Fifty Cents On The Dollar: The Empire State Building Story

Vulture investors are putting together syndicates to purchase US real estate, crowing that they are getting it for fifty cents on the dollar, focusing particularly in "carrion-infested" states like Florida. And Bank of America is buying the whole of Countrywide Financial at a deep discount after its initial $2 billion investment went very sour, very quickly.

A little history may serve as a warning to overzealous buzzards.

The Empire State Building was completed in record time (one year!) in 1931, costing a total of $41 million ($25 million for the building plus $17 million for the land). Construction costs were half the original estimates because the Great Depression quickly and dramatically cut prices and wages. The owners were John Raskob and a group of wealthy investors from the du Pont, Kaufman and Earl families - hardly unwashed hoi polloi. I imagine they, too, thought they were getting a bargain at fifty cents on the dollar.

Things did not work out as expected. The building could not find tenants and was called the Empty State Building for years; it was eventually sold by the Raskob estate in 1951 for a total of $34 million. Not only did the original investors suffer a loss in absolute terms, but in the meantime inflation had cut the value of the dollar down to 67 cents. In real terms their loss was 45% and they had to wait twenty years to get even that.

But... this time is different - right?




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P.S. Yesterday's post created a not-unexpected storm of comments, both pro and con, particularly about the "targeted jobs program". Let me clarify a few points:

1. I'm not calling for the government itself to go out and employ millions of people, but to create the conditions where private industry will do so. Just look at what Germany is doing with mandatory renewable energy legislation.

2. Building a new energy infrastructure is completely different from building a "bridges to nowhere", as happened in Japan. We are actually in dire need of such infrastructure, for economic, environmental and national security reasons.

3. Funding/incentives will necessarily have to come from a variety of sources: carbon taxes, cutting defence spending (less needed to guard oil), a more graduated income tax scale, etc. The amount needed is proportional to the energy balance between fossil fuels and cleaner sources, i.e. the ratio of EROEI's will provide a rough idea of the money needed.

4. Government action is absolutely essential because entrenched fossil fuel interests are not going to do it by themselves. Their combined profits are in the trillions annually.

5. The most serious challenge is not technological choice but geopolitical economic balance. If, as I expect, the new energy regime is distributed vs. central (think Internet vs. mainframe) the thorniest question is how we transit from Dollar Hegemony to Sustainable Growth. The current global socio-economic model is Perma-Growth fueled by oil and gas. The US is center stage because the dollars it issues at will contain oil-purchase value (i.e. oil producers accept them in exchange for oil). The mind boggles at the challenge of changing this structure, but it MUST be done.

For those not quite sure how oil, money, growth and the environment are connected please look at the following books at the Amazon sidebar:

• The Prize
• Resource Wars
• Blood and Oil
• Something New Under The Sun