If you were walking down the street in New York, Boston, or London in 1985 after having been in the rainforest since 1970, a number of things would jump out at you.
Put aside for the moment that in New York, you would notice that everything had gone to seed, while in London you would find the opposite. Let’s focus just on the true innovations.
First, there would be a completely new and striking kind of skyscraper: simple prisms faced almost exclusively with glass.
The John Hancock tower in Boston today looks typical or even plain. But in 1976, it was quite striking to see almost no steel, brick, or masonry elements, and it turned out to be more difficult to execute than expected.
If you stepped into these new buildings, you would hear a brand new type of discussions being held: finance! Financial services were booming, and brand new products came out every year. Perhaps you would overhear bankers offering asset based securities, perhaps they wouldn’t have been invented yet.
If you then skipped town again until 2020, there would be two new innovations rising above you. In New York, you would see the pencil tower (epitomized by 432 Park Ave). In London, the inconveniently shaped building. Let me explain these terms.
The pencil tower is a building that looks like a pencil.
I think we all get the picture here.
The inconveniently shaped building is more difficult to strictly define. In general, inconveniently shaped buildings have curvy walls that slope outward, cantilevering, or an organic shape, but there’s no strict physical criteria. Instead, the principle of the inconveniently shaped building is that it was only built in that shape because no one had built a building that shape before, and it is very unlikely that anyone will build a building that shape ever again:
Shapes along these lines have been around for a long time,but historically they have tended to serve a specific purpose. The guggenheim is funnelform to provide a pleasant and directed gallery experience. Vernacular Javanese consists of curves and spikes to repel demons (and for funsies, I’m sure), and the Sydney opera house recalls the Pacific waves that brush the city. What has become much more common in recent years is the use of unorthodox shapes for no reason more than unorthodoxy.
(This is why I have not listed 56 Leonard Street as inconvenient: the jenga-tower shape is a brilliant way to include balconies… At some cost to coherence)
If you left the city and headed out to the more expensive suburbs, they might see another fresh face on the architectural scene, the Accessory Dwelling Unit, or ADU: a little house in the backyard of a bigger structure, architecturally indistinguishable from a guesthouse, but containing a 26 year old.
You would also see McMansions, but those are just bigger, gaudier versions of cheaply built houses of the 70s and 80s. They probably just result from increasing income inequality, and they don’t bear any more thought.
But unlike the glass cylinders of the 80s, these newcomers, whether pencils or offer arrangements, aren’t stylistic or technical innovations. They don’t answer a technical question or meet an aesthetic need. They effectively navigate regulation.
The pencil tower is a straightforward geometric response to the problem of airspace. In New York, airspace is a limited commodity – by law. If you want to sell a high, high penthouse apartment, you can only occupy so many gallons of air. So you had better be as thin as you possibly can. Pencil thin.
The Inconveniently Shaped Building is a similar phenomenon. The reason that these very unpopular buildings have been set upon the people of London is twofold. One, a cabal of architects has convinced their government that looking at such large, odd, and shiny objects is good for them.
In Britain, it’s difficult to for construction projects to secure approval from planning boards, but prestige firms designing buildings that architects like have an easier time, so they’re built despite being hated and much more expensive to construct.
Second, London has protected view corridors to Saint Pauls. Buildings can’t block these, so they have to limbo around them to avoid blocking the protected view.
The ADU is a sadder story. ADUs are obviously not the ideal place for a young person to live. As a fifty year old, no-one wants to have to deal with tenants, and as a young person, no-one wants to live in a glorified treehouse set back in a stranger’s yard. You want to live in a big apartment or townhouse with a bunch of your friends. But those are illegal. So the ADU we get.
Stylistic changes as regulatory arbitrage have happened before.
There was a period when new built buildings in Britain and France had very few windows. This wasn’t because Britons developed a taste for darkness, but because the government started to tax windows as a measure of the grandeur of a house.
What is remarkable today is that new forms of regulatory arbitrage are essentially the only architectural innovations. True, there are buildings made today, designed in CAD, that would probably not have been designed before around 1995 (think Frank Gehry). But it’s hard to say these constitute a style, because there is so little of taking the elements of existing buildings and using them in the design of new ones. Innovative buildings today are often are one-offs. Most of the motifs and principles shared between them were around during the construction of TWA terminal.
So, in finance, have there been any changes in the last few years?
Yes! Probably the biggest story in fancy finance in the last two years is the rise of SPACs. SPACs, or Special Purpose Acquisition Companies, are, hypothetically, a source of magic money. The way it works is like this. A large number of people buy shares in the SPAC at a price of $20. The SPAC then wanders around financial space until it finds a willing to be bought instead of having an IPO. However, SPAC investors also receive the right to take back the $20 bill they invested plus a warrant to buy another $20 share in whatever company the SPAC eventually buys at a preset price of, say, $24. So the investors that put in $40, then take out two shares and sell their warrant for, I don’t know, $.50 , basically got cash by magic.
But someone must be losing from that magic, right?
In the end, it has to be the company. The other SPAC investors can’t be paying the price; they could have just sold their share in the SPAC themselves and made the same deal the other redeemers made. So the company must be the loser. And, the value of the magic money is the value of those warrants. So that must be the loss. So what’s the value of those warrants?
The value of the warrants is if the company the SPAC buys turns out to be surprisingly valuable. The warrant is the right to buy shares at a moderate price. If the fledgling company turns out to look quite valuable, warrant-holders can buy the valuable shares at a low price rather than the price they would command on the market, and the company has to eat the difference.
The company basically didn’t get to sell it’s entire self to the SPAC, because the SPAC can’t buy a company without giving some rights to the warrant-holders.
So, the purchased company is essentially donating some of itself to the SPAC for the right to get SPAC’d instead of paying an investment bank to run an IPO.
This is actually clever. Normally, for a company to go through an IPO they have to pay high fees. By concentrating the cost to the company of going public on the actually-it’s-surprisingly-valuable end, the big, well funded firm gets paid out of the upside risk while, if things go badly, the new company selling itself (smaller, so more risk averse) didn’t have to spend anything on fees.
But actually there are other secret costs to buying a SPAC everywhere and in narrow financial terms it still usually comes out a bad deal.
So why do so many companies agree to sell themselves through SPACS rather than IPOs?
You guessed it: regulatory arbitrage.
A company, in normal life, can make whatever promises it wants to prospective investors about revenues and such without getting sued. The reasons are complicated, but the gist is that if they could get sued, they would never say anything and that would be bad. But they can’t legally do this when they’re starting up, because then things are trickier; it’s easier to get fraudy when you have no record to defend, so the government lets investors sue companies that made misleading promises during their IPOs.
But, you like to make promises. It’s nice to get to make promises, especially when you’re just going public and trying to show the world who you are. So, what do you do? You SPAC. Technically no IPO, so technically no risk of lawsuit.
So, it turns out, that one was regulatory arbitrage, too.
So if the biggest innovations in architecture are arbitrage… And the biggest innovations in finance are arbitrage… What innovations aren’t?
Well, obviously, some things are the internet/computer power, in finance (crypto, quant firms) and beyond: social media, data-heavy science, the fall of chain restaurants (national reputations made obselete by Yelp), telemedicine, genomic sequencing, click-bait, insta-ready museums, car GPSes…
I’m not sure there’s anything else.
Indefensible Expectations 