Tipping point

Dear Reader,

In 1990, the Confinanzas group broke ground on an ambitious project.

Set in the centre of Caracas, Venezuela, the Financial Centre Confinanzas was set to become the third-tallest skyscraper in the city, and one of the highest in Latin America.

Towering over the city centre, the building would represent the growing Venezuelan economy, and become a symbol of hope for the future.

When the group’s president, David Brillembourg passed away in 1993, they decided to continue with the project.

But in 1994, construction stopped. The group had run out of money after a massive banking financial crisis had hit the country.

The building stood there, as the group left it. An unfinished 45-story construction site with no windows, no elevators, missing some walls but with a helipad on its roof. As some described it, the construction became a monument to a failed banking system.

At least it did, for a while.

In 2007, some families from the poorest communities started to move in. They installed electricity and an aqueduct system to get running water. They remodelled empty spaces into apartments, created all sorts of businesses like barber shops, a gym in the terrace and a motorcycle taxi service that would take you up the first 10 floors.

It was a city within a city, one with their own laws. At its peak, there were over 5,000 squatters living at the Financial Centre Confinanzas, or David’s Tower, as it became more commonly known.

Whether you see this as a quirky success — in 2012 David’s Tower won the Golden Lion at the Venice Architecture Biennale — or a complete failure (I’m definitely in the latter camp), the truth is that this isn’t something you see every day.

If you’ve seen any of its images — the US serial Homeland also featured the tower in an episode — like the one below, it’s quite impressive.

I bring up David’s Tower because while we may still have a standing economy, from where I’m at there aren’t too many supporting walls, and this ‘recovery’ we’re building is quite drafty.

Yes, the pandemic has made things worse but it’s something that has been brewing for a while.

We may have architects and maestros directing and manipulating the economy but can they really create as much money as we need?

One of the strong breezes is coming from the decoupling of the stock market from the real economy.

Another gust has been coming from housing. Affordable housing has been a struggle with asset prices moving at a faster rate than salaries.

On this point, a recent study by Pew Research Center showed that over half of young adults in the US (52%) were living with their parent/s in July this year, a higher level than during the Great Depression.

It’s true that many have probably moved back home because of the pandemic as cities have turned into ghost towns. But as you can see, it’s a trend that had been increasing since the 80s. High college debt, stagnant salaries and high asset prices have combined to make it harder for younger people to afford and own property.

Our actions today are already having an effect on the future of younger generations.

In Australia affordable housing is also an issue. 43% of 20–24-year-olds lived with their parents in 2016, compared to the 36% in 1981.

This, coupled with demographic trends won’t do any favours to housing demand, which has been one of the motors for growth in recent years.

As Pew research noted:

‘Even before the outbreak, the growth in new households trailed population growth, in part because people were moving in with others. Slower household growth could mean less demand for housing and household goods. There also may be a decline in the number of renters and homeowners, and in overall housing activity.’

Another blast of air may hit the banking system. They’ve not only benefitted from housing growth, but this low and negative interest rate scenario is turning the whole system on its head. I mean, the whole banking system is based on charging interest on loans.

You can already see what dropping rates to subzero has done to the value of European banks. Shares for the likes of Deutsche Bank and Spain’s BBVA and Bankia have plummeted.

So far money is still flowing. People are paying their mortgages, and we haven’t seen big defaults.

Back in Caracas, David’s Tower is once again empty. All the families that lived there were moved to new housing in 2015.

The government has since tried to get someone to finish the tower but all possible takers fell through.

In 2018, an earthquake damaged the structure. From certain areas of the city you can see the last five floors have tilted leaning precariously to the side...a balancing act that could come crashing down at any time, much like our economy.

Best,

Selva Freigedo,
For The Rum Rebellion