Wall Street Trader Learns Some Taxing Lessons: Michael Lewis
By Michael Lewis
Sept. 12 (Bloomberg) -- Given the huge costs of me being off the trading desk in these tumultuous times, I assumed the first article I wrote for Bloomberg might be my last.
But a lot of people seemed to really appreciate an actual Wall Street hedge-fund manager being honest about the big lesson of the subprime crisis: that it's a mistake to lend money to poor people. And so I've agreed to share some more lessons I've learned from hard experience -- in this case from my recent, highly frustrating, dealings with the U.S. Congress.
Over the past few weeks I've wasted a lot of time trying to explain to senators who want to raise taxes on private-equity firms and hedge funds how much damage the government is doing -- not just to the global economy but also to the very idea of economic justice. I'm writing this in hopes of speaking directly to poor people (those whose assets don't meet the Securities and Exchange Commission minimum for hedge-fund investing). Maybe they can pass along my message to their elected representatives in their preferred language.
Here goes:
1) Democracy is due for an upgrade.
The glitch is this old-fashioned idea of one man, one vote. That might have worked back when the interests of really successful people (i.e., Henry, Steve, even the guys at Fortress) were roughly the same as those of the lunch-pail crowd. But America has created a new class of rich people who really deserve to be on top -- and a lot of angry people bent on pulling them down.
In a properly functioning economy these rich people should have a lot more political power than ordinary people. It's crazy that they have only the same measly vote as, say, one of the workers they might have to lay off in a restructuring. Giving workers this sort of equal time is counterproductive, especially for financial markets.
Think about it: The worker is going to do everything he can to screw up new deals. He's going to cling to his old job; he wants us all in the same rut. And there are a lot more people like him than there are like Steve or Henry (or even the guys at Fortress).
2) Most people -- even highly educated congressional staffers -- still don't get it: Private-equity deals create jobs.
By borrowing a lot of money to buy entire companies, and then cutting out fat to pay off the loans, private-equity firms give the people who work for those companies a chance to find something more productive to do with their lives. A glance in the employment statistics suggests that some large majority of these ordinary folks find work elsewhere. Those are new jobs!
3) A lot of people -- even U.S. senators -- seem to have gotten the idea that the behavior of the top guys in private equity and hedge funds is somehow ``excessive.''
The media is clearly to blame for this: I can't tell you how many times some pinhead congressional staffer brought up Steve Schwarzman's 60th birthday party. A guy rents the Seventh Regiment Armory, hangs a giant portrait of himself on the wall, invites 5,000 of his closest friends, and spends a few million bucks to bring in Rod Stewart to play and all of a sudden he doesn't deserve to eat what he kills?
This is the point I tried to make to the political people: It's really hard for someone of Steve's caliber to relax. It's no accident that he threw his party in an armory. As he told some reporter from the Wall Street Journal (big mistake, only talk to the editorial page): for him, each deal is life or death.
``I want war, not a series of skirmishes,'' he said. ``I didn't get to be successful by letting other people hurt Blackstone or me.'' I mean no disrespect to the generals in Iraq, but if they had Steve's warrior soul they wouldn't still be fighting Iraqis. They'd be buying and selling them.
Great men require great diversion from their great troubles. Even the giant oil painting of himself was totally necessary: Steve -- like a lot of us under 5 feet, 7 inches -- tends to lose himself in his work. He needs to be reminded that he actually exists. For one night the guy tries to stand tall, and Congress responds with a new tax on platform shoes.
This brings me to. . .
4) The working rich are already way too heavily taxed.
The truest arguments are often the ones that are hardest to make ordinary people understand, and this is the truest of them all. Rich people know how to invest extra money. Poor people just squander it on necessities. That's why capitalism works so well: it keeps money out of the hands of people who don't know how to use it and directs it to people who know how to make it grow.
This is why it makes no sense for rich people to give away their money. Warren Buffett had the right idea: keep piling up as much as possible until the very end -- and then give it to a guy even richer than you. But to judge from the media response hardly anyone understood what I think Warren was trying to say:
``IF YOU'RE HOPING FOR SOME RICH GUY TO GIVE YOU HIS MONEY, YOU BETTER GET YOUR ASS OFF THE SIDEWALK AND FIGURE OUT HOW TO MAKE EVEN MORE THAN HIM.''
5) Darwin was onto something.
One way to look at Wall Street is as evolution, speeded up. It's all about the survival of the fittest. Well, the fittest have been identified, and it's important, for the greater good, to help them to survive.
For some reason our democracy can't see that. It takes the opposite approach: The minute a guy makes his first hundred million, ordinary people and their elected representatives scheme to weaken him.
So what if forcing the top 25 hedge-fund managers to pay Medicare tax would cover the Medicare costs of more than 68,000 old people? Florida could stand to lose a few geezers. America can't afford to weaken even one of its most successful financiers.
Anyway, I'm not even sure it's possible to do it. Some of the private-equity guys have threatened to up and move to Dubai if they're forced to pay Medicare. And maybe they will. But I'll bet a lot of them will do what I plan to do: fight back.
Last year I took home $50 million in carried interest, give or take. I paid 15 percent in taxes. I was so upset that I went out this year and made $70 million. You do the math: you take away 7 1/2 I just go make 20 more.
Tax us all you want. You'll never catch up.
(Michael Lewis is the author, most recently of ``The Blind Side,'' and is a columnist for Bloomberg News. The views he expresses are his own.)
To contact the writer of this column: Michael Lewis at mlewis1@bloomberg.net .
Last Updated: September 12, 2007 00:01 EDT
Sept. 12 (Bloomberg) -- Given the huge costs of me being off the trading desk in these tumultuous times, I assumed the first article I wrote for Bloomberg might be my last.
But a lot of people seemed to really appreciate an actual Wall Street hedge-fund manager being honest about the big lesson of the subprime crisis: that it's a mistake to lend money to poor people. And so I've agreed to share some more lessons I've learned from hard experience -- in this case from my recent, highly frustrating, dealings with the U.S. Congress.
Over the past few weeks I've wasted a lot of time trying to explain to senators who want to raise taxes on private-equity firms and hedge funds how much damage the government is doing -- not just to the global economy but also to the very idea of economic justice. I'm writing this in hopes of speaking directly to poor people (those whose assets don't meet the Securities and Exchange Commission minimum for hedge-fund investing). Maybe they can pass along my message to their elected representatives in their preferred language.
Here goes:
1) Democracy is due for an upgrade.
The glitch is this old-fashioned idea of one man, one vote. That might have worked back when the interests of really successful people (i.e., Henry, Steve, even the guys at Fortress) were roughly the same as those of the lunch-pail crowd. But America has created a new class of rich people who really deserve to be on top -- and a lot of angry people bent on pulling them down.
In a properly functioning economy these rich people should have a lot more political power than ordinary people. It's crazy that they have only the same measly vote as, say, one of the workers they might have to lay off in a restructuring. Giving workers this sort of equal time is counterproductive, especially for financial markets.
Think about it: The worker is going to do everything he can to screw up new deals. He's going to cling to his old job; he wants us all in the same rut. And there are a lot more people like him than there are like Steve or Henry (or even the guys at Fortress).
2) Most people -- even highly educated congressional staffers -- still don't get it: Private-equity deals create jobs.
By borrowing a lot of money to buy entire companies, and then cutting out fat to pay off the loans, private-equity firms give the people who work for those companies a chance to find something more productive to do with their lives. A glance in the employment statistics suggests that some large majority of these ordinary folks find work elsewhere. Those are new jobs!
3) A lot of people -- even U.S. senators -- seem to have gotten the idea that the behavior of the top guys in private equity and hedge funds is somehow ``excessive.''
The media is clearly to blame for this: I can't tell you how many times some pinhead congressional staffer brought up Steve Schwarzman's 60th birthday party. A guy rents the Seventh Regiment Armory, hangs a giant portrait of himself on the wall, invites 5,000 of his closest friends, and spends a few million bucks to bring in Rod Stewart to play and all of a sudden he doesn't deserve to eat what he kills?
This is the point I tried to make to the political people: It's really hard for someone of Steve's caliber to relax. It's no accident that he threw his party in an armory. As he told some reporter from the Wall Street Journal (big mistake, only talk to the editorial page): for him, each deal is life or death.
``I want war, not a series of skirmishes,'' he said. ``I didn't get to be successful by letting other people hurt Blackstone or me.'' I mean no disrespect to the generals in Iraq, but if they had Steve's warrior soul they wouldn't still be fighting Iraqis. They'd be buying and selling them.
Great men require great diversion from their great troubles. Even the giant oil painting of himself was totally necessary: Steve -- like a lot of us under 5 feet, 7 inches -- tends to lose himself in his work. He needs to be reminded that he actually exists. For one night the guy tries to stand tall, and Congress responds with a new tax on platform shoes.
This brings me to. . .
4) The working rich are already way too heavily taxed.
The truest arguments are often the ones that are hardest to make ordinary people understand, and this is the truest of them all. Rich people know how to invest extra money. Poor people just squander it on necessities. That's why capitalism works so well: it keeps money out of the hands of people who don't know how to use it and directs it to people who know how to make it grow.
This is why it makes no sense for rich people to give away their money. Warren Buffett had the right idea: keep piling up as much as possible until the very end -- and then give it to a guy even richer than you. But to judge from the media response hardly anyone understood what I think Warren was trying to say:
``IF YOU'RE HOPING FOR SOME RICH GUY TO GIVE YOU HIS MONEY, YOU BETTER GET YOUR ASS OFF THE SIDEWALK AND FIGURE OUT HOW TO MAKE EVEN MORE THAN HIM.''
5) Darwin was onto something.
One way to look at Wall Street is as evolution, speeded up. It's all about the survival of the fittest. Well, the fittest have been identified, and it's important, for the greater good, to help them to survive.
For some reason our democracy can't see that. It takes the opposite approach: The minute a guy makes his first hundred million, ordinary people and their elected representatives scheme to weaken him.
So what if forcing the top 25 hedge-fund managers to pay Medicare tax would cover the Medicare costs of more than 68,000 old people? Florida could stand to lose a few geezers. America can't afford to weaken even one of its most successful financiers.
Anyway, I'm not even sure it's possible to do it. Some of the private-equity guys have threatened to up and move to Dubai if they're forced to pay Medicare. And maybe they will. But I'll bet a lot of them will do what I plan to do: fight back.
Last year I took home $50 million in carried interest, give or take. I paid 15 percent in taxes. I was so upset that I went out this year and made $70 million. You do the math: you take away 7 1/2 I just go make 20 more.
Tax us all you want. You'll never catch up.
(Michael Lewis is the author, most recently of ``The Blind Side,'' and is a columnist for Bloomberg News. The views he expresses are his own.)
To contact the writer of this column: Michael Lewis at mlewis1@bloomberg.net .
Last Updated: September 12, 2007 00:01 EDT