CNBC anchor Maria Bartiromo explores what happened behind closed doors during the market crash of 2008 to provide an intimate look at the personal stories of those involved—from the richest and most powerful to the average workers.
Riding High Before the Fall
“It’s hard to believe it can get any better.” —David Rubenstein, chairman of the Carlyle Group, in an interview with Maria Bartiromo, January 2007
December 2006
Steve and Christine Schwarzman’s annual holiday party was legendary, and normally I wasn’t on the guest list. But this year was different. I ended up being invited not because of my professional relationship with Steve, chairman of the Blackstone Group, but because of my connection to his apartment, 740 Park Avenue. The previous owner, Saul Steinberg, is my father-in-law. Saul had purchased the twenty-thousand-square-foot apartment from the estate of John D. Rockefeller in 1971, for well under $300,000, and it had been his home for thirty years. My husband, Jonathan, spent much of his childhood at the Park Avenue apartment, and we held our engagement party there shortly before the sale to the Schwarzmans.
The co-op building, situated on the corner of 71st Street and Park Avenue, is famous for its elite roster of tenants. In 2005 porter Michael Gross wrote a book about it, 740 Park Avenue: The Story of the World’s Richest Apartment Building, in which he detailed its history, dividing the residents into four categories—old money, oil money, new money, and borrowed money. In Gross’s view, Schwarzman and Steinberg fell under the final category, men whose wealth was built on Wall Street’s massive borrowing power.
In 1999 the Steinbergs put the apartment on the market, and the Schwarzmans swept in, paying more than $30 million—the highest price ever for a Manhattan apartment at that time. Schwarzman was a Wall Street kingmaker, the man people wanted to befriend, and he was eager to demonstrate his place at the pinnacle of power and money by purchasing what was considered to be the best apartment in New York City.
Steve Schwarzman was arguably one of the most important men on Wall Street. Everyone wanted to be close to him, and in a sense everyone deferred to him because he controlled so much of the business. It was a great time to be alive and in private equity. And it was a great time to be Steve Schwarzman.
He was everywhere that year, bullish verging on boastful about the wonders of private equity and, by implication, his own golden touch. When I lunched with him at the Four Seasons restaurant in January 2006, he was ebullient. I asked him, “How easy is it to do a deal today?” and he replied provocatively, “I can do a thirty- to forty-billion-dollar deal in a very short time without covenance.” He acknowledged that “in the olden days” a billion-dollar buyout was big news, but we were witnessing a phenomenal uptick in the amount of money flowing into private equity. And he added expansively, “We don’t even set up a deal unless we can make at least a twenty percent annual return on investment.” Our discussion in the lunchroom of power was interrupted by a steady flow of table hoppers who wanted to shake Schwarzman’s hand and wish him a happy New Year—among them, Sandy Weill, chairman of Citigroup; billionaire investor Ronald Perelman; and real estate kingpin Sam Zell.
Perhaps no one exemplified the stratospheric rise of private equity more than Zell. The sixty-five-year-old billionaire, the son of Jewish immigrants from Poland, was one of the wealthiest men in the world. Crusty, confident, and an unrepentant potty-mouth, Zell was both admired and feared for his ability to play extremely high stakes games. A year after I saw him at the Four Seasons, he would make the deal of the decade, selling Equity Office Properties Trust, a conglomerate of 573 properties, to Schwarzman’s Blackstone Group for $39 billion. Blackstone flipped the majority of them, and Zell and Schwarzman walked away with big profits right before the real estate bust sunk most of the properties’ values.
In May of 2006, I was a guest host for Charlie Rose. As I sat at Charlie’s famous “table” with Schwarzman and David Rubenstein, chairman of the private-equity powerhouse Carlyle Group, I was impressed with how both men oozed confidence and optimism as they talked about making bigger and bigger deals. At one point I said, “You’re in the Golden Age of private equity. Do you think the day will come when trees don’t grow to the sky and the market shifts away from you?”
“Only foolish people believe that trees grow to the sky,” Schwarzman said with a chuckle. “Or young people who haven’t experienced trees being cut down. It’s important to shine an amber light, to slow down, to not get caught up in the mania.”
Indeed, Schwarzman had never been accused of getting caught up in the mania. He was a smooth operator, even-keeled—“ Not a screamer,” a colleague once observed. But on that day in May, he was on top of the world, and the trees in his garden did seem to be growing to the sky.
When I saw Schwarzman again in the fall, I casually asked him, “So, how’s your apartment? You know, we had our engagement party there. It’s an unbelievable place.”
He was enthusiastic. “Maria, you’ve got to come over and see it.” And he invited me to his holiday party.
I was interested in going, of course—not just because I was curious about the apartment, but also because I was a business reporter. Schwarzman’s guest list was sure to include many of the captains of finance. So I accepted.
I didn’t want to attend Schwarzman’s party alone, but I also didn’t want to put my husband in a tough spot. Did he have lingering sentimental feelings about the apartment? Would it make him feel bad to return there? He assured me it was no problem for him.
When we walked into the apartment it was still breathtaking, but different. Gayfryd Steinberg, a woman of impeccable taste, had remodeled the apartment when she and Saul had lived there, and her work had been, in my opinion, sheer perfection. After the Schwarzmans purchased the Steinberg apartment, Christine had wanted to make it her own. She gutted the place and spent a year on a multimillion-dollar overhaul.
I hadn’t realized that the Schwarzman holiday parties were always themed. That year’s theme was Bond—as in James, not municipal. The host was dressed in a snazzy tux, portraying 007 with Christine shimmering at his side in a silver gown. Scantily clad “Bond girls” roamed the party serving drinks and hors d’oeuvres. There were repeated joking references to “Goldfinger” throughout the evening.
The apartment was crowded with well-known Wall Street faces. John Thain, chief executive of the NYSE, was there, having recently purchased an apartment in the building for a reported $27.5 million. I spotted a smattering of “real” celebrities, and smiled when I saw Paris Hilton holding court, surrounded by an admiring group of investment bankers from Bear Stearns, Lehman Brothers, and Goldman Sachs.
At one point in the evening I found myself in a corner chatting with Jimmy Cayne and Dick Fuld. Cayne, the flamboyant chief executive of Bear Stearns, was enjoying himself, as always, despite the buzz of criticism about his extremely large Christmas bonus of nearly $15 million. Fuld, the head of Lehman Brothers, known to be a lone wolf, hugged the corner, having private conversations and at times looking uncomfortable.
A couple of Bond girls slid over to us, and suddenly a photographer appeared. “Take your picture?” he asked. Fuld jumped up in alarm. “I’m not getting my picture taken with any Bond girls,” he barked, and took off. Cayne laughed and shrugged. He didn’t mind. Nothing could touch him—or so he thought.
In retrospect, the Bond theme was an interesting commentary on the era. Schwarzman might well have imagined himself as the 007 of Wall Street, smoothly sailing above the troubles that afflicted others. He appeared to enjoy playing the sophisticated man’s man; the male ideal; a magnet for power, money, and women for whom danger and intrigue were all in a day’s work.
Schwarzman was the envy of his peers, but he and they might have paused to consider that in 2006 the primary characteristic of James Bond was that he was an anachronism, and those who aspired to walk in his shoes were perhaps headed in the wrong direction.
This wasn’t the only high-profile party the Schwarzmans threw during that season. The Bond spectacle was followed on February 14, 2007, by a $3 million sixtieth-birthday bash for Schwarzman at the Armory in New York. Jonathan and I were in attendance there as well. The Valentine’s Day birthday party got plenty of media coverage, thanks to its dazzling guest list, which included a roster of New York celebrities—Donald and Melania Trump, Barbara Walters with Vernon Jordan, Tina Brown, former New York governor George Pataki, Charlie Rose, Barry Diller, and Cardinal Egan. In addition, there was the familiar cast of Wall Street regulars—John Thain; Lloyd Blankfein, CEO of Goldman Sachs; Stan O’Neal, CEO of Merrill Lynch; Jimmy Cayne; Sandy Weill, now the former chairman of Citigroup; Jamie Dimon, CEO of JPMorgan Chase; and real estate tycoon Jerry Speyer.
Having just been to the Schwarzman apartment, I noticed right away that the Armory was decorated as a replica of their living room. Everything was absolute perfection, as one would expect of a party with such a hefty price tag. Schwarzman’s favorite entertainer, Rod Stewart, performed. (I’m told his fee was $1 million.) Patti LaBelle sang “Happy Birthday.” It was yet another lavish, over-the-top celebration of capitalism, paying homage to the new captains of finance. Life was good.
Looking back on those parties I can recall the giddiness in the air, the extravagance, the excess. It is burned in my memory—the sight of all those incredibly accomplished and wealthy men and women laughing and drinking. It reminded me of prewar Berlin, and called to mind a quip that political adviser James Carville made in the early years of the Clinton administration. “I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter,” Carville said. “Now I want to come back as the bond market. You can intimidate everybody.” That was the mood of 2006, only more profound. The people running the financial industry were puffed up, bullish. It felt as if they owned the world, but it was really the beginning of the end of that world.
“It was a great age of leverage, credit, and debt entitlement,” Mohamed El-Erian, CEO of Pimco, the world’s largest bond investor, told me later. “People felt entitled to do all sorts of things using debt. You suddenly had a massive innovation that reduced the barriers of entry to credit markets. Wall Street believed that it could build one liquidity factory after another after another after another.”
El-Erian noted that the mind-set at that point was that everything was basically stable. It was a “Goldilocks economy”—never too hot or too cold. The aura of stability led to false confidence, which led in turn to excessive leveraging and riskier activity. His take seemed to be accurate. The people whom I interviewed didn’t appear to have a care in the world. But Schwarzman’s opulence was starting to annoy some of his colleagues in the business. Several of them made comments to me that they wished he would stop throwing parties. Others questioned whether Schwarzman’s birthday bash and his company’s going public the same year represented the top for the industry.
That winter, I did a report from the World Economic Forum in Davos, Switzerland. I asked a group of very big names in finance what were the most important issues facing business. In retrospect the answers were mostly way off the mark:
• Tom Russo, vice chairman, Lehman Brothers: “Avian flu: High risk, low probability, but if it should happen, people won’t come to work. We are trying to figure out how to run a firm from home.”
• Martin Sullivan, CEO, AIG: “The threat of terrorism.”
• Victor Chu, chairman, First Eastern Investment Group: “Bird flu. It would impact everything and you can’t prepare.”
• Sergey Brin, co-founder, Google: “The environment and escalating disasters.”
It’s striking how much focus was on external calamity, as if terrorism and avian flu were the only forces capable of halting the phenomenal tide of growth and prosperity. The only one of so many I interviewed who said anything about banks being at risk was Deutsche Bank CEO Josef Ackermann. In reply to my question, he said, “Overleveraging in the real estate market.” Bingo! He got it. (Years later I asked Ackermann how he had been so prescient, and he told me that he would advise anyone who asked him that the two biggest problems to avoid in any successful economy were indebtedness and real estate bubbles. When I asked, “So, did you do anything about it?” he admitted, “We did a little, not a lot,” noting how competitive the market was then and how difficult it is to put the brakes on during a boom.)
In January 2007 I conducted another interview with David Rubenstein of the Carlyle Group. “What are your expectations for the year? Can this keep up?” I asked him. Rubenstein answered, “It’s hard to believe it can get any better.” He said that assuming there was no cataclysmic event like 9/11, he expected 2007 to be another big year.
That prediction, born of what—false optimism, bravado, blindness, deceit?—did not come true. Within weeks of Rubenstein’s remark, the gloom was setting in. It was going to be a very long year, and a very long fall to earth. This is the story of that fall.
Excerpted with permission from "The Weekend That Changed Wall Street: An Eyewitness Account" by Maria Bartiromo with Catherine Whitney. (Portfolio, 1010)