PORTFOLIO/PENGUIN
THE WEEKEND THAT CHANGED WALL STREET
Maria Bartiromo is anchor of CNBC’s Closing Bell (M–F, 3–5 p.m. ET), and anchor and managing editor of the nationally syndicated Wall Street Journal Report with Maria Bartiromo, the most watched financial news program in America.
In 1995, Bartiromo became the first journalist to report live from the floor of the New York Stock Exchange. She has covered Wall Street for more than twenty years. She joined CNBC in 1993 after five years as a producer, writer, and assignment editor with CNN Business News.
She has received numerous prestigious awards, including a 2008 News and Documentary Emmy for her coverage of the financial collapse. She received a second Emmy Award for her 2009 documentary, Inside The Mind of Google and was awarded a Gracie Award for a special report Greenspan: Power, Money & the American Dream.
In 2009, the Financial Times named her one of the “50 Faces That Shaped the Decade.” Bartiromo was inducted into the Cable Hall of Fame Class of 2011, the first journalist to be inducted. She was named a Young Global Leader by the World Economic Forum in 2005.
She is the author of several books, including The 10 Laws of Enduring Success and Use the News.
Bartiromo writes a monthly column for USA Today. She has written a column for BusinessWeek and Milano Finanza, as well as Individual Investor, Ticker, and Reader’s Digest magazines. She has been published in the Financial Times, Newsweek, Town & Country, Registered Rep, and the New York Post.
Bartiromo is a member of the Board of Trustees of New York University. She also serves on the board of the World Economic Forum’s Young Global Leaders. She is a member of the Council on Foreign Relations, the Economic Club of New York, and the Board of Governors of the Columbus Citizens Foundation.
Bartiromo graduated from New York University, where she studied journalism and economics. She served as an adjunct professor at NYU Stern School of Business for the fall 2010 semester.
Follow Maria on Twitter@mariabartiromo
Visit www.mariabartiromo.com
The Weekend
That Changed
Wall Street
And How the Fallout Is Still Impacting Our World
MARIA BARTIROMO
with Catherine Whitney
PORTFOLIO / PENGUIN
PORTFOLIO / PENGUIN
Published by the Penguin Group
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First published in the United States of America by Portfolio Penguin, a member of Penguin Group (USA) Inc. 2010
This paperback edition with a new epilogue published 2011
Copyright © Maria Bartiromo, 2010, 2011
All rights reserved
THE LIBRARY OF CONGRESS HAS CATALOGED THE HARDCOVER EDITION AS FOLLOWS:
Bartiromo, Maria.
The weekend that changed Wall Street : an eyewitness account / Maria Bartiromo, with Catherine Whitney.
p. cm.
Includes bibliographical references and index.
ISBN: 978-1-101-54741-0
1. Financial crises—United States—History—21st century. 2. Bank failures—United States—History—21st century. 3. Investment banking—United States—History—21st century. 4. Global Financial Crisis, 2008–2009. I. Whitney, Catherine. II. Title.
HB3722.B375 2010
330.973’0931—dc22 2010026892
Designed by Jaime Putorti
Title page image courtesy of istockphoto.com
Except in the United States of America, this book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, resold, hired out, or otherwise circulated without the publisher’s prior consent in any form of binding or cover other than that in which it is published and without a similar condition including this condition being imposed on the subsequent purchaser.
The scanning, uploading, and distribution of this book via the Internet or via any other means without the permission of the publisher is illegal and punishable by law. Please purchase only authorized electronic editions and do not participate in or encourage electronic piracy of copyrightable materials. Your support of the author’s rights is appreciated.
Dedicated to the next generation…
Emerging from colleges and business schools across America, to take your place in a system that is challenged but still great.
Learn from our mistakes, with wisdom,
creativity, humility, and integrity.
CONTENTS
INTRODUCTION
Eyewitness to the Crisis
PROLOGUE
Riding High Before the Fall
ONE
Nightmare on Liberty Street
TWO
The Bubble Machine
THREE
Zombies at Lehman
FOUR
Down to the Wire
FIVE
Death Sentence and Champagne
SIX
Fallout
SEVEN
Popcorn and Dominoes
EIGHT
The Aftershocks
NINE
A Greek Tragedy
TEN
Capitalism in the Balance
Epilogue
Acknowledgments
Notes
Index
INTRODUCTION
Eyewitness to the Crisis
Every weekday I broadcast my show Closing Bell from the floor of the New York Stock Exchange. The air inside the NYSE is electric. The pace can be frantic, especially as we approach the ringing of the closing bell at 4:00 p.m. As I watch the traders hunched over their terminals and listen to the dull roar of their voices in the background, I feel a sense of awe. I am standing at the apex of the world’s financial system. Everything that happens on the Big Board has consequences for billions of people, and I get to witness it all.
I realized long ago that what takes place at the NYSE is more about humans than about numbers. I know many people’s eyes glaze over when they think about the financial system. It feels so abstract and unwieldy. The jargon alone is difficult to master—puts and calls, market makers, derivatives. But in the aftermath of the collapse of Wall Street that occurred in September 2008, people did understand that the value of their homes declined precipitously, that their retirement plans bled money, that their jobs were less secure, that their retail customers had disappeared, that business and home loans were no longer available. They saw that because of the actions of some of America’s largest financial firms, their own lives were much less stable and their dreams were on hold.
With these people in mind, I decided to write The Weekend That Change
d 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, 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 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 poi
nt 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 party 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.
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