Business

Could You Explain That To Me, In English?

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I am looking forward to reading some books about the collapse of Wall Street. I am praying that Michael Lewis writes one. I was very happy to find this article written by him. If you are interested in the subject, I would make it required reading for this weekend. It is somewhat lengthy, but very entertaining. You will understand the title of this post if you read the article.

Michael Lewis is one of my favorite authors. His book Liar’s Poker: Rising Through the Wreckage on Wall Street is an easy read if you want to start to understand some of the nonsense that went on in financial circles in the ’80s and ’90s.

Cross posted at LITGM.

Is This a Joke?

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I could have sworn that someone was pulling my leg when I read this post over at Six Meat Buffet. No one could possibly imagine that I could be taken in by some tall tale of a socialist restaurant where the patrons pay what they think is fair, or “what they could afford”.

The only problem is that it doesn’t look like it was a hoax. The restaurant managers weren’t even bothering to pay attention to their daily expenses!

I’m in the wrong business. There has got to be a way to fleece liberals that don’t even understand basic market forces!

What about if I become a progressive investment consultant who uses visions that come to me while listening to Joan Baez songs? Think I can get any takers on that?

Re-visiting the Car

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While I dream about owning a Nissan GTR that I saw at the Chicago auto show, in reality I drive an old Nissan Altima about 10 years old. That damn car will run forever since I take decent care of it and my frugal nature won’t let me replace it without a valid reason.

As I drive around in my older car, however, I can’t help noticing all of the expensive cars out on the street. Right now it is Saturday night here in Chicago in River North, and lots of people are “cruising” up and down the major streets, seeing and being seen, in their tricked out cars.

The situation is the same even when I visit a poorer neighborhood. A relative of mine moved to Beverly, in the south side of the city, and no matter how you drive to get there, you need to go through some pretty rough neighborhoods. New and expensive cars are ubiquitous, even there.

Let’s think a bit about car economics. If you use $25,000 / loan at 48 months as a starting price point, and the average rate of 6.5%, you are paying about $600 / month.

However, that “minimum payment” model has gone belly up. Here’s why.

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Encyclopaedia Britannica

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Encyclopaedia Britannica is the venerable institution that prints all of those bound volumes that you had at your house (or your grandparent’s house) when you were a kid. Interestingly enough, their headquarters is right here in River North Chicago, and I walk by the building often on my way to work (it is on LaSalle Street, just North of the Chicago River.

When I mention Brittanica, the first thing that most people say is “Are they still in business?” This was Dan’s exact question when I mentioned that they are headquartered here in Chicago.

Early on, when the web was first starting up, many companies had the idea that capturing information would be a big money maker. For example, Microsoft has an encyclopedia called “Encarta” that was big news back in the ’90s, when it was battling Brittanica for leadership. About this time Microsoft also started up their online movie database “Cinemania” which was also popular for a while as an attempt to create valuable content.

People did pay for content back in the early days, when the web was somewhat of a novelty. I remember a good friend who bought Cinemania and loved it, since he was a giant movie buff, and he got a big kick out of being able to search through all the data and reviews and see some clips, as well. I think at the time if you mentioned that this all would be on the web, it seemed pretty far fetched, especially since home high-bandwidth broadband was a long ways away and we were stuck with dial up (remember all those AOL CDs in the mail?).

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Frozen In Time

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I started working in Chicago in the early ’90s. At that time, we had a hangover from the ’80s building boom, with a number of completed but vacant buildings. Our firm moved in at 161 N Clark Avenue, the Chicago Title and Trust Building, which was almost totally empty at the time. I remember walking through the floors and around the halls to get a 360 degree view of the city. Later Accenture (the consulting firm) moved in and ultimately the building seemed to get totally filled up.

After the ’80s building boom which tailed off in the early ’90s, Chicago construction went dormant. Nothing significant seemed to get built for a few years since no one could put an economic case together for more building while so much was vacant.

In the late ’90s and into the ’00s, Chicago construction boomed again. Per this Chicago Tribune article,

For a decade now, Chicago has been on an astonishing building binge. Since 1998, developers here have completed or started construction on more than 195 high-rise buildings, according to the Emporis building database. (A high-rise is defined as a building at least 12 stories tall.) That’s more high-rises than there are in all of Detroit (132), St. Louis (106) or Milwaukee (83).

But now it is all grinding to a halt. Some sky scrapers are stalled for lack of funding:

Work also is frozen at 111 W. Wacker Drive, home to Chicago’s other stalled supertall skyscraper, the Waterview Tower and Shangri-La Hotel. (To be considered “supertall,” a skyscraper needs to be at least 1,000 feet high.) … the project is stuck on the 26th floor, its exposed concrete frame looming over Wacker … (the project requires more) than $300 million in construction financing to finish the job.

Here is a view of the construction of the Shangri-La from my window… note the other building still under construction on the left.

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