors as some sort of second class citizens, which they aren't at all,
at least not in the software industry

Perhaps not from your experience, but I don't believe that's generally true.
The difference in benefits, bonuses, salary, tax burden, etc is pretty large.

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parvenu74
WeWork seems like it should be a buyout target either by a hotel chain or a
restaurant chain (Starbucks?) since the basic model is "more permanent and
slightly more private than a coffee shop"...

~~~
goatinaboat
No one other than SoftBank believes it is even worth $8Bn. After it goes
bankrupt someone might buy it in a fire sale. Probably next year.

It’s not clear why the Graun is so upset however. Not a penny of public nor
pension fund money was burnt in this. Just the Saudis and a few other
billionaires.

~~~
scrumper
They're annoyed because of Adam Neumann's golden parachute. If he'd have been
kicked out with nothing except the obligation to pay interest on that personal
loan to JPMorgan, the article might have come out differently.

~~~
goatinaboat
He bamboozled the Saudis sure, but it’s not as if he actually managed to rip
off retail investors, as was his intent.

~~~
chrisjc
Bamboozled the first time perhaps. It seems they wouldn't let it happen a
second time, hence Softbank's (not Vision) infusion of cash.

~~~
goatinaboat
I’m not sure I’d want to bamboozle a man nicknamed Bonesaw even once

------
tolstoshev
Isn't this a textbook definition of predatory pricing and illegal in the US?

WeWork’s strategy wasn’t simply to fulfil a practical need: its aim was market
domination, to be achieved by undercutting its competitors in a race to the
bottom, using investor capital as oxygen to sustain losses while other
serviced office-space providers ran out of breath and expired. The idea was
then to leverage its reach to name its terms and prices.

~~~
wjnc
Yes, it looks like an attempt at predatory pricing. It didn't succeed though.
I have no specific knowledge of US antitrust, but usually for predatory
behavior to 'stick' you need to have market power to begin with. WeWork didn't
have any and wasn't really near the point of having any when they went bust
(40% market share is a commonly heard number).

Another plus for current capitalism and regulation is that the fillings the
SEC demands really brought home what was wrong with WeWork. So in that sense
investor protections in the current rules really did help. Mainly
(professional) suckers lost their money.

