On January 19, 1996, the Wall Street Journal reported that Clinton was likely to name Felix to the vice chair post at the Fed, with all the usual plaudits about Felix's investment banking prowess, including the nugget "Unlike some previous Fed vice chairmen, Mr. Rohatyn probably would be seen as Mr. Greenspan's likely successor--if the Fed chairman were to leave office while a Democrat was president." Opposition from the Republicans on the Senate Banking Committee to Felix's nomination was swift--and devastating. The Republican senator Connie Mack, from Florida, blasted Felix immediately and publicly as a dangerous, big-government, liberal interventionist. Senator Al D'Amato, then the chairman of the Senate Banking Committee and a Republican from New York, didn't need to say much of anything; after first contemplating a run against D'Amato, Felix had opposed his reelection in 1992. Republican congressional staffers sent Senator Mack a memo complaining; "Put simply: R-O-H-A-T-Y-N spells stagflation," a reference to the low-growth, high-inflation 1970s. Felix was caught in a political vortex the likes of which this experienced man of the world could hardly imagine. On the one hand, the Republicans controlled the Senate, making iffy the ratification of any Democratic nominee of a Democratic president in the highly partisan Clinton Washington. Therefore, the boisterous opposition from the Republicans was to be expected and could easily serve as cover for the more subtle machinations going on behind closed doors. This, in fact, is what occurred, Woodward argued. He claimed both Rubin and Greenspan were sufficiently lukewarm about the Rohatyn appointment that they effectively killed it. Greenspan, the Republican, subtly communicated his indifference to the Republican senators. And Rubin served as the messenger.
"What will happen if we send you Greenspan as chairman and Rohatyn as vice chairman?" Rubin asked Senator Robert Bennett, Republican of Utah, on the committee.
"We will confirm Greenspan in a heartbeat," Bennett answered, "and Rohatyn will not get out of committee."
"Yeah, but they go together," Rubin responded. "We'll send them up together."
"It will take a nanosecond to separate them," the senator responded, "and Greenspan will be confirmed...and Rohatyn will be filibustered until Connie Mack doesn't have a breath left in his body."
Rubin had got what he came for.
Next came the requisite well-orchestrated media assault challenging the wisdom of Felix's economic views about growth rates. On January 29, the Washington Post ran a front-page story reporting that many economists, including Greenspan, doubted the higher-growth-rate scenario. Paul Krugman, then a Stanford economist and now a columnist for the New York Times, wrote in the New York Times Magazine that higher-growth-rate proponents like "financier-pundit Felix Rohatyn" were living a "delightful fairy tale." He continued, "In fact, the so-called revolutions in management, information technology and globalization are vastly overrated by their acolytes."
And that was pretty much it. On February 12, Felix sent his withdrawal letter to Clinton and spoke with Rubin and Greenspan.
A few days later, after it was over, Felix received a call from the White House telling him Clinton would be at a $1,000-a-plate fund-raising dinner February 15 at the Sheraton Hotel in New York and wanted to publicly thank him. When Felix arrived at the Sheraton, he ran into Vice President Al Gore and told him he could not stay for the dinner because he had something else to do. Although the president had never publicly stood up for Felix as his nomination was going down in flames, at the Sheraton, Clinton lambasted the Republicans for playing politics with the Rohatyn nomination. "An example of what should not be done that most people in this room are familiar with was the outrageous political treatment of my intention to nominate Felix Rohatyn to be the vice chairman of the Federal Reserve." He then asked Felix to stand and take a bow, but Felix had already left the event. Somebody stood up, and people started to applaud anyway.
Felix basked in the momentary glow of the president's adulation, as reported in the press, but the whole Fed incident was an ugly one for Felix and for Lazard--on many levels. To that point, much of the internal squabbling among the senior partners had been kept quiet, even to others working at Lazard. But the Federal Reserve debacle made clear to all that Felix wanted out of the firm and that his younger partners were expecting him to leave. How else to explain his desire to aggressively seek a subordinate position that seemed well beneath his aspirations and capabilities? "Michel has been buttressing himself" for the day Felix would leave, one partner observed. "And the Fed thing shows how right he was to do it. It's out in the open now that Felix has basically said, I want to get out." Although it was not a job that made a whole lot of sense for Felix, he was not happy the Fed appointment did not happen. He was cranky and displeased. Word started to get around town that he was bad-mouthing Steve wherever and whenever he could. "Felix is angry and bitter," Steve told a friend as these stories reached his ears. "He's not aging well."
Finally, the volcano erupted. In the second week of March 1996, the reporter Suzanna Andrews struck again, with a cover story for New York, whose title, "Felix Loses It," was emblazoned in thick black seventy-two-point type underneath a less than flattering close-up of a piqued Felix. The New York piece laid bare just how horrible and irreconcilable the differences between Felix and Steve had become. There, for the first time in living color, was Felix's anger about the Vanity Fair articles, the Paramount leaks, the mischaracterization of Steve as his "protege," the jealousy over Steve's relentless social and political climbing. Andrews wrote that Lazard was a "mean" place, and it was true.
The story came about serendipitously. Andrews had been interviewing Felix in his new, most un-Lazard-like, luxurious office in 30 Rockefeller Plaza (where Michel was said to have chosen the carpets) for a story she was writing for the March 1996 Institutional Investor about Gershon Kekst, the dean of Wall Street public relations and a longtime Felix friend. Kekst had been heavily involved in the Paramount-Viacom deal, and Andrews wanted to talk to Felix about Kekst's role for the profile.
Given how upset Felix continued to be with Steve for the Vanity Fair piece and for his role in the Paramount deal, unbeknownst to her, Andrews was merely touching a match to very dry wood. "I don't believe Felix ever intended that this would be an on-the-record attack," Andrews explained some ten years later. "I think if Felix had had his way, I was to be yet another reporter going out, getting the dirt on Steve, and writing a story about how Steve Rattner was under fire at Lazard and should lose his job because he had really messed up the Paramount deal. And Felix's fingerprints would not have shown up on the story at all. That's how I believe he expected it would go, which is why he never bothered to put the interview on background, or off the record. I think he was playing a game the way he'd played it with reporters for so long, he'd forgotten the original rules."
During the on-the-record interview about Kekst, Felix spewed venom, unsolicited, about Steve. "Steve is so monomaniacal," Felix blurted out in a fit of Freudian rage. "He wants a job in the Clinton Administration. Eventually he wants to be Treasury secretary, and he's trying to get it by getting media attention and by social climbing, without doing any public service. He should do public service, but he doesn't care about anything, not music, not art, not politics. He just wants to get ahead." Felix also told Andrews that "Steve's position at the firm is by no means secure." Andrews took it all down. When Steve coincidentally had sushi lunch at Hatsuhana with Andrews a day or so later just after she had heard Felix's diatribe, she told him about the incident. "I hope you throw away your notebook," Steve told her. She did not, of course, and ended up writing the single most inflammatory, unscripted, and revealing article in the firm's history.
Investment banking is a confidence game, and no single firm in the post-World War II years had been better than Lazard at continuously using and controlling the press--whether by serendipity or by design--to weave a magical spell about its uniqueness and moral and intellectual superiority. This proved to be very good for business--a form of catnip for clients. Much of the carefully cultiv
ated mythology about the firm carried with it significant elements of truth: Lazard was different from other Wall Street firms. For a long time, Lazard was able to attract the most successful, most intelligent, most differentiated bankers. Year after year, it was able to pay its partners, in cash, far more money than they could have made at other Wall Street firms, all from the tiniest base of capital. There was indeed alchemy in the firm's ability--with very little at risk but its reputation--to turn its partners' relationships and advice into vast wealth. Long before other firms, the Lazard brothers recognized the importance of international finance, and its interconnectedness, and established indigenous and respected firms in the three global money centers--Paris, London, and New York. And only Lazard had Andre Meyer and Felix Rohatyn, two of the most powerful and successful investment bankers of the last fifty years.
But the fairy tale was taking a dark turn. Under Michel's leadership, Lazard's historically tiny head count had grown significantly, along with its revenues and its profitability. Michel, though, was far less of a hands-on manager than Andre had been, and things started getting out of control: a rash of problems befell the firm, from scandals involving insider trading and municipal finance to internal battles among the partners for Michel's favor. Then there was the inevitable generational question of succession. Michel had four daughters with interests outside of finance, and besides, Lazard was no place for a woman. Felix had no interest in running the firm but continuously thwarted those people who tried. Inevitably, as both Felix and Michel got well into their sixties, the younger partners began to chafe and push for more responsibility and a clarification of the firm's--and their own--future. Most of these unorganized and inchoate efforts by the younger partners went nowhere, effectively quashed by their own lack of coordination or the power of Michel and Felix to derail them or a combination of the two. Lazard was not a happy place; Andrews was right, it was mean. Only Steve, for the first time since Michel took the mantle from Andre, had the power--through his growing revenues and public profile--to challenge Felix. The truism that Wall Street runs on personal alliances and enmities was laid bare, by Andrews, in the pages of New York magazine.
After stating that Felix's surprise bid to be vice chairman of the Fed seemed nothing more than an inelegant effort to leave the firm, Andrews observed that "in the past few years, Lazard has begun to change in ways that have loosened Rohatyn's grip--changes not just in the mix of business at the firm but in the growing influence of a generation of younger partners." She quoted an unnamed "younger partner" who confided his view that "there is a perception that Felix is part of the problem" and then repeated a joke making the rounds inside the firm: "What's the difference between God and Felix Rohatyn? God doesn't think he's Felix Rohatyn." The article described how Steve was "a yuppie version" of Felix, with his deal success, his media attention, his enormous Rolodex. Then there were the descriptions of the "widely coveted" invitations to the Rattners' apartment on Fifth Avenue, where the likes of Mickey Kantor, Vartan Gregorian, and Henry Louis Gates would be celebrated, or to their annual August cocktail bash on Martha's Vineyard, where the First Family were regulars, along with friends Harvey Weinstein and Brian Roberts. The Rattners' stay in the Lincoln Bedroom in July 1995 "is known by all who need to know," Andrews wrote, noting that the visit included "private time for bonding" with the Clintons.
The idea that Steve had become Felix's protege--an idea that both men for a time actively encouraged--was conveniently debunked. Felix "never wanted" a protege, offered an unnamed friend of Felix's. "You have to understand," this person continued, "Felix is alone," and despised the idea of a chosen successor. Felix believed Steve was way out ahead of his skis. "Felix has worked so hard," said another Felix stalwart. "He suffered in the war and under Andre. He did MAC. I think it is emotionally and intellectually insulting to him that Steve Rattner would be considered his heir apparent." The Freudian aspect of the feud was difficult to ignore. "I don't understand why a man like Felix, who has done so much good and who is recognized for it, cannot be at peace," a source told Andrews. "Steve is a good banker. He has very limited experience in terms of the kinds of businesses he has handled. He has not achieved much on the public service front yet. Why does Felix feel the need to crush him?" Another friend of Steve's told Andrews: "Maybe Steve wants to be president of Brown or the Metropolitan Museum, maybe he would take a deputy-secretary job in Washington, but I don't think he's kidding himself about being Secretary of the Treasury in fifteen years."
Nowhere, of course, in the New York article was there any admission from Felix that perhaps Steve, so very much like Felix himself, had actually outmaneuvered and outperformed the older man in this extremely high-profile, high-stakes game. Maybe such an admission would have required from Felix the kind of self-awareness he does not possess. But even an amateur psychologist could quickly conclude that Felix's actions during the mid-1990s--the lashing out publicly, the accusations of professional indiscretion, the contemplation of the World Bank job, the bid for the Fed--were also obvious signs of jealousy and frustration. Said another man, who claimed to know both Steve and Felix well: "The son is getting too successful, so what does the father do but go after him for things he suspects are in himself?" Said another "mutual friend": "I know both Steve and Felix well enough to say they are the same man."
Right on cue, Arthur Sulzberger Jr. rose to Steve's defense in the New York article. He was one of two people quoted on the record on Steve's behalf; the other was Steve's friend and former Times colleague Paul Goldberger. "It is almost a crime that a story in Vanity Fair should help or hurt anyone," Sulzberger said, and then referred to Felix's accusation that Steve had been the source of the leaks from the Paramount boardroom. "It's like asking if a story in Midnight Magazine can affect you. It's so fucking vacuous. Hurting Lazard is antithetical to everything Steve believes in. Whether or not it was another source, I don't believe adults would deal with it this way." He explained Steve's media savvy as a natural outgrowth of having been a reporter for so many years, unlike Felix, who had to work hard to cultivate and seduce journalists. "Steve doesn't collect people," the publisher of the Times continued. "He attracts them. I have seen Felix at more events than I have seen Steve. You can't accuse Steve of being a media climber without saying that he and the publisher of the New York Times had desks next to each other for two and a half years. Steve is good with the media because he was a talented member for many years. It's not true of Felix or lots of other people who have had to learn it for their own particular purposes."
Reflecting back some ten years later about the generational struggle between Felix and Steve at Lazard, Sulzberger remarked:
Culture change is hard. Culture change is hard in any organization. What Steve was trying to do at Lazard was to bring that culture into line with where people had gone already. The culture of large companies in the 1950s, 1960s, and 1970s was driven by the deals that people made who had the experience of the 1930s and 1940s. What were the experiences of the 1930s and 1940s? Great Depression and World War II. And so you had a generation of people coming in to work in the 1950s and 1960s and really achieving authority in the 1970s, 1980s, early 1990s. And the deal was this: "I saw the Great Depression. You don't fire me, and I won't ask about being fulfilled..." But now you've got a whole new generation whose life experience is the 1960s. And they're saying, "Wait a second, my whole life is about more freedom, more flexibility. And by the way I grew up in the fat times. I could go across the street and get another job, and then if I don't like that, I can go across the street and get another job. So I want to be happy. I want to be fulfilled. I want my voice heard." So you've got those two cultures coming into friction as you have a shift in leadership taking place. And this is not a Lazard problem. It's not a New York Times problem. It is the cultural shift that had to take place in this country.
In truth, along with the generational and cultural clash that it exposed, the New York article itself was also a masterpiece of Steve's
ability to manipulate the press for his own benefit. After Steve heard from Andrews at Hatsuhana that an assault on him was coming, it is clear from the published article that any number of sources were mobilized on his behalf to mitigate the damage. There were the obvious sources, of course, such as his uber-Times friends, Sulzberger and Goldberger, but there were, naturally, any number of unnamed sources that steered Andrews toward a far more favorable appraisal of Steve than the one Felix had presented to her. Indeed, the very title of the piece, "Felix Loses It," suggests that the editors of New York thought that Felix was the one whose judgment deserved questioning, not vice versa. There were deft touches such as blaming the boardroom leaks found in "Paramount Player" on Marty Davis, thereby deflating a large part of Felix's proclaimed source of anger with Steve for the Vanity Fair article. And there were un-attributed quotations from current and former partners that damned Felix for his treatment of them over the years. "The success and the dysfunction of Lazard," said one, "has a lot to do with Felix's role. He isn't interested in managing, or teaching, or leading. When someone gets out of line, he crushes them and walks away."
Then there were other masterful pieces of obfuscation and irrelevance, such as a purely gossipy item about Michel that had never before appeared in print: to wit, that when in New York he had been carrying on a longtime, discreet extramarital affair with the "socialite" Margo Walker, who lived (and lives) around the corner from him in Locust Valley, Long Island, on an estate--previously owned by J. P. Morgan Jr.'s son, Junius--that Michel helped her to buy in 1994. The not-so-subtle message, of course, was that the fish rots from the head.
The last tycoons: the secret history of Lazard Frères & Co Page 53