We work to maintain the fiction of venture capital

The business press is casually credulous when it comes to reporting on flashy, big-money companies.

We work to maintain the fiction of venture capital

The business press is casually credulous when it comes to reporting on flashy, big-money companies.

Earlier this month, Bloomberg   reported that WeWork, the giant, of-the-moment coworking company currently chugging toward an IPO, had unveiled its new corporate brand: We Co. In doing so, the story continued, the company sought “acquire the trademark to ‘we’.” This is just as ridiculous — but not as unusual — as it sounds. Common words may be trademarked if an organization can prove a “distinctive usage” (The Ohio State University is currently trying to trademark the word “the,” if luxury fashion brand Marc Jacobs doesn’t beat them to the punch).

The key word in the Bloomberg report is acquire, which implies that someone already owns the trademark to “we.” And indeed, “The name was owned by We Holdings LLC, which manages some of the founders’ stock and other assets. WeWork said it paid the founders’ company $5.9 million for ‘we’ this year, based on a valuation determined by a third-party appraisal[.]” That’s right: We Co., the parent company of WeWork, is leasing its own name from the private holding company of Adam Neumann, its founder and CEO, for $6 million a year. This comes amid news that WeWork has been paying rent to Neumann as well because he independently owns a number of buildings in which his company is a tenant.

And yet, even in reporting on scenarios that, say, appear to consist of layers upon layers of fake businesses washing up money from, say, Saudi royals and banks into a CEO’s private coffers, the press generally describes such processes using ordinary, credulous business language that obfuscates a deeply disturbing fact: that this thing we call “the economy” does not, in large part, really exist.

Blasé, business-as-usual reporting on venture-capital darlings is endemic in the press.

“That pace of growth,” wrote Fast Company, reporting on the expansion of WeWork’s membership base, “sets WeWork apart from established office providers like IWG and Regus. But is it enough to justify a valuation of $20 billion, or $40 billion?” It is no “mere academic question,” the story continued. “A company’s valuation affects its ability to recruit talent, for example. It can also serve as a source of immediate wealth for founders, who are increasingly choosing to cash out some of their equity through secondary transactions, in advance of an exit.” Just another day at the office. How does its — likely widely inflated — valuation impact recruiting? What will the returns be for its founders? For employees?

This sort of blasé, business-as-usual reporting is endemic in the press. In May, Uber’s “disappointing” IPO — which saw the money-burning corporation’s share price tumble and dreams of an up-to-$120 billion valuation evaporate — was a result of “a lack of urgency,” wrote Inc.: “While Uber can claim high marks in organizational agility around innovations, this is only one element in the overall corporate puzzle. Speed to market, managing change, opportunities for growth and development, and employee engagement all play a critical role in workplace fitness.” Never mind that Uber itself cagily admits that its business will not be profitable unless it realizes the dream of self-driving vehicles — which even optimistic boosters now soft-pedal as a at least a decade away.

“Uber lost $5.24 billion in the second quarter — its largest quarterly loss ever — after making huge stock-based payouts in the months following its initial public offering,” the Associated Press wrote earlier this month. You would not gather, from this style of reporting, that Uber could be a doomed venture, a soap bubble of speculation in a great growing froth of bubbles atop the largest speculative investment bubble the world has ever seen. You would think, despite its almost inconceivably huge loss, that this was just a regular ol’ company going through a difficult time.

Even Amazon, the biggest corporate behemoth run by the scariest steroidal billionaire in the world, is not precisely what you think it is. “The Pentagon,” reported ProPublica on August 22, “is preparing to award a $10 billion, 10-year contract to move its information technology systems to the cloud. Amazon’s cloud unit, Amazon Web Services, or AWS, is the biggest provider of cloud services in the country and also the company’s profit engine: It accounted for 58.7 percent of Amazon’s operating income last year” (emphasis mine).

Amazon, it turns out, is the beneficiary of a sweetheart arrangement with a corporate advisory board to the Pentagon, one set up by none other than Jim Mattis, the former Secretary of Defense (and, perhaps more pertinently, a board member and one of the staunchest defenders of Elizabeth Holmes and Theranos right up to the bitter end).

This all reminds a guy with whom my dad used to play golf. Alvin Mundel was a local furniture-store baron in the Western Pennsylvania town where we lived, back when such a thing as the small-town retail baron still existed. He was a generation older than my dad, a World War II vet and child of the Depression. He had a single piece of investment advice: buy GE.

The General Electric Company, which traces its roots to Thomas Edison, has for more than a century been virtually synonymous with rock-ribbed, good old-fashioned, American blue-chip industry. One of the original dozen companies to compose the Dow Jones Industrial Average, GE has made everything from light bulbs to airplane engines.

By the new millennium, GE began to seem a bit stodgy, a reliable payer of dividends to its shareholders that prized steady gains, product lines, and profitability over the investor-focused strategies that drove the high-flying stock market. No one, it appeared, learned anything in the dot-com crackup, and, driven by increasingly byzantine investment vehicles, the markets zoomed skyward on the fuel of fraudulent, debt-backed securities. In 2007 and 2008, this blew up in a massive financial crisis, creating the most severe global economic downturn since the 1930s.

You would not gather, from this style of reporting, that a company could be a doomed venture, a soap bubble of speculation in a great growing froth of bubbles atop the largest speculative investment bubble the world has ever seen.

In 2009, the gloomiest year of the “Great Recession,” Jack Welch, GE’s erstwhile CEO and one of the great gurus of global business, told the Financial Times that investment-centric financial engineering was the problem in and of itself. "On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy . . . Your main constituencies are your employees, your customers, and your products."

Then, in mid-August of that year, Harry Markopolos, the forensic accountant who discovered Bernie Madoff’s massive Ponzi scheme, accused GE of a vast accounting fraud: more than $38 billion, primarily composed of hidden losses, and an impending liquidity crisis — i.e., insufficient cash to cover expenses that would be incurred due to massive contracts issued by GE’s insurance division, a fraud “far more serious than either the Enron or WorldCom accounting frauds.” Its insurance division? I thought GE made refrigerators! The famous firm, synonymous with American manufacturing and technology, had, like so many others, increasingly transformed into a finance firm with some residual manufacturing interests attached. Alvin Mundel was wrong.

“The chief business of the American people is business,” Calvin Coolidge said. But business isn’t business anymore. Some people are getting very rich, but all the furniture stores on Main Street are closed. This hasn’t gone unnoticed in the press; there are plenty of cliches about Main Street vs. Wall Street still circulating, and you will occasionally find columnists wringing their hands about the price of real estate in San Francisco, which has been driven to evermore astronomical extremes by vast influxes of Wall Street and “venture capital” funding.

But most reporting on these vast, proliferating machines of wealth continues to treat them, at the most basic level, as actual businesses. They may be ill-run; they may be poorly conceptualized; their may be issues with regulatory compliance, transparency, management, and accounting; they may consort with evil foreign governments, but they are still treated as if they are operating in good faith. Until and unless we break the conventions of impartial journalism and admit that they are not, the deeper ills beneath this ersatz economy of ours aren’t going away — and are likely to blow up again, sooner rather than later.

Jacob Bacharach is a contributing writer at The Outline.