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King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone by David Carey; John E. Morris; John Morris
activist fund / activist shareholder / activist investor, asset allocation, banking crisis, Bonfire of the Vanities, carried interest, collateralized debt obligation, corporate governance, corporate raider, credit crunch, diversification, diversified portfolio, fixed income, Gordon Gekko, margin call, Menlo Park, mortgage debt, new economy, Northern Rock, risk tolerance, Rod Stewart played at Stephen Schwarzman birthday party, Sand Hill Road, sealed-bid auction, Silicon Valley, sovereign wealth fund, The Predators' Ball, éminence grise
By the time the starry canopy was being strung in the Park Avenue Armory for Schwarzman’s birthday party, the blowback had come Stateside. American unions feared the new wave of LBOs would lead to job losses, and the enormous profits being generated by private equity and hedge funds had caught the eye of Congress. “I told him that I thought his party was a very bad idea before he had his party,” says Henry Silverman, the former Blackstone partner who went on to head Cendant. Proposals were already circulating to jack up taxes on investment fund managers, Silverman knew, and the party could only fan the political flames. Even the conservative Wall Street Journal fretted about the implications of the extravaganza, saying, “Mr. Schwarzman’s birthday party, and the swelling private equity fortunes it symbolizes, are manifestations of … rising inequality.… Financiers who celebrate fast fortunes made while workers face stagnant pay and declining job security risk becoming targets for a growing dissent.”
It was a curtain-raiser for what was shaping up to be the social event of the season, if not the era. By then, the buzz had been building for weeks. Stephen Schwarzman, cofounder of the Blackstone Group, the world’s largest private equity firm, was about to turn sixty and was planning a fête. The financier’s lavish holiday parties were already well known in Manhattan’s moneyed circles. One year Schwarzman and his wife decorated their twenty-four-room, two-floor spread in Park Avenue’s toniest apartment building to resemble Schwarzman’s favorite spot in St. Tropez, near their summer home on the French Riviera. For his birthday, he decided to top that, taking over the Park Avenue Armory, a fortified brick edifice that occupies a full square block amid the metropolis’s most expensive addresses. On the night of February 13 limousines queued up and the boldface names in tuxedos and evening dresses poured out and filed past an encampment of reporters into the hangarlike armory.
Beneath an immense portrait of the financier—also a replica of one hanging in his apartment—the headliners, singer Rod Stewart and comic Martin Short, strutted and joked into the late hours. Schwarzman had chosen the armory, Short quipped, because it was more intimate than his apartment. Stewart alone was known to charge $1 million for such appearances. The $3 million gala was a self-coronation for the brash new king of a new Gilded Age, an era when markets were flush and crazy wealth saturated Wall Street and especially the private equity realm, where Schwarzman held sway as the CEO of Blackstone Group. As soon became clear, the birthday affair was merely a warm-up for a more extravagant coming-out bash: Blackstone’s initial public offering. By design or by luck, the splash of Schwarzman’s party magnified the awe and intrigue when Blackstone revealed its plan to go public five weeks later, on March 22.
Success and Luck: Good Fortune and the Myth of Meritocracy by Robert H. Frank
2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Amazon Mechanical Turk, American Society of Civil Engineers: Report Card, attribution theory, availability heuristic, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, carried interest, Daniel Kahneman / Amos Tversky, David Brooks, deliberate practice, en.wikipedia.org, endowment effect, experimental subject, framing effect, full employment, hindsight bias, If something cannot go on forever, it will stop - Herbert Stein's Law, income inequality, invisible hand, labor-force participation, labour mobility, lake wobegon effect, loss aversion, minimum wage unemployment, Network effects, Paul Samuelson, Report Card for America’s Infrastructure, Richard Thaler, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Rory Sutherland, selection bias, side project, sovereign wealth fund, Steve Jobs, The Wealth of Nations by Adam Smith, Tim Cook: Apple, ultimatum game, Vincenzo Peruggia: Mona Lisa, winner-take-all economy
The problem is compounded by the fact that disdain for luck is often greatest in those who possess the most power to influence political decisions about the tax code. Consider Stephen Schwarzman, the CEO of Blackstone, the fabled private-equity firm. Schwarzman lives well. He made the news in 2007 when he staged a $3-million sixtieth birthday party for himself and several hundred of his closest friends at the Armory on Park Avenue. According to Gawker’s coverage of the event, “Rod Stewart was paid $1 million to perform for the assembled guests; Patti LaBelle sang ‘Happy Birthday.’ And the room was designed to replicate Schwarzman’s $40 million co-op at 740 Park Avenue.”18 But Schwarzman believes the government is taking far too much of “his” money. James Surowiecki, an economics writer for the New Yorker, offered these thoughts on the Blackstone executive: The past few years have been very good to Stephen Schwarzman…. His industry, which relies on borrowed money, has benefitted from low interest rates, and the stock-market boom has given his firm great opportunities to cash out investments.
., 24 Mialon, Hugo, 14 Microsoft, 34, 35, 44 Milanovic, Branko, 7 Mlodinow, Leonard, 35 Mona Lisa, 9, 22–23 Morocco, 87 motivated cognition, 72 MS DOS, 35 Munger, Charlie, 39 Murphy, Liam, 97 Music Lab, 30, 45 Nagel, Thomas, 97 naïve optimism, 11, 12, 70–72, 75 National Center for Education Statistics, 87 National Institutes of Health, 135 natural selection, 73, 116 natural stupidity, 70 Nepal, 7, 14, 86, 112 Nepotist, The, 30, 49 Netflix, 47 Netherlands, 20 network effects, 43–45, 48 New Orleans, 25 New York City, 107; cost of weddings in, 110; dwelling sizes of the wealthy in, 120; hypercompetitive music scene in, 30; penthouses with sweeping views in, 121 New York Metropolitan Opera, 47 New York Times, xiv, 4, 29 New Yorker, 61, 103 New Zealand, 20 Nixon, Richard, 105 no-free-lunch principle, 109 Nobel Prize, 28 Northeastern University, 98 NPR, 5, 126 numerical simulation, 64 Nunn, Sam, 126 Obama, Barack, 84, 91 Ohio State University, 135 O’Neal, Ryan, 23 Organization for Economic Cooperation and Development, 115 orthodox (or standard, or traditional) economic theories, 13, 69, 70, 112, 115 Our Kids, 144 Pacino, Al, 23 Palomar, 128 Patterson, Tim, 35, 36 Peace Corps, 7, 86 Perkins, Tom, 104 Peruggia, Vincenzo, 22 piano manufacturing, 42 Piketty, Thomas, 55 political polarization, 17 Porsche, 15, 16, 91, 119 positional arms control agreements, 118 positional arms races, 116, 117, 118, 144 positional concerns, 115, 116, 118, 122 positive feedback loops, 9, 44, 51, 104, 105 potholes, 16, 91 poverty, 14 Prince Ali Lucky Five Star, 72 Princeton University, xii, 133 progressive consumption tax, 118–27, 158–71; and consumption by retirees, 164; and regressivity, 160; as a Pigouvian tax, effect on economic growth, 161, 162; as a Pigouvian tax, effect on wealth inequality, 166; transition from the current tax system, 162; treatment of durable purchases, 160; treatment of loans, 159, 160; versus taxes on specific luxuries, 163, 164 public investment (see also infrastructure), 13 Putnam, Robert, 144 Puzo, Mario, 23 QDOS (“quick and dirty operating system”), 35 Rai, Birkhaman, 7, 86 Reagan, Ronald, 90 Reardon, Sean, xv Reddit, 56 Reese, PeeWee, 142 Regan, Dennis, 131 relative purchasing power, 92 Review of Economics and Statistics, 28 Rhodes, Frank H. T., 4 Romney, Mitt, 84 RJR Nabisco, 51 Rosen, Sherwin, 46 S&P 500, 53 sadism, 122 Safer, Morley, 137 Sagan, Carl, 67 sales tax, 158, 159 Salomon Brothers, xiii same-sex marriage, 106–8 Sams, Jack, 35 Samuelson, Paul, 71 Saracini, Kirsten, 135 SATs, 32, 88 Scandinavian countries, 20 Schwartz, Barry, 48 Schwarzman, Stephen, 103, 104, 106 Scrabble, 82 Seattle Computer Products, 35 Seles, Monica, 46 self-control problems, 75–77 self-interest, 130 Seligman, Martin, 102 shipping costs, 42 60 Minutes, 135 skill premium, 53 Slate, 117 Smith, Adam, 52, 115, 132 Smith College, 58 Sony, 44 Soviet Union collapse, 107 Spanish National Lottery, 69 Stanford University, xv, 70 starve the beast strategy, 97 Stein, Herb, 105 Stewart, Rod, 103 student debt, 87 Success Equation, The, 69 sudden cardiac death/arrest, 2, 147 Supreme Court campaign finance rulings, 104 Surowiecki, James, 103 Sutton, Willie, 98 Switzerland, 20 tailwinds, 80, 81 Taleb, Nassim Nicholas, 72 Tangier, 87 tariff barriers, 42 tax accounting, 9, 43 tax resistance, 107 taxable consumption, 118, 159 taxation as theft, 96, 97 Thaler, Richard, 177 Tierney, John, 75 toil index, 113, 114 top marginal tax rates, declining, 88, 89 track and field records, 63, 64 Transparency International, 19 Tudor, Fredric, 36, 37 Turbo Tax, 10 Tversky, Amos, 70 Uffizi Gallery, 22 ultimatum game, 93–95 University of California at Berkeley, xv, 25, 137 University of Wisconsin, 25 Unlimited Savings Allowance Tax, 126 Valenti, Aurora, 19 value-added tax, 158, 159 Varney, Stuart, 3, 4, 7 VHS, 44, 45 Viard, Alan, 127 Wall Street, xiii Warren, Elizabeth, 12 waste, defined, 16 Watts, Duncan, 22, 23, 30, 31 Wealth of Nations, 52, 132 wedding costs, 14, 110, 111 Wedding March, 106 Weightman, Gavin, 37 White, E.
Nancy Digdon and Amy Koble, “Effects of Constructive Worry, Imagery Distraction, and Gratitude Interventions on Sleep Quality: A Pilot Trial,” Applied Psychology: Health and Well-Being 3.2 (July 2011): 193–206. 17. C. Nathan DeWall, Nathaniel M. Lambert, Richard S. Pond Jr., Todd B. Kashdan, Frank D. Fincham, “A Grateful Heart Is a Nonviolent Heart: Cross-Sectional, Experience Sampling, Longitudinal, and Experimental Evidence,” Social Psychological and Personality Science 3.2 (March 2012): 232–40. 18. Cityfile, “Steve Schwarzman’s $3 Mil. Birthday Bash: Any Regrets?” Gawker, October, 30, 2008, http://gawker.com/502741/steve-schwarzmans-3-mil-birthday-bash-any-regrets. 19. James Surowiecki, “Moaning Moguls,” New Yorker, July 7, 2014, http://www.newyorker.com/talk/financial/2014/07/07/140707ta_talk_surowiecki. 20. Slate, http://www.slate.com/articles/business/it_seems_to_me/1997/05/herb_steins_unfamiliar_quotations.single.html. 21. Scott Clemens and Robert Barnes, “Support for Same-Sex Marriage at an All-Time High,” Washington Post, April 23, 2015, https://www.washingtonpost.com/politics/courts_law/poll-gay-marriage-support-at-record-high/2015/04/22/f6548332-e92a-11e4-aae1-d642717d8afa_story.html. 22.
Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else by Chrystia Freeland
activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, assortative mating, banking crisis, barriers to entry, Basel III, battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Branko Milanovic, Bretton Woods, BRICs, business climate, call centre, carried interest, Cass Sunstein, Clayton Christensen, collapse of Lehman Brothers, commoditize, conceptual framework, corporate governance, creative destruction, credit crunch, Credit Default Swap, crony capitalism, Deng Xiaoping, don't be evil, double helix, energy security, estate planning, experimental subject, financial deregulation, financial innovation, Flash crash, Frank Gehry, Gini coefficient, global village, Goldman Sachs: Vampire Squid, Gordon Gekko, Guggenheim Bilbao, haute couture, high net worth, income inequality, invention of the steam engine, job automation, John Markoff, joint-stock company, Joseph Schumpeter, knowledge economy, knowledge worker, liberation theology, light touch regulation, linear programming, London Whale, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, Mikhail Gorbachev, Moneyball by Michael Lewis explains big data, NetJets, new economy, Occupy movement, open economy, Peter Thiel, place-making, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, postindustrial economy, Potemkin village, profit motive, purchasing power parity, race to the bottom, rent-seeking, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, self-driving car, short selling, Silicon Valley, Silicon Valley startup, Simon Kuznets, Solar eclipse in 1919, sovereign wealth fund, stem cell, Steve Jobs, the new new thing, The Spirit Level, The Wealth of Nations by Adam Smith, Tony Hsieh, too big to fail, trade route, trickle-down economics, Tyler Cowen: Great Stagnation, wage slave, Washington Consensus, winner-take-all economy, zero-sum game
” — On February 13, 2007, almost exactly 120 years after the Martin ball, a leader of a new, ascendant American plutocracy hosted another epoch-making gala, also on Park Avenue, this time at the Armory, less than a mile directly north of the grand hotel rooms where the Martins and their friends had frolicked. The guests at Steve Schwarzman’s sixtieth-birthday bash didn’t come in costume, and they arrived at eight p.m., not ten thirty p.m., but in many other ways his celebration echoed New York’s most famous nineteenth-century entertainment. The ladies were bejeweled, many of the guests were moguls (Mike Bloomberg, John Thain, Howard Stringer), and the entertainment was lavish—its highlight was a half-hour live performance by Rod Stewart, for which he was reportedly paid $1 million. Schwarzman’s friends evoked the same economic stimulus defense of the lavish celebration Martin’s supporters had voiced a century earlier.
Barton, a Canadian who lives in London but whose secretary is based in Singapore, was due to see Steve Schwarzman, the private equity investor, later that day. “The last time I saw Steve was in China,” where Blackstone had held a partners meeting the previous fall, Barton recalled. Barton himself was traveling to Chile later in the week, and then on to São Paolo, where McKinsey was holding a board meeting. Schwarzman, meanwhile, was about to move his primary residence to Paris for six months (he already owned one home in that country, in the south of France, of course), the better to oversee what he believed would be significant investment opportunities in Europe and Asia. Schwarzman spends about half his time traveling. Blackstone, which he cofounded, has offices around the world in cities including Shanghai, Mumbai, London, Paris, and Düsseldorf, and the firm both invests in and raises money outside the United States.
Two other former Obama backers on Wall Street—both claim to have been on Rahm Emanuel’s speed dial list—recently told me that the president is “antibusiness”; one went so far as to worry that Obama is “a socialist.” In some cases, this sense of siege is almost literal. In the summer of 2010, for example, Blackstone’s Schwarzman caused an uproar when he said an Obama proposal to raise taxes on private equity firm compensation—by treating carried interest as ordinary income—was “like when Hitler invaded Poland in 1939.” However histrionic his metaphors, Schwarzman (who later apologized for the remark) is a Republican, so his antipathy for the current administration is no surprise. What is perhaps more surprising is the degree to which even former Obama supporters in the financial industry have turned against the president and his party.
All the Money in the World by Peter W. Bernstein
Albert Einstein, anti-communist, Berlin Wall, Bill Gates: Altair 8800, call centre, corporate governance, corporate raider, creative destruction, currency peg, David Brooks, Donald Trump, estate planning, family office, financial innovation, George Gilder, high net worth, invisible hand, Irwin Jacobs: Qualcomm, Jeff Bezos, job automation, job-hopping, John Markoff, Long Term Capital Management, Marc Andreessen, Martin Wolf, Maui Hawaii, means of production, mega-rich, Menlo Park, Mikhail Gorbachev, new economy, Norman Mailer, PageRank, Peter Singer: altruism, pez dispenser, popular electronics, Renaissance Technologies, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Sand Hill Road, school vouchers, Search for Extraterrestrial Intelligence, shareholder value, Silicon Valley, Silicon Valley startup, stem cell, Stephen Hawking, Steve Ballmer, Steve Jobs, Steve Wozniak, the new new thing, Thorstein Veblen, too big to fail, traveling salesman, urban planning, wealth creators, William Shockley: the traitorous eight, women in the workforce
The almost $2.5 million tab42 for the party included paying more than three hundred horsemen in Moroccan costume and six hundred drummers, belly dancers, and jugglers. More recently, financier Stephen Schwarzman spent43 more than $3 million on his sixtieth birthday party at the Park Avenue Armory. The party, for about six hundred guests, included performances by rock crooner Rod Stewart and soul singer Patti LaBelle. It was as much the talk of the town as Alva Vanderbilt’s lavish parties had been in the 1890s. (Her most famous party44 reputedly cost as much as $250,000, or around $5.5 million today.) Paparazzi jostled to snap photographs of the star-studded guest list, which included former secretary of state Colin Powell, New York’s Cardinal Edward Egan, and fellow Forbes 400 members Jack Welch and Donald Trump. As if to drive home50 the extent of Schwarzman’s wealth, the venue, lit by chandeliers and embellished with orchids, was hung with a fifty-foot silk-screen re-creation of his $30 million apartment three blocks away at 740 Park Avenue—the most prestigious address in New York City
The “obscene profits” in LBOs, Bryan Burrough and John Helyar noted in Barbarians at the Gate: The Fall of RJR Nabisco, their best-selling book about KKR and the takeover of Nabisco and RJR Tobacco in 1988, brought competitors. Theodore Forstmann and his brother, Nicholas, started the buyout firm Forstmann Little & Company in 1978. Peter G. Peterson14, commerce secretary in the Nixon administration, and Stephen A. Schwarzman (like Peterson, an alumnus of Lehman Brothers, an old-line Wall Street firm) started Blackstone Group in 1985. Forstmann’s niche was friendly buyouts; Blackstone, buttressed by Peterson’s connections and Schwarzman’s deal-making drive, became more of a small investment bank. But by getting in early on the LBO craze, they also became renowned, and Forstmann and Schwarzman landed on the Forbes 400 list, as well. * * * The really big money men (and one woman)… The financial business has been minting money since the Forbes list began in 1982. In the tables below are the men—and one lone woman—who make money investing and deploying capital, grouped by how they made their fortunes.
Wall Street is witnessing another boom in private equity. Veteran buyout companies such as Kohlberg Kravis Roberts & Company, the Blackstone Group, and Apollo Management are enjoying unprecedented liquidity. Private equity firms can afford80 to spend $1.6 trillion on acquisitions in the next several years, according to one published calculation, taking into account the money raised and the amount of debt that can be leveraged against it. The 1980s are no longer the golden age81 of the LBO; in fact, fifteen of the world’s twenty largest leveraged buyouts occurred in an eighteen-month period beginning in the second half of 2005. And the new private equity boom is fattening the pockets of many of its veteran practitioners: The fortune of Blackstone’s Stephen Schwarzman, for example, increased by $1 billion from 2005 to 2006, and is likely to soar much higher after a planned public offering in 2007.
Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das
affirmative action, Albert Einstein, algorithmic trading, Andy Kessler, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, capital asset pricing model, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, financial independence, financial innovation, financial thriller, fixed income, full employment, global reserve currency, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, happiness index / gross national happiness, haute cuisine, high net worth, Hyman Minsky, index fund, information asymmetry, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, job automation, Johann Wolfgang von Goethe, John Meriwether, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, labour market flexibility, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Martin Wolf, mega-rich, merger arbitrage, Mikhail Gorbachev, Milgram experiment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, negative equity, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, Plutocrats, plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, quantitative easing, quantitative trading / quantitative ﬁnance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Feynman, Richard Thaler, Right to Buy, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, Satyajit Das, savings glut, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, survivorship bias, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game
Schwarzman’s $5 million 60th birthday celebration, held in February 2007, was another sign of impending doom. The venue—the Armory—was decorated to replicate Schwarzman’s Park Avenue apartment, featuring a large portrait of the birthday boy. Children dressed in military regalia acted as ushers, and comedian Martin Short was master of ceremonies. Guests, including Colin Powell and New York Mayor Michael Bloomberg, dined on lobster and baked Alaska, whilst imbibing fine wines. Composer Marvin Hamlisch performed a number from A Chorus Line. Patti LaBelle led the Abyssinian Baptist Church choir in a song especially composed in honor of Schwarzman. Rod Stewart, the sexagenarian British rock star, performed his hits including Maggie May and Do’ya Think I’m Sexy. In 2002, David Bonderman, co-founder of TPG, had staged a lavish $7 million party to celebrate his 60th birthday party for hundreds of his “closest” friends.
Held at the Bellagio Hotel in Las Vegas, the party featured entertainment from the Rolling Stones and Robin Williams. Carlyle’s David Rubinstein was unimpressed: “We have all wanted to be private—at least until now. When Steve Schwarzman’s biography with all the dollar signs is posted on the web site none of us will like the furore that results—and that’s even if you like Rod Stewart.”13 In June 2007, Blackstone’s share offering was priced at $31 per share listed, trading upon listing in the stock exchange at around $37. The Chinese government invested $3 billion. Schwarzman cashed out stock worth over $650 million. His remaining 24 percent stake was valued at almost $8 billion, placing him near Rupert Murdoch and Steve Jobs on the list of richest people. In 2006, Schwarzman earned $398 million, around double the combined pay of the five largest American investment bank CEOs. Amateur Hour A leaked internal memo written by Carlyle’s William Conway dated January 31, 2007 showed that that the boom was almost over: “most investors in most assets classes are not being paid for the risks being taken...the longer it lasts the worst it will be when it ends...if the excess liquidity ended tomorrow I would want as much flexibility as possible.”14 Shortly after the Blackstone IPO, U.S. subprime problems overflowed into a general credit crunch, and the debt markets ground to a halt.
Listing of the management company contradicted private equity’s oft stated competitive advantages—patience, long-term focus, avoiding the pressure of quarterly earnings, and the high cost of regulatory compliance for public companies. Stephen Schwarzman, Blackstone’s CEO, previously argued that: “public markets are overrated.”11 One blogger described Schwarzman’s conversion as “the most unlikely...since Saul of Tarsus fell off his horse en route to Damascus.”12 It was Fortress envy. In February 2007, Fortress Investment Group, an alternative investment firm, sold 8.6 percent of the company for $685 million. Offered at $18.50 each, the shares rose 68 percent on listing to $31, trading at 40 times their historical earnings. It was private equity’s Netscape moment, reminiscent of when the Internet neophyte floated its shares to the public and the price skyrocketed. Blackstone, KKR, and others rushed to cash in on the gold rush. Schwarzman’s $5 million 60th birthday celebration, held in February 2007, was another sign of impending doom.
House of Cards: A Tale of Hubris and Wretched Excess on Wall Street by William D. Cohan
asset-backed security, call centre, collateralized debt obligation, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Deng Xiaoping, diversification, Financial Instability Hypothesis, fixed income, Hyman Minsky, Irwin Jacobs, John Meriwether, Long Term Capital Management, margin call, merger arbitrage, money market fund, moral hazard, mortgage debt, mutually assured destruction, Myron Scholes, New Journalism, Northern Rock, Renaissance Technologies, Rod Stewart played at Stephen Schwarzman birthday party, savings glut, shareholder value, sovereign wealth fund, too big to fail, traveling salesman, Y2K, yield curve
On Valentine's Day, New Century announced that a wave of shareholder lawsuits had been filed against it and that after two weeks of tough negotiations Goldman Sachs had agreed to a three-month extension of a line of credit to the company that had been set to expire the next day. Goldman had extracted its pound of flesh by insisting on the ability to get out of the agreement “at the first hint of trouble.” That night, ironically, Steve Schwarzman, one of the two founders of the Blackstone Group, gave himself a boffo $4 million sixtieth-birthday party at the Armory on Park Avenue for 350 of Manhattan's glitterati. Martin Short emceed. Rod Stewart and Patti LaBelle sang. The menu included lobster, baked Alaska, and a 2004 Louis Jadot Chassagne-Montrachet. Cayne was there. “The festivities served as a coronation of sorts for Mr. Schwarzman, a billionaire several times over, an active Republican donor and chairman of the Kennedy Center in Washington whose influence reaches deep into the worlds of finance, politics and the arts,” the Times reported afterward.
The price must be a typo, the consensus seemed to be, since surely a company that fourteen months earlier had been trading at $172.69 per share could not now be worth so little. Steve Schwarzman, the head of The Blackstone Group, had been vacationing with his wife in St. Barts, the exclusive Caribbean island. He had spoken to Schwartz on Friday for about thirty minutes to see if Schwartz needed Blackstone's help and was told, “We're fine. We're good. We don't need any help.” That Sunday evening, he had just sat down for dinner with fellow Philadelphia billionaire Ron Perelman on Perelman's 188-foot yacht, the Ultima III, when the news paraded across his Black-Berry that Bear Stearns had been sold for $2 a share. “It must be $20,” Schwarzman and Perelman said to each other. “It can't be $2.” John Mack, the CEO of Morgan Stanley, had a similar reaction. But there was no typo.
., Marin made the offer of the $3.2 billion with no conditions. That night, Warren Spector was at a private dinner in Washington with other senior Wall Street executives to meet presidential candidate Senator Barack Obama. Spector introduced himself as working for Bear Stearns, “the current scourge of Wall Street.” At the same time that Spector was in Washington, Steve Schwarzman's Blackstone Group priced its highly anticipated $4.75 billion IPO at $31 per share. The offering, a huge success from Blackstone's perspective, briefly made Schwarzman worth close to $8 billion. The two lead managers of the deal, Morgan Stanley and Citigroup, hoovered up around $100 million of the $202 million in underwriting fees. (Bear Stearns was a co-manager on the deal.) By the next afternoon, Spector was back at his office in New York spending hours on the phone with other Wall Street executives.
The Quants by Scott Patterson
Albert Einstein, asset allocation, automated trading system, beat the dealer, Benoit Mandelbrot, Bernie Madoff, Bernie Sanders, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Brownian motion, buttonwood tree, buy low sell high, capital asset pricing model, centralized clearinghouse, Claude Shannon: information theory, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computerized trading, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, Doomsday Clock, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, fixed income, Gordon Gekko, greed is good, Haight Ashbury, I will remember that I didn’t make the world, and it doesn’t satisfy my equations, index fund, invention of the telegraph, invisible hand, Isaac Newton, job automation, John Meriwether, John Nash: game theory, law of one price, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, margin call, merger arbitrage, money market fund, Myron Scholes, NetJets, new economy, offshore financial centre, old-boy network, Paul Lévy, Paul Samuelson, Ponzi scheme, quantitative hedge fund, quantitative trading / quantitative ﬁnance, race to the bottom, random walk, Renaissance Technologies, risk-adjusted returns, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Sergey Aleynikov, short selling, South Sea Bubble, speech recognition, statistical arbitrage, The Chicago School, The Great Moderation, The Predators' Ball, too big to fail, transaction costs, value at risk, volatility smile, yield curve, éminence grise
They also like to party. The Tuesday after the Fortress IPO, Stephen Schwarzman, cofounder and chief executive of private equity powerhouse Blackstone Group, threw himself a lavish sixtieth-birthday bash in midtown Manhattan. Blackstone had just completed its $39 billion buyout of Equity Office Properties, the largest leveraged buyout in history, and Schwarzman was in a festive mood. The celebrity-studded, paparazzi-thick blowout smacked of the grandiose robber baron excesses of the Gilded Age, and it marked the crest of a decades-long boom of vast riches on Wall Street—though few knew it at the time. The location was the Seventh Regiment Armory on Park Avenue. New York police closed part of the fabled boulevard for the event. The five-foot-six Schwarzman didn’t need to travel far for the festivities. The elite gathering was held near his thirty-five-room Park Avenue co-op, once owned by oil tycoon John D.
Upon entering the orchid-festooned armory to a march played by a brass band, ushered by smiling children in military garb, visitors were treated to a full-length portrait of their host by the British painter Andrew Festing, president of the Royal Society of Portrait Painters. The dinner included lobster, filet mignon, and baked Alaska, topped off with potables such as a 2004 Louis Jadot Chassagne-Montrachet. Comedian Martin Short emceed. Rod Stewart performed. Patti LaBelle and the Abyssinian Baptist Church choir sang Schwarzman’s praises, along with “Happy Birthday.” On its cover, Fortune magazine declared Schwarzman “Wall Street’s Man of the Moment.” High-society tongues were still wagging about the party a few months later, when Schwarzman gave himself another eye-popping gift. In June, Blackstone raised $4.6 billion in an IPO that valued the company’s stock at $31 a share. Schwarzman, who was known to shell out $3,000 a weekend on meals, including $400 on stone crabs ($40 per claw), personally pocketed nearly $1 billion. At the time of the offering, his stake in the firm was valued at $7.8 billion.
The elite gathering was held near his thirty-five-room Park Avenue co-op, once owned by oil tycoon John D. Rockefeller. He’d reportedly paid $37 million for the spacious pad in May 2000. (Schwarzman had also purchased a home in the Hamptons on Long Island, previously owned by the Vanderbilts, for $34 million, and a thirteen-thousand-square-foot mansion in Florida called Four Winds, originally built for the financial advisor E. F. Hutton in 1937, which ran $21 million. He later decided the house was too small and had it wrecked and reconstructed from scratch.) The guest list at Schwarzman’s fete included Colin Powell and New York mayor Michael Bloomberg, along with Barbara Walters and Donald Trump. Upon entering the orchid-festooned armory to a march played by a brass band, ushered by smiling children in military garb, visitors were treated to a full-length portrait of their host by the British painter Andrew Festing, president of the Royal Society of Portrait Painters.
Affordable Care Act / Obamacare, Asian financial crisis, asset allocation, Ayatollah Khomeini, bank run, banking crisis, Ben Bernanke: helicopter money, bitcoin, Black Swan, Bretton Woods, BRICs, business climate, capital controls, Carmen Reinhart, central bank independence, centre right, collateralized debt obligation, collective bargaining, complexity theory, computer age, credit crunch, currency peg, David Graeber, debt deflation, Deng Xiaoping, diversification, Edward Snowden, eurozone crisis, fiat currency, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, G4S, George Akerlof, global reserve currency, global supply chain, Growth in a Time of Debt, income inequality, inflation targeting, information asymmetry, invisible hand, jitney, John Meriwether, Kenneth Rogoff, labor-force participation, labour mobility, Lao Tzu, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market clearing, market design, money market fund, money: store of value / unit of account / medium of exchange, mutually assured destruction, obamacare, offshore financial centre, oil shale / tar sands, open economy, Plutocrats, plutocrats, Ponzi scheme, price stability, quantitative easing, RAND corporation, reserve currency, risk-adjusted returns, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Satoshi Nakamoto, Silicon Valley, Silicon Valley startup, Skype, sovereign wealth fund, special drawing rights, Stuxnet, The Market for Lemons, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, too big to fail, trade route, uranium enrichment, Washington Consensus, working-age population, yield curve
Another technique China uses to disguise its market intelligence operations was reported on May 20, 2007, in The New York Times when Andrew Ross Sorkin disclosed that the China Investment Corporation (CIC), another sovereign wealth fund, had agreed to purchase $3 billion of stock in Blackstone Group, the powerful and secretive U.S.-based private equity firm. Blackstone Group was cofounded by former Nixon administration senior official Peter G. Peterson, later chairman of both the Council on Foreign Relations and the Federal Reserve Bank of New York. The other Blackstone cofounder, Stephen A. Schwarzman, is a multibillionaire who became notorious for his sixtieth birthday party held at the New York Park Avenue Armory on February 13, 2007, just a few months before Blackstone’s sale. That party included a thirty-minute performance by Rod Stewart, for which the singer was reportedly paid $1 million. China was now buying its own front-row seat at the Blackstone party, gaining access to top management and the ability to coinvest in pending deals.
Debt by China,” New York Times, January 21, 2011, http://www.nytimes.com/2011/01/22/business/economy/22charts.html?_r=0. the Chinese Investment Corporation (CIC) . . . : Andrew Ross Sorkin and David Barboza, “China to Buy $3 Billion Stake in Blackstone,” New York Times, May 20, 2007, http://www.nytimes.com/2007/05/20/business/worldbusiness/20cnd-yuan.html?pagewanted=print. notorious for his sixtieth birthday party . . . : James B. Stewart, “The Birthday Party,” New Yorker, February 11, 2008, http://www.newyorker.com/reporting/2008/02/11/080211fa_fact_stewart. “I want war, not a series . . .”: Quoted in Andrew Clark, “The Guardian Profile: Stephen Schwarzman,” Guardian, June 15, 2007, http://www.theguardian.com/business/2007/jun/15/4. “to put its vast reserves . . .”: Sorkin and Barboza, “China to Buy.” suggested mounting an attack on the Japanese . . . : Ambrose Evans-Pritchard, “Beijing Hints at Bond Attack on Japan,” Telegraph, September 18, 2012, http://www.telegraph.co.uk/finance/china-business/9551727/Beijing-hints-at-bond-attack-on-Japan.html.
It is naïve not to consider that information on America’s most powerful deal machine’s inner workings is being channeled to the political bureaus of the Communist Party of China. The Chinese investment due diligence teams get a look at confidential deal target information, even on deals that do not ultimately get done. The $3 billion sale price may seem like a lot of money to Schwarzman, but it is only one-tenth of one percent of China’s reserves, the equivalent of dropping a dime when you have a hundred-dollar bill. China’s penetration of Schwarzman and Blackstone is a significant step in its advance toward East Asian hegemony and a possible confrontation with the United States. Of course, information channels are a two-way street, and firms such as Blackstone do assist the U.S. intelligence community with insights on Chinese capabilities and intentions. The United States is not the only potential Chinese financial warfare target. In September 2012 a senior Chinese official, writing in the Communist China Daily, suggested mounting an attack on the Japanese bond market in retaliation for Japanese provocations involving disputed island territories in the East China Sea.
Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase by Duff McDonald
bank run, Bonfire of the Vanities, centralized clearinghouse, collateralized debt obligation, conceptual framework, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Exxon Valdez, financial innovation, fixed income, housing crisis, interest rate swap, Jeff Bezos, John Meriwether, laissez-faire capitalism, Long Term Capital Management, margin call, market bubble, money market fund, moral hazard, negative equity, Northern Rock, profit motive, Renaissance Technologies, risk/return, Rod Stewart played at Stephen Schwarzman birthday party, Saturday Night Live, sovereign wealth fund, statistical model, Steve Ballmer, Steve Jobs, technology bubble, The Chicago School, too big to fail, Vanguard fund, zero-coupon bond, zero-sum game
Friends and colleagues noticed that Dimon basically stopped making an effort to remain friendly with Weill after the book’s release. While always respectful, he just doesn’t go out of his way anymore. • • • Although he rarely appears in the social pages, Dimon did attend the $3 million birthday fete that the private equity kingpin Stephen Schwarzman threw for himself at the Park Avenue Armory in February 2007. The bash was seized on as a symbol of the new gilded age—Rod Stewart was paid $1 million to play for half an hour—and the city’s financial elite turned out in full force to eat lobster and baked Alaska and drink 2004 Louis Jadot Chassagne-Montrachet. Along with Dimon were Goldman Sachs’s CEO Lloyd Blankfein, Merrill Lynch’s Stan O’Neal, Bear Stearns’ Jimmy Cayne, and Lazard’s Bruce Wasserstein.
The CEOs of most of the top Wall Street firms were in attendance—Lloyd Blankfein of Goldman Sachs; Ken Chenault of American Express; Dimon; Dick Fuld of Lehman Brothers; Bob Rubin, chairman of the executive committee at Citigroup; and John Thain of Merrill Lynch. A few kingpins of private equity and hedge funds were also there, including Ken Griffin of Citadel Investment Group, Bruce Kovner of Caxton Associates, and Steve Schwarzman of the Blackstone Group. There was no one representing Bear Stearns in the room; Schwartz had not even been invited. On the morning of Wednesday, March 12, Schwartz appeared on CNBC in an effort to deflect growing concerns about the company. “Some people could speculate that Bear Stearns might have problems, since we’re a significant player in the mortgage business,” he said to the anchor, David Faber.
He has also called for a systematic regulator that can anticipate problems in the system rather than merely respond to them. Even though Dimon, as a college student, wrote that admiring letter to Milton Friedman, the king of the laissez-faire economists, he also values the lessons of John Maynard Keynes and Keynes’s argument in favor of adult supervision in the markets. In October 2008, Blackstone’s chief, Steve Schwarzman, embarked on a campaign to have so-called “mark to market” accounting rules changed. The rules, he (and others) complained, meant that companies with deteriorating asset values were constantly forced to mark down their balance sheet values; this entailed having to raise capital by selling more assets, which put further downward pressure on those asset values, which … a vicious circle.