WeWork’s bankruptcy marks the beginning of the end for the stimulus economy

There are many ways of going bankrupt. But one of the most reliable is (a) to take a long-term lease and then (b) use this to make lots of short-term leases. If the market for short-term leases disappears for some reason, then you are still on the hook for the long-term repayment.

But when Adam Neumann came along with this brilliant way of losing money with his WeWork idea, nobody liked to mention this uncomfortable fact.

It was, after all, the late 2010s, and everyone knew that central banks would never let markets fall. They would always be there to support even the craziest of schemes. So why not be crazy for a while and see what happened?

The concept worked brilliantly for Neumann.  He ended up leaving the company a billionaire after its failed IPO. 

Unfortunately, as Matt Levine notes for Bloomberg, it didn’t work quite so well for his investors like Softbank. Or for the companies who sold him long-term leases, and now find that they have a lot of empty office space to lease in a hurry:

The late 2010s were weird, man. If you were a founder with perfect foresight, and you had a fully informed choice between “grow sustainably, make money, and have a profitable business that lasts for centuries” and “grow way too fast, get that sweet sweet SoftBank money, and flame out extremely publicly in a couple of years,” I think that the objectively rational choice would still be to take that SoftBank money?

“Neumann is so much richer than he would be if he had made different choices! WeWork has worked out poorly, as a business entity, and catastrophically, as a SoftBank investment. But it worked out well for him.

When people come to write the history of these times, they will scratch their heads and wonder:

  • How did a business valued at $47bn in 2019 end up going bankrupt 4 years later?
  • How was it able to acquire a mass of long-term leases in some of the world’s most expensive real estate markets?
  • How did anyone think it was viable to subdivide them into smaller spaces for tenants, usually on a short-term basis?

But, of course, the answer was that WeWork wasn’t just an office rental business. It might have acted as one. It might have been just that.

But its image was that of a technology company. As the Wall Street Journal noted in 2017, “WeWork is fuelled by Silicon Valley pixie dust”.

And its own SEC filings highlighted Neumann’s genius:

“Adam is a unique leader who has proven he can simultaneously wear the hats of visionary, operator and innovator, while thriving as a community and culture creator.”


We’ve talked many times here about the crazy nature of the central bank stimulus programmes.

Now we have to start talking about the disasters they have left behind.

The issue is simple. If you give people vast amounts of seemingly free money, they will often do stupid things with it.

One of the many stupid things they did this time was to build vast amounts of new office blocks, as the Visual Capitalist chart shows.

The world, after all, has an ageing population. The Perennials 55+ cohort are the main source of growth in 9 of the world’s Top 10 economies.

The Perennials are lovely people. But one of the things that they aren’t going to do after retiring, is go to work in an office.

As the BBC noted in August:

And the BBC’s conclusion is sobering:

“Change is happening, and the office high-rises we once knew will never be the same.”

Essentially, the central banks thought that unlimited amounts of free money could reverse the impact of ageing populations.

WeWork’s bankruptcy suggests that the bills for this mistake are now coming due, after 20 years of what the Wall Street Journal called:

“The most reckless monetary and fiscal experiment in history”