‘The Big Short 2.0’: How Hedge Funds Profited Off the Pain of Malls

Aug 24, 2020 · 643 comments
Joanne (New York city)
This was a no brainer -EVERYONE in America surely saw the demise of the American Mall as soon as mail order entered the race! Then the demise of large retailers so their anchors were lost...it surely wasn't a stretch on Ms. McKee's part to reach such a conclusion. To be so richly rewarded is obscene. Now why don't these vultures find a solution rather then celebrating and profiting from these problems? To get so intensely wealthy off of so many now unemployed mall worker and lost businesses just seems morally wrong. But these people have no ethics, indeed they are admired, rewarded and celebrated for their numbers crunching, paper pushing productivity. Money replaced character long ago. Where is this country headed? I doubt the vision of the Founding Fathers extended towards such a greedy, self serving direction. So much for "the greater good."
Let’s move forward (Atlanta, Ga)
I see this differently, a structural, permanent shift to online shopping yet still a desire for in person experiences. In a nutshell, those who don’t adapt, innovate, invest in new opportunities and business models become obsolete. I know on the face of it, it’s a bad situation for retailers, landlords and lenders but many of these problems began long before Covid-19. Perhaps a more positive outcome is to repurpose the mall space (already occurring) to affordable housing, healthcare, restaurants and yes - Amazon distribution centers. What’s wrong with that if new jobs and much needed housing and other services are provided? This is the new, new. There’s no going back; we must adapt and adopt new ways.
Patrick (California)
Many commenters have argued that short selling creates no value for society. Yes, the taxation of capital gains is problematic and contributes to wealth inequality, yet the criticism that shorts are merely parasites feeding on misfortune is invalid. Years of underfunding of the SEC and its overseas counterparts means regulators lack the bandwidth to adequately sniff out and pursue fraud. Countless corporate scandals, from Enron and Worldcom in the early 2000s, to Luckin Coffee and Wirecard more recently in China and Germany, were first uncovered by the dogged work of short sellers. Some frauds were hiding in plain sight, yet continue for years because most investors don't read 10-Ks, 10-Qs and proxy statements. A 2016 study by two Notre Dame economists found the average company's 10-K was downloaded just 28 times. Even GE only had a few hundred downloads of its annual report. Shorts spend more time perusing these mind-numbingly boring documents than any other class of investor. The mall short highlights the second critical function of short sellers: identifying excessive capital investment in unproductive endeavors. Had more investors - and regulators - listened to short sellers like Steve Eisman and Michael Burry in the housing bubble, trillions of dollars and countless livelihoods could have been saved. Doing so might have even prevented the rise of Donald Trump - who incidentally was a profitable target for short sellers when his public companies repeatedly failed.
LKB (Boston)
So many questions for these hedge fund managers. What moral principles do you live by? How much money is still not enough money? Do you think your work is contributing anything positive to society? And how do you sleep at night?
Student of Human Condition (The Angeles)
Such a public benefit! Accelerate job loss for a low economic group, elevate low-paying jobs at Amazon, Target. Add absolutely nothing to the economy or public good! Further the demise of hard work, which this does not classify as . . . just widens the gap between the rich and the poor. I would love to see a piece on the demographics of these hedge fund managers; please include race, gender, familial wealth, and location. I have my suspicions.
Koret (United Kingdom)
What do these "investors", invest in when all these businesses are gone? For capitalism to work a consumer with a job is required to buy products. What is going to happen to all these people who lose their retail jobs? There are now 30 million people in this crisis in the US, who are in receipt of unemployment benefit and struggling to pay their rent, mortgages , pay for food or medical bills. It is shameful how these people seek to enrich themselves without any notion of the harm they are doing to ordinary people. This is not sustainable. Change must come and quickly.
Stratman (MD)
@Koret Simple, they invest in businesses likely to be successful. Short-sellers serve the purpose of highlighting overvalued companies/industries and redirecting dollars to better companies/industries.
Candiru (NYC)
as krugman has asked, what exactly do these traders make, or how do they benefit the economy or society? they don’t manufacture anything, they don’t provide any services. so society or the economy gets nothing from them. if they disappeared tomorrow, nothing will be missed. it’s just a huge, pile of gambling. but they can destroy the economy, and then they will be asking for bailouts from the taxpayers. savage capitalism is just rotten to the core.
LJMerr (Taos, NM)
Legalized gambling. What bugs me is that the average schmo gets fooled into believing that the stock market represents "the economy." You can bet none of the brokers or big investors are getting anywhere near people or situations where they might get sick from Covid-19. Then the folks who work hard in some low-paying job that is now considered "essential" - such as health-care workers, police, firefighters, garbage collectors, meat-processing plant workers, farm laborers, teachers and many others - struggle to get by, forced into close contact with the disease. And, forget about all the people in the hospitality industry - restaurant and hotel workers, who have lost their jobs entirely. They will probably have to "do something else," as Ivanka says, cutely. They sure won't be getting any help from the GOP-controlled Senate, anytime soon. But, I digress. Wall Street is just a bunch of grifters. The better you are at grifting, the richer you get.
Emma Horton (Webster Groves MO)
"Catie McKee was nervous". Aww. So sweet. What was she nervous about? Did she have some sudden revelation or vision of the hundreds of thousands, if not millions, of jobs and lives she routinely destroys as her life's work? Oh no wait, that's the Senator from Oklahoma who cares about that. Maybe Catie had some quiet personal shiver about earning her living from the labor of invisible others. No again, that would be the new young House Rep. from the Bronx. Probably she was nervous about being outed as a person possibly as amoral as Donald Trump, but in a more quiet, lucrative way.
GMooG (LA)
@Emma Horton How does she "destroy jobs and lives"? Do you think that if she & Icahn didn't short malls, that all of a sudden people would forget about the internet, and Covid, and rush back into the malls to buy things at Sears, JC Penney, Brooks Brothers, Ann Taylor? Come on, man!
Frank (United States)
Malls create low wage jobs. After the initial construction is over, people must drive there and use gas. Gas is made from refined oil. Strip malls take a lot of area to build. When they go bankrupt the grass doesn’t grow there anymore. Malls are environmental catastrophes and when they belly up, no one bothers to demo them. Teenagers often drink in abandoned buildings. Often homeless people take them up. Good for the homeless. Malls are a complete waste of space. From inception malls are made, financed and developed from company executives who rely on options, shorts, securities and the whole financial package which pays for the golden parachutes. Nice article. Icahn? What’s he do for the neediest cases fund of the New York Times? I don’t blame finance. I blame the salary of the financiers. It ain’t that tough to take someone else’s idea when you are awash in money.
Lawman69 (Tucson)
When the Dems take the Presidency and the Congress, one of the first tasks to be accomplished is to eliminate vulture capitalism altogether. Either eliminate “private equity” altogether or tax it at a 70% rate without deductions.
Stratman (MD)
@Lawman69 This article has nothing to do with private equity. That's an entirely different type of investment.
Eric Harold (Alexandria VA)
Short sellers and their defenders are leeches on the body politic.
Ignatious (Philadelphia, PA)
I read this article thinking that folks can make fortunes without performing any productive labor, while almost everyone else works hard and (mostly) plays by the rules and get a paycheck that allows them to exist another week. It appears that the outrage over illegal conduct made legal (this conduct would have been illegal in the past) has been drowned out by the focus on the fabulous wealth being created. Actually, there is ample evidence to suggest that wealth is not being created, rather wealth is being extracted. Democracy is not just about voting and equal protection under the law; we also need to consider democracy in the economic and financial sectors--too-bit-to-fail banks; powerful monopolies in just about every industry; (large) private equity extracting vast amounts of wealth, resulting in millions of lost jobs (shipped overseas), lack of competition among producers, wages that have been depressed since the 1980's, among many other disruptions. The composition of the Congress in 2020 will be fascinating to see. Will there be enough Dems with the will to push back against the most powerful forces in our culture, or will it be the same policies, favoring the rich and powerful?
Guapo (TX)
Using capital to create more capital, financial engineering at its finest. To all those arguing against it, look at it like a fair exchange; the beneficiary (shorter) making money at the expense of the incompetent (management).
sparta (WYOMING)
The next your nice, comforting financial advisor tells you to invest, just ask a simple question: what is the short interest? The next time your pension fund managers meet, demand they disclose conflicts. If you're recipient of a governmental pension, you'll have no real ability to do either of the above, so assume it has been pillaged for years. By corrupt politicians controlling the managers. Pennsylvania's teachers retirement fund, for example, is $54 Billion in the hole with no chance of making the underfunding up. So why blame short investors who pick up the stench of this rot and pounce for a profit?
wildcat (houston)
@sparta I watch the bankruptcies in the Oil & Gas sector. You wouldn’t believe who the rubes are that got fleeced by the fracking boondoggle. The shorts have been feasting on the oil & gas industry since the spread of fracking. I’m sure they got plenty of money that started out in someone’s retirement plan savings. In the Alta Mesa bankruptcy, the Eastern States Pipefitters Pension Fund sued saying they were misled into investing in a blank check company f/b/o sharpies from a previous incarnation of Alta Mesa. In the Edgemarc Energy Holding bankruptcy, a brand new oil & gas explorer, backed Goldman Sachs’s private equity arm and the Ontario Teachers Pension Fund, had to be liquidated. Incredibly, you read that right. Pension money at risk in the patch. I looked at the pleadings in the Edgemark bankruptcy and the White Shoe lawyers were charging $1,000.00/hr for associates and $500/hr for clerks.
Sally (SC)
And what are Ms. McKee and Mr. Icahn going to do with that money? Anything useful?
Mary Ann Donahue (NYS)
@Sally ~ One of the things Icahn does is donate enough money to institutions such as Princeton and Mt. Sinai Hospital that buildings are named after him. I find it ironic that when a tenant of medicine is "first, do no harm" that a medical school has Icahn's name on it, when he has done much harm to ordinary workers.
Mary Ann Donahue (NYS)
@Mary Ann Donahue ~ Oops!! correction tenet, not tenant.
Stratman (MD)
@Sally No, undoubtedly they intend to invest it in passbook savings accounts paying a half percent per annum. /s
Mark Thompson (NYC)
These investors didn't create the financial problems of malls, changing consumer tastes and the internet did. They just wisely bet against a failing industry They are not buying companies with borrowed money, then bankrupting them like private equity has been doing, at the expense of the loyal employees of the companies. To me, the former is smart investing, the latter is vulture capitalism.
Mary Ann Donahue (NYS)
@Mark Thompson ~ Carl Icahn has done both. He is one of the original vulture capitalists and since he destroyed TWA, I see nothing good in anything he does.
Daniel (Greenville)
Great, I need to buy stock in liquor after reading this. Or just buy enough liquor to make me forget how parasitic humans are.
Dantes (ny)
---- " There is something discomfiting about the idea of getting fantastically rich off someone else’s misfortune, which is what happens when a “short” trade — or bet against a stock or industry — succeeds " ---- Did you really write that? Please do some background homework on the philosophy of short-selling before making that statement in a capitalist, free-market economy. There is no evidence that short-selling bankrupts a company. It is actually the reverse. Short-selling brings to light broken organizations faster. In fact, short-selling is one of the key methods of shedding light on fraud in organizations. For this, there is statistical evidence. Furthermore, there is perfect evidence that economic bubbles are more clearly and quickly exposed because of short-sellers. The 2008 financial crises is one of the most recent examples. Without short-sellers, the mortgage fraud game would last several more years before collapsing. Short-selling made it occur much faster, savings God knows how many families.
Mark (Ca)
When one reads this kind of stuff it makes one wonder just how far removed the human race is from the law of the jungle.
Jeff (SF)
Does Carl ever build something to last? Or just buy to bet against, break up or sell (after squeezing the life, and every last penny)? Though for some reason he supported the pyramid marketing leeches at Herbalife in his battle against Bill Ackman a few years back....must have admired Herbalife's business of sticking it to the little guy while a few fat cats got rich
Milton Goldman (SAN Francisco Ca)
Does the author seriously think investing is math and "magic?" Perhaps take an Economics 101 course, and the logic and simple calculations won't be so mysterious to you. You are promoting financial illiteracy by casting finance as a mysterious power, when it's really quite simple. Do you really think malls are NOT going to go bankrupt? Doesn't take a genius to figure out that one.
Edwin Casado (New York, NY)
I don't see the problem with shorting. I don't think there is anything necessarily wrong with the practice, at least when compared to going "long" on a stock. It's just the other side of a gamble. My problem is with the current state of American capitalism and the little taxation that these gains incur. We need to push for further progressive taxation across the higher income brackets so that those with a lot of income pay more into the system. And these capital gains should probably be taxed at a much higher level. That re distributive effect achieved via taxation can do a lot to improve the conditions of the most vulnerable 30% of the American population: tax-funded Universal healthcare, tax-funded higher education, social security, our post service, and additional investment in public infrastructure. Some inequality is good, too much of it is harmful.
Tamza (NoCal)
So gambling, on steroids, is good as long as you tax the gains.
Les (SW Florida)
@Edwin Casado Biden stated there would be a tax on financial transactions.
Bike Fanatic (CA)
@Edwin Casado as Gabriel Zucman states in his latest book, the United States led the world in progressive taxation. We were an economic powerhouse, one income bought a house and car, raised a family and sent the kids to college. Don't believe it for a moment we can't return to this model. If we don't we'll be a wasteland of addicts and homeless. "Tightrope" provides a wonderful preview for things to come if we don't.
Kris (San Rafael)
Look forward to seeing how all this mall space is repurposed to living space, schools for trades, indoor farms or who knows...
Kate McLeod (NYC)
I wonder what can happen to all the brick and mortar malls. I know we need decent housing desperately. Build low-income housing out of them. Put a decent school in the center. A coffee shop. A grocery store and some parking.
Mannley (Florida)
Yay predatory capitalism. Welcome to dystopia.
Bill (Boston, MA)
For all their talk about values, neoliberals, neoconservatives, and bottom feeder hedge fund managers don't give one iota about "Tradition", they smile and lie all the way to the bank!
Joe (Los Angeles)
Summary in five words, "and the rich get richer"
GG (New York, NY)
Wow. Geniuses. They only cracked a secret that a few hundred million US consumers already knew.
Vagabond Rambler (Australia)
It seems worrisome that short speculators can only profit from destruction rather than creation. I feel like such big earners should pay more tax, and deliberate rumours to reduce stock prices (and thus increase profits from short bets) should be more carefully monitored. Remember the first Wall Street movie: "Blue horseshoe loves (then hates) BlueStar airlines"
Duffy (Dallas, Texas)
Mr. Icahn needs to enjoy his life on this earth as there is a man with a pitch fork waiting on the other side.
A. Reader (Birmingham, AL)
The meltdown of residential mortgage backed securities and collateralized debt obligations in the 2007-2009 period should serve as a warning: As the BBB-rated tranche goes, so too shall the AAA-rated tranche. I think the rot is pervasive now, just as it was then. Why anyone believes ratings issued by Moody's, Standard & Poors, or the other agencies today — given their sorry history — is pretty amazing. Very Barnum-esque, as they say.
WeHadAllBetterPayAttentionNow (Southwest)
This is why billionaires not only don't fear recessions or depressions, they love them. And that is why Donald Trump and Mitch McConnell are doing everything in their power to shove this country into one.
tennvol30736 (chattanooga)
I am one of the investors who has lost money owning mall stocks. The one in my area, CBL, has recently filed bankruptcy. I have many years of investing experience, a former banker, an MBA. CBL, owner of approximately 105 properties, mostly enclosed malls, earned consistently $200-300 million in cash flows for many years as retail turnover, bankruptcies were readily replaced. But as a publicly traded entity, the negativity in publicity surrounding malls, combined with the speculative short trading cut off in essence their access to capital at reasonable cost. The traders could have influenced the credit rating agencies and their checkered history. CBL was quite well prepared financially in Jan. 2020, the CEO a Harvard and Stanford graduate but the covid calamity, trading activity conspired to force bankruptcy. As a result, I have for one have lost trust in the financial markets.
John (ME)
@tennvol30736 I'm looking at CBL's 20 year stock price chart. It shows the share price declining steadily from $24 in April 2013 to .19 today, 7 1/2 years later, and that was during a period when the S&P500 was on a tear upwards. You can't blame the shorts for everything. Just look at the chart. CBL was a sell for a long time. You should have shorted it or bought out-of-the-money puts on it and rolled them forward every month. Could have made some money.
GMooG (LA)
@tennvol30736 CBL has NOT filed for bankruptcy. Yet.
RM (Vermont)
Venture capital investors make money by anticipating the future, and getting their money there first. That is the way it has worked for centuries. During the American Civil War, before a transatlantic cable to bring information between America and Europe in real time, speculators would trade US and Confederate bonds on the London market. The market price of the securities would go up and down based on the latest battlefield results. The news was obviously delayed. Some entrepreneurs hired the fastest available ships to sail from Halifax to London. The news was telegraphed to Halifax, which was as far as the telegraph lines ran from the USA, and the battle news went by fast skiff to the London market. As a result, some traders had market information days before everyone else, and made a killing on the bond market as they had market information in advance of the market in general. But in the case of the Malls, it was obvious before COVID that malls were becoming a zombie industry. COVID just pushed them into the grave faster. It should be easy to infer that a pandemic would be financially harmful to businesses that depend on crowds to people to stay as going enterprises. Every ill wind blows someone some good. That's just the way it is.
Kara (DC)
@RM "Venture capital" is typically high-risk investments in early stage companies that are looking to build something. Hedge funds are pools of investment capital, typically from pension funds and institutions, that invest in a way that mitigates risk by taking both sides of a bet - "hedging". Speculation is gambling on some future outcome. Venture capital is NOT speculation. It's an investment in a potential company or product based on an educated, researched thesis or demonstrated sales. Shark Tank is a smallscale form of venture capital. The mortgage crisis was speculation. CALPERS invests in hedge funds to grow pension funds. These are important differences - betting on a dying industry is NOT venture capital. Venture capital - embarking on an adventure with capital.
Martin Byster (Fishkill, NY)
So, will somebody at the Times tell me how much Mr. Icahn is expected to pay, how much should be paid in federal income tax on this $1.3 billion dollar trade he made. Looks to me that this $1.3 billion is an example of the excesses in "supply-side" investments a Republican Party a scam, which encourages and rewards the top end individual incomes with tax breaks and does little or nothing for the remaining taxpayers but reduce our share of our nations income and wealth and increase our share of our nation's debt. Hmmm; will the US even collect 20 cents on the dollar in federal taxes from what Mr. Icahn raked out of his "?trade?" ?
Longs and shorts a market make (nyc)
After a company issues initial shares, someone has to sell for someone else to buy. Shorts make sure that companies are not overvalued or built on false filings.
Dave (NC)
While these particular shorts are relatively small compared to the economy as a whole, the insurance they buy for these “investments” is similar to the type of instrument that contributed to the 2008 crash and the federal bailout. In 2008, AIG (and presumably others) sold credit default swaps and other unregulated exotic financial instruments. When things started to unravel, they were unable to cover all of the risk and had to be bailed out, yet another example of Wall Street privatizing profits and publicizing the risk. When are we going to wake up and start taxing these transactions to a level commensurate with the risk and their relative worthlessness to our economy?
David Ricardo (Massachusetts)
The process of shorting makes these financial markets more efficient, hastening the demise of malls that are zombies, walking dead. As such, these shorts will in the long term direct capital into productive investments. Propping up malls which are destined to failure would be the exact wrong thing to do. As far as taxes go, let's not lose sight of what the purpose of taxes is: to provide revenue for necessary government functions. Taxation should not be used as a way to achieve greater economic equality, there are better ways to do that.
Kate (Jamestown, RI/Pittsburgh, PA)
I fail to see the genius in shorting distressed malls. CRE has been seeing massive losses for years now due to oversaturation of the market and changing consumer trends. They just noticed this at the end of 2019? Parasitic, more than anything.
MakingSenseOfItAll (Puerto Rico)
A mall is a big investment for a community. They were sold as that. As new city centers, displaying wealth and inspiring awe. It seems after 50 years, malls have run their course. Sad for society that has after all nothing to show for these years but a few acres of tarred over farms and industrial ruins. Our cathedrals are not made for eternity. A quick profit will do.
Joan In California (California)
Well now some of the small malls can be turned into housing for the poor and soup kitchens plus some sort of service business or charitable organization. Perhaps Icahn and McKee can invest in those or encourage fellow richies to buy up one or two and set them up in the name of sweet charity.
Craig H. (California)
I would like to know more about the trail of money around these CMBX bonds as a mall heads towards bankruptcy. As a business becomes aware it is heading towards bankruptcy, the normal motivations of capitalism no longer apply. A re-mortgage may be applied for to allow things to keep going a little longer. The terms of the mortgage might be onerous, they might override the interests of other other creditors such a suppliers, holders of earlier mortgages or loans, and the pensions of employees. (At least dilute them). It might be just to buy time between the last big bonus for management and the bankruptcy date, to prevent the bonus from being clawed back. What is the role of the short seller in such a case? That enables the issuance of the bonds which enables the issuance of the mortgage, which enables the dilution of debt owed to preexisting creditors. The bond is worthless but the short seller sells it at at less than face value so it looks like it might be a bargain to someone else, or at least good enough to bundle up for a pension fund. If it wasn't for the short seller, no one would have bought the bond, not at face value. I don't in general buy the "no harm" claim in such a scenario. Pre-existing creditors are harmed. Unsuspecting owners of packages of worthless bonds are harmed.
tennvol30736 (chattanooga)
@Craig H. CBL had a 40 year track record of owning and developing malls, paying its bills. However, it did return malls to lenders but these were nonrecourse loans with sophisticated lenders with their eyes open. What has been the impact of this kind of short trading? Millions of lost jobs, massive destruction of many billions of capital.
David (Kentucky)
@Craig H. This is entirely wrong. Short sellers don't sell bonds at less than face value and don't jump ahead of or dilute other creditors. If investors believe a company stock is overvalued based on business prospects, the Short seller borrows stock from other stockholders, paying them a fee for lending their stock. They then sell the borrowed stock at the current market price. When they have to return the stock they borrowed, say in six months, they buy replacement stock on the open market at current prices. If the price to purchase the borrowed stock back has declined since they sold it they can buy new replacement stock cheaper than what they were paid when they previously sold the stock and so make a profit off of the decline in price. If, on the other hand, they guessed wrong and the price of the stock has gone up when they time comes to return the borrowed stock, then they have to buy replacement stock at a price higher than they received when they sold the borrowed the stock, and so lose money on the trade, as well as the cost of the fee they paid to borrow the stock. Short sellers have nothing to do with the actual prosperity or failure of the businesses, except that other investors and lenders may come to agree with the short sellers that the business is not doing well, and so other may also avoid investing or loaning money.
Cynthia (Van Nuys, CA)
Hedge Funds have been profiting off the largess of the politicians they've donated to for decades - the billionaire class has only become more obscene in their greed since Citizens United became law, allowing them to throw decency & ethics to the wind and indulge in their corrupt store-bought power. Hope the bubble they dwell in is able to withstand the piercing pitchforks that will eventually come for them.
surajit (new delhi)
The fact is: the whole thing was legal. That is the irony . There are so many things which are perfectly legal but not good for the society. Stock market or speculation is generally good but without limit ? Certainly not , just like anything in life. This case proves that but who will bell the cat ?
Matt Kuppers (London)
It doesn't matter whether one goes long or short. Eventually, money will change hands and flow back into the economy. Ethics are overvalues when it comes to business practices.
Stephanie Wood (Montclair NJ)
Money from rich people doesn't flow back into the economy unless they are taxed.
etaeng (Ellicott City, Md)
@Stephanie Wood Yes, it does. Rich people have so much money to invest that 30 year mortgages are less than 4%, and government bonds are less than 1%. The money just doesn't flow into consumption.
GMooG (LA)
@Stephanie Wood Sure. Because rich people don't hire household help, pay private school tuition, renovate their homes, buy cars, go to restaurants, buy clothes, invest in stocks, buy stuff at retail stores or donate to charities.
Mary Ann Donahue (NYS)
"Mr. Icahn, whose hostile takeover of TWA in the 1980s established him as a major dealmaker.." I worked for TWA then and still remember it as a pretty special airline before Icahn ran it into the ground. He heightened his reputation for being ruthless with his takeover. Icahn was interested in TWA was because it was asset rich. Predator capitalist that he is, he sold off most of the assets, pocketed millions, then leased planes etc. back through his holding company. There was a sad joke that he even sold the light bulbs. When Icahn took TWA private, he enriched himself with a $469 million payment and left TWA $540 million in debt. When he sold the 'crown jewel', TWA's London International routes, in 1991 for $445 million, the death knell that lasted a decade began. All these decades later and I still remember the emotional and personal devastation Icahn imposed upon TWA's workforce. I wonder how many ordinary mall workers will be hurt while the big money people make their millions and billions, laughing all the way to the bank. I feel bad for them.
Andy Hain (Carmel, CA)
The opportunity to short only exists due to the overwhelming desire of some to make a killing investing in commercial property. Without aggressive buyers, taking short positions might not be so profitable.
jeffm (Medellin)
Malls have been dying for decades. Over-malling and exorbitant rent prices killed traffic and pushed out the locals and smaller chains. The internet delivered the death blow to even more malls and stores. The virus just accelerated their death. Funny, however, I live in South America and mall culture is alive and well, well until the virus. Maybe 15% to 20% of the spaces are for rent and every time I return, more are gone. But that isn't just malls. There are retail and every other commercial type spaces for rent up and down every street. Internet commerce is still relatively small but commerce has moved to apps where you can order anything and have it delivered in 30 minutes by motorcycle, sometimes bicycle. If this kills the malls, which it won't - I will be very sad. After years of sitting on my tush waiting for boxes to show up at my front door, I relearned to appreciate human contact even taking my laptop to work in the mall. They have workplaces set up and plenty of coffee kiosks, bakeries, etc. Of course, there are 4D theaters, amusement parks, supermarkets, the DMV, banks, laundries and alterations, casinos, car washes and a bunch of retailers who closed up shop in the US but flourish elsewhere.
George (NYC)
Commercial Real Estate is fighting a loosing battle and they know it. I pity those who bought Into real estate investment trust.
Matthew (Pasadena, CA)
The biggest investors in this type of financial activity are institutional investors, which means pension funds for teachers, firemen, police, and other public workers. Most public pension funds like CalPERS invest in private equity because they need the yields to send out the pension checks. While teachers condemn Wall Street capitalism and inequalities, they are the people who are funding it.
Stephanie Wood (Montclair NJ)
The reason why public pensions are going belly up is because pension money was invested in Wall Street, which is basically eating up the money, crying bankrupt and begging for bailouts while they laugh all the way to the bank. Another country would have a revolution and overthrow these people.
GMooG (LA)
@Stephanie Wood No, that's simply wrong. Public pensions are going belly up because for years, blue-state governments have been buying the votes of union members with promises of pension increases that have never been funded.
John (ME)
@Stephanie Wood That evil "Wall Street" is responsible for public pension fund problems is, I think, a populist progressive view. In fact, public pension funds are managed by government appointed officials and the investment professionals they hire. They are the ones responsible for investment decisions, not Wall Street. If those officials mismanage, make poor investment decisions, and if state legislators expand benefit payouts improvidently, it's not the fault of "Wall Street".
Ken (Sydney)
Shorting exists because investors are prepared to loan their shares, in the hope of making a profit, so when they lose out it isn't a problem, just a bad investment decision. The only time it is a problem is when it is combined with an attempt to manipulate a share price down through false information.
Mick (California)
Alas, like the animal world we rose out of, there are always predators waiting for the less fit to become vulnerable. In the case of malls, their demise was mostly predictable once e-commerce took off. But unlike the animal world, we don’t have to be so brutal about it. Reasonable financial laws (for example, a huuuuge tax on instruments like these hedge fund sales) could add an additional burden to selling short and perhaps allow the big old beasts that we call malls to thin out and die a bit more gracefully before the vultures come in to pick them clean.
Todd (Wisconsin)
These practices do nothing good despite the efforts to justify them. They create nothing of beauty or value. They just destroy jobs, and places that were touchstones for people, even if they were a poor substitute for something of substance.
Donald (T)
The believe that things will go up and up is insane. There ought to be far more shorts especially at a time like this where Wall and Main Street have completely disconnected. Reality will get you, Fed or not.
bagenal (Boulder, CO)
How can such people hold their head up in society? Destroying jobs, destroying societal connections? Just to make _more_ money. I am disgusted by such rich people just interested in making them selves richer. I spit in their general direction.
Lilly (New Hampshire)
Such people do not care what you or anyone else thinks of them. They sleep very well and don’t care that they are the true ‘takers’ of society and contribute nothing back. It may be a disease called Affluenza, but they are being allowed to destroy the soul of a nation by amassing such obscene levels of dynastic wealth.
lorraine (new york, ny)
Very clever move.
LGM (Seattle,WA)
Another culprit in this story ... accounting rules. The accounting treatment of real estate - an estimate of something over the book (what was paid for it) value "Fair Market Value". These rules artificially inflate the valuation of malls. The loans made on these inflated values, were not underwritten prudently in the first place, the deteriorating retail markets merely made the crack a chasm.
GMooG (LA)
@LGM Totally wrong. Nobody lends or invests based on accounting values of anything.
Donna in Inwood (Manhattan)
The story says that 39 mall loans that are currently in CMBS deals are going to mature in 2022. So let's assume that 75% of them will default. These would be a mix of 10-yr, 7-yr and 5-yr loans, so they would have been written in 2012, 2015 and 2018. In general, loan underwriting was more conservative right after the 2008 Great Recession. So the loans that were done in 2012 might be okay, but by 2015, standards had gotten lax and I'm guessing most of those loans, from 2015 and 2018, will be under water. Is that 75% of the total? I don't know, maybe it's roughly correct. I guess we're talking about 29 or 30 loans defaulting in 2022. There won't be 30 discreet borrowers, because mall ownership is pretty concentrated among the big REITS. Although these are likely to be smaller malls, Class-B and Class-C. There's no such thing as family-owned malls anymore but there are some smaller REITs that own them. Maybe we're talking about 12 to 15 borrowers who are going to default. If the average loan size was $400mm, we'd be talking about a total default of $12B by roughly a dozen borrowers. So it doesn't sound like it's going to be big enough to trigger some big event in the economy, thank goodness. I'm sure Trepp has already done this calculation. However it's going to be costly for the bond holders who are holding those loans in the form of CMBS bonds.
Dean Jones (San Anselmo, ca)
Greed. There's never enough to go around.
Djinn (shelton, WA)
I believe I can identify some very non-essential folks from this article. I'm thinking stocks and pillories should be making a comeback. There is a great need for them.
Jaylin (Natick)
Bring back Shopper's World, Framingham MA and enhance its experiences with the reindeer, festivals ect.. in the middle..
Patrick (Australia)
Appropriately labelled a bet. It is legal, and I am sorry I was not offered the chance to double my money, but it tends to be at odds with the story that the financial markets are "productive"!
Peter (Portland, ME)
What's really depressing about this story is that you read it and you think, ok, Carl Icahn is an 83 year old guy who who has nothing left in his life but greed, I suppose in some way I can see how this is what he chooses to spend his time doing. But the fact that a 31 year old who's clearly intelligent and driven decides to focus their life on the demise of American retailers is just sad. You'd think someone with these resources and abilities could do more.
Jim (Olympia)
Vulture capitalism at its finest. Using sophisticated math to extract hundreds of millions out of the system for a small group. They don’t produce anything of value to society, they’re just financial predators looking for a future carcas. First one there wins the prize. The felicitous GOP throws in additional goodies. As one pundit said, “80% of the benefit of Trump’s 2017 tax cut went to 150-175 hedge funds, big banks, and high net worth individuals.” Meanwhile, where I live, the food bank is overwhelmed.
HMI (Brooklyn)
The only clear takeaway from the article and many of the comments is that medicine is and always will be an immoral activity, as it rests on a bet that people can make a living from other people becoming ill.
Maxy G (Teslaville)
That is a very interesting comment.
John (ME)
@HMI We could say the same thing for lawyers. Many of them make their money trying to remedy and straighten out the injuries, misfortune, bad decisions, and misconduct of their clients.
Interestingly nobody has lost sleep over Amazon openly losing billions by proliferating Prime free shipping as they quickly drove online competitors and many retailers out of business.
confounded (east coast)
Oh come on now. This is no different from someone buying a put option or selling a call option contract. You are betting on the direction of the price of the underlying. There is nothing wrong or illegal about it.
Stephanie Wood (Montclair NJ)
If you don't see that it's wrong, you can't see that there is something wrong with our entire society, where old capitalist parasites get rich on destruction, while people are homeless and hungry.
expat (Japan)
He has never contributed anything to the economy, but has mad billions by destroying viable businesses and their employees' livelihoods - all the while being befriended and abetted by politicians of both parties. Read Robert Reich's account of this vulture, if you have the stomach for it.
GMooG (LA)
@expat Short selling doesn't "destroy businesses." Nobody stopped going to a mall because Carl Icahn is shorting malls. People stopped going to malls because they came out with this new thing called the internet, and now covid. Short-sellers merely spot these trends and put money behind them
Liz (Portland)
Money that could be used instead to actually build something productive. It is wasteful and exploitive.
Robert Leone (San Francisco)
Disgusting. Catie, Carl and the rest picking over the bones of late-stage capitalism while thousands of people suffer. Try doing something useful instead of helping to crush human beings under the weight of your greed.
GMooG (LA)
@Robert Leone If Icahn stopped short-selling tomorrow, do you think that all of a sudden everyone would forget about the internet and rush out to JC Penney, Sears, Ann Taylor & Brooks Brothers? Come on, man!
Robert Leone (San Francisco)
@Gmoog Of course not. It goes far beyond Ican. Even you should be able to see that.
Edd (Kentucky)
The next big short will be luxury Manhattan Condos. Why have a NY condo if there are no great restaurants, no theater, or no events???? Same with mega golf. Until they fix covid 19 all bets are off.
J Trainor (Columbus, OH)
Is capitalism great? .. benefiting off the loss of jobs and livelihoods and savings of thousands of Americans?
Jzu (Port Angeles (WA))
For every winner there is a looser in investments. Mrs. McKee has obviously the talent and did the work understanding the mall industry. Who does this talent serve? Your 401k portfolio manager? The pension fund manager? The answer is likely: No. The talent is gobbled up by those who have the infrastructure and wealth to do so. This is the way massive wealth flows from the common person to the already rich. The solution? Don’t ask me. It is hard to find in our current (un)democratic/capitalistic structure.
Stephanie Wood (Montclair NJ)
The solution? A maximum wage and very high taxes on the rich. If they try to leave the country, seize all their assets, which are all stolen from the taxpayers anyway. After all, if I missed one property tax payment, the local government would seize my home.
T (Oregon)
Slavery was legal, but morally wrong. So is this.
WYB (Upper Midwest)
Carl Icahn disemboweled TWA, a great airline. I asked my sister once what had become of Dan River, the towels and linens manufacturer and she said "Carl Icahn." This is greed, plain and simple.
John de Yonge (Summit, NJ)
Why is it offensive to bet that the value of an asset will go down? Every player involved was highly sophisticated - no one was fleecing mom and pop here. The hedge fund would have lost money if malls simply offered an experience better than sitting at home and ordering from Amazon. The sooner malls can be repurposed for something more valuable to society, the better.
eric (vermont)
I was a construction subcontractor for years. I found the most ruthless people to work for, bar none, were the ones who ran the malls. Woe be to you to miss an opening date or somehow not live up to the details of your lease. Is big bad Mr. Icahn giving it to them? It's called Karma. No one is more deserving of being shorted than mall owners, with the possible exception of Mr. Icahn himself.
J. Waterson
Well said.
D. Tice (California)
People, this is 21st century Capitalism We need to accept it or change the rules Capitalism is an amoral system... always has been
I really don't understand the goal of such articles. No one is forcing the companies the go public and public to buy their stocks. Companies born, grow, saturate, die; so do stocks. The smart investors make money and dumb ones lose. This is how capitalism works.
Stephanie Wood (Montclair NJ)
Capitalism doesn't work for most people. Time to get rid of it. It's basically a parasitical economic system.
C. Shridhar (Las Vegas)
Millions of retail investors engage in shorting which in itself is merely the opposite of buying. All it involves is selling an asset (borrowing whatever it is - securities, real estate or the like) in the expectation that it will fall in value and then buying it back at a lower price. The risk is that the asset will increase in price. Mr. Icahn is a savvy investor and seems adept at spotting an asset or industry that is failing. He has been immensely successful using this strategy just as he has with buying assets and selling them at a higher price (distressed sale of the Fontainebleau building in Las Vegas for example) The descriptive terms "somehow discomfitting" or "brazenness" or "vulture capitalist" merely colors this activity as underhanded, or bordering on the illegal. No evidence of wrong doing has been provided. It should be characterized as what it really is - "good Investing". When millions of retail investors do this everyday, it does not attract attention. Only when Mr. Icahn does it, this article impugns the activity as having no economic value. It makes great reading because of its schadenfreud value. As a retail investor who has made money using both long and short strategies and paid my taxes on the capital gains, I take exception to the allegation that shorting provides no economic value. All participants in a market (long & short) provide economic value because participation leads to competitive price discovery which underpins the concept of fair value.
richard g (nyc)
@C. Shridhar There is nothing illegal about what he and his fellow vultures did. But their greed and lack of morality are what is destroying the fabric of America. Income inequality is the root cause of most of the worlds problems. Plain and simple
RK (Boston, Ma)
While this is legal it does nothing for society so it needs to be taxed at very high levels so something good can come out of it.
GMooG (LA)
@RK Yes, of course. Just like we should heavily tax electric cars because they are hastening the demise of all the companies that make electric ones, right? Right?
Matt Johnson (Omaha)
This article glorifies these "titans of finance" who made a killing on the misfortune of malls, as so much financial writing has extolled the wisdom of past financial gurus. My, they must be brilliant. The graph included makes it painfully obvious that they just got lucky. Betting on an obvious trend, the slow decline of malls due to online shopping, they struck it rich solely because of the Covid epidemic. Or maybe they have exceptional insights about the Wuhan live animal markets...
Joe Taxpayer (USA)
"There is something discomfiting about the idea of getting fantastically rich off someone else’s misfortune, which is what happens when a “short” trade — or bet against a stock or industry — succeeds." No, there's something discomfiting in the reporting and ideal that there's not supposed to be winners and losers. Unfortunate? Yes. However, sometimes you win and sometimes you loose. The world is not fair and there is nothing wrong with anything Mr. Ichan or Ms. McKee did in their due diligence. The same tactic was utilized in 2007/08 when housing crashed. I made a lot of money shorting on the bet that there would be massive defaults in mortgages because banks handed out money for several years to those that could not afford jumbo loans like giving away candy to kids. The uneducated lost. I was one of those uneducated but I quickly figured out the process would produce winners and losers, and that's the beauty of our capitalist system. Anyone has the ability to do it for themselves and learn these same trading techniques. I did it with my high school education and you can do it too. Go out and use the system to your advantage, but don't sit around and blame others for making money, no mater how much or how little. I'm sure I'll see the replies from the arm chair financial analysts on here and those saying how unethical this is, but there's nothing illegal about it. I'm sure the same people that have issues never try to lower their tax bill either....
richard g (nyc)
@Joe Taxpayer Hey Joe, Calling it unethical is like calling losing you job and having to be homeless with 3 kids sad. The people like Icahn and you, who live in a dog eat dog world are immoral, selfish and despicable. Enjoy your money. Don't think about those who suffered because of it.
Liz (Portland)
How about investing to build something and produce something of value? Feeding off the carcass of other people’s lives and livelihoods may be legal, but it is destructive to a decent, livable and sustainable society.
keith (orlando)
the government should use eminent domain, take over all malls, make them elevated light rail hubs, and increase the mass transit for all of america !! the infrastructure is there, just build the rails....buy the "trains"...new green deal-ish
GMooG (LA)
@keith and how would you pay for all that?
Total Socialist (USA)
Get rid of those ridiculous malls, and bring back mass transit!
John (San Francisco)
The characterization of shorting in this article is ridiculous. It does not “push companies over the edge” - that is a wholesale fabrication and I’d love to see the journalist back that statement up with any reputable academic research. It is, however, often the case that companies with prominent short-sellers wind up doing quite poorly- often because companies that are shorted are frauds, fads, or otherwise poorly run, which is why it attracted shorts in the first place. Shorts make money by borrowing stocks from other institutional investors. The institutional lenders are happy to do it- in aggregate, it earns a bit of extra return for them. Hedge funds who realize gains off shorts pay cap gains just like everyone else and the Trump tax reform actually effectively closed the carried interest loophole for hedge funds (its a huge giveaway for real estate and private equity though, go figure...).
Liz (Portland)
Instead of investing to build a business, you invest to help it fail. This is a big reason why local newspapers are being cannibalizes, the end result being the death knell of our democracy.
tennvol30736 (chattanooga)
@John The formula of a short investor is well laid out here. The overbuilding is not in malls, rather, there is too much retail space. If one examines its history, mall occupancies overall were relatively stable. Yes, there was significant turnover but replacements were found. Occupancy rates over the last decades averaging 90-95% were typical. The portrait and strategy of traders: 1) find a wound and then aggravate it with a lot of negative publicity; 2) massive short trading cycle to diminish the value of its stock and bonds, 3) the result is impair the ability of said company or companies to attract capital at reasonable cost, 4) making fast money trading the downward trends 5) substantial financial losses for investors and creditors. Witness the mass bankruptcies the last few years from these short traders. They are predator coyotes.
John (San Francisco)
@tennvol30736 Again, you’re conflating cause and effect. You’re arguing here that in the absence of Mr. Icahn’s short, malls would be just fine right now. Somehow, it is short sellers who are causing the demise of American malls, and not the massive shift in consumer behavior towards e-commerce, nor the global pandemic which has forced them shut. “Massive short selling” is a RESULT of deteriorating fundamentals, not a cause. If short sellers could just do this to any stock, then why don’t they ever do it to Amazon? I have never heard such pity for real estate developers in my life.
Marat1784 (CT)
Want to help all of us, boost the economy, tax the untouchable rich? Short Trump.
Doug65 (Native New Yorker)
So good of you to profit from the suffering and hardship of others Catie, and in a pandemic no less. You’ve learned well from Mr. Icahn. Live long and prosper.
len (san diego)
A careful reading of Michael Lewis Novel "The Big Short" indicated that Steve Eisman the hedge fund manager went against the guidelines of the fund to carry his short position. Eisman is famous because the trade worked out but would have been sued and gone to jail had the trade failed. I have no problem with Hedge Fund managers making loads of money. I do have a problem that when they fail there is a huge bailout using taxpayer funds. In the mortgage debacle of 2008-2009, why should AIG credit default swaps be paid at 100 cents on the dollar when AIG failed? This made these instruments risk free to the to the benefit of the shorts of the mortgage-backed instruments. We must stop the privatization of gains to the financial industry and not object to the socialization of their losses when they fail. If hedge fund managers lose,and jeopardize the financial system in the process, they should be put in jail. White collar criminals don't do very well when they serve hard time in prison.
George Mitchell (California)
If shorting were so easy we'd all be doing and making tons of money. Cherry picking a few sad tales of successful shorts is the same as cherry picking the random dude who invested in Apple's IPO or Bitcoin in 2010 or whatever. How about all the geniuses shorting Tesla because they have an unsustainable business model? They don't get a lot of stories in the NYT...
sdt (st. johns,mi)
I'm "shorting" America, to many people like this in the country.
Susan (Western MA)
Just today i read in the NY Times that my very own community is depressed, with an appalling economy and rampant drug use and overdose deaths. (See Gregory Crewdson piece.) It's infuriating to read of people making billions of dollars by simply betting against OBVIOUS losers. I work part time because I can't find a full time job. I'm deep in debt and don't know how to get out of it. Make less than $400 a week. This piece turned my stomach.
Bob G. (San Francisco)
You seem to be tut-tutting shorting, but then you helpfully (unhelpfully?) list the CMBX 6 Index - so your readers can pile in on shorting it? Trust me, very few financial types will have any moral quandary about making money.
BayArea101 (Midwest)
"There is something discomfiting about the idea of getting fantastically rich off someone else’s misfortune" Really? And how, one wonders, did you come to the conclusion that you should feel discomfort when some benefit from the financial difficulties that others are experiencing? It's helpful to know that there is always someone benefiting from the business difficulties of others. Let's face it, this may come as a surprise to many; it shouldn't, but many are completely unaware of how the world of commerce functions. Perhaps asking why the world works this way would be a subject worth elucidating.
Ken (Ohio)
These hedge fund managers are the same ones getting tax breaks via carried interest, etc. We need Liz Warren in charge.
Pam R (Florida)
The article fails to mention the $16 billion dollar deal the Lowey family made selling Westfield malls to a french retail giant Unibail in 2017 and how much that affected malls in many areas of the US.
Larry Thiel (Iowa)
Predictable. So many people hate it when anyone makes some money.
Liz (Portland)
No, we hate it when people make lots of money by destroying other people’s livelihoods and lives.
Peter (Joppa Flats)
Another example of disaster capitalism. Well played. Can you imagine how rich they’ll get when the US goes under?
Andrew (Denver)
Look for that in about 2032. We have already passed the point of ever being able to repay our debt except with incredibly devalued dollars. Figure out a bet that will repay you in yuan, and you too may be able to afford some sweet Manhattan penthouses.
RCJCHC (Corvallis OR)
Two things we could live better without, malls and Wall Street.
alank (Macungie)
'Adding insult to injury' should be the tagline of these corporate scavengers
Mike C. (Florida)
These are bottom-feeders who place their bets and must pray a mall or company will fail. They build or contribute nothing to society. Does this sort of thing go on in Europe? It seems doubtful. Europe isn't dog-eat-dog like America.
Jim (Austin)
@Mike C. Unfortunately, this type of activity (risk taking) doesn’t happen much in Europe. Thus, companies like Microsoft, Google, Facebook, Apple, Tesla, Netflix, SpaceX, and so on are all started in the U.S.
Carolyn (Seattle)
Read Robert Reich's book where he quotes from a biography of Icahn (on page 98): He is described as a "detached, relatively loveless man," and "Carl's dream life is to have the only firetruck in town. Then when your house is on fire, he can hold you up for every penny you have." This is the kind of cruel person our Capitalist system rewards with billions of dollars while teachers use their own funds to buy art supplies. Bring on Elizabeth Warren and her plans!
JGM (Providence)
What a small insecure Mr. Icahn is a life devoted to nothing but collecting money to feel significant. Unlike Jobs or Musk, he has contributed nothing to the world. Mr. Gates and Buffet have used and pledged their fortunes to create a better world. Presidents Carter and Clinton have spent the second acts of their lives using their influence to enact change. Icahn will be forgotten a week after he dies
M. V. (Bellaire, Texas)
Malls were a tax dodge to begin with. A social and environmental nightmare. Good riddance. Sadly, both in their construction and destruction, they highlight the abuse inherent in the US tax system.
Jim (Austin)
The “short” could have gone the other way. There were buyers on the other side of the short who thought the index would not drop. Then the shorters would have lost their investment. Nothing was guaranteed.
Sven (Rotterdam)
Reading other comments, the fatal flaw of the article becomes obvious quickly: Unsophisticated (in the areas of Finance) readers think that the trade did in any way influence the fate of malls, which is simply not true. Mr. Icahn did not bring down big shopping malls, time did. Nor did he win any money that was in the mall's pocket before, he only profits of the insurance sellers. Yet, readers are outraged that Hedge Funds killed off the beloved shopping mall and cost the retail store employees their jobs, even though that is not true. But outrage has been selling for centuries and ever after '09 the financial industry has been a welcome target. I guess they can take it (At this point, you may imagine the famous scene of Woody Harrelson wiping away his tears with some dollar bills).
tennvol30736 (chattanooga)
@Sven Downward trading cripples the company by virtue of raising its cost of capital. Traders conspire to destroy companies.
raam (Michigan)
Mr Icahn didn't cause reduced shopping at the mall, its consumers who didn't want to visit them. The decline had been in the works pre- Covid and is accelerated by the virus. This transaction and resulting profit is no different then someone who believes that a company is not making good products and the stock is going to go down, hence shorts the stock or buys a PUT option. Sure impose a tax on the profits made, just like when a short seller or option trader makes profit. In this particular case, Mr Icahn should not be treated like he did something wrong.
Greg (Florida)
The fact that investors made a profit off this mall short is not the story here. Sometimes you win sometimes you lose. Ichan lost 1.6 billion on Hertz rental car. Made a fortune on this one. What's more important is the highest and best use of the land these malls sit on. A good piece of retail real estate should have a 30 - 40 year life span. It will need to be reconfigured, brought to current trends. Many large malls with anchors that have died can be redeveloped with apartments. You then have a mixed use concept. Less driving, less pollution, a micro city within maybe a 100 acre site. Going to the mall to browse, shop, socialize is an American pastime. It will still be. Those who adapt to a new business model for both Landlords and customers will survive.
Milton Lewis (Hamilton Ontario)
In a free market place stocks can go up or down. If investors make bets that a stock will go up or down based on research and not insider information that is the free market system. This is not Mr. Icahn’s first rodeo. More power to him.
Engineer (Salem, MA)
I view shorting as a kind of necessary evil. As long as there is no evidence that the people shorting are just manipulating the stock price. Shorting has brought to light corporate mismanagement and fraud on a number of occasions in the past. And, one needs to remember, that if the stock of the target goes up, then the people shorting can lose a lot of money. Fairly recently, Wirecard was the target of short sellers. The German authorities actually banned short selling of the stock and started investigating the Financial Times newspaper that had been investigating allegations of fraud at Wirecard. In the end it turned out that there had be substantial fraud at Wirecard and both the FT and short sellers were vindicated. If it had been left to the German financial regulators, the fraud would not have been discovered.
SLD (California)
This is capitalism at its worst. People with that kind of money should be taxed very heavily. I look forward to Biden’s presidency, where he will attempt to do just that. Millions of people are running out of money and have no idea how they will survive through this endless pandemic. That the stock market is booming and billionaires make even more money during these terrible times is indicative of how huge the separation is between the classes. I wonder how many people lost their jobs in these malls. Vote Biden so we have a President who cares about the rest of us.
Sirlar (Jersey City)
The problem with this kind of trading is that it just does not have a neutral effect on the economy - there is a huge negative effect on the economy. The author states in par. 7 that this kind of trading contributes "little to the economy". That's inaccurate - it is much worse than that - these kinds of trades hurt the economy because they 1) concentrate wealth in fewer and fewer hands - into hands of people who have not provided a productive service, and these gains will be taxed at the absurdly low rate of 15% and 2) these gains accumulated by Icahn and others will not be plowed back into the real economy as either investment or consumption, which will in turn lower our GDP.
Jim (Austin)
@Sirlar How do you know what Icahn will do with his profits? His history shows he has routinely invested huge money in companies both expecting companies to succeed as well as fail. Icahn has both wins and losses. The economy is not hurt. And yes, capital gains tax rates need to increase.
Sirlar (Jersey City)
@Jim When you buy an existing asset or speculate, you are not making an "investment" in economic terms. It is considered a transfer and does not add to GDP. Icahn either speculates or buys existing assets; he does not use his capital to open a new factory in the US for example (which would add to our GDP). Our hedge fund/private equity people are bringing down our economy.
James (St. Paul, MN.)
A business that really strengthens our nation and our collective economic health will provide meaningful benefits to key stakeholders: Investors, employees, customers, and suppliers. The business strategy described here is one that benefits only investors at the expense of all other stakeholders in the target businesses. This is certainly legal and clever----but it is disturbing at the same time. I am a self-employed small businessman who would never have the resources or cleverness to pursue shorting any other business. But the real point for me is that this is not a business I can respect as a contribution to the common good. Call me naive, but I place far greater value and respect for businesses that provide meaningful benefits to all key stakeholders.
The death of lower tier malls has been talked about for the past decade. This isn't exactly rocket science. You drive around America, and you see hundreds of decaying, half empty malls in run down areas. That some hedge funds shorted the properties is nothing remarkable. These particular investors are just really lucky the coronavirus lockdown coincided with their specific shorts. Because if they had purchase their shorts during a different time frame, they could have made no money or even lost a bunch. Remember that shorts can potentially expose you to nearly unlimited risk. Just look at the people who shorted Tesla before it had its recent astounding surge in share price. If these hedge funds made a wrong bet on these specific malls at the wrong time, they could have lost money also. But most sophisticated investors also purchase hedges, options, and other protection to mitigate that risk. That limits their upside and adds to their investment costs.
Twg (NV)
The character played by Richard Gere in the big hit movie "Pretty Woman" co-staring Julia Roberts was fashioned after a corporate raider like Carl Icahn. Back then they called it "greenmailing." The hostile takeovers that seemed to blossom like weeds back then cost plenty of Main Street Americans their livelihood and often their pension benefits. Nothing exposes the raw greed of Wall Street culture like vulture capitalism. All the stores that are closing, and the malls that are failing mean a cascading crises of revenue loss for cities and states across the country, and a critical loss of jobs. But to people like Carl Icahn and Ms. McKee the human cost of these faltering retailers means little to them. Just as in the movie "Pretty Woman" it's all an abstract – just intelligent business – as long as they make their multi-millions they're cool with it. And as far as Icahn's philanthropy goes– nothing like giving some of those millions away (enjoying the tax benefit too) to rehab a controversial image. Just ask Ivan Boesky, the bond trader from the 1980s, or the Kochs who donated plenty even as their right wing political machine waged war against appropriate regulation of industries, corporate taxes, and governing for the greater good instead of the wealthy few.
Aimee A. (Montana)
@Twg These people will also pay minimum taxes on their gains. They should be paying 50-60% regarding that capital gain.
Mark (Long Beach)
There is nothing productive happening here - just people betting other people's money on a derivative market. How about we make a rule that market investments be limited to capital raisings only?
Usok (Houston)
Public losses and private gains. I hope they pay reasonable taxes on the profits.
Klinger (Los Angeles)
To me, the truly shocking news is that so few managers are mentioned here. Who DIDN'T see this coming? For many, many years, retail's footing has had so many inherent weaknesses, it's amazing so many have held on for so long.
MJM (Newfoundland Canada)
I remember Christmas shopping at a downtown store in 1963. I went into a men’s clothing store - locally owned - and the owner, who knew our family, said to me, “I sold your Dad a new suit in the fall. This tie would look lovely with it”. You don’t get that kind of relationship in the marketplace anymore. That was pre-mall. The rot in the economy goes back further than current vulture capitalism. A labourer is no longer considered worthy of his/her hire. Hard work is no longer valued or rewarded.
Alan (Columbus OH)
@MJM You can get service like that today, but when it comes from a marketing database paired with an engineered script memorized by employees, it goes from charming to creepy.
Djinn (shelton, WA)
@MJM Everyone appreciates the hard work by those who get our food from the field to the table. Most of us though, as you rightly pointed out, don't think they should be rewarded with a pay raise or even a thank you. After all, it's their job. Hopefully the virus changes this type of behavior.
Todd (Wisconsin)
@MJM I worked at a Department Store in the early '80s. During Christmas, a customer could come to the register and have each gift either wrapped to take, delivered by our trucks in town to a person's door, or sent anywhere in the world, all in one transaction. While that made for some complex work for an associate like me, it was real service. I suppose you can do that on line, but the personal service in the store is gone.
Chris Herbert (Manchester, NH)
My problem with all this is that there is no productive capital being created here. This is money, making money, off money. It has little to no value when it comes to producing tangible capital and increasing employment. In addition, much of this activity is based on debt, borrowing money to force an asset price higher (or even lower). Parasitic in my opinion.
David McKirnan (Chicago)
@Chris Herbert This is exactly the issue. "Capitalism" was supposed to be about the movement of capitol to create profit from the production of goods and services. Borrowing or finding investors to open your shoe store. If your store is successful your investors (or your bank) make money. Oh, and by the way, your store creates new jobs. A clear social good. No longer. Now it is about capitol chasing capitol. Social good? What on earth is that?
John (Southern Utah)
@Chris Herbert Not only is there no productive capital being created, this is a zero-sum game. The short selling investors profit and the investors who thought that mortgage-backed bonds were safe take the loss.
Bike Fanatic (CA)
@Chris Herbert and this argument can and should be applied to lawsuits. No creation of any value. Simply moving money while extracting a cut in the process. The more lawsuits, the more money is extracted from the system. Checks on this need to be applied.
David Esrati (Dayton Ohio)
This is not investing. This is the radical redistribution of wealth from the poor to the rich with the backing and help from the taxpayers (mostly poor). When the fed bailed out the banks instead of the homeowners, we financed our own economic destruction. This is the same thing. Capital markets must include a minimum investment window of years to qualify as an investment. Otherwise it’s just a casino and the house keeps winning.
Johnny Gray (Oregon)
@David Esrati The "house" (bondholders) aren't winning anything in this scenario. Sure, it is gambling, but so what? Shorting bonds isn't driving anyone under unless someone took the other side of the bad gamble, and then, it is like blaming the house for enticing you to go inside and put money on red. If anyone should be criticized, it is the mall operators who aren't willing to cut the retailers any slack.
tennvol30736 (chattanooga)
@Johnny Gray There have been articles written as to the amount of retail jobs that have been lost. I know one who makes $11/hr had to go to work for 1 hour last night but didn't get paid because they kind of work was "off the clock". This is how the Chamber of Commerce likes it, their Republican Party, who have convinced America they are for workers.
Rita (California)
I have no problem with people making money off of investment decisions, especially when they put in hard work to do the due diligence. I am not sure how brilliant it is to foresee that e-commerce is taking out brick and mortar retail shops and that malls are suffering. (Anyone who visits a mall and sees the empty stores, grass growing in the parking lots and empty spaces being converted to fast food restaurants could make a similar prediction.) Where I would have a problems would be if any of the hedge fund whiz kids (or adults) got special tax treatment. So maybe NY Times can do a follow up article on special tax treatment for hedge funds and explain (with a straight face) the public policy reason for such tax treatment.
David Rose (Hebron, CT)
@Rita Tax. Tax can put it right.
Mike (So. Calif.)
@Rita It's not about brilliance. It's about balls. As in the balls to take the money you've worked hard for and place the bet.
jl (nw)
@Mike That's exactly right. It's the risk-takers that make big money (and, obviously, can lose big money). It's about the guts to take the bet. I think part of the sentiment here, though, is that it's something like bad karma. It doesn't feel right betting the 'don't pass' bar at the craps table when a crowd is cheering on the roller.
Thoughtful1 (Virginia)
I have yet to hear of a company that was bought by hedge funds or private equity, re-organized to be “more efficient” , have all the pieces of the company sold off, and come out with a successful outcome either for the company or jobs. I wasn’t really aware of the funds that this article discussed, but it is more of the same behavior: distraction of companies and jobs, and consolidation of huge amounts of money into a few hands. Also note that along with Venture Capital, these investments are not available to the bottom 85% of people. Also note, that the up and coming small companies are going straight from venture capital to being bought by Facebook and Google,etc. In other words, 85% of us can’t invest in the positive side of the economy either. Right now, the super rich people and companies can destroy some companies and can keep everyone from investing in great companies of the future. Capitalism is at an extreme and is broken. The economy is like an ATM for the top 10% and we pay the price: lost businesses, lost jobs, lost customers, lost investment opportunities for our retirements. We must get capitalism back we’re it works for all.
RB (Nyc)
I worked for a company that was bought out by a PE firm. They bought the company, invested in new products, waited until market conditions improved, and sold the company to Google for 3x the purchase price. Everybody won. It’s not all bad - this is the typical PE story. It’s just not what makes for interesting headlines.
Stephen Offord (Saratoga Springs, NY)
@RB ? 'shorting' means betting on the company to fail- you 'borrow' the stocks, sell them, hope they fail so that you can buy them back at a lower price- and then return them- what you experienced was an 'investment' in a failing company- people do like that
sj (kcmo)
@Thoughtful1, you may find the article I recently read in The Rolling Stone interesting, "Wall Street, Trump Administration Unite to Loot American..."
Rob K. (NYC)
The malls, and many of the chains within them, were overbuilt. They failed to give the customers the excitement great merchandising brings. Service was usually the first to go. Staff with deep product knowledge became a thing of the past. Private equity often bought them and stuck them with too much debt. Financial management was put in charge, rather than the brilliant merchants and creative merchandisers who ran them originally. The internet gave customers purchasing options, usually with better prices, better information, and the convenience of home delivery. Eventually, you could buy the same things everywhere, not just in American malls, but in the great cities of the world. Covid made things worse by preventing people from congregating. The failures of some are the opportunities for others, and the tragedy of creative destruction - here mostly to once proud brands and the people who served under them - does not diminish the fact that their demise is necessary. Because the alternative is to have them propped up artificially, usually by the government, when they should instead move over, get out of the way, and make room for the next thing the customer wants that will replace the old thing that no longer serves.
mmaier (New Jersey)
These people are ghouls. They can rationalize all they want about creative destruction. They're souless, financial vampires.
On the one hand, this was a smart and well positioned bet. On the other, it is hard to see how each of the interested parties created $100 million+ in value for society by making it. Imagine how much value you would have to generate to make $100 million+ growing food- can this in any way compare? And is that even a fair comparison: financial shenanigans to sustenance? And more importantly, who was writing the other side of these bets?
Mike Mike (Manhattan)
When you worship money, everything flies.
Cindy (NYC)
It would be interesting to know how the winnings are taxed in these shorts.
diogenes (tennessee)
Carl Icahn. Ah the name brings back memories of the me decade and greed is good and Reaganomics in the 1980s when all the corporate raiders like Icahn and the rest swooped down like birds of prey on the little people taking over companies, looting pension funds, laying off workers, screwing the workers, consumers and small investors. And despite all his billions of dollars one of the chief vultures and Wall St. sharks Mr. Icahn is still battening and fattening off the misery and suffering of his victims. Such people never have enough loot and the world is not enough. I can't figure out how Icahn has managed to evade justice for so long and not been prosecuted and imprisoned for his crimes. It must be a failing on the part of the federal and state prosecutors and the schemes of his highly paid legal 'mouthpieces". Oh well if Icahn does not meet justice in this world via the courts or some irate and cheated worker or investor he will surely meet justice in the next world.
Ed (Oklahoma City)
I wish they'd spend more time and brain power finding cures for cancer or housing the homeless. The pandemic has proved to most of us that life is very precarious and not guaranteed, and Trump and his cronies have illustrated how quickly a Democracy can be dismantled.
Wesley (Fishkill)
Once again, normal Americans are left to wonder why the wealthy and mighty are allowed to gamble on other people's misery - misery in which they have no financial stake whatsoever. Are there no casinos, no racetracks? Do we need to build the fancy equivalent of OTB parlors to keep these plutocrats off the streets and out of our wallets?
Susan (CA)
The real problem with short sales is that some poor sucker, a pension fund perhaps, has to buy the tainted asset at the higher price. If I sell you something for 10 dollars that I believe is only worth 5 then I am cheating you. Some would say this is no different from buying something for 5 dollars and selling it for 10 (the basis of all commerce). But I maintain it is different. If I believe you will get 10 dollars of value by buying this thing it doesn’t matter what I paid for it. In the short sale case I am knowingly selling you something for 10 dollars that I believe you will only get 5 dollars of value from. Two additional comments about short selling: 1) It does not hasten the demise of whatever is being sold short. It just tries to capitalize on the loss. 2) It sometimes goes spectacularly wrong and totally wipes out the short seller. I just wish this happened more often.
Stratman (MD)
@Susan That's nonsense. If you sell something to me for $10 dollars it's cause either 1) I BELIEVE it is worth $10, or 2) I'm stupid. That you believe it's only worth $5 is simply that, a belief. Only time can reveal which of us believed correctly. That's all that's happening in a short: people on opposite transaction have different beliefs and expectations about the future value of something. A short-seller can end up on either side of the outcome: a profit or a loss. There are numerous accounts of people who've been making a career over the past decade of shorting Tesla stock, and so far not one has made a dime in doing so. They've all lost money. Their beliefs about the stock have been refuted time and again.
Therese B. (New York)
Ah, unbridled capitalism, celebrating the most immoral deals. Shorting is not only immoral because it is betting on other people’s misfortune it is also immoral because it is pure gambling. There is nothing being created that could benefit anybody, it is only money made for somebody who already has more than enough and probably doesn’t even pay his fair share of taxes.
Howie Lisnoff (Massachusetts)
So many vultures, so much greed...
How Much Is Enough? (Northeast)
Literally gambling with peoples lives and celebrated for it. We are a morally bankrupt society and regardless who wins things will get worse.
Michael (California)
I could a see a problem if Icahn pushed the malls over the edge, that would unethical. The malls didn't fail because of ecommerce. It failed because of white flight from the malls. When non whites economy improved they started going to malls. Then whites were offered the option to not have to mingle with the non whites. "We will deliver your product to you so you don't mingle with those kind of people " and ecommerce took over. Polarization of the US will continue until its end. And now that we have monetized the Covid-19, masks will mandatory for years to come. Look at the winners and losers and can see where are going as a country. Please lottery Gods let me when enough money so I can move to a western nation with a far fairer capitalist system, Paris would be nice...... .
Gary (Los Angeles)
In every profitable trade, someone is on the losing side. Grow up.
David Lloyd-Jones (Toronto, Canada)
"the idea of getting fantastically rich off someone else’s misfortune" is an incorrect version of what is going on here. Icahn and McKie are not getting rich at the expense of any unfortunate mall owners. They are getting rich at the expense of the unfortunates-to-be whom they persuade to become mall owners. They sell stock in malls to people who do not own stock in malls. They buy it back later, incidentally enabling the poor sucker to get some of their money back. How can your writer, Kate Kelly, have missed this obvious fact? If Carl Icahn offers to sell you a bridge, look at the proposition carefully. If the New York Times tells you how business works, ditto.
Baron95 (Westport, CT)
I'm looking forward to this "creative destruction" to come to car dealerships. When Americans clearly want the option to buy cars directly from manufacturers (e.g. Tesla) or national retailers (e.g. Amazon), bribed (by dealers) politicians in most states have made that outright illegal or difficult. I can't wait for the short sellers and markets to punish the defenders of auto sales/servicing exclusionary law. Bring it on, please short sellers.
Opus (Cape Cod)
Alas the vultures circle, making money from the demise of poorly run business's or diminishing market segments is oh so American. Why build stuff it takes longer to realize a return on your investment. I am only surprised that these geniuses did not invest in the Funeral Home industry at the start of the pandemic just think how much money could of been made by these good people and the post cadaver party they could of had from all of their good fortune and profits.
L (Asia)
@Opus malls have been obviously dying businessES for years. Things change.
james skinner (Dallas, Texas)
@Opus Great idea but we dismissed the idea back in March. Not enough upside.
Opus (Cape Cod)
@L Obviously malls were not going survive as an inconvenient destination point for retail with snarky teenage sales people and as an indoor walking trail for the elderly, they needed to update into multi-use entertainment facilities or perish. My commentary was a sojourn into sarcasm if not some of the absurdity of our current economic substrates.
There is nothing "wrong" or "immoral" in this type of investing. In fact, it serves our society, helping to keep the capital markets liquid and running smoothly and efficiently. It is even available to the 99 percent, through the decisions made by the managers of the pension funds, retirement accounts and other financial instruments in which they partake, subject to the investment expertise of their managers. In addition, stating that this is profiting off "someone's misfortune" is genuinely misleading. Icahn and the other investors are profiting off their financial acumen and investing courage, assuming that their risk-taking yields the desired result. We never do hear, of course, about the financial bets that result in a huge loss. Nobody makes movies about those decisions. It is not easy--even after studying a sector of the economy, doing all the due diligence and research--to lay down a large chunk of money on one's conclusion, and face one's investors, friends and the public (in the form of the financial community). Consequently, many of the comments here, that view these protagonists with a jaundiced eye, are really misplaced.
Chris (10013)
Malls and real estate in general have been a protected asset class by virtue of the most abusive of tax benefits of any asset class and support by virtue of the fed driven interest rates. The nature of leases give undue agency over the future of commercial businesses (backed by law and courts). 100K+ restaurants will go out of business because of the fixed cost and legal protects afforded landlords (and no small businesses cannot afford the $1M costs for a Chapter 11). Frankly, it's about time that the landlords bore some of the cost of economic despair. During the great recessions, they were protected by courts and interest rates, and the major real estate owners massively benefited. Carl Icahn and Catie McKee are hardly the abusers.
Sam (CA)
I know, I know. The point of highlighting a successful short trade is to say: "Gosh, those evil rich investors, look at them profit off the honest people so flawlessly". Truth is, Carl Icahn lost a ton of value in his long portfolio during the March '20 drop. His short bet was a hedge, and it did what a hedge is supposed to do: It buffered against the downside, and it did so quite well.
Peter Rasmussen (Volmer, MT)
No need to cry about mall closings. Life isn't static, and malls were responsible for wiping put a lot of main street and downtown businesses. Now, it's there turn.
Joel (DC)
I guess you never learned the difference between There and Their.
Harris Silver (NYC)
How do I get into deals like this? Seems like a no brainer. Why do billionaires—the people with all the money—get to make all the money?
Susan (CA)
@ Harris Silver Get a brokerage account and start short selling. The barrier to entry is quite low. But you will have to do your own thinking and analysis. And for ordinary folks like you and me short sales are almost always classified as short term gain and subject to taxation as ordinary income. On the other hand, it’s really easy to lose your shirt doing this, so maybe you are better off with your 401-k.
L (Asia)
@Harris Silver Short selling is not easy money as you seem to imply: if your trade goes against you, you’re on the hook to buy the shares at a higher price than you sold them at, plus the cost of borrowing shares to sell.
Dave Wharton (Toronto)
It’s like a trip to the casino. Don’t do it.
ElleJ (Ct.)
A wonderful read for all the casualties of COVID-19, be they standing in sweltering heat on food lines, closing their businesses down or packing up their remaining belongings due to evictions. What an exceptional country we are.
Sandi (Virginia)
There may not be a growing retail value at all malls anymore but there's a human value that's not obvious to most people and certainly not to the shorters who earned millions on their demise. Malls are places where senior citizens go, meet friends and get exercise by walking around the mall when the weather is too hot, raining, snowing, or freezing. I've also seen young mothers use the mall as a place to take their young children when the weather doesn't permit them to take their children outside or to a park. Our local mall may not have stellar sales in the retail stores but the food court always stayed busy and crowded. I'm not a fan of fast food places but they are affordable for many people/families who can't afford expensive restaurants. So, malls have value to many people even though it can't be counted by enormous revenues in the retail stores. Many mall retail stores are high priced clothing, shoes and accessory stores. It's as if the mall planners overshot their market in retail yet matched their market in the food court. When there's a crowd at the mall but no one's buying from the stores, it's time to re-imagine the mall's place in people's lives and stores that sell things people may not want to buy online.
Harris Silver (NYC)
You have it wrong. We need to build community centers and parks. The reason seniors and kids are there is because there is no other place to go.
L (Asia)
@Sandi This used to be the function of town squares and city centers before the ‘burbs. Malls are just a sad version of the human desire for walkable social space, and one that you have to drive to. The older people you describe are not spending enough to keep them open and the moms bringing young kids to let them run around when parks are close make me want to avoid malls. I’m fine with the end of malls. Sold my mall developer stock belatedly at a loss around 2009.
BioLife (Gloucester City, NJ)
I remember back when Saturday Night Live started, they had a recurring skit about stores in a mall that was dying. The only store making money was the scotch tape store, selling tape for all the Going Out of Business signs. The reason it was so funny was because the idea of mall shutting down was inconceivable. I guess these guys bought the scotch tape store, only in a much larger way.
james skinner (Dallas, Texas)
I always find it fascinating to read the comments of those that disparage the free market and the consequences of a changing business world. Some bemoan the disappearance of the mom and pop retail store while they obligingly worship at the altar of Walmart as they purchase everything there from soup to nuts. Where were they when the stores that sold sewing machines or vacuum cleaners only were open? Most likely buying the same items at Dillard's or Macy's. Likewise, I still chuckle at those that still point to Icahn's takeover of TWA in an industry that was plagued by the deregulation of the Carter administration and was contracting in size. If someone else is making a buck it's a sin. If they're not, or should I say if they're not smart enough to come up with the idea and do it themselves first, well then, it's time to march those avaricious men and women to the gallows. If you think there are financial problems with just the retail malls in our country, then guess again. Right now there are small and grocer anchored retail centers with tenant spaces that have gone "dark" simply because Tenants cannot pay their rent; Landlords in turn can't pay their non-bank Lenders; the latter who are cutting their losses by selling these properties at a significant loss just to make sure that their indirect investors (yep, that right, I'm speaking to all you 401k, Pension Trust Fund and REIT investors) don't take a bath financially. They're doing your dirty work for you.
adrianne (massachusetts)
The SEC killed the department store by allowing all those mergers in the 80's, 90's, and 00's. If you look around the mall it isn't stores you are seeing, it is mostly store. So betting on malls failing didn't take a genius to figure out. The real question is why it didn't happen sooner.
HoodooVoodooBlood (San Francisco, CA)
Capitalism is capitalism. It's ethos is that the good of the one outweighs the good of the many. This is also the definition of egoism. The good of the many outweighs the good on the one is it's antithesis. This is also the definition of Altruism. These programmed genetic partners dance across the ballroom floor of time, tracing intricate double helical spirals as they proceed to the lively waltzes played by the Existential Orchestra. This is to say that that both perspectives, egoism and altruism, are essential and they function well when in balance. Unfortunately, since the dawn of agriculture and all that this brought, balance between egoism an altruism has been fading as the Age of Egoism has relentlessly taken over. This relationship between Egoism and Altruism reminds me of Taoism, a philosophical tradition of Chinese origin which emphasizes living in harmony with the Tao the middle way, the balance of these two behavioral necessities. Of course, the political parties also fall into these two camps and they could work very well together if it were not for the huge sums of private sector money they are paid for their vote, favorable legislation, etc. Removing this corruption from politics would be a step in th right direction.
Dave Wharton (Toronto)
It’s reminiscent of how, in the wake of the September 11 attacks, with yields down, the money gurus turned to impenetrably complex instruments like credit default swaps to maximise their gains. This was after some brokerage firms had almost been physically wiped out during the attacks. Attention soon changed from mourning colleagues lost in the tragedy to making more money, no matter how it was achieved. At the opposite end of that long money trail were desperately poor people being sold homes and taking on debt that they couldn’t possibly handle. Unfortunately this greedy, amoral and acquisitive mindset will never ever disappear, and the system that enables and encourages it is far too entrenched to ever be disrupted or effectively challenged.
wally from Fairhope (Fairhope, AL)
This is an excellent article. It is well research, and even handed. Traders are paid to look for opportunities like this in the market and economy. Their investors benefit from their expertise. Many investors such as pension funds, endowments, foundations and individuals see the benefits of a profitable trade such as this. The problem with this article is the headline. I blame the editors for intentionally slanting it towards the crybabies who would like to think that the hedge fund managers are somehow responsible for the demise of retail malls. The headline should have read “Diligent research results in profitable trade”.
Michael (Indianapolis)
It’s hard to feel sorry for mall landlords. For decades they pillaged retail and infrastructure investment from city centers for their own financial gain in the suburbs. Devastating many downtowns and crushing small business with large disregard. With large uninspired architecture in a sea of parking these were the shrines of capitalism and they made vast fortunes for their owners/operators and the financial institutions that capitalized them. For decades the good times rolled with a standard formula for success. When online shopping emerged twenty years ago shopping on the internet was a novelty that was more of an annoyance than threat to the mall. Slowly but surely online experience got better and more convenient to a point where many national retailers couldn’t survive. Now a recognized threat, it was too little too late for many mall operators as they scrambled to fill large vacancies and capitalize expensive redevelopments. A cautionary tale of arrogance and obliviousness of the urgency to change their business model. The pandemic was the perfect storm that accelerated the demise of many malls and their operators and created the possibility for a large speculative bet with good odds of a massive windfall. Enter the vultures...
Kingfish52 (Rocky Mountains)
This is how the oligarchy makes its wealth, and why they actually thrive when everyone else sinks. And when you understand that these mega-billionaires have bought and paid for our politicians and political parties, then you'll understand why things never really get better, why "recoveries" never reach the majority of Americans. This is the message that Sanders and Warren tried to get across, but with a media almost entirely controlled by these oligarchs, it was stifled. In a system where "failure" is so handsomely rewarded, is it really a surprise that failure is what our leaders deliver?
Zengzi (San Diego)
Intellectually, I like Schumpeter and creative destruction. But I see a lot more destruction and too little creativeness in reallocating resources that translates into wealth building beyond just the legally tax-evading 1%. I like the oversized animal vehicles transporting kids even though I know it is a bad sign when that sort of activity moves into an emptied store.....as it has where I live.
Eric Jensen (St Petersburg, FL)
Before Trump became president, he said he would short America if given the chance. We can see how American this is. Marx said that the capitalists would sell the rope used to hang themselves. Here we go.
Nancy Rowe (Fort Lauderdale, FL)
Now if he would just pay taxes on that profit at the same tax rate as his secretary, this would feel more fair.
R Castro (Cincinnati)
This is Nina Castro: No wonder so many in the last couple of college educated generations, flocked to the business and finance programs. It wasn't just to get any old j-o-b. It was Vegas, baby! Philosophy, science, literature. Apparently those were the studies that have gone completely over the top in examining what a culture, and an ethical country should be, almost to the point of being insufferable if the wrong joke is told. Meanwhile, across campus, a fast track to the top of what is rapidly becoming a heap of misery.
Pottree (Joshua Tree)
This is the finacialization of the American economy, where all the smart cookies gravitate, because that’s where you can make money now, when you need it; now, when you have kids; now, before you get so old it’s just the score system in the game of life.
R Castro (Cincinnati)
@Pottree Truth
deano (Pennsylvania)
There is nothing wrong with short selling. My question, will Mr Icahn ever give back some of that money by investing in factories and such, or is it all dollars and cents? Our country is made of more than just money
Tamza (NoCal)
Buying against future problems is prohibited in many societies.
deano (Pennsylvania)
@Tamza, without short selling, we would allow a lot of bloated, mismanaged, overpriced companies to continue pretending that they are credit worthy in the marketplace. Those companies borrow from pension funds, mutual funds and the like. Short sellers can function like the proverbial canary in the coal mine
PJP (Chicago)
@deano Then there should be more competent people analyzing bank loans.
JB (Austin)
That kind of wealth is obscene. We're sick and we need help. And very high taxes in these plundered types. They're really just pirates--only more dangerous, more destructive, and less colorful.
vbering (Pullman WA)
Shorting is not for the faint of heart. You borrow a security and immediately sell it, hoping the price goes down because you have to buy it back at some point and replace the security. The problem comes when the price goes up, as it often does. Then you have to come up with more money to fund your position. Your potential loss is unlimited. Even if you are ultimately correct and the shorted security is overpriced, you can go belly up if the price continues to go up before it ultimately declines. So if you short you have to get two bets right: both the ultimate price and the time path to the ultimate price. Typical long investor-speculators only have to get the ultimate price right. Plus their maximum loss is limited to the price they paid for the security. Long-term long investors who reinvest dividends, who also have limited loss exposure, can even do fine if they don't get the ultimate price right because their reinvested dividends increase the number of shares they own over time, and value of the position equals number of shares owned multiplied by price per share. A much safer bet. Shorting can actually be good for markets. It is a force that helps push prices towards their correct values. But I wouldn't want to do it.
Tamza (NoCal)
Stock market/ trading is gambling. Short selling is gambling on steroids.
vbering (Pullman WA)
@Tamza It is not gambling. Gambling is zero-sum. For every dollar gained there is a dollar lost and vice versa. Over the long run, the stock market is positive-sum, so total losses and gains sum to a number greater than zero. Corporate profits tend to grow over time, and a stock is merely a claim on those profits. Because of this growth, over time there is more money to be divided up among market participants. This distinction is critical but is often lost on people. It is the reason that regular people can make money in the stock market if they buy reasonable securities at prices that make sense and hold them over long periods of time. I agree that regular people are at serious disadvantage when they trade actively in the market.
JJ (North Carolina)
We have a very popular mall in Durham NC, the Streets of Southpoint, that has a traditional mall next to an area with a movie theater, restaurants, and bigger stores that aren’t anchors (e.g., the Apple store, Pottery barn, other furniture stores). Prior to the pandemic, it was busier than ever. I think the message about malls is more nuanced than “malls are dying”. Certain kinds of malls in certain places were doing great before the pandemic and will come back. Our mall in Durham is a place people go on weekends to get out! It’s not going anywhere. Also, while I think shopping in malls should be scaled down, I for one cannot imagine a world where all clothes shopping is done online. Amazon is decent for, say, gym wear, but if you are looking for nice looking work or social activity clothing- forget it. You can’t try clothes on, and often the quality is substandard to what you would get from a mall retailer. You also have way too much choice and way too much to click through. I for one will always want to sift through racks at a store to find my non-casual clothing.
Tamza (NoCal)
‘I for one ... sift ... ‘ will change when you are able to get that online, and there us a scan-system which will measure you exactly.
Lyn (Philadelphia)
@JJ I would rather go hiking. Shopping in a mall or on line bores me to death. Also, it would be a good idea to start cutting back on the stuff we collect.
MJM (Newfoundland Canada)
Capitalism- no inherent morality. Self-fulfilling prophecy. The moral dregs of the greedy. This should not be legal. Good people work hard for long hours for less than a living wage. How can this be the way to run an economy?
waldo (Canada)
Hedge funds and private equity firms are the worst cockroaches capitalism unleashed on us all. Speculators (politely called 'investors') can never have enough; that their shenanigans can cause pain and suffering to hundreds of thousands, if not millions - they don't care. Our own crown jewel of companies Nortel (Northern Telecom) a giant with a rich and proud history went down thanks to a large extent due to these machinations. And our only remaining second-tier airline (WestJet) was recently bought out by a private equity schyster clearly to sell it at a profit. Downright disgusting.
Laughingdog (Mexico)
There is a second, huge, problem with shopping malls. They only appeal to half the population: women. The stores in them have zero appeal to men.
Phil (San Francisco)
Is anyone shorting the Trump Organization?
Tao Jones (Colorado)
@Phil Heh . . . if only that were possible. The Trump Organization will never go public because it would have to reveal incriminating financial information.
ManhattanWilliam (New York City)
Ichan, the destroyer of great companies like TWA, built his pile of cash on the bones of everyday American workers. He’s the very worst type of leech who has prayed on American businesses for decades.
Jered (Brooklyn)
Even casual observers have known for over a year or two that online sales were up and brick-and-mortar retail was in trouble. So betting against malls isn't innovative or smart—it's perhaps opportunistic at best. That our economy and markets reward this behavior shows the rot that lies at the core of our society.
Susan (Virginia)
@Jered The true cause is the demolition of the middle class. For 20 years, a huge part of the population no longer makes enough money to shop at malls. I've been one of them for most of those years. Thrift stores are my best friends.
business (Frederick, Md)
@Susan And thrift stores have raised their prices and try to mimic regular retail, further driving up prices.
Susan (Virginia)
@business I don't know where you are shopping...a pair of jeans, a shirt or a sweater costs $5 or less, i can't buy anything at a dept. store for that. When I started shopping thrifts 30+ years ago, things ran $3-4 or less. Shouldn't thrift store prices have to go up with everyone else's?
MF (Nevada)
I recall decades ago the mega malls had ruined Main Street America and destroyed mom and pop businesses. It was now the malls turn to feel the brunt of a change in the economy with on line shopping. I have a problem in shedding a tear for the malls. Perhaps in the future something else will replace on line shopping. There are no”villains” who profit off the misery of others. There are only smart entrepreneurs who see the future better than others.
Alan (Columbus OH)
@MF Once someone digs in to who actually owns many of these malls, and their habit of contributing to bloat and inefficiency in transit systems, the tears may be replaced by celebration.
Paul (Toronto)
@MF North America lamented the loss of mom & pop shops while saving a couple dollars at the mall. Now Mall stores saved money by carrying limited inventory so I must get what I want in the style, size and colour online.
akwils (New York)
The malls that failed deserve their demise s any corporate failure. They didn't adapt to the new economy although any basically sensible person saw it coming even before the pandemic.
Susan (Virginia)
@akwils No, the true cause is the demolition of the middle class. For 20 years, a huge part of the population no longer makes enough money to shop at malls. I've been one of them for most of those years. Thrift stores are my best friends.
Pete (ohio)
Nothing new. Casinos in Vegas take these bets everyday. Wall Street is no different. When you conflate personal morality with investing you will lose every time.
MJB (Brooklyn)
@Pete Mathematically speaking, the idea that you must only make amoral bets to make money would be true if you could show that 1) you could always pick the highest-performing winners and 2) the winners you picked always involved morally dubious choices. Since there's no reliable way to consistently pick winners, the idea that you're limiting yourself to loser choices if you pre-filter your investment decisions by moral criteria is demonstrably false (for example, in the current market, somebody who chose a company that produces PPE for first responders would have made far more than an investor who dumped their money into the weapons maker Remington). People who announce that you can't be ethical in the marketplace and still make money are almost always, after the fact, justifying that they simply don't want to put in the work of being ethical. We literally vote with our dollars and the idea that immoral investing is simply logical is a dodge for the fact that investors are funding the idea that we should be making money off of making others miserable.
Just tax them as normal income versus the lower tax on trading gains...or maybe tax then higher for their immoral vulture trades
@AJ Who gets to decide the morality of an investment? You want the government to say yes, this trade is "morally okay" but that trade is not? No thanks
Susan (CA)
If the gain is realized within 365 days of acquisition it is short term gain and is taxed the same as ordinary income.
Tamza (NoCal)
Lets just leave morality out - just straight taxes. There should be no deductions exemptions etc to play the tax game.
T. B. (Brooklyn)
Vampire investors should be their new monikers. All this money does is enrich wealthy investors, and does nothing for America's Main Street economy
Keely (NJ)
Wow, articles like this are really written to make the common man feel small, huh? You can't understand heads nor tails of this nonsense- CMBX indexes and funds, capital and shorts and blah, blah- the gist is this is cutthroat capitalism at its finest. Even worse because it's all fairly legal I'm sure, to make a buck off all the lowly employees who worked in those malls, keeping the stores running, the food courts and bathrooms clean- what about them, what happens to them now? Oh right, that ancient vampire Ichan could care less. This country, maybe the whole world, is going nowhere with this type of selfish greed. Even if I did hate the concept of American malls to begin with (the awful rampant, superficial consumerism) at least it was keeping people employed.
David (Kentucky)
@Keely This has nothing to do with "a buck off all the lowly employees." These are stock trades between big investors on both sides. One side believes the malls will do well, the other side believes they will do poorly. Neither side has anything to do with actually running the stores or malls. Whether or not the malls are run well and stay on the right side of changes in popular tastes and prosper or not determines whether the stores and malls stay open and which investors win their bets.
Lacaata (Grand Forks, ND)
Over the years I have read a lot about Carl Icahn and his complete disregard for anything other than making himself money. Read about what he did to TWA and you'll understand that employees are expendable. There aren't very people who I would consider "evil", but I consider him to be nothing but a bully. Sound familiar ?
business (Frederick, Md)
@Lacaata Why not consider him evil?
Al O (Queens)
As always in our system, the non-productive money-manipulating speculator leeches win, while the actual working people who count on their jobs to feed their families and keep a roof over their heads lose. I would say shame on them, but the members of the speculator class have made clear over and over again that they have no shame and that pocketing as much cash as possible, no matter who it may harm, is their only value system.
David (Kentucky)
@Al O These guys don't take a penny out of the pockets of "the actual working people." They are wealthy traders on both sides of the trade. One side thinks the malls will do well, the other side thinks they won't, and they put their money, their money, behind their prediction of what will happen. They don't have anything to do with actually running the stores. If the stores and malls prosper, those who bet on prosperity win, and the other investors lose the money they bet. If the stores fail, those who bet on failure win, and the other investors lose some of the money they bet. Nothing to do with the working people and not evil.
MTS (Kendall Park, NJ)
Is it immoral for consumers to order goods for delivery instead of going to the mall and buying stuff in person? Is more moral to make $$ investing in Amazon, FB, Google or other businesses that are doing better during the pandemic? For all the handwringing and shaming - investors who make money from shorts make it from others who are betting that the asset will go up. They aren't going in and sabotaging J Crew or Penney's, or from preventing shoppers from entering malls.
Common cause (Northampton, MA)
Carl Ichan signed up as an unofficial, unpaid advisor. That allowed him to avoid hearings into his past "cannibal capitalism". He was on the job for a few months and then quit. He reportedly boasted at the time that his advice earned him $500 million. Icahn - the iconic swamp creature!
Frank F (Santa Monica, CA)
For some 40 years now, Carl Ichan and his ilk have done more to increase the misery of our nation's citizens and degrade our standard of living than many tin-pot dictators in the Third World have done in theirs. Why do we continue to allow this?
Jrb (Midwest)
I'm not making light of this. I have always found 'shorting' disgusting. However, it's nothing new and is not done only by hedge fund operators. I was just as revolted forty years ago when my best friend crowed about the fantastic deal they got purchasing their home due to the owners having lost their jobs and defaulting on their mortgage. Even 'good' people think nothing of capitalizing on others' misfortunes. Anything for a deal.
David (Kentucky)
@Jrb Almost everyone makes their living off of the misfortunes of others - Doctors from the misfortunes of people who get sick, lawyers from the misfortunes of people with legal troubles, mechanics, plumbers, and repair persons from things that break down, grocers and farmers from the misfortune that people have to eat, and on and on and on. It is only evil if you impose those misfortunes on others, and short selling does not do that. Wealthy investors bet on either future prosperity for malls or failure, and make money or lose money based on what the economy and the operator does. They don't run the stores or make them go broke.
Stratman (MD)
@David Don't forget undertakers. I'll wager very few of them are hoping for an end to death.
VJR (North America)
Let's back this story up a generation.... How Carl Icahn took TWA private and made millions destroying one of the most storied airlines in aviation history. Sense a pattern here? He's Gordon Gecko.
@VJR He's worse than Gordon Gecko - he's Carl Icahn.
george eliot (annapolis, md)
Carl Icahn represents the worst that America has to offer. People like Catie McKee simply drink up his drool (she realized they shared the same outlook).
Kevin (Colorado)
Neither Trump or Biden will fix this, guess who their contributors and friends are
MJM (Newfoundland Canada)
@Kevin - - Both-sides-ism alert.
mike mcnally (somers point, NJ)
The stock market was set up originally so companies could get funds and investors could make profits. There have been arguments since before the depression to stop shorts, But Greed and the entrenched status quo don't want any changes, What do short selling and derivatives have to do with investing in companies, GREED
Abbott Hall (Westfield, NJ)
Most of the people who lost are wealthy investors who were on the other side of the trade. It’s really nothing more than high stakes poker for the wealthy.
Karen (Westport CT)
While the loss of jobs is heartbreaking, it's hard to sympathize with mall developers since, for many decades, they have contributed greatly to the demise not only of downtowns but of the mom and pop shops that lined the town's streets providing vibrancy and yes, jobs.
Anonymouse (NY)
What a sick society we have become. Wealthy investors & hedge funds make hundreds of millions of dollars off a declining business model, not by investing in alternative uses for the mall buildings & land, but by betting - with expensive insurance - on an index tht simply tracks the malls' fortunes. These "investors" are doing NOTHING to help the business owners, store employees, local taxpayers, etc. weather a changing economic environment. They are just enriching themselves, while being taxed at lower rates than "regular" working people. At least in a casino an ordinary person has a chance - however small - of coming out a little bit ahead. What a sad, sad look at how things are now.
David McKirnan (Chicago)
@Anonymouse Exactly right. Many comments have pointed out that short selling has no effect on whether mall workers lose their jobs. The only losers are other wealthy investors on the other side of the bet. Really? Devoting capitol to short-sell malls reaps astronomical return on investment. Taking the same capitol and transitioning the mall to something else (that, parenthetically, keeps a lot of people employed) would be dramatically less profitable. Our financial and tax structures richly reward parasitic investment strategies, not genuinely economically productive investment.
GUANNA (New England)
Does anyone think Trump actually lost money from his bankruptcies. The system is gamed to protect business and rich investors, not individuals. No country forgive big debt like America. No country punishes the small time indebted like America. The rich get richer and if the GOP and their fundamentalist get their way the poor will get children.
Roberto (Billings)
There’s public access to data vis insider trading. Is there access to data on short selling? A big spike in volumes would allow the little guys a chance to get into the action.
Atlanta (Georgia)
There should not be a financial incentive to cause others' failure.
Citygirl (Somewhere Out West)
Thanks to historian Thomas Hanchett in his excellent article "US Tax Policy and the Shopping-Center Boom of the 1950s and 1960s," we know that malls were never anything, financially speaking, other than tax shelters. The implementation of accelerated depreciation in the mid-1950s allowed even the dumpiest community to have a mall, or maybe several malls. Moving from straight-line to accelerated depreciation allowed developers to make a profit through a paper loss by wiping out any taxes they may have paid on profits. Now, with e-commerce, the party's over. Don't get me wrong -- I miss malls too and feel nostalgic at their demise. I know this is a hit to workers and municipal tax rolls. But predatory capitalists, such as Ichan and McKee, aren't any different than the developers who brought us the mall to begin with.
Ben Casey (Lenox Hill)
@Citygirl Excellent points and completely lost on most of the inhabitants of this strange island.
Katrin (Wisconsin)
I’ve been thinking these malls should have day surgeries and rehab centers in them. Lots of parking, incentive to walk around the mall with the new hip or knee or whatever, potentially good security, and guaranteed customers.
Nell (NYC)
Would love to hear reporting of how McKee and Icahn plan to use a large chunk of their crisis-earned money to help thousands of Americans struggling and suffering with the crisis.
Liberty hound (Washington)
@Nell I'm sure that Federal and State governments will relieve them of a sizable chunk of that money and redistribute it for McKee and Icahn.
Ethan Allen (Vermont)
Someone has to bet against ‘irrational exuberance’ in order to ensure markets function correctly, as stated in the article. However, there is a missing facet which is taxation policy. If we as a society privilege both sides of the betting, as well as the horse owners, over the poor nags running the race (that’s the vast majority of working Americans, if you didn’t catch the analogy) then we’re the ones who are bankrupt, morally at any rate. I assume that Icahn and even Ms McKee, like Warren Buffett, pay a lower rate of tax than the people working in clerical and other low level jobs in their companies.
Civil (NC)
@Ethan Allen They would fall under capital gains instead of income unless of course Ms McKee was paid a higher salary for the deal making.
Susan (CA)
If the asset is held for less than 365 days any gain is short term and is taxed as ordinary income.
Julian Parks (Rego Park, New York)
Take malls and turn them into city parks or community centers.
Melissa Marsh (ATL)
I have been thinking just that kind of thing. Affordable housing. Mixed use with grocery stores and restaurants and bars and shops. Doctors offices. Remove all but necessary parking and create green spaces. There is always a smarter way to make a buck and do good.
Mike (Boston)
There is no morality in shorting a stock, because you can win or lose money. Is it immoral only when you win money? This article profiles people who have won, but countless more articles could be written for those who have lost. Indeed, anyone can short a stock, including you or me. There is no barrier to entry, now that we have Robinhood. You can short $1 if you want. Is a $1 short immoral?
T (New York)
@Mike That's a failed logic; some hedge fund managers became rich in 08 by profiting from taxpayers' money basically. Is that moral or immoral? Up for you to judge.
M. Callahan (Moline, il)
This is amazingly awful in a market where a 40hr. A week schlub has no time to,scrutinize the market to that extent. These comoanies take value straight or sideways from the common investor. Workers are forced into 401ks and then they are totally exploited.
ImagineMoments (USA)
"There is something discomfiting about the idea of getting fantastically rich off someone else’s misfortune" Ms. Kelly injects a one sided moral judgment to unnecessarily spin simple reporting into another story about "brazen" Wall Street investors. Unless she is going to offer a full discussion of the pros of short selling, as well as the cons, such comments belong in the opinion section. As with all human economic endeavors, short selling can be abused, but at its core, the profit motive of short selling serves as a counter to inflated asset prices. For example, it was the short seller Jim Chanos who first sounded alarms about Enron. I have had personal experience with this on at least three occasions. As a retail stockbroker (back in the day when such things existed) the ability to short sell motivated me to investigate and expose three companies that were being promoted by major brokerage firms to their individual clients. Company #1 had a story in a national publication hyping their new factory conversion... except the factory was shuttered, and on EPA condemned land. Company #2 had their stock soaring because of their health promoting nutraceutical.... except they didn't actually make any of it. With Company #3 I sat in on a luncheon where the CEO explained to the most junior of pension fund bond buyers that they could trust him. "I know we have a negative $50 book value, but these assets are worth X and Y." Six months later he defaulted on everything.
REF (Boca Raton, Fl.)
there is nothing illegal or immoral about being smart enough to see a trend and capitalize on it....congrats guys....good trade
smilodon7 (Missouri)
There is when it causes social problems that the taxpayers must now pay for.
Stratman (MD)
@smilodon7 The social problems were created by those who invested in building malls when the concept had begun to die on the vine, not by the short-sellers who recognized the impending demise.
Walter Bruckner (Cleveland, Ohio)
So now we are worried about dying malls? Really? I’m old enough to remember when these things ripped the guts out of every interesting downtown in America. Let them die. Let the vultures pick their corpses. Leave them to rot. Hopefully the sight will dissuade future generations from repeating our mistakes.
Trish (NY State)
@Walter Bruckner Walter - I think you're missing the bigger picture here.
Lilly (New Hampshire)
When the laws that define legality are written by criminals, our society suffers. What do they contribute to society, besides misery?
Jeanie LoVetri (New York)
Just because something is legal doesn't make it moral or decent. Just because the super rich corporate raiders can brag about the billions they make doesn't mean they should be celebrated. The "market" operating in isolation is skewed thinking. The laws favors the super rich, because the wealthy favor the politicians who write the laws. Many things in the history of this country have been legal until they weren't. If we continue to allow hedge fund people to make billions because they can, pay no taxes because we allow that, and don't look at the separation between the billionaire class and the rest of us (Bernie laid that out straight), then we have a society that favors people like Donald Trump. Those that are willing to look the other way are as much a part of the problem as the people who perpetrate it. Many wealthy people are taught, from birth, to make money first and not care about the consequences of how they do that in the lives of human beings. They go to church, they give to charity (sometimes they endow a college) and they get patted on the back, but in the end, they are like Scrooge. If this is the America we want in the future (the one that is "against" socialism) then we should all take a good look in the mirror. When people have no money, no food and no opportunity you have the perfect recipe for social unrest. When someone buys a $100 million yacht and the dock worker can't feed his/her kids, we are all to blame.
smilodon7 (Missouri)
And to that dock worker, socialism now looks good. Preaching to people about the wonderful benefits of capitalism doesn’t work when they see none of those benefits in their life. If we want people to believe in capitalism, we need to make it work for all of us.
David Parker (London)
I am puzzled how the “short” speculator can buy valid “insurance” to cover a potential loss on an asset that the speculator does not own. I see quite a lot of reckless driving in London, and would like to jot down the registration number of the vehicle and take “insurance” on the risk that the car will be damaged and need expensive repair. I also see quite a number of affluent houses without effective alarms, and would like to jot down the address and take “insurance” against loss by burglary. However, the insurer would tell me that I had no “insurable interest”, and they were not in the business of taking bets in respect of assets that I did not own. Are financial assets different, and, if so, why?
Steve (Houston)
@David Parker The short was probably not an actual insurance product sold by an insurance company. More likely, it was a form of derivative called a "credit default swap" in which the counterparty agrees to pay the shorting party money if the package of bonds tracked by the synthetic CMBX 6 real estate index goes into default. In order to consummate the trade, the shorting party agrees to pay premiums to the counterparty. Neither the shorting party nor the counterparty has to actually own the bonds; the trade is pure speculation (i.e., a bet) on the default rate of bonds owned by third parties. Both the book and the movie "The Big Short"explain in detail how credit default swaps work.
Joe Ryan (Bloomington IN)
Somebody who knows better tell me if I'm wrong, but — The shorts that won $1.3 billion didn't bet that mall companies would go down, they bet that they would go down by more than someone else thought. The money they won came from bettors who thought the mall companies would go down a little less. It could have come up either red or black, and it came up red. Big deal. Where's the article on the longs who lost $1.3 billion?
Philip (PA)
Mall developers overextended themselves in a rush to make more money in a Trump inspired real estate boom. Now they’ve lost. No sympathies here. This is how capitalism works.
smilodon7 (Missouri)
What about the PEOPLE? Those businesses had employees that needed their jobs. These wealthy investors take everything & leave the employees to twist in the wind. The taxpayers then have to pay for supporting the children of these workers.
Philip (PA)
They are out of work because the malls are going broke. Shorting the stocks did not make this happen
bl (rochester)
The fact that the shorters went undercover Wearing casual clothes, his group paced the perimeters and food courts, snapping photographs and taking notes brings to mind the type of surveillance techniques that terrorists use to plan their next civilian outrage. But what distinguishes this form of well reasoned greed and religious extremism? Is it only the body count post successful action? One can only hope that the amounts of selling short will not lead to a larger collapse of investment banks who have way too much money invested in tranches of under performing commercial real estate companies. But the consequences of this collapse will not be limited to the pitiful companies trying to attract physical bodies into malls. There will be the secondary effects of lost tax revenue to municipalities, cuts of services, and all the unemployment and loss of income (and therefore aggregate demand) by those working in these disappearing dinosaur relics of an earlier time when over spending by over consumption usually resulted from "going to the mall". All part and parcel of creative destruction the American way, not the ISIS way.
Lynn F. (NC)
Vultures feeding off the dead carcasses of a once-flourishing retail category. The 9/11 catastrophe started the downfall, as well as younger shoppers not liking to go to the mall anymore as they got out of high school and hanging out became an online activity. But the final nail in the coffin was online shopping when you could shop the same mall stores from the comfort of home. Very sad, and not even the outdoor mall/residence/restaurant complexes that are taking a mall's place in suburbia can change what is happening. Shopping online is no fun to me, more of a chore than an experience, like going to a store is -- when you can touch, smell and feel what you are going to buy. Nothing like that is found online for this old hunter-gatherer grandma whose genetic makeup demands in-person retail therapy.
Susan (CA)
@LynnF Ecologically speaking vultures have their niche and perform a vital service. I too regret the loss of the retail experience. For me and for many others, like you, it filled some primal need. But if it cannot be sustained there is no benefit to putting it on life support.
Mike (New England)
I am one of those dreadful nostaligc souls who happened to grow up in the mall "heyday" of the late 70's through late 80's. I was summarily fired from my first job at the mall (making $3.42 per hour). I went back as a high-earning professional and shopped often. Malls were teeming with people then. I never really saw the decline, as I am also kind of "set in my ways" but decline they have. Much has been gained from ecommerce, certainly. But much has been lost, and it all seemed to have disappeared in the blink of an eye. Regardless, I have sweet memories of being sixteen and on my first date with a beautiful girl walkning around our local mall. I'm sure many others so, as well.
Neil (Texas)
Some of this is above my head - financially speaking. But this is American capitalism at its worse or the best. Many below are asking why hedge funds don't do charity like work. Well, the media hypes Silly Valley folks for raising tons of money under the gospel of a start up. The real start up is - the fortune of the guy or gal who starts a startup Icahn and others do make money at the expense of other distress. While this is no zero game - eventually these folks have to deploy these profits. While there are folks like Mark Cuban who walk away with a fortune to deploy somewhere else - most of these folks stay on the Wall Street - because that's all they know. And folks, let's remember - even a guy like the "Oracle of Omaha" delivers no better than S&P 500. For mere mortals like me and many below - I submit that all of us will benefit be ause Carl Icahn made a killing.
mjw (DC)
@Neil There's a lot of non-productive activity here. In terms of capital allocation and a functioning stock market, shorting is important. But the way we balance that activity with the human costs is with taxes that, unfortunately, Republicans have largely eliminated. Without that reality check, the productive parts of society (workers, firms that build/ do things) become more and more victim of exploitation, and actual productivity suffers. Oh, our productivity national numbers are fine, but the reality is something else. We cannot run a nation our size by being Switzerland, dependent on banking and billionaires. Rural America needs to be nourished and workers need someone on their side. Finally, also, taxes on corporations created incentives for spending on the company instead of stockholders, leading to health care and business expansion, hiring. That virtuous cycle is completely broken now in America.
smilodon7 (Missouri)
Like we did before when he made a killing? I suggest you talk to former TWA employees about that.
smilodon7 (Missouri)
Workers with wages high enough to actually have disposable income are why business expands. They really only expand when they have more customers - and that requires people with disposable income.
John (arytvbew5)
Let me try to understand: The stern and sober men (and token females) of the Republican party worry for the future of their nation, the very existence of free market democracy at the rubbery hands of Liberals and Socialists who create the perverse incentive of $600 a month to starving, insecure, soon-to-be-evicted American workers who will, then, never again agree to work for any price (at least a Republicanly acceptable price) rather than sop up the luxury of the government dole. A Perverse Incentive they call it. And the nation hangs in the balance. Only a wise old head like Mitch (Gimme that!) McConnell sees the truth: We'll have to starve American families, throw them into the street, create domestic chaos and unprecedented social disruption in order to save them. Poor, naif dears: they think eating and well-being are somehow related. Curse Democrats who lead them on! Icahn and, literally, hordes of investors profit from the destruction of a once-grand retail way of life In fact they don't just profit from destruction, they create it. Yes, create economic and social destruction for profit, heedless of the millions thrown out of work (It's good for them, remember?) the communities fractured, the industries ruined. Just so some greedy, isolated soul claims an ungodly profit, Trump screams "America! We're doing great!" If it's him, all the better. Such people used to be called "speculators" and pioneers lashed them to low-hanging boughs.
Neil (Texas)
Some of this is above my head - financially speaking. But this is American capitalism at its worse or the best. Many below are asking why hedge funds don't do charity like work. Well, the media hypes Silly Valley folks for raising tons of money under the gospel of a start up. The real start up is - the fortune of the guy or gal who starts a startup Icahn and others do make money at the expense of other distress. While this is no zero game - eventually these folks have to deploy these profits. While there are folks like Mark Cuban who walk away with a fortune to deploy somewhere else - most of these folks stay on the Wall Street - because that's all they know. And folks, let's remember - even a guy like the "Oracle of Omaha" delivers no better than S&P 500. For mere mortals like me and many below - I submit that all of us will benefit be ause Carl Icahn made a killing.
Jeff (Hamilton ON)
This piece is better than the opinion piece by a law professor the NYT ran a few weeks back that blamed private equity for the loss of 1.3 million retail jobs without even mentioning technological changes. Maybe because their skills are more verbal than numerical, technology seems to be right outside the scope of competence of leftists. I remember the reams of articles denouncing Walmart that appeared in the 1990s never mentioned that its pioneering use of computer networks and satellites for inventory & ordering made possible larger selection at lower prices. And a century earlier socialists didn't like the new department stores made possible by mail, rail & organizational/accounting advances. The National Socialists received early support from the small retailers who couldn't compete and blamed the innovative Jewish owners of some of those department stores. The Internet would have impacted conventional retail even if Icahn & McKee had never been born, as would department stores had Sears' Julius Rosenwald and Schocken's Schocken brothers never been born.
smilodon7 (Missouri)
That same pioneering computerized inventory also led to niceties like just in time scheduling, which definitely had a terrible effect on American workers. Try to hold a second job, pay rent or plan a budget when you have no idea when or how much you will be working next week. See how that affects your ability to maintain a decent standard of living.
Jean (Cleary)
@Jeff Time to change the Tax Code
smilodon7 (Missouri)
It’s been long past time!
linda (brooklyn)
And just what did this scavenger pay in taxes... I suspect I paid more than he did...or ever has paid.
Matt (Los Angeles)
Why don't these morally bankrupt people get an actual job and contribute to society and the economy rather than bet on companies failing. Of course all the gains these vultures take in have special tax considerations unlike most people who actually contribute positively to the economy and their communities.
smilodon7 (Missouri)
They would then have to pay higher taxes like the rest of us.
jrw (Portland, Oregon)
Yes son, your father does make something. He makes something called deals.
Richard Coleman (Washington)
Mallbearers—one day the limos are for you. What is Icahn going to do with an extra billion now? And where will American teenagers hang out after the pandemic?
Aux Arcs (Midwest)
No matter how much money he makes, one day capitalist vulture Carl Icahn will be dead like the rest of us.
Stuart (Alaska)
I think what offends here is two-fold. First, the moral emptiness of smart, well-educated people who devote their lives to playing a game, often at others' expense, that has absolutely zero value to society or anyone but themselves. There is something very hollow about that that bothers equally intelligent people who devote their lives to being an incredible teacher or civil servant, or builder, or many other useful occupations that are not nearly as well-remunerated. Additionally, those at the top are often devoted to taking away more and more from the lives of those teachers and civil servants. Second, the outrage is that our tax system favors these people much more so than the bulk of our work force, and encourages them in their life-wasting pursuits.
A Thinker, Not a Chanter. (USA)
Simple fix: revise the tax code so capital gains from short sales are taxed at the highest rates, instead of among the lowest. I understand the rates are lower on most capital gains because we want to encourage people to invest in business, but shorting is not investing in business. A higher tax rate will discourage the practice and use the profits for the public good (supposedly).
Donna in Inwood (Manhattan)
@A Thinker, Not a Chanter. A nice sentiment, but how would you legally distinguish a short investment from a long one? Maybe I made a trade that looks to you like a short, but that I can defend by simply saying I'm a contrarian. I can't think of a feasible way to legally define a short so that you can use it in tax law.
Aspirant (USA)
As a colleague of mine asked a few years ago, how can Amazon sell enough books to justify that stock price...
RH (San Diego)
Just walking thru a mall in your area a few years back could easily indicate troubles ahead. With Amazon and others in the e-commerce business, major shopping malls or even strip malls were at risk. The "revelation" of the demise of malls is nothing new. It just took a lot of money to short. Who I feel regretful for are the mom and pop stores in the malls who will go out of business, go bankrupt or just walk away...devastating many lives
Colok (Colorado)
If one buys a stock at $30 and it then proceeds to increase in value to $60, is anyone worrying about the person who sold at $30? Shorting is just the inverse. Or, is making money on any stock trade considered to be a “problem”?
smilodon7 (Missouri)
If it was taxed like any other income, no it wouldn’t be nearly as problematic because at least we’d get the tax revenue to offset some of the social costs. But since investors get special tax breaks us losers who work for our money don’t get, we won’t get much out of this.
Colok (Colorado)
Increasing capital gains tax would increase revenue, and yes fortifying the nation’s social safety net with higher minimum wage, universal health insurance, etc. needs to be done. But... from a tax perspective when person A makes $100 on a trade, A pays tax on the profit. Person B who lost $100 on the same trade, offsets the loss against other gains, reducing it’s taxable profit by $100.
smilodon7 (Missouri)
And when I make $100 on my paycheck, I pay a higher tax rate than both of them. If we want to encourage people to work, this seems counterproductive to tax wages at a higher rate than investments. Why is work rewarded so poorly in this country? We say we value it but one look at our paychecks tells the truth.
SteveRR (CA)
Many folks decrying the naked greed evidenced in this article have absolutely no idea what a short position is: Hint - they are not being covered by the Orange Julius in the actual mall. Shorts and longs are financial tools that built America into the financial powerhouse it is today and created incredible value to the estimated 54% of Americans who participate in the market today.
smilodon7 (Missouri)
The problem is that all this profit making is not taxed like regular income. Those tax dollars are desperately needed now.
Krachenvogel (WI)
@SteveRR Built America into a “financial powerhouse” at the expense of its previous status as a manufacturing, scientific, technological, and creative powerhouse, along with the widespread prosperity which accompanied that previous condition. What a super trade-off that’s been for working Americans. /s
SteveRR (CA)
@smilodon7 Both Dems and Republicans have had the opportunity to change the manner in which this income of recognized for decades now. We'll see what Biden does. We no longer manufacture - and those low wage low sill jobs are gone forever - in its place we have the strongest and most innovative software/high tech industries in the world that employ tens of millions. It is a "super trade-off" that in a counter-factual world would have left us doing the min-wage work of China - that is preferable?
robert (reston, VA)
Think about Times Square which basically combines a supermall with big name stores, hotels, and office buildings now bereft of occupants, foot traffic and tourists. What makes this supermall unique is Broadway which is also on the verge of collapse.
ROK (Minneapolis)
Icanh and his buddies destroyed the aviation industry, why not retail?
Matt0147 (Pennsylvania)
@ROK Yes. The article refers to old Carl as an "investor" and a "deal-maker." He is neither. He is a destroyer of employment, an activity he seems to enjoy. It's like calling a termite a carpenter. He has said the money is "just a way of keeping score." Still doing this at 83, I wonder what his maker will think of his miserable money chips when he finally cashes them in.
Paul (Washington, DC)
@ROK Seems like prices for flying are relatively less expensive then they were a generation ago. I don't recall Icahn's role in changing aviation (I could google it I know), but how did it destroy the industry?
smilodon7 (Missouri)
He bought companies with borrowed money, took apart many that would likely have survived if not for him, sold off assets, fired workers, and looted their pensions. This happened all the time in the ‘80’s. These vulture capitalists made a business out of doing this. It wasn’t just airlines. Look what happened to Simplicity Patterns. Same thing.
Laurel Canyon (LA)
Ms McKee has made her money; let's hope she uses her wealth and remaining time on Earth to actually better it. I doubt it though: she posed for this article and offered her quotes so she's still gloating.
Ask Mnuchin about cashing in on misery - the misery of every-day Americans in the 2008 real estate crash (and IndieMac Bank). Watch what he does now!
zuma (96734)
@RealTRUTH , hmmmmn, tillions of dollars, that's 1,000 billion's he's playing with.
chris (teaneck nj)
I can't believe we allowed the e-commerce companies to shirk taxes as they killed jobs, malls and main street. Somethings gotta give: Origin based eCommece Sales Taxes https://brooklynworks.brooklaw.edu/bjcfcl/vol12/iss1/23/ Were just so second rate.
smilodon7 (Missouri)
We’ve allowed investors to pay less in taxes than workers for years. Income is income and should be taxed the same.
JS (Seattle)
The average workers caught up in this dynamic, who are not economists or investors or prognosticators, just people who want a job, are not helped by short sales or the vast returns earned by Icahn and his ilk. If anything, they are hurt by it. It's way past time to increase taxes on these kinds of gains- along with a steeply progressive income tax- to fund progressive programs to balance the playing field, including universal health care, affordable college and student loan forgiveness, early child care, parental leave, etc.
Bill (Alabama)
It is one thing to talk about the legality of shorting during a national emergency, it is quite another to discuss the morality of shorting during a national emergency. While Ican and his friends party over their newly found wealth hundreds of thousands of people are suffering from lost jobs, and many becoming homeless.
smilodon7 (Missouri)
He didn’t care about TWA families or those in any of the other businesses he killed. Why would he start caring about actual people now?
Practical Realities (North of LA)
Job destruction brought to us all by these vultures. Malls created jobs in sales and management, restaurants, and janitorial and maintenance services. The goods sold result in sales taxes that keep communities going. E commerce is not a substitute. And turning malls into housing won't help, if people don't have work that allows them to afford that housing. How is this loss going to make things better for these communities and for us ordinary folks, who live in them? This destructive money-making tactic needs to be stopped. And the people betting against those who work for a living need to be stopped.
White American Suburban Housewife (Whitestown USA)
@K Henderson My friend: Why bother about what did happen? We are now in the Third Millennium. That kind of reasoning is what keeps many politicians (and Trump) anchored in the 1950s mentality without recognizing that we have had 70 plus years of technological progress and a humomgous change in all aspects of life. We need to move forward!
smilodon7 (Missouri)
Part of moving forward is not repeating the mistakes of the past. In order to do this, we have to know what happened and what went wrong.
Robert Trosper (California)
Yes, shorting is legal. Yes, even pushing others into bankruptcy to make the shorts come true is legal. But, please, don’t call it ethical. A business may be inefficient and still provide jobs and community benefit. Who benefits from a successful short in this case? Does the massive enrichment of a very few who don’t actually need the money balance out against the pain of a much larger number who did? That’s the ethical question.
Stratman (MD)
@Robert Trosper I think it was perfectly ethical for short-sellers to push Enron - for example - into bankruptcy by exposing the fraud they were engaged it, most of which was only possible because of investors inflating the company's stock price. The short-sellers corrected that. Enron employees were done in by the company, not the short-sellers.
smilodon7 (Missouri)
But that is a special case. Most companies are not committing fraud.
Stratman (MD)
@smilodon7 That's irrelevant. Shorter's only make money if a company's stock is overvalued and they realize it before anyone else.
Miller (Oregon)
Hedge funds try to make money off our economy without supporting it and pay out only to those few people who are rich enough to even invest in them. They contribute nothing to society--even stock bought in a lousy company is still investing in the operation and success of that lousy company. I see Nassim Taleb's Universa hedge fund paid off big because of the pandemic, for example. Like a 4000% return. That's almost as bad as war profiteering.
Paranoid Android (New England)
It’s an important distinction between betting on events you see happening and tipping the scales on those events. There is nothing amoral or immoral about placing short bets on any event over which you don’t have direct influence. It’s like betting on the weather or (assumedly non-rigged) sports. The organized capital that is pushing some of retail over the edge, looting the till, making no plan or provision for the laid off thousands - that is where vitriol should be pointed. Placing a bet no matter how large on events over which you have no control is problematic how? It’s not, other than conveniently if imprecisely feeding the narrative of greed. Like most such narratives it’s probably more helpful to cry wolf about actual wolves. There is plenty of insider illegal nonsense going on and that should be found and addressed. But sneering at “shorts” in general makes very little sense. On top of which, with today’s trading access, literally anyone who wants to can put some money on these same positions.
smilodon7 (Missouri)
Yeah, sure we could do that, if we actually still had money.
paul (White Plains, NY)
Shorting mall owner shares is simply the result of good market research. If you want to blame anyone, blame Amazon and all the other burgeoning on-line retailers. Anyone who has ever bought anything on line is complicit with their demise. Malls are a thing of the past, good only for old folks like me to use for exercise as we walk the circuit of closed brick and mortar retailers.
realBillBrown (Miami, Florida)
@paul No, don't blame Amazon or other online (no hyphen) retailers ... if you must "blame" anyone, blame the consumer for exercising her choice, to select a largely more seamless, frictionless shopping experience for look-alike-products in commodity categories. The established incumbents were too saddled with monstrous levels of debt, plodding strategy, The Innovator's Dilemma, and fixed real estate infrastructure and all sorts of costs and people hierarchy that existed just in support of it. It was inevitable it would decline.
Mark (Long Island)
@paul Malls aren't entirely a thing of the past. Just the mass majority of them are. There will always be a market for a large scale shopping outlet for people to peruse and socialize at. It's just we don't need them spaced apart every mile.
K Henderson (NYC)
"Investors love little more than a contrarian bet that pays off, a combination of math and seeming magic that allows them to find a market disruption before everyone else and score a big win." This syntax of this over-long sentence is contorted and should be revised for clarity.
Jumissa Suomessa (Finland)
@K Henderson The syntax is good; the meaning is clear. I question your use of "this syntax" with no prior mention of any syntax. Better go buy some booze and pay the sin tax.
smilodon7 (Missouri)
“Better go buy some booze and pay the sun tax”. Now that’s the first truly intelligent statement anyone has made yet today,
K Henderson (NYC)
@Jumissa Suomessa I did not say the syntax was bad; I said it was contorted. I love good snark, but the booze reference is non-linear and disappointing.
Consuelo (Paso Robles, CA)
Appalling. This is a perfect example of wealth transfer, the toxic sibling of wealth creation. Only the rich can play, making it further cravenly.
realBillBrown (Miami, Florida)
@Consuelo "It is what it is". What would you propose, contorting the law and power of regulation to "stamp it out", and prop up plodding capital inefficient businesses?
smilodon7 (Missouri)
How about taxing it so to give something back to those workers whose lives have been destroyed by the loss of these jobs? They aren’t going to find something new for a while.
JDD (Boston)
@Consuelo Sure the rich can play but so can pension funds and endowments & foundations; and they do. Your simplistic view denies the fact that there a lot stakeholders to the system, right or wrong.
Mdb288 (NJ)
Don’t understand? Isnt the problem a tulmultous change due to incoronavirus and e commerce ? Whose money did the hedge funds take: the mall owners or other investors making money speculating on mall real estate... RNot the mall owners usually investors, eg not the people who work in the malls... Malls and small businesses going out of business is painful and terrible...but that seems to involve bigger trends than short sales... Guess I’m not smart enough to appreciate the point..
Sometimes it rains (NY)
Greed is good. Greed is the cornerstone of Wall Street. Greed rules, with invincibility. Until ...
Jeff C (Chicago)
Only a NY Times business reporter would be aghast at short trades. Why not also report on the hundreds of hedge funds who have lost billions shorting Treasuries? No that wouldn’t fit the underlying assumption that Wall Street is evil. It would just be a fact that the Progressives would rather ignore.
smilodon7 (Missouri)
Some of our families have been the victim of Carl Ichan before. Sorry if it annoys you that we don’t worship the ground Wall Street stands on. CI should pay back the TWA families he stole from. Maybe then we’d have a little more charitable view of him.
Marianne (California)
I wish the article’s author also described, in detail, where and from which groups of actual persons, firms, localities the “shorted” gains come from. In specific terms. And let’s then discuss what American Dream means and for whom and for how many.... It’s time we are describing 2 sides of coin if gains like that.
Rupert31 (SC)
"Bottom feeders", "Vulture Capitalists" serve a purpose just as their namesakes in nature.
realBillBrown (Miami, Florida)
@Rupert31 Exactly. Without destruction, there is no impetus to reinvent, change or improve...
smilodon7 (Missouri)
That is fine for an already deceased company but Carl Ichan preyed on the living as well. TWA might be here now if not for him.
Daveindiego (San Diego)
Karma will not be denied.
White American Suburban Housewife (Whitestown USA)
The institution of the American “Mall” was dying even before the pandemic. The Mall lacks character, the one in Dallas TX looks exactly like the one in Anchorage AK. The shops in the Mall lack individual creativity oriented to the local community. The windows display and inside arrangements of each store are dictated by someone sitting behind a desk in an office in some big city. Individually or family owned stores not associated with any franchise are non-existent in the Mall. The Mall is anti-environment since it is 100% car dependent. But the most important of all the negatives of the American Mall is its absolutely restricted single use. The American Mall is a clear example of the “Ghetto Culture” that is preeminent in America. We love ghettos. Unhealthy age defined ghettos: all seniors here, all married forty something there all teenagers over there. Skin color defined ghettos: whites skinned here, brown skinned there, etc.). And all other ghettos we American love so much. We even have “information ghettos.” A certain group gets their news solely from CNN, this other group gets their news solely from FOX. If Malls would have had some type of mixed use they may have survived. As, for example, having stores AND small one bedroom apartments for rent; the parking lot will be used by shoppers during the day and by tenants during the night increasing the effective use of that space and creating a semi-captive clientele. I personally hope ALL malls go under as soon as possible.
K Henderson (NYC)
counterpoint: Malls make no sense in 2020 (agree) but they made total sense in the 1970s and 80s and people loved them for dozens of good reasons at that time. Comments like the above are not wrong but they do not understand that malls were fantastically successful in the past and for good reasons.
White American Suburban Housewife (Whitestown USA)
@K Henderson Why bother about what did happen? We are now in the Third Millennium. That kind of reasoning is what keeps many politicians (and Trump) anchored in the 1950s mentality without recognizing that we have had 70 plus years of technological progress and a humomgous change in all aspects of life.
K Henderson (NYC)
"why bother?" I made a point saying that malls make no sense in today's reality. I am not dwelling in the past: simply stating the truth that malls were Hugely successful for decades in the USA. Your "who cares about the past" ethos is worrisome and frankly short-sighted and Millennial.
Bascom Hill (Bay Area)
As the level of misery in everyday life for working class Americans increases, profits, in the $billions, for Wall Street go way up.
Candlewick (Ubiquitous Drive)
There will be millions of workers dancing in the streets at the news of Hostile Takeover Artist-Corporate Raider Carl C. Icahn's death. (I am one of those workers.) Three decades later, my neighbor is one-of-those-workers losing everything due to another Icahn venture: Icahn Automotive. Never content, this monster delighted in buying just-enough company stock to blackmail Corporate Boards into doing his bidding. Never investing in the acquisition- just pillaging all the assets. I am just one of the tens-of-thousands of TWA employees who lost careers, pensions, homes in the Icahn game of "gotcha." But money matters-so much so,that his un-healing man had a hospital renamed in his honor: The Mount Sinai School of Medicine became the Icahn School of Medicine (of course with a generous $200 million gift). May his soul end up where it rightfully belongs.
smilodon7 (Missouri)
My aunt was one of those TWA workers as well. What Ichan did was reprehensible.
Candlewick (Ubiquitous Drive)
@Candlewick My bad. "The news of his death is greatly exaggerated..." by me. Too bad
kct (nyc)
The problem is not how much money they made off these deals. The problem is how little tax they are going to have to pay. Hedge funds are going to make money the way hedge funds make money, sound tax policies would help ameliorate some of the negative affects on society.
Robert (California)
I don’t care about shorting, whether it is right or wrong. It is a legal function of the marketplace and of capitalism. What I worry about is how America is going to absorb or repurpose, not just malls, but all kinds of commercial office space. I live in a small town where the streets are lined with vacant retail and even office space. Clearly, manufacturing will continue, albeit with reduced employees. What is happening is the virtual elimination of the dispersed function of retail middlemen. It is becoming concentrated in the hands of a very few companies and a lot of people making deliveries. I have never amassed as much cardboard box trash in the last year as I have my entire life. In the long run, a lot of people are going to wind up holding worthless real property that will be very difficult to reintegrate into any kind of usefulness. I don’t blame Jeff Bezos. He had seen an opportunity and seized it. Nothing wrong in that. But just as Joe Biden is asking “What kind of country do we want to be?” I am wondering what America is going to look like in the near future with everything boarded up and becoming blighted. It won’t be just minorities living in blighted areas. Everyone will be in the same boat. And there won’t any coming back. Gentrification is not going g to solve this problem.
smilodon7 (Missouri)
The problem I have with Jeff Bezos is how he treats his employees. Would it really kill him to pay a little better & give better benefits? Somehow I doubt he’d go broke from being decent to his employees.
Susan (CA)
If landlords would lower their rents back down to something more sustainable you would see those vacant spaces fill right back up again. The problem is not just shopping malls. It is commercial real estate owners being so leveraged that they have to charge rents that their tenants cannot pay. There is going to be a great unwinding in all commercial real estate soon and probably a banking crisis as a result.
Critical Thinker (Berkeley)
And what’s the tax on these gains? True capital gains or Carried Interest?
beaconps (CT)
To what extent is local banking endangered?
Half Sour (New Jersey)
This article - and many of the comments - evidence a complete lack of knowledge as to how markets work. Investors in malls lost. Those who shorted them didn't do anything unethical, nor are they responsible for driving the malls out of business. They simply saw that malls are, more often than not, a losing bet in the age of internet commerce. Those who rail against this outcome are angry at math.
smilodon7 (Missouri)
Maybe it’s because of who was doing it. Carl Ichan is a well known vulture capitalist and many of us have family who suffered because of him. My aunt never got a job as good as the one she had at TWA. She had spent years at the company and ended up with little to show for it.
David Rose (Hebron, CT)
Tax is the nub of what is wrong with the modern American economy. We simply have to tax more at the high end: substantially more. And then invest as a Nation, not just as individuals. China is eating our collective lunch. They gave up "communism" a couple of generations ago and since then have been foot-hard-down on State Capitalism. They are minting billionaires like shelling peas - just look at Mrs Mich McConnell or the yacht where Bannon got arrested - AND investing in public infrastructure AND making big bets on commerce and industry. Not all succeed, but most do - and they are spanning the globe. We have a tiny failure with Solindra and the GOP use it as a club to cripple the economy. It turns out that Saint Ronnie and Saint Maggie were 100% wrong: State Capitalism works better than American Capitalism. To quote our Dear Leader: 'It is what it is.' Neither faith in failed policies nor wishing will make China go away - only higher taxes and American ingenuity backed by government investment can do that. Ya' know - like the Eisenhower years.
Julia Longpre (Vancouver Canada)
Betting against malls takes no brains at all. They’ve been declining for YEARS. This article also fails to mention that the US has the most retail space per capita IN THE WORLD, making shorting malls what every investor should be doing. And why should we feel anger against people doing this? This is not people’s homes. No one anywhere NEEDS a mall. This article needs a rewrite.
T SB (Ohio)
@Julia Longpre Plenty of people need jobs, don't they? Additionally, there are quite a few areas in the country where the mall may be the only place to shop for clothing, shoes, and other items.
smilodon7 (Missouri)
Because they pay very little in taxes on these gains. The billionaires take the money while society has to help the workers who got stiffed. Those workers did their part. They weren’t the ones making bad decisions.
Pottree (Joshua Tree)
As a progressive, I think you missed the whole point. The people who lost their jobs because their stores closed are in bad shape... but it has nothing to do with the lenders to the real estate trusts who are losing their mall tenants. Even the most dastardly investors are shorting the lenders to the landlords of the malls where stores are closing and struggling and rent income is falling short of being able to pay their mortgages. The cows have already run from the barn. Now the farmer gets no income but still has to pay the mortgage and is going into default. You can buy his farm cheap. Yes, it sounds like hyenas feasting on carrion. Yes, it’s actually a stretch to see how this is good for the overall economy. But the little people have already been left by the roadside. It’s the rentiers who are left with empty stores, and those they borrowed from to speculate in retail real estate, who are on the hook. All that said, it’s like a casino... and they are not doing well, either. The economy was teetering before, but corona pushed it over the edge into the dreaded Paradigm Shift. Malls are so 80s. Department stores are so yesterday. Chain specialty retailers are over the hill. Shopping as a pass time or sport is over. Meanwhile, TikTok is a big deal somehow, in profiting from the personal information of the pimple cream set. The world is moving on line. I don’t get it, just as once upon a time the grownups didn’t get comic books and rock n’ roll. Short oil.
Richard (New York)
Short sellers should be commended, not villified. They identify when an asset has become overpriced. If the price of that asset does not correct down, it will continue to attract malinvestment. Better that such overpriced assets correct in price, so new capital flows to more promising alternatives. In concept short sellers are like sports fans who favor the scrappy underdog, not the bloated and entitled champions.
David (Los Angeles)
I'd agree with you if the profits were required to be reinvested as opposed to buying more yatchs and mansions.
Travis ` (NYC)
All this money and still not enough? How depressing.
All this time I thought the V in VC was venture but in reality it is vulture.
Harvey Brownstein (Bronx, NY)
You shouldn't have to think twice why our economy and country is in so much trouble. Wall Street aka as our financial gatekeepers are the one's who originally came up with the middle-class killing machine by moving our manufacturing overseas and pocketing the huge windfalls as they ignored the death of their country's middle class. This year we are faced with a pandemic which left our country standing on the sidelines with hats in our hands waiting for overseas supplies of PPE. Almost four months of businesses being shuttered and many never to open again. But just like the financial free-fall of 2007 as 25 million Americans lost their jobs bankers and traders were busy trying to figure out how they can sneak bonuses for themselves from the TARP funds. Now the country's so-called financial brain trust is busy(like psychopath usually are) trying to make money, not by helping their fellow countrymen and women during a national crisis, but instead figuring how to make money from their misfortunes. In other words don't count on Wall Street to lift a finger to help main street. Wake up American Wall Street just doesn't have the emotional capability to care!
smilodon7 (Missouri)
When the pitchforks and torches come out, will Wall Street care then?
Brian Close (Bozeman)
Their short bet was multiplied by the pandemic. They are not prescient --- they were lucky.
LilaScout (Florida)
This is why Warren should of been president bc Wall Street was afraid of her. People how much more of this do you want? Stand up to this unabashed Greed. WOW who are these people. Please profile them.
jk (NYC)
@LilaScout I certainly agree about Warren. But since she can't be president perhaps she can become the Treasury Secretary. Then Wall Street watch ou!
Richard Ralph (Birmingham, AL)
An interesting premise, but this article doesn't really tell us much that we didn't already know.
David G (Monroe NY)
I’ve never grasped why Icahn didn’t serve jail time for the murder of the TWA 800 passengers. His takeover of the airline, and neglect of their old tired fleet, contributed to the crash of that old decrepit 747.
John Roosevelt (London)
This is excellent reporting
MAW (New York)
I don't understand how this is a good thing. Betting on failure? I know this has been going on since at least the 1980s, and I still don't see any good in it other than for the parasites who bet on it. Downright un-American.
Michael (NYC)
@MAW It does not cause the failure... progress (on line shopping) and pandemic did. They simply saw bankruptcy and loan defaults as more likely than the market assumed.
MAW (New York)
@Michael - I didn't say it caused the failure. I said betting on a business to fail is a bad thing. Whether or not the business fails and whatever the cause of the failure - in this case, a pandemic - the bettors have a vested interest in the business failing. I don't believe the hedge funders caused the business to fail or the pandemic. I think it's despicable and un-American to bet on the future failure of a business and to be legally allowed to make millions or billions on that bet when/if it happens.
GO (New York)
People should not be able to bet on misfortune. Imagine if OTB had odds for people getting cancer? There shouldn’t be any market force anywhere that could have any financial gain for someone’s loss.
Robert (Houston)
@GO What is a life insurance policy? It's a bet that you will eventually pass away in a given time with ever increasing premiums (risk) with age and underlying health conditions. Many short positions are nothing more than grand insurance policies which pay out only as the underlying asset depreciates the value. It has a valid use as a hedge against risk.
Thomas (Lawrence)
Brick and mortar malls have mostly been dying a slow death for years. The shorting as described in this article didn't cause any of this distress. The COVID situation just accelerated their demise.
Michael W (Seattle)
@Thomas - Why should someone other than those involved with the properties be rewarded though?
Just as statues of Confederate generals are finally coming down, I look forward to the moral reckoning that puts Carl Icahn and his ilk in proper perspective. He’ll be dead and won’t care, but social justice doesn’t begin & end with the judicial system. America needs to tackle the obscenity of obscene wealth and the working- and middle-class needs to take back what belongs to them. Cruelty, luck, and plunder cannot continue to be the defining characteristics of American capitalism, unless the wealthy want the people of this country to start doling out the cruelty themselves. There are ten thousand Trumps out there leeching off America, and after the November election, the American people need to turn their attention to hedge funds and banks.
Mantup (New York)
Matlin Patterson has had terrible returns the last few years. If it hadn't been for covid bringing them back to flat on a 2 year lookback they would have been shut down.
WalterZ (Ames, IA)
"The exploitation and incidental destruction of the public...[for] purposes of financial gain is one of the worst crimes of present-day capitalism." — from The Price of Peace
Ted (NY)
Of course, who else would benefit from triangulation, market manipulation, tax cuts, offshore accounts and the rest. This is how oligarchs have fleeced the nation and destroyed the American middle class. While caging children of refugees who they fault for the country’s destruction. Shameless. Amoral, unethical looting.
Ernest Wilson (CT)
It all boils down to too much wealth in too few hands. It's all just a game of keeping score for the likes of Icahn: they have more wealth than they could spend in a thousand lifetimes and they spend their time scheming ways to add to it. Parasites.
Been There (U.S. Courts)
Carl Icahn's entire career is the epitome of cannibal capitalism.
EduKate (Long Island, NY)
Just because you have the right to do something doesn't necessarily mean that it's the right thing to do. That was made clear in 2008 when people lost their homes, retirement savings and education money. Banks gave big mortgage loans to people who couldn't afford them and inundated homeowners with with pleas to borrow on their lines of credit, vultures bet against America by "shorting" it and respected rating companies put their imprimatur on toxic investments. Have any changes been put into place to keep that financial bloodbath from happening again? Will anyone go to jail if it does?
Gary (Upper West Side)
This kind of shorting stabilizes share prices and saves others from bad prices. And it is risky. The shorters deserve the profits they make when they actually do make some.
Robert (Houston)
I'm not sure people here really understand how the money is made by taking a short position. Icahn and other bearish investors only make money if there is a general consensus from the market that the underlying security is over valued. Where there are fewer buyers willing to take the long position at the current price. Here's the gist of it, most of CRE has deals which are choking the businesses that they lease to. The "rents are too high" complaint does not just affect individuals, they're creeping into businesses. An individual who takes on a piece of property that eats into too much of their income is just simply waved away as being irresponsible regardless of their wage options. A business writes off rents as a business expense and it's just accepted as overhead. The greedy ones in this case are the landlords and real estate trusts which are pushing small time owners into ruthless lease agreements. This has been building up since 2009, but absolutely nobody is bothering to look into it. We can all say that "this was coming" but covid closures and the complete demise of retail shop revenues was all it took to kick the bucket of slime over.
Global Charm (British Columbia)
Malls have been declining in value for years. The short sellers have been able to convert some of this change into money that can now be invested more profitably in other enterprises. A lot of things in this world don’t appear at first to be “creative” or “productive”, and they naturally attract the disdain of people who like to apply these labels uniquely to themselves. Fixing toilets and hauling garbage, for example. Or clearing the market of failed businesses, as we have here.
smilodon7 (Missouri)
Mr Icahn has also been responsible for helping those businesses to fail. Just ask the former employees of TWA.
Nick (Chicago)
I don't have any especial problem with a short trade on an index, but Carl Icahn is one of the greediest men in world history.
Scott Smith (Chicago, IL)
A short is executed by borrowing a security from a broker, immediately selling it on the market, and promising to buy back that security at a later date to be returned to the broker. Yes, if the shorter sells a security to someone at 100 and it falls to 50, the person that bought it at 100 has lost 50%. And the shorter gains 50% by buying it back for 50% cheaper and giving the shares back to the broker. But is that really much different than if I sell out of a security that I was holding long and that security then falls 50%? The person that now holds that security loses 50%. The only difference I see is that I don't gain 50% off of that decline - rather, I simply avoided a 50% decline by selling out of the security before the decline. There is always a winner and loser in any financial transaction. I don't see why shorting has such a worse reputation than other types of investments. Also, the losing investors on the other side of these shorts are typically other hedge funds, not retail investors (because retail investors typically don't invest in complex products like MBS or CMBS). So one hedge fund is making money off of another. Who cares?
beaconps (CT)
@Scott Smith Shorting and futures distort asset prices, when the speculator has no intention of taking delivery.
David (Washington DC)
"Too much and never enough". The kleptocrats are in reaping more and more. What is strikingly even more appalling is that our billionaires are raking in even more billions during these times of the great pandemic. While the masses are trying to figure out where their next paycheck is going to come from, how to pay rent, put food on the table, the .01% with just a click of their mouse make more billions. The "haves" now want to have it all. this is America 2020. "It's called the American Dream because you have to be asleep to believe it" George Carlin. PS. Don't forget to vote.
Michael (Manchester, NH)
For the short to work there has to be a willing buyer. In a perfect world the buyer understands the risk. My question is whether these deals are on the up-and-up, who is actually losing to Icahn et al.?
JerseyGirl (Princeton NJ)
@Michael I was just going to write this. No one is "profiting off the pain" of the malls. It's a bet -- just like in sports. Somebody has to take the other side. Competitor X has been dominating a sport for years and you follow the sport and come to believe that Competitor X's time has past and they are now going to start losing to new players. So you bet against Competitor X and others who still support Competitor X take your bet. Competitor X loses and you win the bet. Are you "profiting off the pain" of Competitor X? Who writes these things?
Leanne (Missouri)
Seeing that Mr. Icahn made so much money off of this deal, maybe he can pay back the money he stole from the TWA Union pension plans. Referring to him as "Mr. Icahn, whose hostile takeover of TWA in the 1980s established him as a major dealmaker" is understating the absolute devastating effect that he had on that airline and its employees. You say deal-maker; I would not be as naive, and would say something a bit more egregious to describe his business tactics.
smilodon7 (Missouri)
My family was one of those that lost in that deal. How about you compensate my aunt & cousins with some of that money you made, Mr Icahn? My aunt could use the money now.
Art Steinmetz (New York)
The logical fallacy that this article encourages, and that many of the commenters seem to think, is that short selling CAUSES the pain for the malls. No. Remember the banks that lent the money to (over)build these malls made a mistake and the money is going to be lost. The short sellers win by betting against those who disagree with that. Price discovery is the social good that comes out of all markets and liquid markets aid that. Who is going to take a chance on buying a distressed property and trying to make it useful again? At 100 cents on the dollar, nobody. The shorts accelerate the workout.
Ali (Michigan)
@Art Steinmetz -- Finding a buyer is definitely an issue. The mall near me closed down several years ago, after slowly declining. It was probably the departure of Lord & Taylor as an anchor that started it, but the later departure of Macy's then cinched it. Only Sears remains. Word is, there's a buyer and the mall will be repurposed, but it's taking years.
@SJCCultureNotes (NYC)
@Art Steinmetz I would only add that the turbo-charged language in the article is not helpful in understanding the mechanics of the transaction. This is not a contrarian bet (a trade placed counter to the prevailing market opinion)--it is a short. In addition, the investors in the fund saw a profit, but "getting fantastically rich?" Not at all clear. The article also fails to say that, for there to be a short, there have to be many more investors who are long in these malls. Should they be applauded?
Mark Shyres (Laguna Beach, CA)
Let's not confuse short sellers with vulture capitalists (although some may well be both for obvious reasons). The vulture capitalists simply buy a company (or controlling interest), pay themselves very well to gut the assets, loot and sell off all the profitable entities, cut costs (employees and benefits) and eventually cause or accelerate the demise of the company and its employees and shareholders. Short sellers, on the other hand, see the potential demise of certain business models or corporations and place their investment accordingly - betting the demise (and stock price) will begin, or continue if not accelerate. TWA would be an example of the former. The mall shorts would be an example on the latter.
smilodon7 (Missouri)
Oh look, Carl Icahn is involved in both. Sorry but I trust him about as far as I can throw him. If he’s involved in it, somebody somewhere is getting ripped off.
Paranoid Android (New England)
Sure but hating shorts because Icahn uses them is like hating BMWs because some fancy criminals use them, or a million similar analogies. Shorts don’t cause failure any more than a life insurance policy causes death. Might motivate some murders...but that’s a different issue.
Mark Shyres (Laguna Beach, CA)
@smilodon7 I did note that some (perhaps most?) may be involved in both - to their profit, Probably true of Ichan as well as Romney (who has better hair and a better act. At least Ichan does not pretend to be other than he is.
DaWill (DaWay)
Icahn, a friend and adviser to the Bottom-Feeder In-Chief, made hay from market disruptions following Trump’s tariffs. The timing was suspicious, as has been explored in this paper, and he was subpoenaed by federal prosecutors. This was all a year ago and more. I have not heard much about it since.
smilodon7 (Missouri)
Oh, that’s not suspicious at all. /s
Jay S (South Florida)
Short selling is an innovative way to make money on down markets. What's wrong with it, from a social standpoint? The billions invested in shorts are billions not available to fund new businesses or grow existing ones. It's a negative force against advancement of the economy, and if shorts were the majority of trades, there would not be an economy. Do the desires of the few outweigh the needs of the many? That's the question we as a society need to ponder, and eventually answer.
Stratman (MD)
@Jay S The social benefit is that shorting identifies potentially overpriced investments, and if the market concurs that the investment is overpriced, investors will funnel their money to other investments. Shorting is perfectly legitimate. People shorting Enron helped lead to the discovery of its massive fraud, which was underwritten and perpetuated by its grossly inflated stock price.
Nancy (Maine)
I don’t ponder. I believe we need to short the shorts
The author is right - there is something discomfiting about profiting when values decline. However, that is the way valuations, and price discovery, are done in today's modern financial markets. All of the other alternatives are far worse. If you think that American capitalism should be more benign, remember two things: that someone else is waiting to take your place (presently, China and its economy); and, The Eastman Kodak Company.
smilodon7 (Missouri)
And you should remember that capitalism requires a stable nation in order to work. Push too many people into poverty and that stability is going to vanish. Countless examples exist throughout history.
JP (Colorado)
A toast to the truly essential workers in America, the Wall Street heroes who stalked the nation’s malls — harassing on the way low-wage security guards with no job security — and concluded, in a stroke of unmatched genius, that malls are bad investments in 2020. Here, here! What would we do without these wizards of high finance?
Beer Can Boyd (YVR)
"Getting rich of other peoples misfortunes". That has been the real focus of capitalism right from the very beginning. America is the canary in the capitalism coal mine, and the poor bird may be on its last legs.
Ben K (Miami, Fl)
What the article fails to mention is that shorting a security, mall based or otherwise, is quite risky. An amount greater than the investment can be lost, leaving the "bettor"/ short investor with heavy debt, less than zero. Taking on the risk of shorting involves outguessing the well meaning administrators/ proprietors of the underlying business, who presumably are trying to succeed. However, when those proprietors are engaged in shady business practices, eg falsifying accounting such as at Enron, or outright fraud such as at Theranos, the short investors will aim to bring that misrepresentation and malpractice to light. In the big picture, shorts can act as predators that help keep the publicly traded herd fit. No doubt, C-19 has accelerated many changes in commerce that were already underway, and caused harm to some and benefit to others positioned to adapt. The shorts did not cause the changes. Consumer preference in the context of C-19 ultimately did. Some investment classes are justifiably closed to the lay public, to protect the less cautious and less sophisticated from the potentially catastrophic downside of the risk/ reward equation. Caveat emptor.
Peter S.Mulshine (Phillipsburg,Nj)
@Ben K Trump & his republican Toadies will gladly give away Taxpayers $$$ to compensate them whenever they lose $$$.Trump never ran a successful business .That s why he used bankruptcy laws to refuse to pay investors or Contractors for their labors .
Nope (Chicago burbs)
Theranos made no sense on its face, any thinking person knows malls are dead and should be wondering why commercial real estate investors are putting dollars into building pricey apartments in mall outlots as they are in Illinois. I would have shorted this ages ago if I had access to these funds, please don’t save this investor from myself.
Ben K (Miami, Fl)
@Nope ERISA created entire generations of involuntary investors. Some few have become erudite, most remain at the mercy of mercenary "financial advisors." Or just in the dark. As far as non-retirement accounts, If you have amassed capital and believe your crystal ball is fully functional, then there is nothing to stop you from shorting individual stocks. The big boys, perhaps due to the risk level, tend do so with OPM. As discussed in the article. But if you believe "any thinking person" can see that billion dollar publicly traded companies "make no sense" then you can always step up to the plate and take as many swings as you like, or can afford. Become your own Steven Cohen if you can. Hindsight is always 20/20.
TINMP (Santa Monica, CA)
Ironic. Wall St- buys the distressed major retailers - all anchor stores in the malls they finance the mortgages on - pump high interest usury loans on unsuspecting customers, then as they prepare to falter taking the malls with them- Wall St steps in and shorts their own fall. Casino some may say- I say its a snake eating its own tail. They win overtime, sans the poor schlub who got the JC Penny credit card and whose town subsidized the mortgages to finance the mall.
Brewster’s Millions (Santa Fe)
Deja vu, 2008 all over again.
A Lady (Boston)
@Brewster’s Millions Are you saying this Trump prosperity is a bubble ready for disaster?
Skywalkersf (San Francisco)
Capitalism 101. They did their job. If more short sellers were in the market earlier, capital would have been starved a long time ago. Instead more capital was wasted leading to the blow up you’re seeing. Malls blew up not because of short sellers. They blew up because no one wants them.
Oliver Budde (New York, NY)
Something discomfiting? I'd be discomfited if it were girl scouts or choir boys that were faced with such moral hazard. But we're talking about Wall Street, where something is only wrong if you get punished for it. You think the Icahns and McKees down there just sit idly by, hoping their bets come in? No, they are doing everything they can to further their trades and hasten their targets' demise, including getting you to shine some light on it. You see that grin on Ms. McKee? That's her, feeling like Queen Ship. Meanwhile, while a few go up on Wall Street, many out in the real world will have to be knocked down. It is disgusting. I was on the inside for close to 20 years. Wall Street needs to be torn down to the foundation and rebuilt. The Fulds, Blankfeins, Schwartzmans, Icahns, McKees etc. all have to be kept out of roles where they have the opportunity to do harm, for they will never hesitate to do so given the chance if there is a buck, let alone 1.3 billion of them, to be made.
Stuart (Alaska)
Bernie Marita is the living proof: the only crime on Wall Street is being obvious.
Tim Clark (Los Angeles)
@Oliver Budde It's not even wrong if you get caught. In LA, they think of Michael Milkin as a saint.
Henry Seggerman (New York, NY)
If you own a stock, correctly guess its earnings will fall, and sell the stock, that's fine. Why is it that so many believe short-selling a stock is "getting rich off someone else's misfortune"? This is utterly illogical, and quite naive.
Nicholas DeLuca (North Carolina)
@Henry Seggerman Predatory Capitalism is "getting rich off someone else's misfortune".
GMooG (LA)
@Nicholas DeLuca But if you buy a share of Tesla stock from someone who thinks it's going to go down, and it goes up instead after you buy, haven't you profited from someone else's misfortune? Why is this different?
P Read (New Jersey)
These hedge funds have done the same to the Fourth Estate, bleeding newspapers dry and then hanging them out to die. Past time to tax Wall Street speculation and tax billionaires at 90 percent, no deductions or overseas tax shelters. Otherwise, time for the proverbial pitchforks.
Jeff Johnson (Arroyo Grande, CA)
Welcome to the casino economy. It chaps my hide that people can make such insane profits without producing anything of value.
Charles Trentelman (Ogden, Utah)
So who did they make this money off of? For a "short" to work you contract to sell something now for future delivery, collect the money now, then buy it at the delivery date and hope the price is less than what you collected. Or so I was taught. This does not say who that buyer was, and i think that is important. The story does mention insurance that these people are investing in, but does not really explain the mechanics of that, or how that is the "short" if indeed it is. But the bottom line still is -- they bet and made money. Who lost that bet?
Chris (Boston)
@Charles Trentelman likely a bank, insurance company, or another hedge fund. they seem to be talking about credit default swaps, where the entity who is short pays premiums, and if the mortgages default, the entity gets paid.
Jack Frederick (N CA)
On-line wins. Brick and mortar loose. I wonder if in those areas where malls fail if there is a way for some towns to bring back the downtown area stores and boutiques that got trounced by malls. I am old enough to remember all the shopping being downtown. Along about '60 a new term, "Strip mall" with half a dozen smaller stores and a grocery store drew consumers interest. This was followed by the MALLS, which contributed strongly too killing downtowns.
DD (Florida)
Until big investors, corporations and many individuals begin to value cooperation and fair play over winner-take-all competition, the U. S. will continue on a race to the top for a select few and a race to the bottom for everyone else. What exactly will the rich gain when the country is in ruins morally and economically and the climate is unlivable?
aggrieved taxpayer (new york state)
Obviously Big Short 2 is being analogized to Big Short 1. I am curious about the following: Who is on the other side of the bets on the drop of CMBX 6? The last time around, the government had to bail out AIG because it had "insured" all the bets on whether the RMBS market would collapse or not. We all know how that turned out. If Ms. McKee and Mr. Icahn are correct, will the federal government have to bail out the counter-party, the AIG or whoever of today?
Alexis Adler (NYC)
My father was a big investor before he passed in 2001, I remember when “shorting” became popular, he did not buy in and had a huge argument with his broker about the fact that you were gambling that the company would lose money. Did not sit well with his traditional investing strategies. Like everything else, the stock market is upside down with what has value today.
SpartacusNJ (6th)
@Alexis Adler Your father was right. The problem with shorting by a (presumably) retail investor like your father is that your gains are limited but your losses are unlimited. You have to buy back the borrowed stock to close your short position. If it goes up, up and away before you close, you are out of luck...and money. Think where you'd be if you shorted Tesla or Apple before their recent run-ups. Back in the 1800's a big investor -- who, by the way, died penniless -- put it this way: "He who sells what isn't his'n, must buy it back or go to pris'n." There are other, less risky, ways for small investors to bet against the market or a stock. Just my opinion.
Profbam (Greenville, NC)
Getting rich from the follies of others. Another area that is ripe for a big short are college student rental units. I live in a university town. Over the last five years, five large apartment complexes with first floor retail space have risen. Whoever is holding the paper on these complexes is holding the greasy end of the stick. Yes, during the last five years, the university’s enrollment has increased—mostly through online courses. I directed such a course that all of the graduate nursing students must take and I had working nurses from the far corners of the state. Going forward, demographics show that for my state each of the next ten years will have fewer 18-yr olds than the previous year. There is no rational basis either for the city to approve these projects or for banks to provide funding. This scenario is happening in university towns across the country. A good time to be a corporate bankruptcy lawyer.
frankly 32 (by the sea)
I don't get how selling short works. Can somebody put it in a nutshell?
Diana (Atlanta, GA)
@frankly 32 I think an easy way to understand or state it, is"instead of hoping the stock goes up, you bet it will go down. When it does, you win the bet and get the proceeds."
Erik (Toronto)
You borrow a stock and sell it on the open market at today’s price. If the value goes down, you can buy the stock at a lower price and deliver it back to the party you initially borrowed it from. You keep the difference.
Mitch4949 (Westchester)
@Diana How do you short an index? If there were options on the index I would understand. But this index has no options available. Further, the mortgages in the index are privately owned, not publicly traded.
Kalidan (NY)
The real estate of malls is perfect for colleges, universities, schools looking to expand. Mostly because they have easy access, plentiful parking (which usually ranks higher than academics at most schools), open spaces for open minds, and shops that are ideal for classrooms (well ventilated and lit places). We need more schools and colleges than we need malls, because we have Amazon but very few successful analogs of online education.
Maya (Brooklyn)
Have you seen the state of higher education? Smaller schools are closing, more people than ever are questioning the value of degrees versus the unsustainable cost of attendance, faculty are often criminally underpaid, and tuitions keep rising. The last thing we need is more colleges.
toms2cents (San Diego)
@Kalidan Are you kidding? Higher education is about to undergo a downsizing similar to that of malls. Thanks to the vid. Some will survive, and thrive. Many will not.
Margo (Atlanta)
I agree the malls are in trouble. But, what is not acknowledged is the presence of these parties in the demise of the malls. Consider Sears and how it was ground into nothing through money interests. Is a quarterly dividend really more important that trying to wait out a pandemic or spending that money trying to adapt to current conditions?
brodythomas (Millburn, NJ)
Just another example of the rich get richer...
Michael (NYC)
@brodythomas Presumably the owners of the malls are also rich, but getting poorer.
Jim (New Jersey)
Kudos to the smart investors. These bets are the result of a lot of hard analysis and they are making their money against other savvy investors who are taking a different assessment of the same data. Carl Steidtman, a well regarded retail economist, and many other retail experts have offered unheeded advice that America is “over-malled” for over a quarter century. This is a long overdue market correction.
Trust but verify (US)
@Jim I would hate to be short that 25-year trade!
Carl Icahn...the guy who left over 40 billion on the table by selling Apple and Netflix 5 years ago? The vast majority of these market gurus get that way through charging fees on billions...Bill Ackman, for all his notoriety (and very timely 2.6 billion dollar trade this spring), is still negative over the last 5 years. Paulson, who made a fortune in 2008/9, had to close shop because he's been so out of tune with market since.
Malls lost 60% of their value when the Internet was invented. It just took a while for the financial markets to catch up. Most short sellers lose money. This was a smart move.
JW (New York, NY)
I wish people are as clever and diligent in helping find solutions for problems as they are in benefiting from them.
Seldoc (Rhode Island)
For some people "There is something discomfiting about the idea of getting fantastically rich off someone else’s misfortune". For others, the ruination of others is as invigorating as making a fortune.
bruce_65 (New York, NY)
This was a fluke that only paid off because of the coronavirus and not some brilliant insight beforehand. The bets would have expired worthless otherwise.
Maggie Mae (Massachusetts)
What an intrepid bunch. What will they pay in taxes on their windfall?
Dave Kerr (Pennsylvania)
@Maggie Mae Taxes are for little people, not the obscenely rich.
Mary (Redding, CT)
How nice to hear what Carl Icahn is up to! You get upset about income equality? Blame it on Icahn and all his corporate blackmail buddies who were so active in the 70s and 80s. It was their relentless focus on share price that forced corporations to do anything - anything! - that raised that number. So forget employees (and benefits!) - too expensive! Forget research and development! (If you can't guarantee good results, don't "waste" our money!) And why even keep your corporation in this country! Go where everything costs less: Mexico! The Asian Tiger Economies! China! Icahn has always been big buddies with Trump - though his suspect steel industry stock trades at the beginning of Trump's term caused him to disappear into the woodwork. Does his base know how Trump REALLY sees the world??
Steve Snow (Cumming, Georgia)
is this a joke? Are we lauding this "investor" (and her boss Icahn) as some sort of genius for recognizing the demsie of malls? My 12 yr old couldve told you that. If he had any interest in making money at other peoples expense, I wouldve given him a few thousand dollars to invest.
Kevin (Tokyo)
Lol! They walked the malls and made the note, 'Interior physical product ok, but tired.' These awful malls have looked tired for decades. To have lasted this long with only the most minimal investments in upkeep is a wonder to behold. Most malls are uninspired messes.
Chris (Colorado)
We used to make things. Now, we just make, or lose, money.
Paul (Brooklyn)
These people are modern upscale business vultures. Pick on all the juicy parts, make a fortune, discard the rest and/or things they don't want and kill the average joe's livelihood. As much as I admire Romney for putting country over party re Trump, he one of these guys.
dennis (ct)
And people wonder why Socialism is more popular than ever? Hello. Profiting off of the misfortune of others is immoral.
Me (Here)
Pretty straightforward seeing the collapse of malls, so McKee's money making "skills" are just watching for dropping corpses, like a human vulture. Legal. Yes. Ethical, sure why not. Money grubbing? Yes. Creative? Lazy? Builds anything of actual value for society? No, no, and no.
Rich (DC)
It's sad to see so much money going into unproductive things that don't create new capital. Malls are on their way out and it's not just e-commerce. Retail is way overbuilt in the US relative to other wealthy countries and it has shifted to "new urbanism" and big box centers which are easier to repurpose as something else. Malls are stuck with stores that sell basically the same thing at the same price points and their anchors are dying off in bankruptcy. It's difficult and very expensive to re-purpose these properties as anything else, so hastening their demise will create blight more quickly all over the suburban landscape. Suburbia isn't supposed to be that way, but it's always been filled with myths anyhow.
Russell ,Perth. (Australia)
The change in people's habits from malls to on-line shopping was well documented before the virus hit but what was surprising is how badly many of the large retailers were in having their own on-line sites up and running. Big bonuses continued to be lavished on CEO'S and management even as profits dived, as always its the shareholders and retrenched workers who pay the price.
Stuck on a mountain (New England)
Kudos to smart people who know how to make money in the financial markets. No different than smart people who make money in home building, designing iPhones or discovering breakthrough drug treatments. We should celebrate them, not vilify them. After all, some rich people need to be left standing to pay the bills for all the government bailouts...
Bob R (Portland)
@Stuck on a mountain It would be better if they made money creating something.
michael kliman (victor, ny)
@Stuck on a mountain do you pay attention? the rich avoid paying taxes, as do their abundant cash cow businesses. the essence of the argument against this kind of "business" activity is that it isn't a business at all, it adds nothing to the overall economy, there is no useful product for any prospective consumer. nope. it's all gimme, gimme, gimme, take it and run. trading on the failure of other is not a laudable past time.the word vulture comes to mind, or predation.
Chris (Colorado)
@Stuck on a mountain They should pay the bill. Most of it goes to them.
oz. (New York City)
Mall culture in America has cast a pall on our latest two generations, producing the opposite of learning and development of critical thinking. Born from rampant greed, mall culture predictably fell into excess. Today, the same vulture capitalists that got fat propping it up, are gouging its eyes out as it tumbles half moribund in the pandemic. And how they love to gloat on their predatory kills, these pirates of casino capitalism! Their contempt for the families and people's livelihoods they destroy could not be more obvious. The current stage of their savage, rent-seeking corporatist way of life, is cementing the ever-greater dominance of the tech giants who own online commerce. Dog-eat-dog casino capitalism is the constant here. Whether tulips, shopping malls, or Facebook, the concentration of blood money and political power keeps the neoliberal ruling classes morphing into ever-new forms of antisocial opportunism. Heedlessness of greed and ego is a race to the bottom. Those at the top are rich and powerful enough to know better, yet they don't. Like grifters, they just can't stop feasting excessively on planet and people. In their unsustainable ideology of perpetual dominance, they will eventually consume themselves out of existence. Problem is, they'll take the rest of us down with them. oz.
AlanB (Delray Beach FL)
If you are going to blame someone for profiting off the "misfortune" of others, then look in a mirror and blame the millions of consumers who choose to purchase from Amazon and other online retailers rather than shopping at these malls. Similarly it was these malls and the consumers patronizing them that led to the decline of many small retail businesses especially in urban downtowns.
Jerome Castle (Florida)
@AlanB Once upon a time the Never-Slip Horse Shoe Company was a good investment, just like the Malls were, not too long ago. Henry Ford, and some others saw things differently. Innovation continually makes the world more exciting. There don't seem to be many telephone booths around any more either.
AlanB (Delray Beach FL)
@Jerome Castle Not disagreeing with you - just not blaming investors who profit from - but do not cause - the decline of a business model that consumers no longer favor in sufficient numbers to support it.
Jerome Castle (Florida)
@AlanB Thank you.
J O'Kelly (NC)
I do not understand the role of betting in our nations economy.
Andrew Edge (Ann Arbor, MI)
The shorters are not "profiting off other's misfortunes"..they're not involved in the operations of these malls..what they are doing is akin to offering an insurance policy or a hedge that a party can choose to buy or not..
Brewster’s Millions (Santa Fe)
Oh no. The “insurance” IS the hedge, known as a credit default swap. It is not for the benefit of the mall owner, and provides nothing to the mall owner in the event of default.
Andrew Edge (Ann Arbor, MI)
@Brewster’s Millions you're mixing different things together..shorting doesn't particularly involve "credit default swaps."...take the time to read up on it if you'd like..
Pessimist (Chicago, IL)
@Andrew Edge This particular short (on a bond index) actually does involve buying a CDS, presumably from one of the large dealers like JPM or Citibank. It is not an equity short.
TobyFinn (NYC)
If you have the money to play there are always opportunities to win or lose. Isn’t that what Wall Street is about today. Take a look at Tesla its over $2000 a share with a P/E of 1000! There are already winners who bought in at the low $200 level earlier this year and of course those who Shorted lost. With the size of the deficit it’s about time these Winners get taxed appropriately,
Yoda (Somewhere In Galaxy)
@TobyFinn i have a feeling that these "investors" have already lubricated the hands of the right politicians to prevent that very thing from happening. That is the way democracy works.
Two Americas (South Salem)
It’s a wonderful time to make money off of other people’s hardships. Good job! Proud to have these opportunities and live in the land of the free and brave. Another good reason to keep Trump in office.
Bob R (Portland)
@Two Americas I hope you're being facetious. I think you are.
The investors didn't cause the downfall of the malls, the internet and online commerce did. I haven't been to a mall in years. I prefer to shop online, click, click, click, and they bring it to me instead of me driving to a mall, finding parking, perusing the offerings in the mall, can't find my size or what I want, back to the car, new dings in the doors, drive to another mall, do it all over again. Malls are so 1950's.
Yoda (Somewhere In Galaxy)
@MIKEinNYC plus there was overconstruction for a long time + discretionary available time for most shoppers has fallen.
rick james (FL)
No one is saying the investors led to the downfall of the malls. However, the point of the article is that they were allowed to make hundreds of millions based on failing malls.
Brewster’s Millions (Santa Fe)
It’s a lot safer too. Go to a mall and risk getting sprayed with virus or bullets. Your choice.
Brewster’s Millions (Santa Fe)
Credit default swaps. That’s what these investments are called. But the author studiously avoids calling them what they are. To stay afloat, Mall owners will turn to cities to extort monetary incentives against closing. It’s a bad bet for cities to take.
GMooG (LA)
@Brewster’s Millions No, these are NOT credit default swaps
Tyooper (Houghton. MI)
No bailouts for commercial real estate.
Kevin (Minneapolis)
If you had an investment objective to deliver return to your investors (like a pension fund for school teachers for example) and were long retail stocks (ugh), I would think perhaps hedging your book with these shorts, maybe 20-40% might be something you'd at least consider.
M (Chicago)
What would it take wind down Wall Street? Do we need the stock market?
Roosevelt (USA)
Everything comes in full circle. At one point the mall was the cause of demise of the downtown or commercial stretch mom & pop in small towns and cities. Now, online shopping is the demise of the mall. And some downtown or commercial stretches are coming back for more intimate shopping. Add in demographics shift of less/later families and more Internet influence so a teenager or family has less desire to pack up the minivan for a mall trip on the weekend if everything can be done from kitchen room or sleeping in bedroom.
Me (Here)
@Roosevelt The collapse of the US economy from outsized federal debt and an unemployed consumer from Trump's tragic-comic mismanagement, cheered on by his stable of authoritarian fools, will choke off e-commerce next.
Margo (Atlanta)
@Me Who will shed a year for a Jeff Bezos in reduced circumstances? It would also make me happy to shop in stores that are independent of the vultures described in the article. Seriously, the markets need to be better balanced and that means local establishments will need to be accessible after the pandemic shutdowns. I'll be ready then.
John (Philadelphia)
The Germans tried to codify a social capitalism in their constitution. In one article they try to balance both things by guaranteeing private property and setting limits: "Property and the right of inheritance shall be guaranteed." and "Property entails obligations. Its use shall also serve the public good." In the specific example reported here it's hard to tell how the investor money served any public good.
Yoda (Somewhere In Galaxy)
@John let's see how long that lasts. Merkel pointed out that Europe accounts for a bout a fifth of world GDP but half of social spending. With global competition being as brutal as it is, can this continue? Remember, the third world is not encumbered by such thoughts or spending.
John (Philadelphia)
@Yoda Interesting statistics, thanks. Although it could also mean that the rest of the world is spending very little on social and therefore the relative number for Europe appears that high. In any event, the Germans face a dire future. Their population is aging at lightning speed, I think only Japan is worse. Their social system that relies on current taxes collected being repurposed to current social benefits paid out is poised to break in future. They have no reserves like Norway for example.
Mark Shyres (Laguna Beach, CA)
@John The purpose of investor money is to make money for the investor and for those who charge a management fee for the service - not to serve the public good. That said, some investment groups do make it their goal - or a portion thereof, to serve the public good, the environment, etc. That aside, in a larger sense when one invests in a company (hoping the stock will rise as company and its products or services succeed) you may also be betting, in a way, against that company's competitors, betting they will not succeed as well, or not at all. This is not always the case, but in a competitive market you want to bet (invest)on the biggest winner(s), Think about it. Then again, I may be wrong. It won't be the first time today or the last.
Casual Observer (Yardley, PA)
Due tell, please give specific examples where shorting helped expose corporate fraud or deflate a dangerously overvalued asset prior to that stock's price being devalued due other causes? In America, we laud these antics deeming these 'smart' business folks as 'captains of industry' yet they really don't contribute anything meaningful to our society. They don't make anything nor do they actively work to strengthen our domestic industries in any constructive way. So, why do we let these destructive business practices continue? There is nothing particular smart, creative, or entrepreneurial in what these private equity funds do. They just happen to have millions to bet on a trend and prey on the misery of others. We need financial institutions in our country committed to helping our economy grow; not profit from its demise.
Bob R (Portland)
@Casual Observer "please give specific examples where shorting helped expose corporate fraud or deflate a dangerously overvalued asset prior to that stock's price being devalued due other causes?" Those are just statements made by the investors to try to justify their greed.
Pessimist (Chicago, IL)
@Casual Observer Enron
Steve Griffith (Oakland, CA)
I don’t know what’s worse, people profiting off of others’ misfortune, or those, including some of these commenters, seeing nothing wrong with it.
Carden (New Hampshire)
@Steve Griffith The short sellers are not causing the demise of the malls, they just see the demise earlier than others do. The stock price of these companies will eventually reflect this demise whether you have short sellers or not.
Pete (California)
@Carden Short sellers not causing the demise? Naive and uninformed in the extreme. It is well documented that short sellers consistently actively seek to undermine their “victims.” It’s like sticking a foot out to trip the competitor you bet against in a race. The fact that these sleazy operators can still find legal cheats to make their millions, and can buy off politicians to protect their low tax rates is outrageous. A reckoning is coming. Maybe we should short them.
JS (New York)
If the pandemic hadn't come around, these people would still be bleeding premium on their CDS positions. The ascendance of Amazon and online shopping hasn't exactly been a secret - what made money for them in this trade was the proverbial meteor strike that the Corona epidemic represents - I doubt that was in Ms McKee's pitch deck to Mr. Icahn.
Mark Shyres (Laguna Beach, CA)
@JS "If" is the largest word in the English language.
Chris (Missouri)
If you're going to give Mr. Icahn's age, you should also give the age of Catie McKee, as well as the age of everyone else in the article.
PWV (Minneapolis)
@Chris Catie McKee is 31 as the article states in its second sentence.
Bob R (Portland)
@PWV Yep. Plus, Icahn's age is significant because he's still "working" at an age most people would be retired or dead, so it's useful to see. Also, anybody who's read about Icahn for decades would know that he's very old, even if they don't know his exact age.
MorganFrogman (NY, NY)
@Chris please see the second sentence of the article. Thank you for your profound contributions to this discussion.
dianeellen (michigan)
funny, but after reading some comments i am wondering why no one wonders about the shopper who waits for a sale...goes to a discount store...or buys on line?
jackthemailmanretired (Villa Rica GA)
@dianeellen They're "little people" and therefore immaterial.
dianeellen (michigan)
@jackthemailmanretired that is not what i meant...those people wanted to pay less for something...that hurt the retail stores.
Allan B (Newport RI.)
What irks me is not that a few very clever, and wealthy investors figured out how to profit off the blazing obvious - namely that the vast majority of malls are in their death throes. What irks me is that for them to go short, some bonehead has to be equal and opposite; ie long. In other words, thinks that malls are not dying. More than likely, without even knowing it, that ‘bonehead’ is likely to be you and me in our 401ks and bond funds, in which we were novacained into believing are super safe and secure retirement funds.
Kevin (Washington, D.C.)
@Allan B False. You go "long" CMBS by buying the bonds, not long CMBX.
mark (boston)
@Kevin Well there still is someone else on the other side of the trade collecting a $300k-$500k annual premium/fee hoping they don't have to make a large payout if stuff really hits the fan.
Mary (New Jersey)
@Kevin A distinction without a difference.
Thomas Hobbes (Tampa)
Why is it “discomfiting “? It’s like being discomfited that wheelwrights were put out of business by the automobile industry.
Daniel (Ft Lauderdale)
What malls are doing well? They weren't named in article.
Ron May (Philadelphia)
@Daniel Any of the A+ malls like King of Prussia, Mall of America, Del Amo Fashion Center, etc.
rexnyc (bronx, ny)
@Daniel For years now, the better-run malls have been converting to entertainment centers - movie theaters, bowling alleys, arcades, restaurants... You can't buy services on Amazon.
ME (Miami)
Smart woman, this was an impressive strategy.....good luck to her.
Phil Hurwitz (Rochester NY)
Another fine example of vulture capitalism.
Carden (New Hampshire)
@Phil Hurwitz It is not, really. Selling short means that you think the market has overvalued the stock; it is different from private equity and other forms of capitalism where the investor may actually damage the company. Here, the stock that has already been issued by the company, and the company has already received the proceeds of that issuance. Shorting only shows that you have perceived the value of the stock earlier than the rest of the market has. Even if the stock is not shorted, it will eventually sink to its true value.
Janet Mayor (Native Floridian)
These deals affect real people and their communities. Icahn is one of the greediest people in the world. The idea of profiting by putting other people and companies out of business, and increasing unemployment is sick.
Steven (Lewes DE)
@Janet Mayor No they don't. These are securities that are already out in the market and investors have various ways to make or lose money from them. They have nothing to do with causing malls to fail.
Luder (France)
I wouldn't have thought betting against indoor malls was in any way "contrarian." Wasn't it well known that a lot of them were on the brink of serious trouble? In any event, I have no objections to these investors' profiting from their shorts.
Lilly (New Hampshire)
“Greed is good” was a movie line that wasn’t intended to be taken seriously. It’s a deadly sin for a reason. These amoral vultures are destroying our entire world and enjoying no consequences. It’s time to change that before they put the final nail in the soul of the world. #NotMeUs
Me (Florida)
Oh stop, it’s the very foundation of our economy.
Lilly (New Hampshire)
You might want to envision a world we can survive instead and work toward that. I
Bob R (Portland)
@Me If so, it's a foundation made of quicksand.
Gordon Hastings (CT)
Up or down the Hedge Funds win because collectively they move the market. Nothing happens without volume. Surprised?
Katherine Warman Kern (New York Area)
Investors reward leaders for doing the same thing to improve the odds of bets on winners and losers. To prove the point, here’s a question for investors. Is Amazon making a deal with Simon to acquire cheap warehouse and distribution space? Or do they recognize that to win the lion’s share of retail, they have to go beyond virtual and get physical. After all, even with the Covid crisis “surge”, e-commerce it is still only 16% of total retail. Investors - which physical store would you rather go to? The automated one with no human beings? Or the one with experiences that appeal to multiple human senses, including touch and smell, with the creativity, personalization, and spontaneity that resists commoditization? The first one has lots of capital. The second one needs capital. Malls have been dying because the capital has been flowing to automation technology. You get what you pay for.
CH (Europe)
@Katherine Warman Kern I would say that malls have been dying because of convenience and price versus Amazon. Pat of the price difference is obviously the costly rent of physical locations. I love shopping in a real store but if it is significantly more expensive I will buy the less expensive option online...
d (denver)
Find an investment that profits. Create a product of it and dedicate people to its replication. Sell it everywhere it makes sense, and then - because it's your job - sell it everywhere else. Escape while it crumbles, say, "no one saw this coming." The people who did in fact see it coming then profit handsomely for not being lured by "conventional wisdom.". This is how it works. I don't see why the people of The Big Short should cause discomfort, by the time they've entered the scene things have already gone off the rails. Uf this is to be corrected, force the banks and investment firms to keep part of the risk of the deals they structure. And, don't bail them out!
Lilly (New Hampshire)
Skin in the game. It’s the only way we survive this destruction and the deepest despair they cause.
Golflaw (Columbus, Ohio)
This is a euphemism, right: “ Mr. Icahn, whose hostile takeover of TWA in the 1980s established him as a major dealmaker”. Dealmaker or corporate raider? TWA was a decent airline in the early 1980’s Indeed, it was taken over, then its assets were sold, it was loaded with debt, it was run into bankruptcy and its union contracts with employees were broken. It became a failing enterprise. Yea, that was a really wonderful thing for the economy. The economy of who?
Rich (DC)
@Golflaw TWA was not a great airline when he launched his hostile takeover, that's why he did it. Their international routes were facing increased competition and their domestic network, while better than Pan Am's (Pan Am was already on its way out) could not compete with United or American. Their fortress hub in St Louis was under assault because of low cost carriers. I flew TWA back then, it wasn't horrible, but other carriers delivered better service.
T Montoya (ABQ)
He is also the genius that thought Blockbuster had a solid business model and Netflix was a fringe player not worthy of attention.
wildcat (houston)
@T Montoya Icahn was a long-time cheerleader and apologist for Chesapeake Energy Corporation too. CHK just went bankrupt after burning through billions of investors’ savings.
Steve Griffith (Oakland, CA)
Indeed, “there is something discomfiting about the idea of getting fantastically rich off of someone else’s misfortune”. But, to paraphrase two of my favorite films, “The Godfather” and “House of Games,” “It’s nothing personal. It’s strictly business. It’s the American way.” Why else would Wall Street’s fortunes be soaring through the record-breaking roof while everyday Americans are suffering through the triple whammy of the worst health crisis in a century, a Great Depression economy and an amateur-hour imposter presiding over it all? Trump is often described as having a transactional mind-set, which is just a euphemism for sticking it to the other guy before he sticks it to you. Sadly, in this case, “the other guy” is American democracy and all of us.
Alff (living in Switzerland, voting in NY)
The activities described in this article are far removed from the REAL economy - the economy which produces goods and services which are essential or beneficial. What is this financial service actually worth to society? Is it worth as much as a service such as hospital cleaning or teaching? The remuneration does not match the worth - Financial services are needed, but after all, what contribution to the world's well-being does this activity make?
Andrew (NorCal)
@Alff my thoughts exactly after reading this article. What is the point of this index and of letting people who don't own bonds buy insurance against their failure. There truly is far too much money in search of useful investment. Imagine if all that capital was put to productive use.
Jessica (sfbay usa)
Many people have the attitude that it is morally wrong to profit from another's misfortune. But why is it wrong, if you did nothing to cause or further their problems? This has been an active question in my life. During the last housing crash I inherited some money. I knew it was the chance of a lifetime to buy a a couple of little houses that would soon skyrocket in value. But I couldn't bring myself to profit from people who had lost their hopes, dreams, and homes. Even though I'd done nothing to cause it. Not logical, just a gut reaction. Could it be some karmic superstition? Years before I'd bought my long term home from a family that was facing foreclosure. They made it very personal, wanted to meet me and welcome me to the house. It was far beyond money, it was a resolution and moving forwards for them, it made it feel right for me. What strange and complex creatures we are.
PJP (Chicago)
@ Jessica Glad to know there are others out there who think about the impact of their actions. I hope you sleep well at night. You deserve at least that!
SLD (California)
@Jessica too bad more people don’t have the morality you do
ariadne (london)
@Jessica From a moral perspective, there are different ways one can profit from someone else's misfortune. In your case it was presumably a timely coincidence and from your account unexpected. Shorting is fully premeditated (as described in the article) and the profit is proportional to the amount you invest in the operation and the decrease in value of the businesses you target. Although it doesn't directly precipitate the collapse, it actively capitalises on its future occurrence. If you know something will happen and you have a lot of funds (and therefore power) at your disposal, the passivity is ethically highly questionable. Another important question is what will be done with the obscene amount of profit syphoned off from the Mall Short. Such amounts greatly increases the leverage and power of such socially detached and unaccountable economic actors and raises serious doubts about the way they will reinvest. I would just say that some creatures are much more complex and strange than others.
EdMe (Glen Cove, NY)
We shouldn’t eliminate it but there should be a separate and higher tax category for short sales, to help offset some of the harm they can inflict on the economy. We do this for capital gains to encourage investing. We should do the opposite for destruction.
D.o. (NY)
@EdMe there should be a tax on all trades...no fees are creating unrealistic values in stocks bc people “buy the dip” hoping to make a quick buck. A bubble isn’t good for the economy either.
Kevin (Minneapolis)
@D.o. what about a tax on trades done by a portfolio management company that does a large trade for a pension fund for, say firefighters. Should all those pensioners be also taxed?
D.o. (NY)
@Kevin If the fund holds the stock for a set period of time then maybe not...but the fund managers should pay taxes on other trades...helps prevent irresponsible buy and selling of stocks and lower the risk profile of pension funds...
Steven (Lewes DE)
If these folks are bragging about this trade now you can be pretty sure it's mostly over and the easy money has been made. I doubt that Icahn would allow some junior analyst to discuss his investment strategy in the NYT if there were much more money to be made in it.
beatgirl99 (Pelham Manor, NY)
@Steven I think Ms. McKee makes that point clearly in the last line of the article. I don't think it's bragging since the story is not being told by them. I find it very interesting. Thanks @katekelly.
Bathsheba Robie (Luckettsville, VA)
Shorts like these reveal that Wall Street investing is just another form of gambling. This type of investing doesn’t produce anything other than money for the investor. If you sort something, you bet that the price will go down. You need a counter party that bets that malls will go up. Anyone with a brain can see that malls are fading. Who were the counter parties who bet $1.3 Billion that malls would go up?
RB (Nyc)
The counter parties are the banks that issued the mortgages in the first place, or the investors holding the securitized mortgages.
charles (Richmond)
@Bathsheba Robie actually, the only thing I learned from your comment is that you aren't good at math or finance. You can find innumerable articles out there explaining why shorts are important, useful, and don't do what you say. But I guess no one can force you to read one.
Ralph Petrillo (Nyc)
Thst is the market place . Opportunity comes in the strangest of places. Malls can not even be converted to hotels for hotel occupancy is crashing. The only stores that may survive are Apple, Sephora, Tesla, Whole Foids, and a few others. The way of the future is to set up training classes in malls stores and programming classes.
JimH (NC)
@Ralph Petrillo Programming is not a skill that can be just picked up by anyone. Many can learn, but only a few can execute with the level of rigor necessary to turn out great products. Tech companies want H1-B visas because they can buy rigor with them, which is something that cannot be taught. At this point the need for domestic programmers is reaching its peak and the drop off will be severe. The development tools are beyond superior and keep getting better. As for the malls, they have been in decline for 20 years starting in rural areas. Overtime their downfall crept closer to suburbia and now has made it. High end malls in wealthy areas will survive and the rest are done with a few exceptions. The new mall is open air in an effort to emulate a busy city with living space above. The problem with it is that they are are islands with no place to walk.
Urbie4 (RI)
There is nothing wrong with shorting, in principle. It's when someone shorts, then publicly badmouths an industry or otherwise manipulates the market to make it go down so they can profit, that it's wrong. The Big Short was a stroke of genius -- the housing market was obviously overpriced, and fueled by liar loans and interest-only mortgages. Shorting that was simply recognizing what was going on; I wish I'd done it myself. This one, well, I can see the moral issue, because profiting from a pandemic really does smell bad. But shorting, in itself, is simply not a bad thing.
Ralph Petrillo (Nyc)
@Urbie4 Exactjy Think of all the shorts in Apple and Tesla . Lost $59 billion last year the shorts just in those two stocks.
Urbie4 (RI)
@Ralph Petrillo Indeed! Shorting is not for the faint of heart, because it's like shooting a golf score -- there's a limit to how low you can go, but if it starts going the wrong way, the sky's the limit! I'm glad I held onto my 4 shares of Apple -- and bought one more last month!
@Urbie4 Malls going belly up is not exactly a phenomenon of the pandemic; this has been happening over the course of the last few years mainly due to increased internet shopping. True that the pandemic will no doubt hasten the demise. And although they are not high-paying, there isn't much said here about the loss of millions of jobs for workers in these places.
Meighan Corbett (Rye, Ny)
Some of these malls are being repurposed as Amazon warehouses. Others in viable areas will become apartments or other living spaces. It's creative destruction. It happens. Many of these spaces were built on spec or on pipe dream numbers given to local officials. They didn't need to exist, ever. A new mall opened in Norwalk CT just before COVID 19; will probably flop. The American Dream mall in NJ could bring down the family who made their money on the Mall of America. America always takes a good thing and then expands it to the nth degree, instead of stopping when need is satisfied.
Harris Silver (NYC)
Bring in the bulldozers, get rid of them. They are blights.
ariadne (london)
@Meighan Corbett It really depends what will be done with the spaces and the money from the mall short. I don't see an Amazon warehouse as being the most constructive outcome for the economy. That would be a further concentration of resources from an already dominant and predatory company that doesn't really pay and treat their warehouse staff as well as those in mall shops. We could just as well wish the demise of all brick and mortar retailers and replace them all with a virtual space on the Amazon website. How constructive is that type destruction for the economy? There are many important human questions behind the disruptive shift to ecommerce and delivery industry it would be good to discuss them openly to see where we are going as a society rather than let vulture capitalists opportunistically decide of the future trends for us. The shift to virtual brings a lot of new issues such as rampant labour automation (physical and intellectual), unhealthy concentration of resources and power into a handful of large scale infrastructure and platform companies, algorithmic decisions, impersonal customer services (robochat, long phone queues, outsources call centers, ...), disengagement from public physical space and meeting areas, abrupt disruption of traditions, social habits, etc.
A Lady (Boston)
NYTimes should have included reporting on the greed that built the scourge of consumerism, the malls and the real estate industry that enabled them. Those are the real enemies of progress. The shorts? Minor endgame that can’t hasten the end to this miasma of shopping fast enough.
Miss Anne Thrope (Utah)
@A Lady - True enough, tho' one still cringes watching the maggots clean up the carrion, doncha' think?
A Lady (Boston)
@Miss Anne Thrope Not really all that important, unless you love hating. America wants capitalism. Malls fail. Gas guzzlers fail. Hoop skirts fail.
Henry (USA)
I’m really curious when malls go dark, as many will. What happens to the lost jobs? What happens to those gargantuan buildings and spaces for which there is no longer any need? Do they get demolished? Are they converted into schools? Will there be any demand for more schools post-COVID? Are they transformed into community centers, suburban gardens, renewable energy power plants? Or simply bulldozed into oblivion? There was nothing particularly charming or uplifting about malls, but I find them downright enchanting compared to a future where everything is delivered by driverless Amazon drones and trucks. No thank you.
Kohl (Ohio)
@Henry They go into a purgatory state and then sit empty and become eyesores. Local municipalities aren't eager to spend millions to tear them down.
moose (canada)
there are empty Walmarts all over North America that take decades until some other kind of activity goes into them. if they do not fall into total disrepair and lose all value, sometimes even for the land on which they sit. Throughout that period all they employ is one security guard. That's what happens to empty malls.
Ken (Nyc)
@moose Or they blow them up in zombie movies, if we ever have those again.
Richard (New Mexico)
I would like to get the opportunity to invest, although my available capital is substantial less. The current 0.0001% return on my savings is really not going to fund my retirement. How about making these investments available to the small “retail-level” individuals. In addition to malls, I see opportunities to short the following markets(assuming one can find a counterparty to take the bet): Sports stadiums Mega hotels Airports Private Universities (except Trump U) Ride hailing companies Infrastructure construction companies Water treatment plans This list is not all inclusive so there will be others.
charles (Richmond)
@Richard they won't, and most likely can't take your money, as I doubt you are a qualified investor. Find someone like me, we exist in every market. I pay my investors 5% pretty much risk free. Doesn't sound like a glorious return, perhaps, but something like that is actually pretty good. (note, never trust someone who says what the risk is, or rather, trust but verify. There are plenty of real opportunities in good small businesses of various sorts, and plenty of scams)
Andrew (Louisville)
There is something - a lot - distasteful about deliberately profiting from someone else's distress. Maybe it's time to go short on local newspaper stocks. But it's true that USA is, and has been for years, massively overbuilt on retail. I recall malls that were built on the promise, to local legislators, of XXX jobs. These legislators have a two or four year horizon and decide accordingly. Tax dollars from existing functioning businesses are given away to their competitors who will put them out of business. The extra jobs are an illusion: there are only so many pairs of shoes I will buy in a year so a job gained in a new mall is a job lost elsewhere. That's capitalism. That's how it works. Don't act surprised.
Harris Silver (NYC)
Feeling bad for malls? C’mon. This is a situation where the underlying assets has no value to society. We need main streets, community centers, not malls.
Lara (Brooklyn)
Why is it legal to profit this way?
Ron May (Philadelphia)
Why should it be illegal. If it’s okay to buy a stock believing it will go up in value, what is wrong with shorting a stock that you believe will go down in value?
dw (Boston)
".....some criticize as bottom-feeding because it preys on failure and can push a business over the edge while contributing little to the economy."
charles (Richmond)
@dw yes but the criticism is clearly wrong/ignorant on the face of it.
Tournachonadar (Illiana)
Ah, the Mall, that tawdry temple of American consumerism. A creed that tells us to come to the temple and be saved by spending and acquiring. Daily, if necessary. Who foresaw that the internet would wreak such lasting havoc on venerable business models like the department store, an institution with roots in the 1840s? Gone like the dinosaurs, while hedge funds inexorably accelerate the downward vortex through short selling. Great country, America...
Brian (Newtown, Pa)
@Tournachonadar Ah the internet, that tawdry temple of American online consumerism that was once just an information superhighway. Who foresaw that the internet would become a business model like an online department store. How can you attack rampant consumerism in malls as a daily experience for Americans when that same experience is going on even more frequently online? The consumer culture has grown ever larger — just online now. Great country, America...
Tournachonadar (Illiana)
@Brian according to a prof years ago, he abandoned academic writing for pulp fiction. Shallow, empty books for shallow, empty people. Isn’t that most American adults?
See also