End of an Era on Wall Street: Goodbye to All That

[ErickMontreal]

End of an Era on Wall Street: Goodbye to All That

 

 

By TIM ARANGO and JULIE CRESWELL

Published: October 4, 2008

 

JUST before midnight 10 days ago, as a financial whirlwind tore through Wall Street, someone filched a 75-pound bronze bust of Harry Poulakakos from the vestibule of his landmark saloon on Hanover Square in Manhattan.

 

Harry Poulakakos at his restaurant, which has been part of the Wall Street culture now being transformed by the financial crisis. “If Wall Street is not active,” he warned, “nothing is active.”

 

Digging into a bowl of beef stroganoff the day after the bust disappeared — it was eventually returned anonymously — Mr. Poulakakos recalled some of the customers who had passed through his doors since he opened his bar, Harry’s, 36 years ago.

 

Ivan Boesky once had a Christmas party there. Michael Milken worked over at 60 Broad. Tom Wolfe immortalized the joint in “The Bonfire of the Vanities.” Mr. Poulakakos says he even got to know Henry M. Paulson Jr., the former Goldman Sachs chief executive and now the Treasury secretary.

 

Mr. Poulakakos, 70, has also seen his share of ups and downs on the Street, including the 1987 stock market crash, when Harry’s filled up at 4 p.m. and stayed open all night. But the upheaval he’s witnessing now — much of Wall Street evaporating in a swift and brutal reordering — is, he said, the worst in decades.

 

“I hope this is going to be over,” he said. “If Wall Street is not active, nothing is active.”

 

Mr. Poulakakos, rest assured, isn’t planning to disappear. But the cultural tableau and the social swirl that once surrounded Harry’s are certainly fading.

 

“It’s the beginning of the end of the era of infatuation with the free market,” said Steve Fraser, author of “Wall Street: America’s Dream Palace,” and a historian. “It’s the end of the era where Wall Street carries high degrees of power and prestige. And it’s the end of the era of conspicuous displays of wealth. We are entering a new chapter in our history.”

 

To be sure, living large and flaunting it are unlikely to exit the American stage, infused as they are in the country’s mojo. But with Congress having approved a $700 billion banking bailout, historians, economists and pundits are also busily debating the ways in which Wall Street’s demise will filter into the popular culture.

 

It’s an era that traces its roots back more than two decades, when suspendered titans first became fodder for books and movies. It’s an era when eager young traders wearing khakis and toting laptops became dot-com millionaires overnight. And it is an era that roared into hyperdrive during the credit boom of the last decade, when M.B.A.’s and mathematicians raked in millions by trading and betting on ever more exotic securities.

 

Over all, the past quarter-century has redefined the notion of wealth. In 1982, the first year of the Forbes 400 list, it took about $159 million in today’s dollars to make the list; this year, the minimum price of entry was $1.3 billion.

 

As finance jockeyed with technology as economic bellwethers, job hunters, fortune seekers and the news media hopped along for the ride. CNBC became must-see TV on trading floors and in hair salons, while people gobbled up stories about private yachts, pricey jets and lavish parties, each one bigger and grander than the last.

 

Finance made enormous and important strides in these years — new ways to parse risk, more opportunities for businesses and individuals to bankroll dreams — but for the average onlooker the industry seemed to be one endless party.

 

In 1989, tongues wagged when the 50th birthday celebration for the financier Saul Steinberg featured live models posing as Old Masters paintings. That bash was outdone last year, when Stephen A. Schwarzman, head of the private equity firm Blackstone, feted guests at a 60th birthday party boasting an estimated price tag of $5 million, video tributes and the singer Rod Stewart.

 

“The money was big in the ’80s, compared to the ’50s, ’60s and ’70s. Now it’s stunning,” said Oliver Stone, who directed the 1987 film “Wall Street” and is the son of a stockbroker. “I thought the ’80s would have been an end to a cycle. I thought there would be a bust. But that’s not what happened.”

 

Now, with jobs, fortunes and investment banks lost, a cultural linchpin seems to be slipping away.

 

“This feels very similar, historically, to 1929 and the emotions that filled the air in the months and years that followed the crash,” Mr. Fraser said. “There is a sense of extraordinary shock and astonishment, which is followed by a sense of rage, outrage and anger directed at the centers of finance.”

 

A WALL STREET hotshot was in a real-estate quandary, and he wanted Barbara Corcoran to help him sort things out.

 

“This is a finance guy making a ton of money and he was trying to decide whether he should sell the country home in Connecticut, the apartment here in the city or the 8,000-square-foot dream home in Oregon that he just finished,” recalled Ms. Corcoran, who has spent years selling high-end luxury properties to New York’s elite.

 

Daintily pulling the shell off a soft-boiled egg at a busy restaurant, she said she had fielded call after call from anxious Wall Streeters trying to decide between signing contracts on multimillion-dollar properties or renegotiating because of the downturn. (Renegotiate, she advises.)

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Mark Lennihan/Associated Press

 

Limos lined up at the Lehman Brothers headquarters, pre-bankruptcy.

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Carl T. Gossett/The New York Times

 

The New York Stock Exchange on New Year’s Eve, 1971, in the innocent days before the Gordon Gekko’s arrived, before the 1987 crash and before the credit crisis tarnished the second Gilded Age.

 

But this particular financier, whom Ms. Corcoran declined to identify, was interested in unloading property so he could time the absolute tippy-top of the real-estate market, not because his wallet had thinned.

 

“He decided to list the country home in Connecticut,” Ms. Corcoran said, shrugging as she bit into her egg.

 

If there has been one thing that has kept pace with the outsize personas on Wall Street, it’s the gigantic paychecks they’ve hauled in. Since the mid-1980s, top traders, bankers, hedge fund managers and private equity gurus have reeled in millions of dollars in rotten years and tens and hundreds of millions — a handful even making billions — while the good times rolled.

 

For instance, Steven A. Cohen, a high-profile hedge fund manager who leads SAC Capital Advisors, spent more than $14 million in 1998 for his 30-room mansion in Greenwich, Conn. Then he spiffed up the place with a basketball court, an indoor pool, an outdoor skating rink — with its own Zamboni — a movie theater and showpieces from the art collection on which he has spent hundreds of millions in recent years.

 

So it’s unlikely that hedge fund stars like Mr. Cohen are headed for the bread lines.

 

Two weeks ago, as Lehman Brothers filed for bankruptcy, Bank of America rescued Merrill Lynch, and regulators and bankers anxiously tried to figure out how to save the Street from itself, the world’s affluent plunked down more than $200 million in a two-day auction in London, snapping up the latest works by the British artist Damien Hirst.

 

Still, some will inevitably downsize.

 

“The yacht is probably the first thing to go,” said Jonathan Beckett, in a telephone interview from Monte Carlo as he attended the annual Monaco Yacht Show last month. Mr. Beckett, the chief executive of Burgess, a yacht broker, said that for the past eight years there have been few sellers in the market.

 

That is starting to change, said Mr. Beckett, who noted that a handful of yachts had been put up for sale, ranging in price from $10 million to $150 million.

 

Even party time has shortened.

 

“In the last couple of weeks, since the bottom fell out of the market, we’ve seen people become more reticent to sign commitments for some expensive venues,” said Joseph Todd St. Cyr, director of Joseph Todd Events, which plans weddings and bar and bat mitzvahs for clients whom he describes as nonshowy, sophisticated Park Avenue types.

 

“I had one client who was ready to book the Plaza for a wedding, but now he wants to know what are his other options and whether the Plaza will back down on its minimum spending requirement, which runs about $80,000 to $100,000 for a prime Saturday night date,” Mr. St. Cyr said.

 

“Bar and bat mitzvahs in this town had become a little bit of a show. There’s a little bit of outdoing the Joneses and the Cohens,” he added, noting that typical parties, if devoid of appearances by N.F.L. superstars or the Black Eyed Peas, range from $150,000 to $400,000.

 

Even though some clients may not have been hurt in the downturn, they simply don’t want to have an overly ostentatious party in this environment, he said.

 

SHOWY homes are also on the block.

 

Joseph M. Gregory, Lehman’s president and chief operating officer who was replaced in June, a couple of months before the firm filed for bankruptcy, listed his oceanfront, 2.5-acre, eight-bedroom Bridgehampton home for $32.5 million this summer.

 

Mr. Gregory could not be reached for comment.

 

While brokers say they have yet to see an avalanche of high-end sales, they do say that upheaval is present in the minds of buyers.

 

Once a hamlet for the moneyed old guard, Greenwich has found itself in recent years overrun by flashy hedge fund and private equity managers. But with the markets in flux, some high-end homes with price tags as high as $3 million to $8 million that sat unsold for six months or longer are now being offered as rentals, said Barbara Wells, a local Realtor.

 

“I had a rental on the market for $11,500 a month. On Monday, we got an offer for $8,500, which we countered with $9,500. They came back with $8,000,” she said. “I told them they were going the wrong way but they said, because of what was happening in the financial markets, this is our new offer. And guess what? The owner accepted it.”

 

Also shocking, she said, is the fact that some of the new homes offered for rent were houses built on spec.

 

In all likelihood, the real estate market could be frozen for the next 6 to 18 months or so as buyers and sellers struggle to reach agreement on prices, Ms. Corcoran said.

 

“The buyers have jumped to the sidelines and the sellers refuse to budge on their prices, completely in a state of disbelief that anything has changed,” she said.

 

Job losses and lower bonuses are likely to hurt sales of apartments in New York, particularly starter abodes like studios, one bedrooms and basic two bedrooms.

 

“The lowest-priced properties are always hit hardest first and recover last,” said Ms. Corcoran, who estimates that 20 to 25 percent of apartment buyers in the city work on Wall Street. “The rich have more wiggle room.”

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Neal Boenzi/The New York Times, top; Marilynn K. Yee/The New York Times

 

Michael R. Milken, top, in 1978, and Ivan F. Boesky, bottom, in 1987. The two men, both of whom went to prison, became symbols of Wall Street’s excesses.

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Janet Durrans for The New York Times

 

The Greenwich, Conn., mansion of Steven A. Cohen. After buying it in 1998, he added amenities befitting a hedge fund king, like an outdoor skating rink.

 

Despite the malaise, she says she sees some hope.

 

“This feels like 1987,” after the stock market crashed, she declared. “It’s not even close to ’73 or ’74, when people used to feel sorry for you if you told them you lived in New York City.”

 

That said, Ms. Corcoran said that data she once compiled showed that apartment prices in New York had peaked in 1988, one year after the ’87 crash, and taken 11 years to recover.

 

Of course, there’s another much-watched barometer of Wall Street buoyancy: traffic at some of the city’s high-end strip clubs.

 

During the heyday of the Wall Street boom in the 1990s, Lincoln Town Cars, Rolls-Royces and Bentleys were often found idling outside places like Scores. Inside, according to people who were present at the time, groups of brokers routinely dropped $50,000 and even $100,000 in a single night.

 

In the “presidential suite” at Scores, with its own wine steward who delivered $3,200 bottles of Champagne, the tabs grew quickly.

 

While dancers may not receive gifts like the ones once lavished upon them — say, a $10,000 line of credit at Bloomingdale’s or a pair of $125,000 earrings — the clubs still appear to be filled with brokers, bankers and foreign businessmen.

 

On a recent night at Rick’s Cabaret in New York, men in suits and ties were in full force. At around 10 p.m. — early for a strip club — 10 of the club’s 11 private rooms on the second floor were booked.

 

“Men will never grow tired of the high-class strip-club experience,” said Lonnie Hanover, a spokesman for Rick’s Cabaret International in New York. Rick’s, which is publicly traded on the Nasdaq and has 19 clubs across the country, even plans to expand.

 

“When times are tough, there is no better form of escapism than a night at a gentlemen’s club,” he added.

 

IN the early 1980s, Mr. Stone (who gave the world Gordon Gekko and the “Greed is good” mantra in “Wall Street”) spent time in Miami doing research for his movie “Scarface” (with its cocaine-snorting gangster Tony Montana).

 

When he returned to New York he noticed a shift in the city’s culture of high finance, a world he was familiar with from his childhood. While Wall Streeters weren’t packing guns, other similarities startled him. “What shocked me was I met all these guys who at a young age were making millions and they were acting like these guys in Miami,” Mr. Stone recalled. “There’s not much difference between Gordon Gekko and Tony Montana.”

 

“Money was worshiped and continues to be worshiped,” Mr. Stone added. “Maybe that will change now.”

 

Adoration of riches is hardly new, however. In the mid- to late 19th century, the Gilded Age — a term Mark Twain coined in 1873 — offered equally ostentatious displays of wealth and a broadening gulf between rich and poor.

 

“In the Gilded Age, they built great, enormous palazzos in Newport that they lived in for six weeks a year,” said the historian John Steele Gordon, whose book, “An Empire of Wealth,” chronicles that era. “During the last 25 years, it’s certainly been a gilded age in the sense that enormous fortunes have been built up in an unprecedented way.”

 

Part of Wall Street’s allure for the young and ambitious was that anyone — regardless of education or breeding — could hit it big and live like a kingpin.

 

Consider, for instance, Jordan Belfort.

 

In 1987, Mr. Belfort, then a down-on-his-luck former meat-and-seafood distributor, was standing outside an apartment building in Bayside, Queens, when a childhood acquaintance who worked on Wall Street pulled up in a Ferrari.

 

“This was a guy who you never would have expected would be making this kind of money,” Mr. Belfort recalled in a recent telephone interview. “I was broke, broke, broke, down to my last $100.”

 

Mr. Belfort hit the Street in the late 1980s, and he recounted his adventure last year in a book called “The Wolf of Wall Street,” which he published after serving almost two years in prison for securities fraud and stock manipulation. He recently finished a second installment, “Catching the Wolf of Wall Street,” to be released in February.

 

When he first struck it rich, he followed a well-trodden path for Wall Street upstarts.

 

“First thing I did was go out and buy a Jaguar,” he said. “Step One is you get the car. Step Two, you get a great watch. Then great restaurants, and then maybe a place in the Hamptons — a summer share with another broker.”

 

Whatever the Street’s excesses, it did offer individuals and institutions reliable, sophisticated and often efficient ways to trade and invest, helping to spread some of the wealth.

 

Markets were democratized as individuals who had never before bought a stock or bond dabbled in investing, even if that meant simply plunking down money in a mutual fund, or participating in their company 401(k) plans.

 

New technologies and the ability to trade stocks cheaply opened the financial doors to more people. As home prices rose, meanwhile, homeowners were enticed to tap into their new wealth through home equity loans and then used that money to pay for their own version of a lavish lifestyle.

 

DESPITE these gains in the middle class, though, the truly wealthy have pulled away from the pack. Not since the late 1920s, just before the 1929 market crash, has there been such a concentration of income among individuals and families in very upper reaches of the income spectrum, according to researchers at the University of California, Berkeley, and the Paris School of Economics.

 

Some say that anger over the yawning wealth divide found traction in the highly charged and polarizing debate in Congress over the bailout bill.

 

Mr. Fraser, the historian, says that anger is informed by the de-industrialization of the American economy in recent decades. Factory closings and the loss of manufacturing jobs that paid decent, middle-class wages coincided with the heady expansion of the financial sector, where compensation soared.

 

“That means that people in Ohio and Pennsylvania have not been living as high on the hog as those on Wall Street,” Mr. Fraser said. “There’s a real sense of anger at that unfairness.”

 

Even if the current crisis leads to a prolonged slowdown, people may still flock to finance jobs. But they may have to recalibrate their expectations.

 

“There’s no question that people on Wall Street are going to make less money,” said Jonathan A. Knee, a Columbia Business School professor and author of “The Accidental Investment Banker.”

 

Like any cultural force concerned about its legacy, the financial world has a custodian of its past. On Wall Street, it can be found at the Museum of American Financial History, just a block from the New York Stock Exchange.

 

Located in a grand space once occupied by the Bank of New York, it features a long timeline charting major market events. The last event it notes is the popping of the dot-com bubble earlier this decade.

 

Robert E. Wright, a financial historian at New York University who is a curator of the museum, said that there were still many unknowns about how recent events would be recalled.

 

“If the economic system shuts down and we go in for a deep recession, it probably is the end of an era,” he said.

 

Hedging its bets, the museum has already started collecting mementos from the current crisis to post on its wall.

[Habsfan]

Excellent article. C'est vraiment malade ce qu'ils ont fait aux USA!

[cjb]

tout à fait d'accord, très bon article.

 

Par contre, c'est la fin de cette bulle, attendons de voir la prochaine

[dwayne89]

I bet Micheal Stipe is somewhere singing, "It's the end of the world as we know it":D

[cjb]

Prochaines bulles potentielles:

-Énergies 'vertes' (éolien, solaire, etc.)

en ce moment des dizaines de milliards sont investis à l'échelle mondiale dans des projets dont la rentabilité n'est pas garantie. Près de chez nous, une usine de 1,5 milliards de dollars de panneaux solaires en construction à bécancour.

 

-Produits de réassurance 'toxiques' : L'industrie de la réassurance, dont le but est de protéger les cies d'assurance classiques, se lancent elles aussi de plus en plus dans la tritisation ( revente des produits, un peu comme les papiers commerciaux ou les Morgage Backed securities qui viennent de planter).

 

Ces produits sont vendus sans aucune réglementation, sur des marchés hors-cote à l'abri des regards gouvernementaux.

 

Des centaines de milliards y sont en jeu. Les rendements sont intéressants pour l'instant, plein de caisses de retraite en achètent, mais supposons une année très mauvaise, plein d'ouragans, des tsunamis, des tornades, une épidémie, des tremblements de terre etc.

Ou encore Swiss Re fait faillite.

 

Et voilà vous avez une nouvelle bulle encore plus grosse qui vous éclate dans la face. Faillites nombreuses de compagnies de réassurance et par ricochet de compagnies d'assurance standard.

 

 

-Une dévaluation massive du dollar américain, de plus en plus probable. Au rythme où ils impriment l'argent actuellement, ils vont faire atteindre de nouveaux creux au billet vert. Le 'sauvetage' de leur système bancaire se finance par emprunts.

Conséquences: des pays comme le Japon où la Chine vont y perdre des centaines de milliards dans leurs placements en bons du trésor. Diminution drastique des exportations du Canada, de la Chine, du Japon, etc.

Une nouvelle inflation des produits de base comme le pétrole.

Ralentissement massif de l'économie mondiale. Là on pourrait parler d'une vraie grosse récession !

 

 

D'autres bulles qui ont pété dont on a moins entendu parler: les pays émergents. Une très grosse déception de ce côté pour de nombreux gestionnaires qui avaient fait le pari d'un découplage de ces économies.

[Habsfan]

Je me demande si cette crise va vraiment réduire l'importance de l'économie Américaine à travers le monde. C'est fou ce que les follies d'UN seul pays peut faire au restant de la planète. Un vrai effet domino!

[ericairlines]

En toute impunité ,on les récompense mème !! des centaines de milliards !! aucune morale...ça peut pas durer