Autumn of the Moguls

by Michael Wolff

  Business, which used to be a specialized, opaque, conservative activity—something like the military—became the national pastime. If you weren’t taking over companies, you were getting into the stock market, watching the miracle of those mutuals and 401(k)’s going up and up. If you weren’t an entrepreneur working spreadsheets to start your own dreamy enterprise, you were an option holder in someone else’s dream.

  Everybody was in business. Everything became business—technology, entertainment, news, even academia. And if it was already business, it could always be made more businessy—Enron was a Texas oil company that transformed itself into a global financial enterprise. Financing something, or refinancing something—the moment when reality always suffered its greatest adjustments—became the nation’s central economic activity.

  The culture at large may have been dumbed down, but business culture was smart, competitive, obsessive, relentless in its pursuit of the next best idea. Business became the ultimate abstraction. A new, near-philosophical language was invented to deal with the many-hued nature of reality and nonreality that the world of business was defining (it was as Utopian as the language of revolution). Business became the focus of how people related to one another, of how communities were created, of how human progress was made. Business, as a system of logic that would allow you to accomplish any goal, at potential great benefit to everyone (and with a little extra to the person running the spreadsheet), was the metaphor of the age: The rich would get richer, and so would everybody else.

  And the rich would get richer to a degree that had no precedent in history.

  If he had not left the New York Times, Rattner would have earned, in twenty years, assuming a stellar career, an aggregate of $3 million to $5 million dollars (he would have been making about $50,000 in 1982 and something more than $300,000 in 2002). In twenty years as an investment banker (he was already making $1 million a year two years into his new job) with a stellar career he would have earned $300 million to $500 million.

  The point is not just the hundredfold difference. It is that in the former scenario, he and his family would have lived a middle-class life in Manhattan or the suburbs, with minimal net worth to show for it, while in the latter he would have both supported his family in maximum style, while his net worth appreciated vastly, supplying his family with almost unlimited wealth for generations to come.

  In other words, the difference here is not just between a reporter who makes less than a banker and lives a different sort of lifestyle (say between the Upper West Side and Larchmont—as it might have been in the fifties, sixties, and seventies), but between a reporter without assets and one of the richest men in the world, between a functionary in the information business and one of its key leaders.

  Even if Steve Rattner had become the executive editor of the New York Times—that could hardly compare with the personal influence and freedom he had achieved.

  He had gone to Lehman Bros, then to Morgan Stanley, and then to Lazard Frères, where he was the number two.

  Lazard, for a long time, remained a rarefied Wall Street place. It was not so much a player as the firm that played the players. It sold pure knowingness, synthesis, metathinking. It made its money not through the amassing of so many less-dignified commissions, or through the creation and retailing of financial instruments, but through the discipline and mystique of the mandarin.

  These were the behind-the-curtain players.

  In some sense, Rattner finds the true value here of the New York Times. The $50,000-a-year job he had in 1982 is converted into a $20-or $30- or $40-million-a-year job.

  This is almost a pure business-model point. You can retail your expertise the way a newspaper does, or you can do it the way an exclusive investment banking firm does. The point is about packaging and distribution.

  There’s a personal point too, of course. Few New York Times reporters, even the best business-desk people, could show up downtown and be seen to have great value to anyone. They are sloppy, and literal, and indiscreet—all flat affect.

  The value, however, is in the package—in talking the talk and walking the walk.

  Rattner is, too, by temperament, a social climber. This is a rarer attribute than you might think in this celebrity age; most people, in and out of business, have a natural and ingrained reticence. They’re shy. Insecure. Afraid. Ashamed.

  Social climbing requires complex emotional breadth and stamina—and often a novelist’s, or courtesan’s, understanding of individual value and distinction and of the myriad underlying relationships in any given room, or professional or social circumstance.

  You have to be both arrogant and obsequious.

  You have to be able to both know your place and to be able to cleverly advance it.

  You have to be shameless.

  Indeed, the premium on social climbing and starfucking, and people who have the shamelessness to engage in it, is so great that it has meant that a great number of vulgar, tawdry, unrefined people have been accepted into and elevated up the social and business ranks.

  Rattner had the great advantage then of being an active and willing social climber but not being sleazy. He was very smooth.

  He has a certain degree of Wasp aestheticism—or Wasp envy. Formality. Reserve. Efficiency. Soft-spokenness. (He was a kind of perfect museum board member.)

  As it happens, none of these are particular virtues of media moguls. But Rattner’s qualities turned out to be good banker qualities, especially for the Lazard kind of banker. He seemed like a wise man and a careful man, and a man who kept confidences and secrets.

  There were suddenly, however, much easier ways to make much more money than the way Lazard was making it—and Lazard was making a lot of money.

  For the three or four or five years of the big boom (depending when you got with the boom), what you wanted to be doing was owning pieces of these vastly inflating enterprises. You didn’t want to be just in the advisory and fee-generating business—which Lazard was in. You wanted to be buying into, at a ground floor price, some of the most outrageous wealth-creation schemes (i.e., stock speculations) that have ever been created.

  You wanted to be a promoter rather than an advisor.

  Now, there were reasons that you wouldn’t want to be this. To be an advisor was not only fiscally more prudent, but it was not sleazy. Indeed, that is what you were selling: I’m not sleazy.

  But the sheer breathtaking, beyond-imagination amounts of money that could easily be made destablized these trade-offs and underlying value propositions. There was no kind of respectability that could compete with the respectability that came from billions. And the more people who made these billions, the less respectable you seemed without you yourself having billions.

  So Lazard, in the last years of the boom, clinging to respectability looked dowdy, out-of-it, failing.

  Now, Rattner was fabulously rich anyway. He didn’t need Lazard anymore. Rather, he seemed to have already designed his segue. He had risen through the ranks of Clinton administration favorites, contributing money, raising money, playing personal host to the homeless first family. He had even now successfully transferred this affinity to Gore and his prospective administration.

  He was about to be that historically important figure, the Wall Street guy who goes to Washington.

  The upside here was really fabulous. He had made hundreds of millions, and now he was going to have historical stature added to the résumé (and be able to someday go back and make, potentially, hundreds of millions more). He was going to be Bob Rubin, or even Clark Clifford.

  But it didn’t turn out that way. The Democrats died.

  Hence, Quadrangle.

  You create a vehicle for economic self-expression.

  It’s less your business than your business avatar. It’s going to represent your business, economic, organizational, and technological philosophy.

  Because you have made money before, money is now going to come to you, reside under your command like the
armies of lesser lords. The money is your instrument.

  A fund.

  To have a fund.

  Pete Peterson, the former treasury secretary, started a fund called Blackstone Group, which, in addition to making him vastly more wealthy, made him more central, engaged, called upon, than he was as treasury secretary. Before Peterson, another treasury secretary, William Simon, created Wesray, and arguably created the model for the personal fund. Henry Kravis, at KKR, with his fund became the seminal businessman of the eighties. John Doerr at Kleiner, Perkins made his venture capital fund the virtual arbiter of the nineties.

  Leverage, venture, hedge—it doesn’t make any difference what kind of fund. In each instance, you have abstract concerns.

  It’s influence. That’s what you have; that’s what you’re after.

  Rattner’s construct, very vague in its outline, would involve the media industry.

  He raised $1.8 billion. And, what with the money you would be able to borrow against that cold cash, Rattner would have $10 billion or more to invest.

  No doubt, as he considered his construct in early 2000, he was thinking about old media and new media and the convergence of platforms and distribution systems and the technology to facilitate all this.

  But then the market crashed.

  Now, in an ideal world, you invest your money in a rising market (ideally, you raise money in a rising market too). In the second best world, you are fortunate enough not to have invested your money in a market which the bottom is falling out of (and too, to have raised at least a good part of what you want to raise before the bottom fell out).

  Indeed, as the first year of the millennium wore, on, and as the millennial downturn got worse in 2001, it was more and more clear that Rattner was one of the luckiest guys around. He’d gotten lots of money together before the bust was clearly on, but hadn’t yet given it to anyone. This meant not only that he was not losing any money, but that he would have all the money in his war chest ready to deploy when the market bottomed out.

  When he bought, he would be buying cheap. It was an impossible-to-fuck-up strategy. The job was just to wait. The art, too.

  You had to fight the impatience of having nothing really to do.

  You continued to raise money—slowly, in a down market—and you had a lot of meetings in which you listened to proposals soliciting you to invest in companies that you were not going to invest in because, if you merely waited a little longer, your dollar would buy more than it would buy when you first heard the proposal.

  How to be a deal maker—a deal macher—without doing any deals? That was the question.

  How to be out there is the way it would have been put. We have to be out there, Steve, someone would have said.

  Brand. Profile. Marketing push. Buzz.

  A conference.

  The finest marketing strategy is to associate yourself with people who do not need a marketing strategy.

  Starfucking.

  Allen & Company, a far-from-mainstream investment house, which had developed a media specialty precisely because it was not a blue-chip firm, had, some years ago, begun gathering moguls together at the Sun Valley estate of Herbert Allen. Not only was this good for Allen & Company business, but it helped create the illusion that Allen & Company, and Herbert Allen himself, were at the center of it all. A magnetic force.

  And if, a central motivation of everyone in the media business is to be at the center of it all, well, then, if you controlled the center, if you were the force that brought people to the center, then you were the center.

  So a Quadrangle conference.

  Rattner and his partners discussed this idea with Fortune. The concept was, first of all, to do this with people who knew how to do it—and Fortune, like every business magazine, organized several conferences a year. And also, to have Fortune, among the eminent names in the business arena, associated with Quadrangle, still hardly a name at all, couldn’t hurt.

  But Fortune, with less to gain by sharing top billing, said no.

  It was at this point that Heilemann and Battelle entered the picture. And while they were far from Fortune status, they had done it before. At the Industry Standard they’d produced conferences—which they’d had Rattner speak at (this is how they knew each other, from conferences).

  What’s more, if they weren’t Fortune, they knew journalists. (While you might think that Rattner would know journalists from his Times career, this was a little like the Chairman of the Joint Chiefs knowing field soldiers—he would, but would not address them except through proper channels.) That’s exactly the pitch that Heilemann and Battelle sold Rattner on. This wasn’t just going to be a promotional thing; this was going to be a real conference. A serious business congress. Quadrangle would be at the center of a marketplace of business ideas and tough new thinking about the media.

  It would be very cool.

  7

  THE BALLAD OF

  JEAN – MARIE

  As Rattner was assembling his war chest, the media business was focusing its attention on another investment banker—a former colleague of Rattner’s from the Paris office of Lazard—who was the brightest and newest star of the media firmament, the first among a next generation of would-be moguls. Heilemann and Battelle, through Rattner, had already drafted him as the first big name of the autumn conference.

  Now it is true that within two months of when I met Heilemann and Battelle for lunch, this star, the 45-year-old French-born-and-bred Vivendi chairman Jean-Marie Messier, would be out of a job, the punch line of every business joke. And yet the fall of their head-liner was not so much evidence of Heilemann and Battelle and Rattner’s foolishness, or lack of prescience, but of the weird surface existence of the media business.

  The business is really quite a courtly affair, in which the most extraordinary manners and rituals are taken at substantive face value, right up until the point that disgrace intrudes. A mogul is a mogul, with all due consideration, until he is deposed. The king must be killed for him to cease being the king.

  If Heilemann, Battelle, and Rattner had not been able to attract Messier to their conference—even when the smart money was already predicting his overthrow—his absence would have marked it as a pallid affair.

  If his was a high-wire act, all media acts are. There isn’t any mogul who has not risked absurdity and death, so absurdity and likely death should not exclude you from mogul acclaim.

  This is, indeed, a crux of the matter: How is it that people vastly unworthy, by all evidence and logic, so palpably precarious, are taken so seriously?

  Why don’t we all break down in laughter?

  How is it that our critical faculties come to be so readily suspended?

  What made us such pushovers?

  Certainly, from the start, the Messier proposal was an exceptionally ludicrous, even slightly surreal one: The idea was to take France’s leading water utility and turn it into a global media-technology-communications company.

  Why?

  A substantial part of the reason, oddly, lies in the uses of metaphor.

  Metaphors as much as spreadsheets are key investment banking tools. The more abstract business became, the greater business there was for investment bankers, and the greater need there was for metaphors to give some structure to the abstruse forms everybody was talking about.

  In fact, it was very French: Business, as well as life, was philosophically complex. It required new tools of language and consciousness to decipher.

  A water company supplied great metaphorical opportunity.

  A water company was an objective correlative for the media business.

  The point was the pipes. Here you had a company that moved its product—water—through a complex distribution mechanism right into people’s homes.

  That, in a nutshell, defined the challenge of the modern media. How do you take our content—a kind of water by any other name—and efficiently get it into people’s homes? (It used to be that you wanted to get in into
their heads—but the home offered the truer point that you really didn’t have to think about, or even register, content for it to be part of your life.) And how do you get it into people’s homes so efficiently that it becomes a transparent part of their daily activities? (Media ought to be on the unconscious level of water and electricity.)

  Owning the pipes was the key.

  Owning pipes was the millennial secret (as plastics had been the secret circa 1967 offered to Benjamin Braddock in The Graduate).

  Literally, there were oil and natural gas companies in the U.S. emptying (and one would assume cleaning) their pipes and filling them with the fiber-optic cables that, shortly, would glut the market.

  A water utility, with only a little critical interpretation, is therefore the same as a media company—indeed, let us call it a media utility.

  This wasn’t just French sophistry.

  Everybody who was rising in the media business was obsessed with distribution. HOW WE GET OUR PRODUCT TO OUR CUSTOMERS.

  This reflected two issues:

  There was the example and threat of cable television. Nobody took cable television seriously in the seventies. It was exclusively a distribution business—“a pure distribution play”—and everybody thought the effort and cost was going to be way too great. What’s more, you already had free television. So why would you choose pay television over free?

  The fact that everybody turned out to be wrong here, that consumers would pay, and that owning the pipes meant you controlled what went into people’s houses, was a vast shock to the media system. The paradigm, and the metaphor, changed. Instead of a media menu, with consumers selecting the radio and television and magazines and books that appealed to them, now the idea was a version of force-feeding. Could you be the doctor administering the nutrients and medication that flowed through the media IV?

  At the same time, we were entering a further new paradigm in which all of the capital and technological barriers to controlling distribution began to fall, in which we were becoming a world of broadband and Napster. That made it all the more imperative, and all the more valuable, to be able to argue that you were, somehow, going to be able to control distribution and maintain control, or at least as much control as it was possible to maintain.