Friday, June 22, 2007
This Peacock Should Go The Way Of The Dodo
Here is an amusing article from Slate about the new "King of Wall Street", private equity magnate Stephen Schwarzman. Schwarzman just brought his company, The Blackstone Group, public and expects to make $7.5 billion from the IPO. Here are a couple of things about private equity partnerships that you should know. One, the word "private" in private equity says it all. According to Slate, "private-equity moguls have been publicity shy, and wisely so. The fees and returns earned by [such] outfits... are closely guarded secrets. Holding cards close to the vest has been a key to avoiding regulation and scrutiny by legislators." In other words, such companies have the wherewithal to circumvent disclosure rules mandated by Sarbanes-Oxley and the SEC. Two, according to "an absurd wrinkle in the tax code," the earnings of private equity partnerships are "taxed not at the 35 percent corporate income-tax rate, but at the 15 percent long-term capital-gains rate, allowing Blackstone to save tens of millions of dollars annually on its tax bill." You would think Schwarzman would thank his lucky stars, but no. Like all these guys, he wants to be a star instead. A supernova, in fact.
Schwarzman recently celebrated his 60th birthday at a cost of millions. For entertainment, he hired "Martin Short, Rod Stewart, Marvin Hamlisch, and Patti LaBelle leading the Abyssinian Baptist Church choir singing... 'a tune about Mr. Schwarzman'." To celebrate himself even more directly, he carted in a "huge portrait" of himself for the occasion. Even when he's not celebrating the sacred event of his birthday, he lives like a king, often spending $3,000 each weekend on food at his 11,000 square foot Palm Beach mansion, "including stone crabs that cost $400, or $40 per claw." What strikes Slate as most expressive of his hubris is not that he lives like this, but that he lets everyone know that he lives like this. Nor, at the pinnacle of his success, does he feel any need to embrace philanthropy as a way of "giving back" - instead he wants to, ahem, "serve" by aggrandizing himself still further, as the Treasury Secretary perhaps, or as something else equally grand.
The Slate article compares this ungracious winner to "an NBA player who, having gone the length of a court for a slam-dunk with the game already put away, starts trash-talking, jumps atop the scorers' table, gestures obscenely at opposing fans, pinches a cheerleader, chest-bumps the referee, sticks his tongue out at the camera, all while grabbing his crotch and yelling loudly that he's the man."
Schwarzman's days of impunity may be coming to an end. Legislation has recently been introduced in Congress to ensure that publicly held private equity companies will be taxed at the corporate rate of 35 percent, rather than at the capital gains rate of 15 percent. In Congress, they've already taken to calling it "Blackstone's law".
"The Golden Ass" from Slate