Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else (40 page)

Like so many of today’s working rich, Griffin, who was a billionaire before his fortieth birthday, thinks of himself as a self-made man: “I started my career with myself, two employees, and a one-room office. Nothing was given to me per se, except for a great education—my college degree [at Harvard]—and a country that allows somebody to just go for it.” Griffin is proud his firm, like all hedge funds, didn’t need government money to survive the crisis, and he doesn’t see himself as a beneficiary of the bailout that rescued the financial sector more broadly.

One day in November 2011, Dennis Gartman, a former commodities analyst and foreign exchange and bond trader, devoted his daily investment note to a rousing defense of the 1 percent:

We celebrate income disparity and we applaud the growing margins between the bottom 20 percent of American society and the upper 20 percent for it is evidence of what has made America a great country. It is the chance to have a huge income . . . to make something of one’s self; to begin a business and become a millionaire legally and on one’s own that separates the U.S. from most other nations of the world. Do we feel bad for the growing gap between the rich and the poor in the U.S.? Of course not; we celebrate it, for we were poor once and we are reasonably wealthy now. We did it on our own, by the sheer dint of will, tenacity, street smarts and the like. That is why immigrants come to the U.S.: to join the disparate income earners at the upper levels of society and to leave poverty behind. Income inequality? Give us a break. God bless income disparity and those who have succeeded, and shame upon the OWS crowd who take us to task for our success and wallow in their own failure. Income disparity? Feh! What we despise is government that imposes rules that prohibit or make it difficult to make even more money; to employ even more people; to give even more sums to the charities of our choice.

Much of this pique stems from simple self-interest. In addition to the proposed tax hikes, the financial reforms that Obama signed into law in the summer of 2010 have made regulations on American finance more stringent. But, the rage in the C-suites is driven not merely by greed but by an affront to the plutocrats’ amour propre, a wounded incredulity that anyone could think of them as villains rather than heroes. Aren’t they, after all, the ones whose financial and technological innovations represent the future of the American economy? Aren’t they doing, as Lloyd Blankfein quipped, “God’s work”?

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You might say that the American plutocracy is experiencing its John Galt moment. Libertarians (and run-of-the-mill high school nerds) will recall that Galt is the plutocratic hero of Ayn Rand’s 1957 novel,
Atlas Shrugged
. Tired of being dragged down by the parasitic, envious, and less talented lower classes, Galt and his fellow capitalists revolt, retreating to “Galt’s Gulch,” a refuge in the Rocky Mountains. There, they pass their days in secluded splendor, while the rest of the world, bereft of their genius and hard work, collapses.

That was, of course, a fiction, and one with as much bodice ripping as economics. But versions of Galt’s Gulch are starting to show up in more sober venues. James Duggan, a founding principal of a Chicago firm of tax and estate planning lawyers, believes “wealth is fleeing the country.” Some of the self-exiled rich are, Mr. Duggan argues, “conscientious objectors”: “There are those who are simply going offshore to make a statement. Their level of discontent with the current circumstances in our country, coupled with attacks on the wealthy, has created a distinct sense of rebellion among many wealthy citizens. While they may love the country, they are objecting to the current trends and responding by moving themselves or their assets, or both, away from the cause of the problem.”

On December 8, 2011, two days after Barack Obama made income inequality the theme of a speech in Osawatomie, Kansas, Ed Yardeni, an economist and investment adviser, devoted his influential daily post to a 1 percent fantasy of extraterrestrial immigration: “We may need an escape plan if Europe blows up and if President Barack Obama spends the next eleven months campaigning rather than presiding. Just in the nick of time, NASA yesterday announced that its Kepler space telescope has found a new planet, Kepler-22b. It is the most Earth-like yet. . . . Those of us who favor fiscal discipline, small governments and low taxes might consider moving there and starting over.”

Meanwhile, a few modern-day plutocrats are actually trying to build a real Galt’s Gulch here on earth. This is the project of the Seasteading Institute, which is hoping to construct man-made islands in the international waters of the ocean, beyond the legal reach of any national government. These oases, where the rich would be free to prosper unrestrained by the grasping of the 99 percent, are the brainchild of Milton Friedman’s grandson and are being funded in part by Silicon Valley billionaire and libertarian Peter Thiel.

Not all plutocrats want to escape to a Seastead. Paul Martin and Ernesto Zedillo are members in good standing of the global elite. Martin is a former Canadian prime minister, finance minister, deficit hawk, and, in his life before politics, a multimillionaire businessman. Zedillo is a former Mexican president, holds a doctorate in economics, directs Yale University’s Center for the Study of Globalization, and serves on the boards of the blue chips Procter & Gamble and Alcoa. Yet when I interviewed the two of them in a wide-ranging public conversation in Waterloo, Canada, they sounded an awful lot like the kids camped out in Zuccotti Park.

“I have yet to talk to anybody who doesn’t say that they aren’t reflecting a disquiet that they themselves feel,” Martin said. “I think really the powerful thing is that Occupy Wall Street has hit a chord that really is touching the middle class—the middle class in Canada, the middle class in the United States, the middle class right around the world—and I think that makes it actually very, very powerful.”

Zedillo thought OWS should widen its sights: “I could argue as an economist it’s not only about Wall Street. They should have an Occupy G20.”

Martin and Zedillo would be welcome at any corporate dining room on Wall Street, or at any financier’s dinner party on the Upper East Side, but it was striking how strongly their views of Occupy Wall Street differed from the conventional wisdom among American business elites, especially financiers.

That dissonance was not lost on Martin. He started out diplomatically—“I think that most people have basically given them [the protesters] a fair amount of credit”—but then couldn’t resist, adding, “I don’t want to pick on U.S. bankers, but the reaction, the one that really got me, was the banker who basically said, ‘You know, these are just a bunch of welfare bums. What we’ve got to do is cut welfare.’ A New York banker saying we’ve got to cut welfare is staggering to me. Why doesn’t he just look in the mirror? I think that actually what’s happened is that the inability of some people to defend their position has become so manifest that it’s actually added to the power of Occupy Wall Street.”

Some plutocrats are worried about the eventual political consequences of the intellectual divide between their class and everyone else. Mohamed El-Erian, the Pimco CEO, is a model member of the super-elite. But he is also a man whose father grew up in rural Egypt, and he has studied nations where the gaps between the rich and the poor have had violent resolutions. “For successful people to say the nasty end of the income distribution doesn’t apply to me is shortsighted,” he told me. “I don’t know how you opt out of the world economy, but some people think we should try to do that. And in some unequal societies, confiscation can become a policy tool.”

El-Erian told me that in June 2010. In the fall of 2011, after the launch of the Occupy Wall Street movement, he went further. “No nation can tolerate for long excessive shifts in income and wealth inequalities as they tear at the fabric of society,” he wrote to me in an e-mail. “Think of this simple analogy—that of an increasingly fancy house in a poor and deteriorating neighborhood. The well-being of the house cannot be divorced from that of the neighborhood as a whole.”

El-Erian worried that his fellow plutocrats weren’t paying enough attention to the foreclosures down the block, though: “Some elites live astonishingly sheltered lives.”

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Mark Carney is not most people’s idea of a radical. In Ottawa, where he has lived for the past eight years, the trim forty-seven-year-old is known as an uxorious husband and hands-on dad to his four daughters. The Canadian capital is hardly a party town, but even there he has a reputation as a homebody for whom an exciting night out is a school concert. At Harvard, he played hockey (he is Canadian, after all), but he never rose beyond backup goalie. He spent more time in the library than on ice, earning a magna in economics. At Oxford, where he got his PhD, this son of a high school principal and a schoolteacher is remembered by his classmates for his studiousness: Carney always sat in the front row at lectures many of the other students didn’t even bother to attend. From there, he went to Goldman Sachs, spending thirteen years at the firm’s offices in London and New York and Toronto. When Carney decided to go home, his first job was as a highly competent but self-effacing civil servant in the Bank of Canada before joining the finance ministry in 2004. And today, as governor of the Bank of Canada, he devotes most of his time to pondering such wonkish matters as how to measure global liquidity and the need for countercyclical regulation.

But in the fall of 2011, Carney became a protagonist in a central battle between the plutocracy and the rest of us—a crucial fight over the regulatory power of the state. The showdown took place on a Friday afternoon in September in Washington, D.C. It was the weekend of the biannual meeting of the IMF and World Bank, a gathering of the world’s central bankers and finance ministers that takes place in the U.S. capital every fall and spring. The meetings have been on the calendar since these Bretton Woods institutions were first formed, and gradually a number of private sector conclaves have come to be held on their fringes.

In 2011, one of those fringe meetings was organized by the Financial Services Forum, a bankers’ association. Its chairman, Goldman Sachs chief Lloyd Blankfein, invited Carney to address the group of about thirty bankers. They were particularly interested to talk to the Canadian not only because of his strong performance in the financial crisis—Canada was the only G7 country that didn’t need to bail out its banks—but also because Carney was tipped to become the next head of the Financial Stability Board, a body of international regulators that comes closest to being the world’s banking boss. The FSB’s big job at the moment is refining and implementing new international bank capital rules. These regulations, known as Basel III, have taken on particular importance because a lack of capital in many U.S. and European banks was a central cause of the 2008 financial meltdown.

Meetings of bankers are generally pretty dry affairs, and relatively large international gatherings of this sort, whose participants don’t know one another well, are usually even more decorous. But this particular conversation soon heated up.

Jamie Dimon, CEO of JPMorgan Chase, told Carney he thought the proposed Basel III rules were “cockamamie nonsense.” In fact, the bank chief said, the rules ran counter to the national interest. “I have called it anti-American,” Dimon said, according to one participant. “The only reason I am calling it anti-American is because I am American. I also think it’s anti-European.”

Another participant remembered Dimon’s remarks slightly differently. In his recollection, Dimon insisted that Carney’s view was “anti-American,” a phrase Dimon had floated in a newspaper interview a few weeks earlier and which, he allegedly told the Washington group, had resonated with a lot of people, “so I’m going to keep on using it.” At a time when multinationals, including JPMorgan, which earns around a quarter of its revenue outside North America, are increasingly global concerns, explicitly determined to go wherever the money is, it is noteworthy, to put it kindly, to hear a bank boss depict himself as a beleaguered national champion.

At first, Carney responded calmly: “I hear what you are saying. I don’t think it will surprise you that I am taking a different view. These are reasonable responses to the financial crisis.”

As Dimon’s tirade continued, his fellow bankers nervously tried to lower the temperature. Rick Waugh, the CEO of Scotiabank and a Canadian who has had his own disagreements with Carney, tried to intervene in their increasingly heated exchange.

But Dimon was unstoppable and soon Carney got mad. Visibly angry, the Canadian central banker abruptly left the room.

The other bankers, including Blankfein and Josef Ackermann, then the CEO of Deutsche Bank, looked uncomfortable, though it was Dimon’s tone, not his message, that concerned them. Ackermann tried to smooth things over by saying that Carney had left because of a tight schedule. (This was untrue: Carney was late for a press conference.)

After the meeting Blankfein sent Carney—remember, he is a Goldman alumnus—an e-mail to patch things up. Dimon, who stands by the substance of his remarks, realized the tone and forum had been inappropriate, and phoned Carney on Saturday to apologize. He didn’t reach him. Dimon called again when Carney was back home in Ottawa on Monday. This time they spoke and, according to a JPMorgan executive, Dimon said he was sorry. “Jamie knew he messed up,” the executive said. “It wasn’t the right place and it wasn’t the right tone.” He told the Canadian he had the utmost respect for him and thought the world of him.