Confidence Men Part 25

"I have $3 trillion in a.s.sets, and my job is to protect the capital markets . . . just do the right thing. I'm not here to suggest that I have all the right opinions, but my motives are pure. I have no personal conflict with the broader good."

That kept BlackRock clear of the conflict-of-interest problems that were currently the subject of congressional hearings for a Goldman or a JPMorgan. Fink had no "Chinese walls" to keep proprietary information straight in his head. He was still in the basic game: investing other people's money in publicly traded securities to get a good return.

Not that booking strong performance had been, or would be, easy. With nearly $4 trillion to move, BlackRock-a bit like Fidelity's giant Magellan Fund in the 1980s-had to beat the market, even as its size had grown to all but span the market. Fink and BlackRock had fought this "as the market goes, so goes BlackRock" problem with what they claimed, to general acknowledgment, was the best a.n.a.lytics in the investing world. BlackRock's specialty, not surprisingly these days, was debt, especially mortgage debt; Fink had been working this terrain longer than almost anyone else. He had the distinction of having invented, along with Lew Ranieri, the basic concepts of securitization, and key early forms of mortgage-backed securities-specifically, collateralized mortgage obligations, a progenitor of CDOs. This meant that, in terms of interpreting mortgage data, with a special focus on repayment and default rates-all that affects those two key actions-BlackRock Solutions, the firm's a.n.a.lytical arm, was an industry leader.

Which was the prime reason Fink was so often on the phone to the Treasury Department from 2008 onward, and why, over the past few years, he had been handed nearly $9 trillion in troubled mortgage a.s.sets to manage on behalf of the U.S. government. More than half of those troubled a.s.sets were hauls from Fannie and Freddie-$5.5 trillion-along with a lion's share of the government-a.s.sumed detritus of Lehman and AIG. Again, his was a fee-based business, and for this management task BlackRock received about $300 million in fees a year. The reward was also an unmatched, data-driven perspective into the abyss of "the country's nationalized mortgage industry," Fink said, "which, of course, is a f.u.c.king mess and needs to be turned back to the private sector."

He had expressed this and related points of view to Geithner and others at Treasury in phone calls every few months for several years. "Geithner just listens-doesn't say much," Fink reported, but what worried Fink more, with each pa.s.sing month, was how "they're just playing a game of Kick the Can."

All this means he knows too much-much too much-about how the fortunes of the government, and the wider economy, are tied to the still-unwinding mortgage debacle.

So, while in one office tower Fleming was thinking about finding ways to challenge the dominance of fixed-income trading and "get the investment houses back in the business of investing in America," Fink, across town, was singing a similar song, that "banks should be in the business of lending, and that will never happen unless the government stops coddling them."

That is more or less what Larry Fink was saying alongside the stage of an investment conference at a New York hotel in late May, as he waited for the crowd, about three hundred equity a.n.a.lysts, to get settled. The conference was sponsored by CLSA, a brokerage, investment, banking, and a.s.set-management firm that is an emblem of how meaningless borders have become: it's based in Hong Kong, specializes in how various investment sectors, such as transportation and clean energy, are expressed in the Asia-Pacific region, and is co-owner of Credit Agricole, France's largest retail banking group.

CSLA is also known for its investors' conferences: quiet, nonpublic affairs-no reporters allowed-where invited a.n.a.lysts pay dearly to get the insider views from star-studded guests, market makers, and movers in both government and business. Today's rundown included David Rubenstein, the CEO of the Carlyle Group, the powerful Washington-based investment bank and home of former senior government officials; Jon Corzine, the former Goldman chief and New Jersey senator, just a few months past losing his New Jersey governor's seat to a Republican, Chris Christie; Rodgin Cohen, of Sullivan & Cromwell; and Walt Lukken, Gensler's predecessor as head of CFTC, who now ran a large clearinghouse for derivatives that would be extremely profitable if some reforms that Gensler was pushing-the kind of reforms that Lukken long opposed-became law. It's no wonder the conference was oversubscribed: while investing in America is pa.s.se-returns are much better overseas-antic.i.p.ating U.S. regulatory moves and trading accordingly is one of America's signature growth industries. Goldman and JPMorgan made tens of billions buying up distressed mortgage securities by knowing, just a little ahead of everyone else, that the Fed's policy of purchasing mortgage securities to keep a.s.set values from tanking-a program started just after the September 2008 crash and now amounting to $1.2 trillion-would lift all boats marked "mortgage credit." It's not a complicated play: you need a lot of free capital and just a little advance warning. The latter is almost thoughtlessly granted to firms who help the government think through "market-oriented" solutions to this sort of problem. They're arbiters-part of an unofficial tribunal of government and select businesses-who make consequential decisions . . . and get first position on an arbitrage as others hustle to fill the gap between what an insider knows and what the wider world is fast finding out.

Fink, along with Blankfein's team from Goldman and Dimon's from JPMorgan, was part of that select group. Larry advised Paulson, Bernanke, and Geithner to buy up the toxic a.s.sets directly from the banks, creating some sort of "resolution/reconstruction" bank to hold, handle, and work them out, rather than hand billions directly to the CEOs. He was outgunned by other voices. But Fink knew that dance: for years he'd seen the many ways banks and investment firms avoided hard actions in their long-term interest-such as disposing of toxic real estate, taking heavy losses, and then moving on-in favor of "wait and see" models that allowed earnings to remain solid, quarter to quarter, while they waited for the market to rebound before working on their toxic a.s.set problem in the flooded bas.e.m.e.nt.

But once the government hands over the money, it is entering into a kind of quiet partnership with the bank's management-almost like an investor, but one who is eager to show that his investment, a vote of confidence in existing management, is sound and not sour, and not demanding another investment of good money after bad.

It's that partnership-and the way banks were hauling in trading profits while letting their troubled real estate portfolios languish-that had been driving him buggy. In several interviews through the winter, he'd done something that he knew was imprudent: talk publicly about the way the government, in the wake of the financial crisis, had written rules to protect the second liens, second mortgages, home equity lines, and the like. These amounted to $450 billion, of which 90 percent were on the books of the top five banks. This reversed the traditional lineup of debt, where a first mortgage was, of course, first: "senior" to all others, and secured by the property. If it defaulted, or got restructured, the secondary liens were often wiped out. The protection of the secondary liens, as a way to protect the big banks, ended up standing in the way of the many large holders of first mortgages, including a significant number of small and midsize banks, keeping them from restructuring first loans that were in default, in some cases for years. For those banks, payments on many defaulted loans might resume, albeit at a reduced level, and a larger share of the four million Americans who were in foreclosure proceedings might eventually be able to stay in their homes.

Before Fink stepped up to the lectern, as friends from various financial houses crowded around, he offered up a prize, a vindication on the matter from none other than John Dugan, the U.S. comptroller of the currency. Fink recounted how, while sitting next to Dugan at a recent meeting of the Bank for International Settlements, he grilled him on "the backdoor bailout of the banks of $450 billion-almost as much as has gone out the door in TARP!" Dugan agreed, Fink said, "but said his office had done an a.n.a.lysis and put the number at closer to $200 billion."

Of course, few people breathing have more credibility a.s.sessing the value of a toxic mortgage security than the product's inventor, Fink-"I'd like to see Dugan's model on how much a lien on a mortgage is worth!"-which was why he was the star today, even among the august list of speakers.

And there was concern around the room that he might speak too-justified concern. At the end of April, the Fed had ended "quant.i.tative easing," a program, started in the fall of 2008, in which the Fed bought Treasury bonds and mortgage-backed securities from banks to inject liquidity into the economy and promote growth. The cash that banks got from these Fed purchases-now totaling a whopping $1.7 trillion-became excess reserves, which should have allowed banks to engage in more lending. The Fed purchasing caused mortgage rates to fall and yields on Treasuries to hit a record low, but bank lending remained sluggish. It gave no one much confidence that the j.a.panese had attempted a similar quant.i.tative easing program in the late 1980s and early '90s, when its interest rates were near zero-as in the United States currently-and there were fears of deflation. It was a large continuing effort, but it didn't do much beyond drain the j.a.panese treasury and saddle their central bank with toxic real estate of declining value. Not that the banks were complaining. They were getting a healthy slice of mortgage securities off their books-at what were generally acknowledged to be inflated prices paid by the Fed-and were now sitting on more than a trillion dollars of reserves-reserves that were not being lent out, certainly not much in demand-deficient America, but rather, were fueling the machine of fixed-income trading on all cuts and slices of debt. A lot of liquidity with nowhere to go, in a low-yield environment, was, of course, the ideal circ.u.mstance for lots of speculative, exotic trading games.

Which is why Larry was soon huddling with Greg Fleming, who'd just shown up, and Bill Winters, the former number two to Jamie Dimon, who'd left JPMorgan a few months before. These three, speaking one after the other, would be carrying forward the "Capital Markets" portion of today's festivities. But what they talked about together as the moderator prepared to introduce them was the day's overarching topic: Would ardor for financial reform-now revived in the wake of the health care bill's pa.s.sage and Goldman's pillorying in front of Congress-slow or stymie the trading machine (the only way, in Fink's mind, for the banks, the investment houses, and the hedge funds to make any real money these days . . . and maybe, for many days to come)?

Of special concern was Blanche Lincoln's move to force the spinning-off of derivatives operations. Fink said, nothing to worry about-"Geithner will never let it happen," and that the spinning-off of derivatives, along with some of the more strident reform proposals, would "be used as bargaining chips." Fleming was not so sure: the linked chain of exotic trading-the securitization and reselling of debt in derivative plays, the credit hedges, and the credit default swaps, all of which bind inst.i.tutions together in the same webs of systemic risk that caused the collapse-"is what most of these reforms are trying to kill off," he told Fink, "so banks have to get back to their core business, actually lending."

Fink laughed, unconvinced. "Most of them, even if they're pa.s.sed as they are now, won't have that much effect. Goldman can get around almost everything currently on the table. And if they think banks are going to actually start lending in America, they're dreaming. They'll find other ways to make money."

It was time for the trio to take the stage. Winters first, and then Fleming-each ran through regulatory issues, various expectations for how it all might map out and where investment returns were the strongest: overseas. When Fink came on, to talk about the many burgeoning foreign markets that were most attractive to investors-and that would stay so in the near future-Winters was milling about in the empty area behind the ballroom, a forest of cloth-covered round bar tables littered with empty coffee cups, where the group had just finished its fifteen-minute morning break.

"A lot of m.u.f.fins get eaten in this town," Winters said, nosing around to see what was left at the buffet table, as Fleming was speaking inside the ballroom. "It'll be nice to be out of all this for a while."

Winters, who built JPMorgan's fixed-income trading business and then moved on to head investment banking-a trajectory that put him on a short list someday to succeed Dimon-was now planning a move to London. He'd been asked to help the British government wrestle with their version of financial reform, with proposals to be first recommended by a special independent committee, organized under the Chancellor of the Exchequer's Office. He'd be one of the members.

Leaning on a waist-high table, he talked about gaining more perspective with each pa.s.sing month since his departure from JPMorgan last November, and how he'd often thought, lately, of a dinner he had with his extended family back in 2007. It was a big group, led by Bill's father, a World War II veteran, a poor kid from Wheeling, West Virginia, who'd served in the U.S. Navy, came home, got educated on the GI Bill, and then got a job with the National Steel Corporation. His father was "a tough proud guy, very responsible, supported his family" and had grown concerned in the previous few years about how much money he saw his son spending. He didn't know exactly how much Bill was making-Winters earned $22.5 million in total compensation in 2007-but now he saw his son paying for eight people at a fancy restaurant on the Florida coast.

"So he takes me aside and looks at me with real seriousness. This is something he'd been wanting to say for a while. He looks me in the eye, mentions how much money I've been spending, how much a dinner like this costs, and says, 'Bill, is what you're doing legal? I don't see how it can be.' "

Winters shook his head, mulling over his dad's words. "I think a lot about that. Him saying, 'How could this be legal?' "

Inside the ballroom, Fink was now holding the crowd rapt; they hung on each word. He spoke, like everyone else, of the overseas opportunities. Fink was a globalist, joyously, and profitably disrespectful of borders. He'd spent much of the fall tapping sovereign-wealth funds in Kuwait, Saudi Arabia, and across Asia-huge capital troves that could be swiftly directed by the governments that ran them. These funds, like most of the rest of the world's aggregated wealth, were happy to work the vast U.S. debt markets, but didn't generally see equity growth opportunities in an American economy. Despite its size-$15 trillion in GDP, nearly three times the size of China's $6 trillion and j.a.pan's $5 trillion-the United States was viewed as overregulated and maturing fast. The pools of money around the world, led by Wall Street, were being invested in the upside of countries with cheap labor, no regulations, child labor, no union organizing. (Organizing, considered a crime, can bring lifelong incarceration in China.) Everyone was busy buying shares in this bright future. Fink, needing something fresh on this front, mentioned Colombia, with a per capita income of $9,800 and half the population below the poverty line. It was also the third-largest exporter of oil to the United States. Yes, Colombia, Fink said-great growth potential-as the a.n.a.lysts nodded and jotted.

But there was more, one more thing, what they had come to hear: Fink's judgment on the core financial business that defined America, still, as it had for the past decade: packaging the flow of money, much of it foreign money, into debt for all the parts and parcels of America. As an inventor of securitization, manager of the U.S. toxic debt portfolio, and overseer of BlackRock-with its unparalleled a.n.a.lytics in how the American government, corporations, and individuals were faring, day to day, under a still-crushing debt load-Fink was in the best position to say what he, in fact, then said: "Everything correlates."

What did this mean? That the core of all their trading strategies, at all the financial houses, had rea.s.serted itself-strategies that rested on loading mountains of data into various predictive equations, algorithms designed to show how the trading and shifting market values of disparate financial products correlated with the past. BlackRock had a longer tail of data than anyone else, especially on mortgage-related securities, and the longer the tail, the more precise the predictive model. When the actual price of a security strayed from that model, traders, or their trading computers, bought, often in huge volume, in whatever direction, short or long, that predicted a regression back to the bell curve over a designated period of time. The more faith you had in your model, the more leverage you piled into it, so each split-second trade was that much more profitable. Traders called this "picking up nickels in front of the steamroller." Do that with trillions of dollars, you make tens of billions picking up those nickels. Of course those bankers and a.n.a.lysts listening to Fink were jittery, and how could they not be? In 1998, Long-Term Capital Management, run by two n.o.bel Prize winners, thought its predictive bell curve, mapping the movement of interest rates over the past few years, was sound. It was, until it wasn't, and a unique event-aren't they all?-of Russia defaulting on its debt created a "fat tail," where the flat-bottom edge of the bell curve turned up, as though it were starting a new curve. With housing prices rising for three decades, in a thirty-year bubble inflated by easy credit, the meltdown of the mortgage market would be a surprise times a hundred.

What Fink was saying was "Relax." No more "black swan" moments for a while. You won't have to go back to investing in America, back to finding underappreciated value-the intrinsic worth of something that improves someone's busy day, that excites or comforts them-and spotting it before anyone else in this fast-fire, democratized information age, to be the first to put your money down. That was difficult and actually risky, and harder than ever in what looked like a painfully mature America economy. The trader, with his equations that claimed to represent reality-until they didn't-still ruled. That meant more booms were ahead, along with the inevitable busts. And that's why all concerned parties should stick with BlackRock. Because when the coming bust-the next one, which would be even bigger, as each successive one seemed to be-showed its first perplexing signs, when that first moment came, when things didn't correlate for a pa.s.sing but significant instant, you should be with Fink rather than Dimon or Blankfein. Why? Because that's when they, Dimon and Blankfein, would make their real killing, making-with their own proprietary, pure-profit capital-a "directional" move against the market, often done invisibly, through intermediaries, or in the "dark pools" of derivatives bets. Before you knew that the world had just listed, just heaved in a new direction, you'd be left with securities that couldn't be sold in a declining market; you'd have to catch the falling knife. BlackRock was as drenched with "informational advantage" as Goldman or JPMorgan, but-and here was the sell-BlackRock would use that advantage to make sure its clients were the ones who leapt away before the steamroller flattened them.

Beyond the part.i.tions, with the empty m.u.f.fin tins, Bill Winters was still thinking about his father's question-"How can this be legal?"-which was now being asked in coffee shops, in carpools, and in Congress.

There was, inst.i.tutionally speaking, an ent.i.ty, or rather, three particular firms, that were designed to act as honest brokers in a.s.sessing value rigorously, and publicly, for all to share simultaneously: Moody's, Standard & Poor's, and Fitch. That they'd been stunningly, disastrously, stupefyingly wrong in stamping risky CDOs with their triple-A seal of soundness and safety was one of the most widely acknowledged verities of the great crash. It was also clear that, with all three public companies, they were in conventional compet.i.tion for profits and primacy, quarter to quarter. The fees for rating CDOs-generally around $200,000 a bundle-were too good to turn away.

But nearly three years after the credit markets began to ice up in 2007, the question of why it had happened, and had there been fraud, still hung like a mist. With no end in sight to Wall Street's impulse for turning financial complexity into cash, and with its powerful, quick-kill incentives unchanged, the rating agencies' role-as a stamped and sealed proxy for actually understanding the next financial gizmo and the one after that-would only grow.

It was thus a twist of good fortune that Bill Winters was suddenly channeling his father, with his plainspoken steelworker's sensibilities. "These were young guys at the rating agencies, making $100,000 a year, one-tenth, or one-fiftieth, what the guy from the investment bank explaining the complex model to him was pulling down," Winters said, as he felt around the contours of it. "He wants to someday be that guy, and maybe he will be, if he plays his cards right. So you take him to a couple of Knicks games, a few fancy dinners, and you'll get your rating."

Carmine Vision wasn't having thoughts of suicide anymore. They came when Lehman fell, and they went. But it was not surprising for a man who looked into oblivion's dark maw, and then jerked away, to keep pulling back across the long life that preceded his brush with self-destruction. That's part of what brought him here to the old neighborhood of Brooklyn-that, and the gravitational pull of life events. His father, the controlling, emotionally penurious bricklayer, whose fierce standards of measuring value are most of what he left to his son, just died-alone in a nursing home-having long since left Carmine's mother, now north of eighty, who still lived in the family's nondescript house on a street near Coney Island.

Not far, in fact, from where Carmine's cobalt blue Mercedes was now weaving, taking the long way, street by street, across the storied realms of Brighton Beach and Sheepshead Bay.

The brick row houses, strips of solid square shops, stone churches built to outlast the "second coming," hadn't changed. It's just everything else that had, or so it seemed to Carmine, as he drove into the past, pointing out what was.

His aunt's flower shop, he said, "was right there, next to the a.s.sociated supermarket, right over there, where I was a delivery boy." On the next block, a square box of concrete was "the bank where I opened my first account" with the money he'd made in tips. The shabby supermarket now has staples from the Caribbean and Middle East, and shoppers in dashikis. The bank is gone.

"All gone now," he mumbled, making an illegal right turn near a crowded falafel stand. "A whole world is gone. My world."

This was still called Brooklyn, but the name mattered, really mattered, only to those who gave meaning to such a place with the life they'd lived here, and still did on this spring day. It otherwise belonged to the history of America-from the Dutch settlers in 1643 to the famously noisy twentieth-century brew of Italians and Jews, mostly from Europe and Russia-and the longer history of the world, where people moved to wherever they could to get what they wanted.

If things worked out in America in a way that history tended to work out for the best, there would someday be a sixty-something man from Haiti, Kenya, Libya, Malaysia, or Pakistan, driving whatever decent car was worth buying in 2040, reminiscing about eating falafel at that lunch counter and wondering who the h.e.l.l all these new people were in "my f.u.c.kin' neighborhood."

Carmine was deeply doubtful that history would resolve in this direction.

"Look at them," he said, gazing out at the faces, virtually all black or brown, and many born somewhere far from Brooklyn, his Brooklyn. "English here is a third language."

It's the nature of the new immigrant, he said, that troubled him, the way "they come here and create their own ghettos. The new immigrant doesn't want to be an American, he wants to plug into the infrastructure and send the money back home. There's no one giving back to America." The immigrants of his era, who once populated this neighborhood, "were on the same time line" with their "Judeo-Christian values" and shared the "same general desire to take the next step" in America, as opposed, he groused, to this wave of newcomers: "People who worship things and deities that you've never heard of . . . They don't value life the way you value life, because they come from a place where women weren't valued, where horrible things happened to women, where you p.i.s.sed and threw it out the window . . . and so here they throw the p.i.s.s out the window."

Carmine, now the major benefactor of the Bowery Mission, the venerable church and shelter serving "skid row's" dest.i.tute since 1879, had spent more time with down-on-their-luck minorities than any ten Wall Streeters combined. He socialized regularly with the mission's ebullient director, an African American former drug addict named James MacLynn. "The interracial stuff is child's play," he laughed. "You'll see how fast blacks and whites band together in America as the world keeps arriving on our doorstep."

No, it wasn't race that roiled him, but rather fear that "the middle-cla.s.s American dream is over," that something unique that created the country he grew up in-an America that coincided with an extraordinary postWorld War II surge in confidence and capacity-was gone. He was probably right. No period is ever like any other. But what seemed visible with each glance out his windshield was that a country that once stood atop the world was now bleeding, for better or worse, into the wider world, half of which still lived on less than a dollar a day and most of which was growing ever more impatient-with each pa.s.sing, image-drenched moment-to grab what it couldn't have, now within clear sight.

By that measure, the old neighborhood of his nostalgic reverie was positively parochial: virtually all emigres from Europe, their children, or grandchildren, carrying whatever shared history and cultural cues they'd brought across the ocean and then unbundled on these streets.

The same thing, of course, was happening, block by block, in every direction, just with an unwieldy, cacophonous zest that smelled like confrontation to Carmine, a mocking of his ident.i.ty and the place where it was shaped.

He stopped the car in front of a baseball diamond and got out to inspect a fence he'd helped build as a kid with his father and other men from the neighborhood, along with pouring the concrete and putting up the lights. Carmine painted some scenes, looking through the chain links, of how Brooklyn Dodger legend Gil Hodges dedicated the place, of summer evenings on the base paths, and of how parents-cops, firemen, bakers, bricklayers, like his dad-all knew each other, and one another's kids, "and it was real community with real values."

"But no one gives a s.h.i.t," he said, back in the car, as he resumed his loops by the holy sites-the place where Vince Lombardi grew up; Coney Island's parachute jumps, the spot where the bank heist from the movie Dog Day Afternoon happened; the building where mobsters threw a guy from the fourth-story window; a wailing wall, home of the "greatest handball players in the history of the world-all Jews." Then, the first building put up by Fred Trump, Donald's father, not far from rows of empty condos near the beach, new and ghostly.

Carmine understands that the difference between those two structures is that there are, as he said, "two types of development-demand-driven development and capital-driven development. One is good, one is bad. Demand-driven means someone actually wants to live there, wants to rent there, wants to work there, wants to operate there. There's a need for the s.p.a.ce. Capital-driven development is give me capital and I'll build it. I don't particularly know if anyone wants it. What does it matter?! I'll make my money by just developing it."

Wall Street figured out how to do that on a vast scale.

But having lived long enough and-in his particular American journey, having crossed more borders than most-Visone knew that the Brooklyn he loved was built by the rigorous accountability of the former, of all the hustling "demand-driven" merchants, he so fondly recalls, filling the hard-eyed needs of those crowding these streets. If not, they went under.

And it was, more or less, the same now. He stopped at a light, as a lady in flowing African colors dragged along a trio of boys in logoed T-shirts, proudly sporting the choicest global brands. If he squinted just so, he could see his mother behind that dashiki, and which of the kids, skipping behind her, was most like him. He'd rented that truck, after all, to drive the dark streets of the city, night after night, year after year, based on the idea that we were all the same, deep down, and we all get hungry sometimes.

"I don't know, maybe I've lived too long," Carmine Visone said, quietly-but, then, a smile.

18.

G.o.d's Work.

North of the city, on a hilltop fortress high above the Hudson-a setting sun splashing light across its wide expanse-tuxedoed men and gowned women drank champagne from crystal flutes as they fanned out, chatting and strolling, across an endless lawn.

This is the Rockefeller Estate, called Kykuit or, sometimes, Pocantico Hills, but unmistakable as one of the sunlit peaks over the continent's vast firmament. It sweeps up a wide mountain and surrounding cliff inside a discreet electrified fence marking the protected realm of Robber Baron audacities: a main house just a touch smaller than the White House; stables large enough for twenty horses; a courtyard of garages for the parking and repair of a fleet of conveyances, including gas pumps and hydraulic lifts; and a nine-hole golf course.

Tonight, June 11, aging t.i.tans of the American Century, or what's left of them, have gathered to honor one another in the quizzical presence of their moneyed, less noteworthy successors.

The event: a black-tie gala for International House, New York's venerable cross-cultural edifice, where seven hundred residents at a time-IHouse fellows from one hundred or so countries-are graced with various enrichment programs and support services, speakers and mixers, while they go about their chosen rigors at entry-level jobs or seek graduate degrees somewhere in the great city. A stately block-wide building on Riverside Drive, built mostly with Rockefeller money in 1924, grew into something of a global networking Valhalla through the midcentury, when borders still mattered, international organizations were scarcer, and the expression "global economy" had not yet been uttered. Though IHouse was early, and its mission-of bringing young people from around the world together-is now so commonplace as to seem conventional, networking never goes out of style. Among the chairmen of IHouse's board have been Dwight Eisenhower, Gerald Ford, and General George C. Marshall, and its graduates include both Citibank's CEO Vikram Pandit (India) and Morgan Stanley's James Morgan (Australia).

The current chairman: Paul Volcker. Tonight he was to honor past chairmen-namely Henry Kissinger and former Goldman CEO John Whitehead. He was also, as master of the evening's ceremonies, to honor David Rockefeller, upright and sentient at ninety-five, and walking through his house with a smile and an outstretched hand, his carefully tailored tux giving him the top-heavy look of a very old bodybuilder.

As longtime head of the family bank, Chase Manhattan, and heir to America's greatest twentieth-century bonanza, oil, David Rockefeller, or what's left of him, is an auspicious living actor-his generation's ringleader-of ideals about top-down command and control: the legacy of the behemoth corporations, working in deft coordination, that rose from U.S. soil eventually to span the globe and that lifted small groups of civic-minded men, graced by wealth, who'd gather to solve the world's intractable problems.

It was far from a perfect model, the one Rockefeller helped manage. There was collusion and exclusion, old-boy networks that were all but inpenetrable for the interloper. Day to day, it wasn't nearly as efficient or productive or flexible as the frenetic present tense. But there were rules that were generally heeded, not in spite of the more static and rigid barriers that prevailed, but because of them. If you happened to be born on third base, you generally didn't rub it in the face of the guy who wasn't even born in the stadium, especially after the upheavals of the Depression and World War II. It was unseemly for an office-dwelling boss to take more than ten times the pay of a sweating guy on the loading dock, though no one begrudged the inventor, or builder of corporate giants, their fortunes. They did something special-maybe aided by banker or lawyer or ad executive, who earned just fees, which seemed appropriate. The whole point of the exercise was to make everyone feel the same, like they were all in the race together, even if everyone understood the nature of born, or bred, privileges, and the advantages they bestowed. The epoxy, the way it was all glued together, was with certain agreed-upon standards of right and wrong. An infraction brought shame and ouster. A desire to do the "right thing" yielded credit, and maybe a call to help solve some large dilemma. That would be considered an honor, and self-interest was generally checked at the door with your coat and hat. Could complex problems be managed by these civic-minded actors, working in concert? Up to a point, the answer was yes.

And they'd often gather at this estate. You could almost hear the echoes of midcentury prudent men pa.s.sing from one room to the next. The National Highway System, the GI Bill, the Marshall Plan-all required such meetings, as did countless sit-downs in the library, or over nine holes of golf. If some businessman was about to attempt something that would, soon enough, create disaster, the message had to be delivered: if he moved forward with it, he'd be out of the club; if he did the right thing, and subordinated his desires to the greater good, he'd curry grat.i.tude, and that could only amount to something good.

A man who attended his share of such meetings-as an adviser to the Rockefellers and countless others across fifty years-was in fact standing on a crutch in the room, hobbled, broken, but unbowed.

John Whitehead had had his knee replaced just two weeks before, but he wasn't going to miss this night, touted as one of the most auspicious gatherings at Kykuit in nearly twenty-five years.

Whitehead, fit and still handsome at eighty-nine, received one well-wisher after another, looking like an actor hired to play, well, a man like Whitehead: a seasoned repository of experiences and values wrapped neatly into the catchphrase "Greatest Generation." From the time he commanded a landing craft onto Omaha Beach, Whitehead had been busy steering one ship after the next. In 1947, after getting an MBA at Wharton, he joined Goldman Sachs and learned at the knee of the legendary Sidney Weinberg, who'd started as a janitor at Goldman, worked his way to the trading desks, and, after saving the firm from bankruptcy in 1930, to the chairmanship. A few years after Weinberg died in 1969, Whitehead took the top job and, on a yellow legal pad, summarily wrote down Goldman's "14 principles": commonsense guideposts, often called "the commandments" inside the firm, such as the "client comes first," "integrity and honesty are at the heart of our business," and we will be given confidential information that must be "handled with utmost care."

"I didn't come up with them," Whitehead demurred, shifting his weight from crutch to foot and back. "They were principles pa.s.sed down by Sidney; I just them wrote them down. They were part of our tradition."

The pain Whitehead was feeling these days went well beyond his knee. A former Eagle Scout, he had worked his whole life to burnish and protect Goldman Sachs' reputation, and had remained, a quarter century since he left the top job, the firm's emeritus amba.s.sador at large. As a director of civic and nonprofit organizations, including the chairmanship of the 9/11 Memorial Commission, and recipient of numerous honorary degrees for decades of charitable work, Whitehead had seen his value placed, increasingly, in high-profile misdirection: he was now a comforting front man to make people think this was the Wall Street they once knew. Whitehead's ubiquitous presence seemed to keep that other, older Wall Street alive, year after year, like the light from a dead star, even as ethical standards that he, like his mentor Sid Weinberg, had placed at the core of Goldman's franchise were steadily abandoned.

After September 2008 this sleight of hand was untenable. People came, one after another, to Whitehead to step up, to use his stature and credibility to put the financial services business back on course. He took another path-what Fleming would have called the "Colin Powell compromise." He would continue as a key adviser to Blankfein and attempt to alter the wider landscape by guiding Goldman's powerful chief in his words and actions.

As Blankfein whipsawed between c.o.c.ky and penitent, continued to take bonuses, and effused, in late 2009, about Goldman "doing G.o.d's work," Whitehead stuck it out. But the nightmares of April, with the SEC investigation of Goldman and its executives, led by Blankfein, seemed to have finally broken the old man's resolve.

On this night, in the rarified air of Kykuit, he was on dangerous turf. This, after all, was where Whitehead actually spent much of the last quarter century, trying to direct the enormous accrued wealth of America's dynastic families to areas of needs-and especially that of the Rockefellers, with their large, signature foundation and a civic tradition dating from early in the twentieth century.

He said he was trying to be hopeful these days, and how the kids he meets are "more idealistic than we were, trying to do things of meaning rather than just seek money"; and how: often "bad periods" like this one "plant the seeds of good periods that follow. That's what I'm hoping."

Those seeds needed to be "watered and nourished," he acknowledged, to take root, and he thinks every day about what he can do with the time he has left to help that along.

He paused for a moment. There was a story he wanted to tell, about what had happened when the Pennsylvania Railroad went bankrupt in 1970. He explained how Goldman had $60 million of commercial paper outstanding-and technically wasn't obligated to pay it-"but morally I felt we had to be sure everybody got paid back," even though the firm only had a $30 million net worth. In the end, everybody was paid back. It just took a long time. Lesson: Goldman looked beyond its legal obligations to do something larger, something that was right.

Just mentioning Goldman in the current context bore perils, so he mentioned that he remained a regular adviser to Blankfein, which meant he needed "to be delicate" in what he said about Goldman if he were to remain in that role "and continue to have influence over Lloyd."

But tonight there was no stopping him.

He then tacked briskly into the wider issue of some things that need to be discarded, starting with destructive incentives. "The compensation system today is so rewarding of today's results and doesn't encourage anybody to take the long view. It's got to be changed!"

He went on, now getting closer to Blankfein, describing how a CEO shouldn't be able to sell his stock in the company until after he retires . . . long after. He should be paid after he builds the company, not every step of the way.

Sue Weinberg walked up. She is the wife of John Weinberg, Sidney's son, who shared the chairmanship of Goldman with Whitehead. And in this place-a night when the old guard of Wall Street was making one of its last stands-the spirit of Sidney Weinberg, whom the New York Times once respectfully called Mr. Wall Street, seemed to inhabit his heir, Whitehead, emboldening him.

"He's so talented and he's so smart: Harvard College, Harvard Law School, top of his cla.s.s," Whitehead said, finally taking off the gloves, old guard to new, addressing Blankfein directly. "He never thought that if the public is losing their jobs and we're in a recession, it isn't a very good time to talk about the justification for a $60 million bonus. He doesn't get it!"

What happened to America, from one signature generation to its successor? It was there, in Whitehead's voice. "He doesn't get it. He says, 'I'm the CEO of the best financial service firm in the world. And if I'm the CEO, I'm its head man. I deserve to be paid more than anybody else. And I'm prepared to fight for it, and boast about it. Because I'm proud of it.'

"Then, the next month, he says, 'G.o.d is on our side.' "

Values define a culture. This was, finally, one set of values speaking sternly to another. Whitehead, on one leg, pushing ninety, was the reedy voice of a vanishing tribe and their something-beyond-profit code of conduct: you should be guided not by what you have a right to do, but by what is right to do.

Across the room, his friend Volcker-another prudent man, old but unbowed, who'd spent the last few years trying to trumpet to the herd about the right thing to do-was being surrounded by middle-aged admirers, men mostly, who'd gained unseemly wealth in financial services. Two hundred people were in attendance tonight and, of the men, most were Wall Streeters and a.s.sorted capital jockeys. The place was jammed with them. They admired Volcker, sure-but they also admired themselves. One man, a former fellow at International House now working for the Spanish megabank Santander, just couldn't wait to tell Volcker he spoke four languages, as in "I was an American at IHouse, but I speak four languages!"

"Then you must have felt right at home there," Volcker said acerbically, looking down at the man with disdain. The guy didn't pick up the tone: he was too busy telling Volcker what a fabulous job he was doing at Santander preserving its sterling credit practices: "No, seriously, Paul, no CDOs, none."

It's never easy when your friends die off, or the standards of those you worked to emulate-the code of the "wise men" of the American century such as Averell Harriman or George Marshall; Citibank's old lion Walter Wristen; or William McChesney Martin, Jr., the legendary Fed chairman; all of whom Volcker revered, and patterned his life after-get washed away. Whatever else those men did-and, no, they weren't angels-they didn't take the short money; they didn't calculate the risk of getting caught. They were in it for the eulogy, where someone who really knew them would say what kind of life they'd lived. Volcker, Whitehead, and David Rockefeller will certainly be joining those men sometime in the not-too-distant future, probably before they have the indignity of witnessing another disaster born of craven and careless men.

Both Whitehead and Volcker now needed to be helped down a twisting flight of steps, as the crowd started to make its way toward the "Playhouse." It's a vast room-matching anything at Hearst's San Simeon or Vanderbilt's Biltmore-with twenty elegantly set tables of ten, with flowers and lit candles, arrayed under a vaulted ceiling. The Rockefellers and their guests once put on plays here, hence the name. The motif is neocla.s.sical, the modern age's attempt, across recent centuries, to recapture the intellectual and ethical accomplishments of ancient Greece. Yes, old John D. raped and pillaged to make that fortune. And rather than boast about it-what brilliance, admirable efficiency, and strong management technique-his sons, and then grandsons, such as David Rockefeller, spent their lives making amends.

In the lowlands beneath this hilltop, in every direction, America is furiously showing its particular character as a civilization.

In the hour since the start of this gala, twenty-five thousand gallons of oil had poured into the Gulf of Mexico. The BP disaster was already two months along, having turned into a dark, gushing nightmare of man's penchant for unleashing forces he cannot control. Like so many other disasters in this period, the spill was the result of executives pushing themselves to the very edge of legal limits, and then beyond, in the name of short-term profit. Everywhere were disclosures of endemic regulatory malfeasance-one example after another of "regulatory capture," all but identical to what underpinned the financial meltdown, where energy regulators served the companies they oversaw rather than a wider public interest.

The man who started the empire of oil was, of course, anything but a prince. It took enormous and ongoing effort-from Teddy Roosevelt's trust-busting, breaking up Standard Oil of New Jersey, to Ida Tarbell's fierce journalistic digging into Rockefeller's corruptions-to rein in this prototypical corporate leviathan. Both Presidents Roosevelt-one Republican, the other Democrat-would have said, if they could still walk upright, that government should not be a friend of business; that business can take care of itself; and that government has more important work to do, to carry forward the "greatest good for the greatest number." The Ancient Greeks, in their own unique way, would almost certainly have agreed.

As, suddenly, did much of the U.S. Senate. The triptych of the Goldman investigation, Blanche Lincoln's surprise, and Levin's smackdown of Blankfein seemed to have jerked many of the Democratic senators, and a surprising number of Republicans, out of a trance.

Clearly they were hearing from const.i.tuents displaying a surge of populist outrage that, if not quite so raw as it was with the AIG bonuses the previous year, was now more targeted and substantive. It took a while, but the public and the media were finally connecting what had gone wrong, across the many years leading up to the financial implosion, and what might be done.

The question: Was it too late? With the House's bill complete and much of the Senate's bill already shaped by long months of lobbyist-encouraged horse trading, panic had taken hold. Democratic senators started filing one amendment after another, in some cases with improbable Republican support.

Ted Kaufman, a lantern-jawed former chief of staff to Joe Biden, who was given the Delaware senator's seat for two years when his old boss became vice president, introduced the SAFE Banking Act. It reined in the size of the largest banks by imposing size caps and limiting leverage. Kaufman, who cosponsored the bill with Ohio's Sherrod Brown, was, by circ.u.mstance, a sort of throwback to an earlier era. He was smart about the ways of Washington, a former prosecutor, and he cared not one wit for the political dance of fund-raising and influence management. At the end of the year, he was going home to Delaware. As the Wall Streeters used to say about Volcker and some of the other economic advisers gathered around him during the campaign, Kaufman had "no handle," nothing to grab. There was nothing he wanted. No self-interest to twist. The SAFE Banking Act was just a straight-up "too big to fail" amendment legally limiting the size of banks. How would the banks manage this? That was their problem. This was part of the act's immediate appeal: its simplicity.

It imposed a 10 percent cap on any bank holding company's share of the United States' total insured deposits. It limited the size of nondeposit liabilities at financial inst.i.tutions to 2 percent of U.S. GDP (and 3 percent for nonbank inst.i.tutions), and, finally, set into law a 6 percent leverage limit for bank holding companies and selected nonbank financial inst.i.tutions.

The banks immediately cried foul-that the act was unworkable and disastrous, that huge foreign banks would devour the U.S. banking sector, and that the act would dry up credit and banks' ability to serve their customers. All of these were predicate threats to push senators into trying to describe how such a ma.s.sive restructuring of the banks could be managed without any of these ill effects. This was, of course, a rhetorical strategy that banks and other large corporate "stakeholders" had used with great success for years: gin up fearful consequences, the more wild-eyed the better, and repeated with large marketing and advertising muscle, and then dig in, not budging, until their fears, real or not, were allayed.

All of a sudden it started not to work. Kaufman's and Brown's amendment to the financial reform bill received a glowing affirmation on the New York Times editorial page. Dodd and the Senate leadership tried to look the other way-they and the industry had worked all this out, with Geithner and Summers as cheerleaders. But senators started signing on, as the most liberal members, such as Sherrod Brown and Vermont's Bernie Sanders, were joined by none other than Richard Shelby, the ranking Republican on the Senate Banking Committee, and his party's leading voice in the chamber on banking issues; Nevada's John Ensign; and Oklahoma's Tom Coburn, arguably the Senate's most conservative member. The banking lobby called a red alert, charging the chamber and not leaving senators' offices until a deal was cut, and a.s.surances of opposition obtained. The strategy was shock and awe, and then a push for a quick vote. A so-called snap vote on May 6, engineered by Dodd and other Senate leaders, took the amendment down 61 to 33.