To understand how a billionaire private equity titan like Stephen Schwarzman can be so completely tone deaf—and policy ignorant—as to suggest that the idea of taxing Wall Street fat cats at the same rate as the rest of us is akin to the Nazi invasion of Poland, it’s instructive to follow him to lunch.
I met the deal world’s top dog midway through my first meal at America’s power commissary, Manhattan’s Four Seasons restaurant, where $53 Dover sole is served in two soaring dining rooms (the “grill room” and the “pool room”) connected by Pablo Picasso tapestries and Frank Stella paintings. En route to my noontime table, in prime bubble era, late 2006, I passed media power (Mel Karmazin, Edgar Bronfman Jr.), political power (Vernon Jordan, Michael Bloomberg) and Wall Street power (AIG’s Hank Greenberg, Citi’s Sandy Weill). But it was Blackstone’s Schwarzman, a near-daily regular, who acted like he owned the place, bounding from table to table, including mine, crowing about his ill-fated $39 billion bid for Equity Office Properties. I had entered his clubhouse, and by the look on his over-tanned face, which stood out against his salt-and-pepper comb-over, he clearly reveled in it.
Watch Randall Lane discuss Steve Schwarzman and the Decade of Greed on MSNBC’s Morning Joe
People who bunker themselves solely among the like-minded, who forget what it’s like to eat a hot dog or a take a bus or answer their own phone, lose perspective. It happens in Washington and corporate boardrooms and Hollywood all the time. Yet one would think that the cataclysmic events of the past two years would have knocked some reality into the heads of Wall Street’s elite.
Especially Steve Schwarzman, the poster child for greed in the decade I call The Zeroes. On Feb. 13, 2007, he gained infamy by throwing himself a $3 million 60th birthday party, transforming the giant Park Avenue Armory into a replica of his 35-room Park Avenue palace in the sky, down to the replica paintings, and buying himself serenades from Patti LaBelle and Rod Stewart. "Steve, you're more than a friend to me," joked emcee Martin Short, "you're a business associate." Even in an age of excess, giving a $3 million birthday party prompted a huge backlash, one that he has since tried to distance himself from. (The following year, as if in penance he announced a $100 million gift to the New York Library, though a fight broke out over how many times his name would be chiseled onto the main branch's facade.)
Yet when President Obama, in an age of soaring deficits and 9.5 percent unemployment, makes an eminently reasonable proposal—close the tax loophole known as “carried interest” that lets the people who inflated the asset bubble pay a 15 percent tax rate, versus the 35 percent rate paid by most reading this article—Schwarzman trotted out the specter of the Nazis.
“It’s a war,” Schwarzman told members of a nonprofit board, comments Newsweek revealed on Monday. “It’s like when Hitler invaded Poland in 1939.”
Besides flubbing history—if we’re using awful Nazi metaphors, Obama’s dogged push on the carried interest loophole wasn’t a Poland-style sneak attack, but more of a sustained siege, à la Leningrad—Schwarzman is wrong on policy. So wrong that, among a half-dozen private equity players and money managers I previously asked about this, equal numbers of Republicans and Democrats, not one, even with the cloak of anonymity, chose to defend why they are paying less than half the tax rate ordinary mortals do.
“Virtually everybody in the private equity community knows that they have been receiving a gift for as long as people can remember,” says one Schwarzman peer.
Yet the most important person at the most important deal shop in the world, with a net worth of $5 billion or so, felt it legitimate to invoke the Nazis. And even as he spent Tuesday “apologizing” for his “inappropriate analogy”, it was filled with a “however” that just reinforced his original point.
In other words, even after a $3 million birthday party and a Wall Street-fueled economic meltdown, Schwarzman still thinks the same way. And that’s scary.
At its core, the entire carried interest debate is about a mind-set. Those who defend it truly believe managing money is somehow more noble than what the rest of us do for a living—that their lower personal taxes are justified by the risks they take (with other people’s money) to create growth and jobs.
The past few years have taught the world the folly of that warped view. But the message hasn’t gotten to Schwarzman. Quite the opposite: He’s stumped up and down Capitol Hill, groveling for his tax rate superiority.
Schwarzman’s declaration of war brought me back to another encounter, which took place just four months after his birthday bash, as he and I both found ourselves at a party celebrating Qatar Airways’ new service to New York, held at Jazz at Lincoln Center.
The rich-and-anonymous and poor-and-connected were funneled straight into the receiving area, where bowls of caviar and Dom Perignon awaited. The famous entered via a red carpet on the left, set up for the benefit of the paparazzi. In came Donald and Melania Trump, Chloe Sevigny and Andie MacDowell, Julianne Moore and Maggie Gyllenhaal. And Steve Schwarzman, the sole Wall Street executive who opted for the red carpet.
Following the CEO’s droning speech, we got the payoff: a private concert by Diana Ross. While the vast majority were content to bob and sway, looking down from my table, directly above Schwarzman’s, I saw the private equity titan dancing frantically.
I remember thinking two things. First, 60-year-old white men should never dance alone at a public gathering—he was about as smooth as five-day stubble. Second, for all the public mea culpas about his over-the-top party, back among his element, nothing had changed. That was mid-2007. Now it’s mid-2010. And to Steve Schwarzman, the party is still going. That should worry all of us.
Randall Lane is editor at large at The Daily Beast. The former editor in chief of Trader Monthly, Dealmaker and P.O.V. magazines, and the former Washington bureau chief of Forbes, he is the author of The Zeroes: My Misadventures in the Decade Wall Street Went Insane.