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Tulips, Citibank and Frank Lloyd Wright

July 20, 2014

– there is a fine line between genius and narcissism

Last Week Citibank paid $7,000,000,000 to head off federal prosecution. “The banks conduct was egregious” noted US Attorney General Eric Holder. The bank had taken unsustainable projections of inflated U.S. house values into the capital markets with a ferocity that ultimately demanded retribution when those projections were revealed as delusional and bankrupted millions of homeowners. Fraud is criminal, greed is not. The greed that caused Citibank’s “egregious” misrepresentations that might have been found to be criminal is not an isolated manipulation of delusion.

In the early 17th century the Dutch found tulips to be desirable and bought every and any bulb they could find. The price went up to the point where Wikipedia notes “At the peak of tulip mania, in March 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman.” The only reason the price of tulips went to insane levels was the greed of the sellers who knew that they could get more money for them than was in any way “reasonable”.

There have been 10 recessions since World War II. Every one of them was based on greed. In the late 1990’s I sat between two 20-somethings on a plane who spent the entire flight gushing that their tiny tech companies would pay out hundreds of thousands of dollars “when” their companies went public and their stock options could be sold. Their greed was giddy – and deluded.

In theory we have come out of the Great Recession. Do you feel it? I don’t. Absent a new bubble of “irrational exuberance” the emotional recession we still feel has a direct effect of the economic exuberance we act on – whether as validated greed or justified debt.

Citibank, and many other financial pressure cookers, took an essential – a place to live – and surfed the wave of housing hype provided by realtors, large home builders and mortgage brokers to turn homes into 17th century tulips.

Architects, like doctors or lawyers, are licensed to “protect health, safety and welfare”. Architects design fewer than 5% of the homes in America, but we are the only objectively state-validated “experts” on construction, and as a profession we were not ahead of the insane valuation of homes that lead to rediculous risk in one specific building type.

I and a few other architects wrote and spoke on the craziness during the 2000’s housing boom, but most just surfed the same wave as Citibank, cashing the checks of the deluded. The public welfare suffered more at some marginal level because architects, who knew better, didn’t speak louder – and often added to the hype that inflated the bubble.

Housing starts are up to 1,000,000 per year – jumping from 300,000 4 years ago, but less than 1,800,000 of 8 years ago. Houses are one of the Big 3 Necessities (food, shelter and clothing) so there is never nothing spent on places where we live – and with a population of 300,000,000 that level of home building may be sustainable.

But no one thinks they are going to retire on the growing value of their home anymore, no one thinks borrowing over 100% of a home’s current value is a good idea. Architects are still grossly underemployed, with firms hiring and firing as jobs come and go, with no faith in ongoing work.

And another bubble, the slowly inflating Higher Education Bubble has blown up to the highest cost in history. This year 20,000,000 are enrolled despite, or perhaps because of, The Great Recession. Education might have become the Big 4th Necessity, with its debt-fed, ever-increasing price tag becoming another drag on the hopes of people under 30.

Just as people buy cars and houses based on their monthly payback of the debt they cause, versus their actual total cost, students jump into academic debt. Architecture students are no different: but their “irrational exuberance” is itself a bubble given the grim uncertainty of actually getting a job in the profession.

At the peak of the last building bubble, 2007, 5,781 students were awarded architectural degrees in the U.S.. After 6 years of The Great Recession 6,347 degrees – a record number – were awarded. This is a 10% increase in the face of several analysts declaring architecture one of the worst-hit professions during the Great Recession.

The Architecture School Bubble is based on the same hype as theater arts, fine arts and music degrees: “Follow your bliss” – even if there are almost no prospects for prosperity: this is noble. And if your training facilitates personal expression: acting in community theater, playing in a band or painting a landscape the cost of those educated obsessions is nothing.

Building anything costs a lot. There is a fine line between narcissism and genius. Self-created, economy-independent geniuses like Frank Lloyd Wright for architects or Steve Jobs for tech start ups make self-indulgence feel like investment. Narcissism and greed are not unrelated. Citibank and universities are more than happy to provide a vehicle for both. Unfortunately in the end, a tulip is just a tulip, architecture schools are not graduating 6,000 Wrights a year and bubbles inevitably burst.

4 Comments leave one →
  1. July 20, 2014 2:38 pm

    Hi Duo- Thoughtful article- thanks!

    A closely connected issue to your theme is the ever-decreasing quality of construction and detailing in our stick-framed forest of single-family housing we’ve constructed over the past 50 years (and continue to build at a rapid pace, recessions aside). I’m concerned that many houses these sketchy mortgages were place on will not outlive the mortgages themselves. We as a profession should be more aggressive in calling out these lackadaisical practices in the construction industry and champion robust construction and detailing for that gigantic part of the built environment not designed by architects.

    What’s your source for the statistic concerning the percentage of houses architects design annually? Is that all single-family housing starts?

  2. July 20, 2014 3:10 pm

    Single family – the 5% is consensus over 20 years of asking: no one has dared to survey building permits – but there is mother number of 20% of “touched by” an architect : stock plans used multiple times, purchased plans, etc:

    The quality of mass-built in a hurry has never been good…and the potential for better might be better in a down market where consumers are motivated to verify their debts and equity is well spent: tho the paradigms of architects’ irrelevancy and mass builders thoughtless pandering still rules:

  3. karen permalink
    July 22, 2014 4:10 pm

    Young people are looking for a job that is interesting and uses their talents. I can appreciate that as I sought medicine for the same reason. They want to be able to be self-employed i.e. without a boss. I can relate to that too. Problem is that it is not generally practical.
    We have too many movies with the theme, “follow your dream”. Especially in the U.S. My parents suffered through the great depression. They were very practical and knew that they were only a short distance from being in the street. It made them a little fearful and conservative but they were able to make a wonderful home and take care of us. They also had really solid good values.
    Like old curmudgeons of the ages, I decry this young generation just as did Socrates. Sigh.


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