The Revel casino in Atlantic City announced today that it will close in September, marking the final stage of one of the most remarkable stories of wasted cash in banking history. Opened in 2012, Revel managed the feat of going bankrupt less than a year later — and then (this is where it gets really impressive) going bankrupt again in June.
Rarely do you see a better illustration of the old adage about not throwing good money after bad. Planned at the height of the casino building boom, Revel broke ground in early 2008 with the real estate market falling, the gambling business turning south and the financial crisis about to hit. Still the developers plunged on, because what do you do after spending a billion dollars on a half-built project? Spend another billion, of course.
That first billion — or rather $1.2 billion — came from Morgan Stanley during what you may think of as the Heroic Era of investment banking. The Wall Street Journal last year cataloged the series of bad decisions along the way to today’s announcement. That story deftly captures the mood of the early 2000s: If our clients are making money, why don’t we get into their business?
The end result was that the bank lost its whole investment — though as the Journal story points out, the executive responsible for the project, Michael Garrity, kept getting consulting fees as late as last year.
Of all the proprietary bets that investment banks made in the mid-2000s, the Revel wasn’t the biggest money loser; Merrill Lynch lost a good deal more betting in mortgage bonds. But it may be the one that shows most clearly just how far banks strayed from their core business. Maybe Revel can be left standing as an empty shell. Then, every time a bank CEO asks to spend a billion dollars on a new investing idea, the board of directors can charter a limo and bring him down to Atlantic City to contemplate the results.