With these people in mind, I decided to write The Weekend That Changed Wall Street in the hope that I could bring an insider’s perspective to what happened to those who were directly affected. In particular, those who work outside the financial industry are still demanding explanations. They’re confused by the complexity of the financial system, and they want to understand what really happened. Many people have written about the financial collapse, but I believe the position I’ve been fortunate to have allows me to speak as a true eyewitness, and to translate the complexities of the crisis for the average reader. In this book I will explore what happened behind closed doors and provide an intimate look at the personal stories of those involved—from the richest and most powerful to the average workers. Using my access to scores of the players (famous and not so famous), I will provide the inside story about what really happened during the weekend that changed the financial world I have covered for twenty years. I will show readers how each decision had a drastic impact on the financial system and the personal lives of those involved in it. In addition, throughout the book I will let the participants, observers, and people on the sidelines speak in their own voices—a running oral history of the crisis.
My goal here is to explain these extraordinary events in a way that ordinary people can understand—to ask and answer the questions on everybody’s mind. For instance:
How could the best and brightest in the financial services industry, with their huge compensation packages and ballyhooed brilliance, not see the meltdown coming? How did so many of these Masters of the Universe become minions of disaster overnight?
Is any company really too big to fail—and if so, should it be?
Should the government spend taxpayer dollars to bail out companies whose plights are—at least in part—the result of their own mismanagement?
Should plain vanilla banking be separated from the riskier securities business?
Are regulators, who dropped the ball and missed the crisis in the first place, now overreaching in their efforts to “fix” the system?
What have we learned, if anything, from the crisis? Has “business as usual” returned until the next blowup? Or has Wall Street changed?
In addressing these questions and telling the story of the biggest threat to prosperity since the Great Depression, I will invite you into my world—behind the curtain of capitalism. Knowledge is power, and my intention is to enable readers to get a better grasp of the market and a greater sense of control. It’s our country, and we all have a role to play in rebuilding America’s economy and making sure that our future is not jeopardized by risk-taking run wild and regulators asleep at the wheel.
PROLOGUE
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.
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 debt, without covenants.” 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,
