Opinion

Felix Salmon

The Winklevoss delusion

Felix Salmon
Dec 31, 2010 18:16 UTC

Jay Yarow is absolutely right when it comes to the Winklevoss twins: they’re arrogant, delusional hypocrites. According to this morning’s NYT piece, they want to relitigate their $65 million Facebook settlement because the $45 million in Facebook shares that they received are now worth only $120 million rather than somewhere north of $500 million.

They can easily afford to do this, of course, because they were always rich to begin with, and because they also got $20 million in cash as part of the deal. But the argument at the core of their case is bonkers:

According to court documents, the parties agreed to settle for a sum of $65 million. The Winklevosses then asked whether they could receive part of it in Facebook shares and agreed to a price of $35.90 for each share, based on an investment Microsoft made nearly five months earlier that pegged Facebook’s total value at $15 billion. Under that valuation, they received 1.25 million shares, putting the stock portion of the agreement at $45 million.

Yet days before the settlement, Facebook’s board signed off on an expert’s valuation that put a price of $8.88 on its shares. Facebook did not disclose that valuation, which would have given the shares a worth of $11 million. The ConnectU founders contend that Facebook’s omission was deceptive and amounted to securities fraud.

They refuse to say how much they would ask for in a new negotiation, but they said that based on the lower valuation, they should have received roughly four times the number of shares…

In its brief, the company says it was under no obligation to disclose the $8.88 valuation, which was available in public filings. Facebook describes it as one of many that it received…

“There was no chance that that one valuation would have affected the decision of these sophisticated investors and their entourage of advisers,” Facebook wrote in its brief.

The fundamental point here is that the two sides agreed to settle for $65 million, and the brothers decided they would rather have $20 million in cash and 1.25 million Facebook shares than $65 million in cash. That decision turns out to have been a very good one, since those 1.25 million shares are now worth somewhere north of $120 million.

When Facebook handed over the shares, it might have thought they were worth $11 million, or it might have thought they were worth $1 billion: it doesn’t matter what Facebook thought. The brothers clearly thought the shares were worth more than $45 million, or they would have accepted cash instead. And they were right.

With the benefit of hindsight, Microsoft managed to buy in to Facebook at an attractive price, and so did the twins. It was always in their interest to argue for the lowest possible valuation and to get as many shares as possible out of the deal. And if they got $45 million in Facebook shares today, they would never get a price remotely as attractive as the one they got in 2008. They were smart to settle when they did, rather than dragging negotiations on longer. And they’re being really stupid to keep on fighting a battle they’ve already won.

COMMENT

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18 questions for Martin Erzinger

Felix Salmon
Dec 31, 2010 00:44 UTC

M Schuler of Colorado leaves a blistering comment on my post about Martin Erzinger, the Morgan Stanley broker who bought his way out of a felony charge. It’s required reading for anybody who is inclined to believe Erzinger’s defense, that he fell asleep at the wheel, drifted off the road, and never had a clue that he’d hit anybody.

It’s also required reading for anybody who still lets Martin Erzinger or Morgan Stanley manage their money. Erzinger’s behavior is unconscionable, and Stanley’s continued employment of him is a massive blot on the firm’s reputation.

In any case, here’s the meat of the comment: 18 questions for Martin Erzinger. I very much doubt he’ll ever attempt to answer them.

1. Is it reasonable to believe that less than 10 minutes after completing a workout at your club you would fall asleep in the middle of the afternoon while driving your car?

2. Is it reasonable to believe that you would be suffering from sleep deprivation caused by sleep apnea to such an extent that this deprivation would cause this mid-afternoon narcolepsy?

3. Is it believable that this malady was not “diagnosed” until a week after the accident?

4. Is it believable that the “diagnosis” itself says “the patient “may have developed sleep apnea around the time of the accident”?

5. Is it believable that a qualified doctor would allow the patient to continue driving (thus risking his own liability and medical license) after such a serious accident?

6. Is it believable that you would remain asleep after hitting a cyclist, leaving the road, driving over two hundred and sixty feet through terrain rough enough to tear the bumper off your brand new car?

7. Is it believable that you were (as you testified in court) aware that the car came to rest on a steep angle and yet still be “dazed or asleep”?

8. Is it believable that upon coming to rest your body would not be hyperaware due to the over whelming amount of adrenaline coursing through your veins?

9. Is it believable that upon becoming aware that you had driven off the road over rough terrain in a brand new $100,000 plus Mercedes Benz, you would not get out of the car to inspect it for damage prior to driving out of the ditch and onto the road?

10. Is it believable that you would try to reenter the highway without looking behind you for oncoming traffic?

11. Is it believable that such a glance over your shoulder would not reveal the cars stopped across the highway at the point of your departure from the road and the body of the cyclist you hit lying in the road less than 90 yards behind you?

12. Is it believable that “an honest man” would not have any concern for damage he might have caused while “asleep” while driving”?

13. Is it believable that if you were going to call for a tow for your disabled car, that you would not call while the car was in the ditch, but would drive it out of the ditch, risking further damage, and proceed to drive over three miles to hide behind an abandoned Pizza Hut before calling for a tow?

14. Is it believable that an “honest man” would say he had called police when there is no record of such a call in the police call log nor on his cell phone records?

15. Is it believable that an “honest man” would tell Onstar not to use the email address they had on file for him (which was correct) but to use his wife’s email address?

16. Is it believable that an “honest man” would have his company’s employment attorney contact the District Attorney in order to attempt to influence the entering of a felony “due to the effect on his job”?

17. Is it believable that, knowing you had severely injured the son-in-law of a friend, you never visited the injured cyclist, never admitting hitting him? (In court you said “I’m sorry this happened to you”.)

18. Is it believable that an “honest man” would not notify the Security and Exchange Commission, as required by law, that he was charged with a felony until ordered to do so by a judge over 180 days after the accident?

Writes Schuler:

These are only a few of the questions that should have plagued the District Attorney prior to unfairly reducing a felony charge against Marty Erzinger to a couple of misdemeanors.

If you find the answers to these questions as unbelievable as I do, you must conclude that neither the District Attorney nor Mr. Erzinger could meet the reasonable standard of an honest man.

I, for one, would never want this man in charge of my money, nor any firm which happily continues to employ him.

COMMENT

Morgan Stanley couldn’t care less about the behavior of its employees.

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Manhattan’s rent-vs-buy divergence

Felix Salmon
Dec 30, 2010 23:33 UTC

You might be surprised by this: it’s counterintuitive, and acts as useful corrective to people who simply assume, when they buy an apartment, that the alternative is ever-increasing rent payments.

The median monthly rent for all luxury units in Manhattan, defined as the top 10 percent of the market by price, declined 18 percent to $6,950 in the third quarter from a year earlier, according to New York-based Miller Samuel. The median luxury sale price rose 13 percent to $4.39 million.

It’s conceivable that both of these moves could be partially explained in terms of falling mortgage rates, which help support prices and which also allow landlords to make money with lower rents. But in general, falling interest rates don’t cause falling rents, they just cause higher profits for landlords who refinance.

The stated reason for the divergence is that owners — both individuals and developers — think that prices are too low, right now, and would rather rent out their apartments for the time being, waiting for a more auspicious time to sell. Which implies that even in Manhattan there’s a significant “shadow inventory” of apartments at the top of the market which aren’t officially on the market but which the owners would still like to sell.

In any case, it’s hard to argue with the main thesis of the story, that this is a really good time to rent rather than buy, at least at the high end of the Manhattan market:

The gap between the cost of buying a luxury apartment and the annual cost of renting is at its widest since the first quarter of 2009, when the median purchase price peaked at $6.6 million. Buying cost 53 times renting in the third quarter, compared with 38 times a year earlier and 58 times in March 2009.

This isn’t an apples-to-apples comparison: the apartments at the top end of the rental market are still smaller and less desirable than their counterparts at the top end of the sales market. So the buy-to-rent ratio isn’t 53. But it’s clearly rising. And it’s high:

In the Manhattan market overall, the cost of buying an apartment was 25 times more than the annual expense of renting in the third quarter, up from 24 times a year earlier…

A 7,700-square-foot duplex penthouse at 610 Park Ave., with five bedrooms, a “walk-in butler’s pantry” and a private terrace, is listed for sale at $25.8 million… The monthly cost of renting that same apartment is $75,000.

On the Upper West Side, a 4,300-square-foot “trophy penthouse” at the Grand Millennium, with “two massive terraces” and Hudson River views, is listed for sale at $15 million, according to StreetEasy… It could also be rented for $45,000 a month.

These two apartments have buy-to-rent ratios of 28.7 and 27.8, respectively; that’s very high. As David Leonhardt says,

A good rule of thumb is that you should often buy when the ratio is below 15 and rent when the ratio is above 20. If it’s between 15 and 20, lean toward renting — unless you find a home you really like and expect to stay there for many years.

To put this in perspective, the rent vs buy calculations I did on Nouriel Roubini’s new pad came out in favor of renting; the buy-to-rent ratio there was 18.3.

My suspicion is that the rental prices are a good indication of where a rational property market should clear, and that the sale prices are therefore overinflated. Why that way around? Because people have no idea what to buy, these days: nothing looks safe. Bonds, stocks, gold — all of it looks pretty bubblicious. And cash yields nothing, while carrying the risk of being eroded by future inflation.

So people overpay for housing, because it’s a consumer good as much as it is an investment: even if it falls in value, at least they still have a nice home. In times of chaos, that kind of investment is as good a hedge against tail events as any. Which might explain why there’s excess demand for it right now.

COMMENT

Actually seems kind of intuitive to me. The only people making any money in the current economy are bankers and brokers and of course they all want to live in Manhattan. As the recession continues and forces other folks to liquidate it simply opens up spaces for the long line of suits wanting to escape Connecticut and Long Island.

Mathieu
http://www.cocoonbarcelona.com/

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The behavioral economics of Mexican central heating

Felix Salmon
Dec 30, 2010 17:20 UTC

I love Damien Cave’s dispatch from Mexico City (elevation: 7,350 feet), which gets very cold in the winter, inside and out:

In expensive restaurants, in grocery stores and museums, in the homes of the poor, middle-class and even the wealthy, a small space heater is often the only thing breathing warm air.

Why is this? Cave has two theories. The first is cultural:

Deep in this country’s Aztec roots, there is admiration for submitting to the elements, and it seems to re-emerge every winter with force.

The second is economic:

Mexican builders and homeowners have simply grown accustomed to construction without central heating, and with single-pane windows that are especially porous to heat and cold. As a result, insulation materials are profoundly expensive here.

Sadly, Cave doesn’t put numbers on the cost of insulation materials or central-heating systems in Mexico, compared to elsewhere in the world, so it’s hard to tell what he means by “profoundly expensive.” But I suspect that it’s not that expensive:

Fernando Sandoval, an architect who used to work for Anderson Windows, the American chain, said that given such prices, double-pane glass and central heating could eat up a sixth of the total cost of construction. Few seem to bother. Even the most modern apartments here, with stainless-steel appliances and granite countertops, are often devoid of radiators or thermostats.

“They all say, ‘I’d rather have hardwood floors,’ ” Mr. Sandoval said. “Or, ‘It’s only going to be cold for a month or a month and a half, I’d rather buy a really nice Italian cashmere sweater.’ ”

In most countries, I suspect that people would consider central heating a much higher priority than hardwood floors. Especially, as Cave notes, since the Mexico City winter is not only a few weeks long: it lasts from November to February.

There are three things going on here, I think, which might explain what’s going on.

First is good old-fashioned path-dependency: it’s pretty clear that the overwhelming reason why any given Mexico City dwelling doesn’t have central heating is that other Mexico City dwellings don’t have central heating. It doesn’t really matter why or how it got this way, or whether there’s a reason at all: once it’s gotten there, it’s very hard to change.

Secondly there’s the question of relative, as opposed to absolute, cost: it’s not that central heating systems and double-glazed windows are expensive, so much as that everything else, when it comes to Mexico City house prices, is cheap. A $10,000 central heating system seems much more expensive when your house costs $50,000 to build than it does if you’re spending $250,000 on it. This works the other way, too: when I closed on my New York apartment in 2005, I went out and bought a ludicrously expensive keyring to put my hard-won keys onto. I’d never normally drop that kind of money on a keyring, but in the context of the sums I was spending on the apartment, it felt like nothing.

Finally, there’s mortgages—or the absence thereof. Mortgages, or any kind of long-term local-currency debt instruments, are relatively new animals in Mexico, which means that historically homes were paid for in cash, and often took years to build. In that situation, keeping construction costs as low as possible becomes very important: adding a central heating system could mean delaying moving in for an extra year.

Put the three together, and you don’t need ludicrously expensive heating systems or romantic notions about what might be lurking “deep in this country’s Aztec roots” to explain why we all start shivering when we visit Mexico City in the winter.

For the time being, extra demand for housing in Mexico City is being met by extra supply. At some point, however, that’s going to stop, supply won’t be able to meet demand, and prices will start to rise. And that will be the point, I suspect, at which we’ll see people starting to install central heating.

Update: Paul Krugman sees parallels with English food. And Derrida, in the comments, sees Jevon’s Paradox at work:

Maybe it is true that the best way to reduce energy consumption is to make devices like heating and air conditioning less efficient, instead of more. Not having cheap double panes, etc. seems to make central heating less appealing in the DF, resulting in a great deal less energy use than efficient but wide-spread central heat.

COMMENT

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Counterparties

Felix Salmon
Dec 30, 2010 06:22 UTC

NYC should have declared, but didn’t declare, a snow emergency: “if they said we were getting a blizzard, it was a no-brainer.” — NYT

Not often you see companies moving away from Delaware — NYT

Delaney and Grim on the erosion of the social safety net — HuffPo

FT Tilt is live, and it even has a manifesto of sorts — Tilt

Paul Allen isn’t giving up with his patent-trolling — Seattle Times

COMMENT

Yo, Felix, my crumbling suburb
( http://blogs.reuters.com/felix-salmon/20 10/11/30/does-more-economic-activity-mea n-more-driving/ )
not only gets the snow plowed, but has some really nice bike trails ( http://www.trailcentral.com/trail/trail_ info.php?trail=113 )

Posted by ARJTurgot2 | Report as abusive

The evanescence of Twitter debates

Felix Salmon
Dec 30, 2010 05:57 UTC

Rob Beschizza has a very good post on the dynamics of the spat between Wired.com and Glenn Greenwald. For an excellent overview of the fight and what it’s about, I recommend Blake Hounshell. But Rob picks up on something else:

The AP-style story format now prevalent at Wired.com makes it less bloggy than readers think it is. This establishes a distance between readers and reporters and restores a traditional tone of objectivity to its newswriting. As it is, Wired’s commenters rarely emerge from a state of inchoate, slavering rage, so there’s no incentive for its writers to enter the peanut gallery. And the blog river itself is polished to such a high standard that casual, chatty posts don’t really belong. Without a local venue where writers and readers can engage readers in non-confrontational discussion, it all ends up as bitching on Twitter.

The point here is that the fight is not like the blogwars of old, despite the fact that both sides are publishing on blogs. We haven’t seen a lot of back-and-forth on the blogs, and the blog entries that we have seen have been clearly worked at considerable length. Instead, the debate has been raging on Twitter, where it’s much harder for an outsider coming to the subject afresh to follow what’s going on and who’s saying what.

The biggest development in the story today comes from Sean Bonner, who seems to have managed to elicit over Twitter the very information that Wired’s critics have been calling for all along. Wired’s Kevin Poulsen told Bonner in a tweet that “The published logs include the reference to a secure FTP server Lamo discussed with the Times”; when Bonner asked Poulsen for clarification that the reference in question was the only reference in the chat logs, Poulsen said yes.

On top of that, Wired.com editor Evan Hansen told Glenn Greenwald in a public tweet that he had reviewed all of the chat logs and that everything pertaining to Julian Assange or Wikileaks was already public.

Obviously, that single tweet is not going to satisfy Greenwald. But in many ways it does more to address the demands of Wired’s critics than the long and carefully-worded blog post that Hansen and Poulsen put up last night. And Greenwald too has noted — on Twitter, natch — that “it’s amazing how central of a role Twitter now plays in these disputes/debates”.

What we’re seeing here is the professionalization of the blogosphere — Greenwald and Poulsen both get paid to blog, as do I — and the way in which that has led to the less journalistic parts of blogging moving over to the informal and freewheeling venue of Twitter. I was happy to take a small part in this debate over Twitter this morning, for instance, but I’m concentrating on meta-issues here, partly because I’m clearly conflicted: I have a big story in the latest Wired magazine, and might well be appearing on Wired.com’s blogs in future, too. On Twitter, such conflicts don’t seem to matter, or need to be addressed, in the way that they do on a professional blog.

This development is not, in my mind, a good thing. It robs from the blogosphere much of its naturally conversational element, which has largely moved to Twitter. Back in 2004 or so, it was easy to follow debates back and forth between blogs just by clicking on links; now, it’s much harder, and professional blogs are much more likely to link to straight news stories or just break news themselves than they are to link to other bloggers. Discussions and debates on Twitter aren’t archived in the way that they were on blogs, and they’re functionally impossible to search for if you’re more than a few months away from the event.

This particular debate is big and loud enough that bloggers are following it, archiving it, and linking to important tweets. But most Twitter discussions never reach that level, and therefore will disappear in a way that blog discussions never did. At some point, I hope that Twitter will roll out easily navigable and searchable archives of all public Twitter streams. But for the time being, Twitter is a stubbornly evanescent medium, for all its increasing importance.

COMMENT

test

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Housing: Ackman vs Shilling

Felix Salmon
Dec 29, 2010 17:12 UTC

It’s Housing Day over at Business Insider today, which is running duelling slideshows from Bill Ackman and Gary Shilling in the wake of yesterday’s dreadful home-price numbers. Both of them are a little dated—Ackman’s is from November 3, while Shilling’s seems to be from October, although it’s not entirely clear. Since then, prices have fallen, which would do little to change either of the analyses, but also interest rates have risen significantly, which puts a substantial dent in Ackman’s math.

Ackman’s logic is pretty simple: you can get a lot of leverage in the housing market, and if you make a highly-leveraged bet and prices rise, then you can get enormous returns. At the heart of his thesis is the idea that valuations are low and will rise in future—but to my eyes at least, there are problems with both legs of that argument.

The “valuation” section of the slideshow is a relatively small part of the whole. It says that home prices are 28% off their peak; that houses are more affordable now than they have been in a long time; and that buy-vs-rent calculations work out in favor of buying with relatively low home-price appreciation rates between 4% and 6%.

The first one seems meaningless to me: why should home prices be low at 28% off the peak, as opposed to say 18% off or 38% off? In fact, a glance at the Case Shiller graph shows that prices are still roughly double what they were for most of the 1990s.* And more generally, when the first part of a valuation argument is percentage-off-highs, I always get suspicious, because that’s always a really stupid metric on which to base a buying decision.

The affordability calculations, too, are a temporary phenomenon related to artificially low mortgage rates and the fact that the US government is currently providing substantially all housing finance. What I’m not seeing is any analysis by Ackman showing that houses will remain affordable in a future of higher rates and private-sector financing—the future when, I assume, he’s looking to exit his residential-property position.

Finally, required appreciation rates of 4% to 6% seem high to me, not low: they say to me that buying is still more expensive than renting unless you assume capital gains on your purchase. Ackman, here, comes close to assuming the very thing he’s trying to demonstrate.

As for the reasons for future gains in house prices, there’s a bit of basic demographics, in that the number of households in the US is going to rise over time, and is going to outpace the amount of new homebuilding. That’s reasonable.

Ackman’s other main argument is based on the assumption that homeownership is going to bottom out at 66% and stay there, rather than continuing on the long cyclical decline which started in 2004. If he’s wrong by just a single percentage point, a lot of his mathematics starts looking very shaky. I suspect that as America moves out of the suburbs and exurbs and into denser forms of living, we’ll see a steady decline in homeownership, which in any case is now seen as being more of a liability than an asset. It’s no longer a road to riches: it’s a road to possible foreclosure, bankruptcy, and an inability to move to where the employment opportunities might be.

Ackman is a speculator, and he’s forecasting a return of his speculative mindset among the population at large—where people buy homes because they’re confident in the future and think that those homes will rise in value, and also because they fear not being able to afford a house in future. That mindset fuels housing bubbles, not sustainable home-price appreciation. And investing in bubbles is always very dangerous, and generally ends in tears. Maybe Ackman can make money doing it—but that certainly doesn’t mean that homes are a good buy right now for the rest of us.

Ackman does have one intriguing idea about what might drive house-price appreciation: institutional investment in single-family home rental properties. He’s right that such things barely exist as a financial asset class, and that even a small global allocation to them could change the demand dynamics substantially. But being a landlord is hard work, especially in suburban and exurban neighborhoods, and I’m not convinced that it scales well: my guess is that the cost of hiring a good rental agent is always going to wipe out returns, and that the only way to make money by renting out single-family homes is for the owner and the rental agent to be the same entity.

If you then turn to Shilling’s presentation, things start looking positively depressing: he brings up reasons for pessimism that many of us never even consider, along with the much more obvious ones. At the top of the list, of course, is unemployment, which poisons everything. No one wants to buy a house if they don’t feel secure in their job, and people don’t feel secure in their jobs if unemployment is over 9%, where it’s likely to stay for the foreseeable future. And these graphs just speak for themselves:

the-percent-of-mortgages-past-due-is-still-climbing.jpg

image.jpg

when-you-count-shadow-inventory-the-imbalance-looks-even-worse.jpg

given-all-this-its-not-surprising-that-few-folks-are-planning-to-buy-new-houses.jpg

This last one is the most powerful, to me: for all the wheel-spinning that we’ve seen of late in the mortgage-refinance market, the number of people shopping for new homes has been declining steadily for the past five years. I’m sure that Bill Ackman would look at that chart and extrapolate all manner of fabulous mean-reversion, but I can’t see where the new demand is going to come from. Buying a home is no longer the American Dream; people are much more interested in being free of debt. And while Ackman might look at the enormous leverage in the housing market and see opportunity, most Americans I think are now much more aware of the downside risk.

No matter what happens in the housing market, Bill Ackman is always going to have more wealth than he can ever spend in his lifetime. But for those of us without his ability to make large speculative bets, housing is a very scary asset class, while renting is cheaper and much more flexible. I wouldn’t be at all surprised to see the US homeownership rate fall a lot in coming years, back down below even its long-term mean around 64%. And if that happens, prices—both to rent and to buy—are almost certain to fall from current levels.

*Update: Thanks to ckbryant, in the comments, who points out that this is true only in nominal terms, not in real terms.

COMMENT

I agree with almost everything you said TFF. Our condition is acute and the cure will be painful. I will watch with great interest what new Governor Brown in California does with his budget mess. I sure hope there are large tax increases since that may run the jobs to other more worthy states.

A small breath of fresh air is Gov. Christie in NJ. He is locking horns with all vested interests and talking the talk. Jury is still out, but it sure has high entertainment value. Check him out on You tube.

New leaders will rise up when things get bad enough. I just hope the disease is still curable when they do.

Good luck with your inquiry into the causes and cures of what ails us. We need more citizens who question things.

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Counterparties

Felix Salmon
Dec 29, 2010 06:05 UTC

Evan Hansen and Kevin Poulsen respond to Glenn Greenwald — Wired

Pork bellies are going the way of onions — Points and Figures

Wherein Nouriel Roubini, proud owner of a new $5.5M apartment, says that ‘Housing Prices Can Only Move Down’ — CNBC

Excellent Globe investigation of the military-industrial complex — Boston

Please wait outside rice-flour noodle — Atlantic

Highway 330 Collapses En Route To Big Bear, but the guardrail is still there — HuffPo

IBM announces solid-state memory breakthrough — Linux for Devices

Denis Dutton, author, philosopher, and founder of Arts & Letters Daily, dies at 66 — TVNZ

H&R Block Blocked from Refund Anticipation Loans — Credit Slips

COMMENT

Unsympathetic, thats alright they can just steal the code….

Posted by Danny_Black | Report as abusive

Sob story of the day, Cat Rock edition

Felix Salmon
Dec 29, 2010 04:53 UTC

Today’s WSJ features the sad, sad story of retired churchman Fred Osborn, who might have to sell his family home. It only has single-pane windows, making it expensive to heat in the winter. And even after renting it out in the summer, Osborn ends up losing money on the old place. On top of that, his son has moved in, along with his four kids. If it got sold, three generations of Osborns would be kicked out at once.

“I want to enjoy retirement now, but I really can’t afford to do that,” Osborn tells the WSJ’s Anne Miller. “It’s a very conflicting, emotional thing.”

But here’s the rub: the story is in the WSJ’s real estate section. It’s basically about a home for sale. The price is $200,000, plus $1,000 a year in taxes. Will you help poor Mr Osborn out?

Hang on, I might have missed out a zero. Actually, the price is $2,000,000, plus $10,000 a year in taxes. A little bit less sympathetic now, I guess.

Wait, I’ve just found another order of magnitude down the back of the sofa. Osborn, it turns out, “will entertain offers above $20 million”, while taxes are “about $100,000 a year”.

Oh, and he’s the great-great-great-great-grandson of Cornelius Vanderbilt, which I guess makes his gambolling grandhildren Vanderbilt’s great-great-great-great-great-great-grandchildren. But who’s counting.

Not Miller, whose math doesn’t make much sense at all:

Heating the 14-bedroom stone mansion can run $200 a day in the winter—too expensive for year-round living…

Mr. Osborn IV, a former Columbia University crew coach, rents out the castle for weddings between June and September. Day rates start at $55,000.

But it’s barely enough. The Osborns estimate the property consumes at least $500,000 a year, including taxes.

If the Osborns pay $200 a day every day for six months, that comes to about $36,500 a year to heat the old pile. A lot of money, to be sure, and a lot of carbon emissions too, but still a tiny fraction of those total running costs, which themselves can be covered by renting out the castle for nine days over the course of the summer. Beyond the heating and the taxes, there’s no indication of what makes up the lion’s share of those half-a-mil-per-year running costs, but it hardly seems as though $200 a day for heating would tip the scales enough to force the family to move out of the mansion.

All the same, there’s a hint of possible good news at the end of the story.

Over Thanksgiving, Mr. Osborn III learned that some younger cousins have done well in online ventures and banking. Maybe they will have the funds—and interest—to move in, he said, even if the property doesn’t stay in his direct lineage.

“I’m an equal-opportunity family patron,” he said.

Those younger cousins might not be named Frederick Henry Osborn IV. But their blood is still blue. And that’s what counts, surely.

COMMENT

Maybe I’m cold-hearted, but I wasn’t feeling sorry for the guy when I was reading the first paragraph. Why? Because if he couldn’t make his house affordable with renting it out and so many people living in it (some of whom would be working, no doubt) then he overbought. Way overbought.

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