Sunday, November 22, 2015

207. The Rich Today

     A previous post (#205) looked at the rich of nineteenth-century New York, most of whom earned their fortune themselves and provided some useful product or service to society.  So what about the rich of today?  I know of no compilation of the richest New Yorkers comparable to Moses Beach’s tabulation of 1845, but Forbes magazine’s annual list of the 400 richest Americans is a good place to start.  Among the top 100 names listed are 16 New Yorkers, with the source of their income as follows:

Investments, 4
Hedge funds, 2
Real estate, 2
Media, 2
Private equity, 1
Leveraged buyouts, 1
Financial services and news, 1
Cosmetics, 1
Luxury clothing and housewares, 1
Television and real estate, 1

Since investments, hedge funds, private equity, and leveraged buyouts can be combined under the term “finance,” it’s obvious that finance, for a total of 8 (or maybe 8½, including financial services and news), is tops, and “finance” of course means Wall Street.  Real estate is second with 2, or maybe 2½, if one adds the “real estate” half of “television and real estate.”  Tying real estate with 2, or surpassing it with 2½, if the television part of “television and real estate” is included, is media.  Finally come luxury clothing and cosmetics, which can be lumped together as “retail.”  What is conspicuous by its absence is technology, since that is more of a West Coast phenomenon.

     Finance and real estate were biggies in the nineteenth century also, but the Wall Street of today is not the Wall Street of then, for hedge funds and leveraged buyouts are recent creations, and very different creatures indeed.  How many of us even know what a leveraged buyout is, or what a hedge fund or private equity firm does?  In the nineteenth century the public was surely baffled by short sales, puts and calls, and straddles, but those devices never by themselves precipitated a worldwide financial crisis, which is more than can be said for the financial gimmicks of today.  How reassuring it is to find cosmetics and luxury clothing included in the first 100 – real stuff that you can see and smell and touch.  Even if you can’t afford it, you can understand such products and wish their creators well.

     Who is the richest New Yorker?  Michael Bloomberg, whose firm Bloomberg LP is the “financial  services and news” provider listed above.  A business magnate credited by Forbes with $38.6 billion, he is also the eighth richest man in America.  And oh yes, he was the 108th mayor of our fair city, serving no less than three consecutive terms.  A successful business magnate, independent politician, and philanthropist, he is not to be  dismissed lightly.  By serving as mayor he continued a tradition of New York merchants who in the first half of the nineteenth century – before the advent of the professional politician and the dominance of Tammany Hall --  took two years or more out of their business career to govern, or try to govern, the unruly city of New York.  For them, it was a matter of public service, even though their heart was in their business.

     For Michael Bloomberg, a phenomenally successful businessman, politics was probably the only place to go for the thrill of further achievement.  The results?  Both negatives and positives.  But the negatives – a stop-and-frisk policy that abused minority communities, homelessness, and cozy relations with banks and real estate – were surpassed by the positives: restrictions on smoking in public, pedestrian plazas, 850 more acres of parkland, 470 miles of bike lanes, and a safer, cleaner city.  Not a bad public record for the city’s biggest moneybags, far surpassing that of Cornelius “Old Eighty Millions” Vanderbilt, the richest New Yorker in the 1870s.  And I haven’t even looked at Bloomberg Philanthropies Foundation and what it’s up to.  Nor have I mentioned his living with a lady friend, which bothers New Yorkers not a bit.  His appearance?  Dignified, mayoral, but with a winsome smile.

File:Michael Bloomberg 2011 Shankbone 2.jpg
David Shankbone

     The next richest New Yorker, according to Forbes, is Carl Icahn, a Far Rockaway native and Princeton graduate turned hedge fund manager and activist shareholder whose wealth is pegged at $20.5 billion.  His involvement in risk arbitrage and options trading is enough to baffle the uninitiated (of which I am one), and his reputation as a ruthless corporate raider is not likely to endear him to multitudes.  In 1985 he staged a hostile takeover of TWA, then sold TWA’s assets to repay the debt he used to acquire the company – a procedure known as asset stripping.  Then in 1988 he took TWA private, reaping a profit of $469 million, while leaving the company saddled with $540 million in debt.  So if Bloomberg is the big fish in the pond, Icahn is a shark.  Labeled a financial parasite by some, he insists that he is always acting in the company’s best interest by ousting incompetent management; also he tends to hold stock for over three years, which makes him something of an investor.  Hostile takeovers, proxy fights, stock buybacks, chairman of this and acquirer of that – no layman could follow his career or grasp his motivation, but it all explains why he has the second biggest New York fortune.  A sober-looking, well-dressed business type whose features have graced the cover of Forbes and Time, he manages to work in some philanthropy, too.

     The third richest New Yorker, with $12.5 billion, is investor and philanthropist Ronald Perelman, whom I confess I had not heard of, but whose photos show a chubby, balding fellow, rather jolly-looking with a hearty smile.  Forbes describes the source of his wealth as “leveraged buyouts,” so I’m suspicious already.  His modus operandi is to buy a company, strip it of superfluous divisions so as to reduce debt and generate profit, then focus on the company’s core business and either sell it or hang on to it for its cash flow.  So is all this good or bad?  I haven’t the slightest idea, but I gather that Perelman, like Icahn, is a corporate raider, which makes him shark no. 2.  One of his favorite operations is greenmail: he buys a big chunk of a company’s stock, then threatens a takeover unless they buy his stock back at a much higher price; if they do, he reaps a phenomenal profit.  The mere acquisition of shares by such a raider precipitates panic in management and a buying frenzy in the public.  But like Icahn, he finds time for philanthropy, and for five marriages as well.  He does get around.

File:Ron Perelman Shankbone 2009 Vanity Fair.jpg
Shark no. 2.  A great smile.
David Shankbone

     The fourth richest New Yorker is none other than Rupert Murdoch, with $11.6 billion made in media.  We’ve all heard of the gentleman, and “media” barely suggest his amazing career.  Australian-born, he first acquired newspapers in Australia and New Zealand, then expanded his acquisitive talents to Great Britain, and for further conquests moved to New York City in 1974, becoming a naturalized citizen in 1985 for the soundest of reasons: to be able to expand into U.S. television, which can’t be owned by foreigners.  Expanding comes naturally to him; by 2000 his News Corporation owned over 800 companies in some 50 countries, including such U.S. gems as Twentieth Century Fox, HarperCollins (a publisher I used to work for), and The Wall Street Journal.  Indeed, one wonders what he doesn’t own. 

File:Rupert Murdoch Wendi Murdoch 2011 Shankbone.JPG
Mr. Murdoch and wife no. 3, before divorce proceedings.
David Shankbone
     Not that all is well in the Murdoch empire, for in 2011 his newspapers were accused of hacking the phones of celebrities, including the British royal family, no-no’s that provoked criminal investigations on both sides of the pond.  Photos reveal a smiling, wrinkled gentleman of 84 with a very receding hairline and glasses, which hasn’t prevented him from going through three wives, the last of whom (if “last” there is) he is divorcing.  His urgent need to expand his media empire, like the force driving corporate raiders and hedge fund honchos, puzzles and intrigues me; I would like to know what makes this man tick, and wonder if he himself knows.  As for hedge fund honchos, perhaps relevant is the fact they make much more money than CEO’s of corporations – annually, sometimes a billion or more.

     Compared to these other richies, not to mention Donald Trump – no. 121 on the Forbes list, with a paltry $4.5 billion – Michael Bloomberg comes off looking good.  He isn’t a pirate or an egomaniac, gave us bike lanes and greenery, made it possible for us to stroll in Times Square, and cleansed our indoor public spaces of nicotine.  Not bad, Mike, not bad.

     So what do these folks do in their spare time (if they have any)?  For one thing, they give.  The New York Times ran a recent article on The Big Ask, on philanthropies hoping to nudge fat cats toward a Big Give.  New York is full of big-name cultural institutions that gobble up big money so as to realize their big dreams, and big donors are in their sites.  In 2008 Leonard Lauder, the cosmetics magnate, gave $131 million to the Whitney Museum of American Art – the biggest gift the Whitney has ever received.  And in 2013 he gave the Metropolitan Museum of Art 79 Cubist works, a collection of Picassos, Braques, and Légers valued at more than $1 billion, to be housed in a projected new wing for contemporary art.  Lauder is seen as embodying an old money model of largesse, concentrating on one or two institutions and in so doing making a big splash. 

    Contrasting with Lauder is Bruce Kovner, a hedge fund manager who in 2012 gave $20 million to the Juilliard School of Music for its early music program.  Never heard of him?  That’s the way he likes it.  He shuns publicity, doesn’t want his name on a building, avoids interviews and black-tie fundraising galas that would love to feature him and lure more donors.  A bit of a surprise: a hedge fund manager in love with music and who believes that “the arts … are what make humans what we are.”

     But today’s moneybags don’t give just to the arts, far from it; with their eye on the 2016 election, they give big money to the candidates of their choice.  Mostly Republicans, of course.  According to a lead article in a recent New York Times, only 158 U.S. families have given almost half the cash -- $176 million – raised to date for the election.  So who are these donors?  White, wealthy, older males clustered in a handful of communities throughout the nation, the biggest of these being New York.  So right away I smell hedge funds, leveraged buyouts, private equity.  And the Times confirms my hunch, for these donors aren’t from old big money, haven’t inherited their wealth; they’re newbies who launched their own businesses, took risks, and reaped huge gains, prominent among them the hedge fund managers of New York.  And they support Republican wannabes who promise lower taxes, fewer regulations, stingier entitlements.  Not that it’s easy to sniff these donors out.  They hide behind business addresses, post office boxes, and limited liability corporations and trusts.

     One hedge fund manager named in the Times article is Robert Mercer, whose Renaissance Technologies, founded in 1982, is one of the world’s biggest hedge funds, with some $27 billion in assets.  Closed to outsiders and open only to employees and their families (minimum investment $1 million), Renaissance is said to be run by and for scientists, with an emphasis on quantitative finance research done by mathematicians, computer scientists, physicists, astrophysicists, and statisticians; Wall Street experience is frowned on.  Mercer loves computers, calls himself “simply a computer programmer,” uses computers to guide his investing and avoid the herd mentality of Wall Street.  His staff amass vast amounts of data and use secret computer-based models to predict prices. 

     Despite the fund’s obsessive secrecy, one example of their novel approach to investing has come to light: they obtained data on clouds indicating that markets are less likely to rise on cloudy days, which was then  confirmed by more data from Paris, Milan, Tokyo, Sao Paulo, and New York.  With even the weather behind them, no wonder they are billionaires and the rest of us are poor.  So if you must invest, check out the cloud patterns first.

     As for donating, the Washington Post has called Mercer one of the ten most influential billionaires in politics, labeling him a “Tea Party conservative.”  Well, he’s got a lot to protect, and the IRS has been sniffing around his hedge fund for years.  His money-backed choice for the White House: Ted Cruz.

     Mercer’s firm is based on Long Island, but its administrative offices are in Manhattan.  He lives with his wife (believe it or not, he’s had only one) in Head of the Harbor, New York, a quiet little village in Suffolk County on the North Shore of Long Island.  I confess that until now I’d never heard of Robert Mercer or Head of the Harbor, New York.  As to how he commutes from there to Manhattan – private jet, limousine, whatever – I haven’t a clue, but I’ll bet he does it, however discreetly, in style. 

     The nerd of nerds, Mercer is reclusive, avoids photographers, rarely speaks in public.  Described as “an icy cold poker player,” he appears in rare photos of him as a clean-shaven older man with thinning hair, appropriately tense when playing poker at a tournament.  All that clout, and most of us have never heard of him.  Which says a lot about the rich of today; they aren’t all attention-grabbing fiends like The Donald.

     This last Halloween hedge fund billionaires left their mark on Manhattan, bedecking their townhouses with goblins, crones, witches, zombies, skeletons, ghouls, ghosts, spiders, and bats leering from balconies, peering through railings, or guarding entrances.  Outside the East 74th Street residence of Marc Lasry, a cofounder of Avenue Capital, bloodied life-size dummies dangled from a balcony, while a chaste neo-classical entrance on East 67th Street featured an effigy of a two-headed girl standing in a multitude of rats.  But it could have been worse: a year before, the façade of hedge-fund billionaire Philip Falcone’s residence on East 67th Street, a street that seems to lure spooks, was graced with a crone cradling a dead infant, while inside a hearse parked at the curb the Grim Reaper was seen beheading a corpse – a display spooky enough to provoke protests by the neighbors.  All of which shows where some of the millions – a tiny portion -- reaped by fat cats goes.

     The rich are served by an army of maids, nannies, janitors, doormen, chauffeurs, shop clerks, and the staff of elite restaurants, but not all of the army is enchanted with those they serve.  Another Times article (the Times seems to feast on stories of the rich) tells of the service of a young captain of waiters in a Michelin three-star restaurant.  When the doors open and the first guests are seated at 5:31 p.m., he scans a digital dossier listing every guest’s water preference, food allergies, likes and dislikes, and whether or not they spend big on wine.  The captain greets the table, asks for water preferences, signals with his hand behind his back to an assistant: wiggling fingers means bubbles; a slashing motion, still; a twist of the fist, ice water.  Minutes later the captain takes orders, memorizes each one, then passes them on to the server. 

File:King David Hotel Waiters.jpg
They also serve who only stand and wait.
Michael Plutchok

     “Make it nice” says a sign in the kitchen, reminding employees that everything in the restaurant, from the placement of candles to the part in your hair, must seem perfect.  Captains, servers, and sommeliers know they are playing a part, and they do it with a touch of irony.  They project warmth while keeping emotional distance: the thrill of the con.  The guests want to believe that all is perfect, and the staff are trained to sustain the illusion.  A smudged glass, a fingerprint on a fork would shatter the illusion, must not be allowed to happen.  The guests eat ravenously, attempt sex in a restroom; one woman tries to leave her baby at the coat check counter, and grown men at the bar chant, “We are the one percent.” 

     When a regular has a stroke and topples to the floor, the staff are visibly shaken, but the manager quickly pushes a champagne cart in front of the body on the floor, hoping to hide it, and turns the music up.  Ten minutes later the paramedics arrive to cart the victim off, and the charade resumes. 
     Finally, after months of “make it nice,” the young captain felt empty and tired, and quit the job to become a graduate student at the New School for Social Research.  The superrich would have to do without his service, and he could certainly do without them.  They look best from a distance.

     It must mean something when the ultra rich get ribbed in advertising.  The New York Lottery has launched a humorous ad campaign showing richies wasting their money in oddball ways.  One TV commercial shows a man soaking in a bathtub of pinot noir; when his butler lets a bit of cork fall in the tub, he gets angry.  The viewer, suggests the ad, would make a much better rich person than this fool in a tub, and Lotto is the way to do it.  Advertisers know you can’t make fun of the poor, but today the wealthy are fair game.  So the Lottery satirizes the truly rich so as to encourage the not-so-rich to get a little less rich.

     The year 2015 has not been kind to the rich; their investments have  languished.  “I’ve failed to protect your capital,” one hedge fund manager, Larry Robbins of Glenview Capital Management, told his investors, acknowledging a 15% loss of their capital this year to date.  But this hasn’t kept him from buying the top four floors of the Charles condominium, a soaring 31-story glass box at 1355 First Avenue between 72nd and 73rd Streets; the price of his multi-storied penthouse, its huge floor-to-ceiling windows offering sweeping views of the Hudson and East Rivers, is $37.9 million, a record for that part of Manhattan.  In fairness to Mr. Robbins, it should be noted that the market has not been kind to most investors this year, though not all are down 15%.  And his purchase of a luxury penthouse, a mere pied-à-terre, since his primary residence is a sprawling mansion on a four-acre estate in Alpine, New Jersey, shows that the New York real estate market is still ablaze and booming.  On this happy note, I’ll end; the rich have worn me out.

CHAZ Yorkville Condos
The Charles.  Want to live there?  Sorry, the top four floors are taken.

     Paris:  A sign in a ground-floor window of a building on my street:  J’adore Paris.

     The book:  The second and final Goodreads giveaway for the collection of posts from this blog has ended; 598 people signed up, of whom one will receive a free copy.  Both a print version and an e-book are available online.  See Amazon, Barnes & Noble, etc.

No Place for Normal: New York / Stories from the Most Exciting City in the World

     Coming soon:  The inevitable and inescapable Donald Trump, who for better and for worse is New York to the bone, and then some. 

     ©  2015  Clifford Browder