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WeWork - A Case Study in the Lollapalooza Effect

Neil O’Donnell and I have discussed the rise and fall of WeWork constantly over the past few months, and this article is our attempt to synthesize the disparate causes of WeWork’s recent woes within the context of current macroeconomic policy, human psychology, and the real estate industry. We welcome all feedback.

The Context

Interest Rates and Macroeconomic Policy

It is a wondrous phenomenon that negative interest rates can be found in our modern day global capitalist economy where, for the better part of human history, most people have assumed a positive relationship between the value of time and money. The foundational idea of saving money today and receiving more tomorrow has been challenged in a sizeable way with over $17 trillion in negative yielding securities outstanding [11]. Consider Howard Marks’ comments in Mysterious, one of his latest memos [12]:

"In the financial world, most of our actions are based on the assumption that the future will be a lot like the past. Positive interest rates and the desirability of compounding have been among the most fundamental historical building blocks. If negative rates become more widespread across the globe, then the financial system needs to be rebuilt on a new set of assumptions. The problem is that we do not yet know what those should be or how they would work.”

Why are rates turning negative? Marks lists the possibilities...

“Are today’s negative rates in Europe and Japan telling us deflation lies ahead? Or have lenders changed their views regarding the time value of money? Or are rates negative simply because governments and central banks want them to be?”

…and potential reasons behind negative rates:

- Because central banks wish to stimulate their respective economies