Table of Contents Title Page Copyright Page Dedication PART - FEVER Chapter - See It, Make It, Spend It (2001-2004) Chapter - Starmakers (2005) Chapter - The Jealousy Machine (2005) Chapter - Doubling Down (2005) Chapter - Dealmaker (2006) PART - MANIA Chapter - We Want Your Money (Late 2006-Mid-2007) Chapter - The Blank Check (2007) Chapter - Fight Night (Mid-2007-Late 2007) Chapter - Nails (Late 2007-Early 2008) Chapter 10 - Maxed Out (Early 2008) PART - RECKONING Chapter 11 - Leverage (Mid-2008) Chapter 12 - The Party’s Over (Late 2008-Early 2009) Chapter 13 - See It, Spend It, End It (2009) Acknowledgements INDEX PORTFOLIO Published by the Penguin Group Penguin Group (USA) Inc., 375 Hudson Street, New York, New York 10014, U.S.A Penguin Group (Canada), 90 Eglinton Avenue East, Suite 700, Toronto, Ontario, Canada M4P 2Y3 (a division of Pearson Penguin Canada Inc.) Penguin Books Ltd, 80 Strand, London WC2R 0RL, England Penguin Ireland, 25 St Stephen’s Green, Dublin 2, Ireland (a division of Penguin Books Ltd) Penguin Books Australia Ltd, 250 Camberwell Road, Camberwell, Victoria 3124, Australia (a division of Pearson Australia Group Pty Ltd) Penguin Books India Pvt Ltd, 11 Community Centre, Panchsheel Park, New Delhi-110 017, India Penguin Group (NZ), 67 Apollo Drive, Rosedale, North Shore 0632, New Zealand (a division of Pearson New Zealand Ltd) Penguin Books (South Africa) (Pty) Ltd, 24 Sturdee Avenue, Rosebank, Johannesburg 2196, South Africa Penguin Books Ltd, Registered Offices: 80 Strand, London WC2R 0RL, England First published in 2010 by Portfolio, a member of Penguin Group (USA) Inc Copyright © Randall Lane, 2010 All rights reserved LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA Lane, Randall The zeroes : my misadventures in the decade Wall Street went insane / Randall Lane p cm Includes index eISBN : 978-1-101-43483-3 Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book The scanning, uploading, and distribution of this book via the Internet or via any other means without the permission of the publisher is illegal and punishable by law Please purchase only authorized electronic editions and not participate in or encourage electronic piracy of copyrightable materials Your support of the author’s rights is appreciated Penguin is committed to publishing works of quality and integrity In that spirit, we are proud to offer this book to our readers; however, the story, the experiences, and the words are the author’s alone http://us.penguingroup.com To Mom, for the unconditional trust and love, and the idea to write this PROLOGUE Anyone who has ever been on an active trading floor can testify to the din that can emanate from full-bodied, full-throated men locked in daily combat over large sums of money On November 1, 2007, my company, Doubledown Media, publisher of Trader Monthly, Dealmaker, and Private Air, the magazines that had set the tone for the decade’s wanton earning and spending on Wall Street, stacked almost one thousand of the financial elite three layers high in New York’s century-old Hammerstein Ballroom, a grand hall designed to challenge the Metropolitan Opera House acoustically, for our first-ever Wall Street Boxing Charity Championships We fattened them up, proffering beef tenderloin seared medium rare We liquored them up, placing at each table a five-liter bottle of Imperia vodka, a just-launched “premium spirit” owned by a newly minted Russian oil billionaire who claimed to have rediscovered a nineteenth-century formula that Czar Alexander III had once decreed the standard for all vodka: winter wheat taken from the black soil of the Russian steppes, distilled with glacial water from Lake Ladoga, and twice-filtered through quartz crystals hacked from the Ural Mountains If our guests wanted a little privacy, they could sit in a $400,000 Mercedes Maybach, a three-ton rolling first-class cabin for those who had graduated from the burden of driving to lounging in a backseat outfitted with eighteen-direction adjustable leather seats, foot and head massagers, and a Champagne fridge in the middle armrest If those venturing into our custom cigar tent wanted a nicotine fix, we foisted upon them unlimited $30 Zino Platinum Crowns, a blend of one Peruvian and three Dominican tobaccos, aged four to five years and wrapped in a leaf developed at a boutique plantation in Connecticut We were providing the kind of full-sensory experience required to distract any attendee from noticing that we had lightened their wallets by as much as a thousand bucks each I was surely in the poorest one percent of those assembled, a guy who drove a dented ’97 Subaru Outback But as the CEO and editor-in-chief of Doubledown Media I had the best seat in the room to view my creation in all its craven glory My ringside tablemates included Gerry Cooney, the gregarious former heavyweight contender whom we’d paid $2,000, cash up front, plus cab fare, to mingle with the guests, and Emile Griffith, the former middleweight champ best known for tragically beating Benny “the Kid” Paret to death during a nationally televised bout in 1962 (Griffith, I discovered, suffers from dementia owing to a few thousand hits to his head, which made him extremely hard to understand That helped explain his meager appearance fee—$200, no cab fare.) Halfway through the second fight, I pulled myself away from my famous rent-a-friends and gazed around The collective wealth and conspicuous consumption was breathtaking, especially when compared to the scrappy style of our perpetually underfunded company This was a world as innately foreign to me as a gorilla troop in the African plains But over the past five years, I had gradually learned the language and the customs, and become, at first, a tolerated observer, a Jane Goodall with some cool magazines As our products gained influence, the financial community slowly accepted me as a trusted insider And now, as the markets ascended to unprecedented heights, I found myself, as Wall Street’s scorekeeper, fueling the make-and-spend machine I hadn’t created the wealth in front of me In order for my company to flourish, however, we needed to embrace it Eating, drinking, and consuming, the Wall Streeters arrayed before me were doing a fantastic job celebrating their status at the precise apex of our country’s financial pyramid But judging from the almost primal noise now shaking the Hammerstein’s century-old foundations, our guests, in their Armani tuxedos and Brioni suits, had actually come for something even more innate than the steaks and vodka They had come for blood Preferably, it seemed, blood from the one group that almost everyone on Wall Street could agree embodied all that was evil and wrong with the world: the tiny substratum of their peers who made even more than they did “Goldman Sucks!” the crowd thundered in unison “Goldman SUCKS!” Poor Shane Kinahan, I thought, watching him march toward the boxing ring as the bagpipers he’d personally hired for his entrance futilely tried to drown out the profanity now raining on him A vice president at Goldman Sachs, an institution whose name was now being collectively mocked, Kinahan was guilty of a mortal Wall Street sin: inspiring jealousy Once bonuses were doled out a few months hence, Goldman would pay its thirty thousand employees an average of $661,000 for 2007, more than any bank on the Street or similarly sized company in the world It was a figure that took into account every secretary, janitor, cafeteria worker, and Town Car driver Our crowd, of course, did far better: Kinahan was surely well into seven figures, and some of his colleagues would nudge past $100 million for the year Rooting for Goldman Sachs was thus about as much fun as rooting for Kim Jongil on Election Day in North Korea To make matters worse for Kinahan, he was fighting Josh Weintraub, who had the double advantage of a college boxing background and the underdog’s chip on his shoulder No matter that Weintraub was one of the biggest hitters on the Street, the guy who made millions running Bear Stearns’s “private label” mortgage trading desk—selling mortgages so junky that neither Fannie Mae nor Freddie Mac would guarantee them—packaged under a euphemism that made them sound as benign as Sam’s Club cola (“It’s just as good as Coke, but one-third the price!” ) The math in the room was just as simple: Bear versus Goldman David versus Goliath Rather than tap gloves at the beginning of the round, as is traditional in amateur fights, Weintraub taunted Kinahan, sticking his face out the way a mongoose might bait a snake Trinity Gym, a boxing specialist in New York’s financial district, had spent four months training each of our fighters, and part of the mantra had been to put on a good show for the paying customers If you were outclassing an opponent early, carry him a little bit, then take him out in the third round Not Weintraub He tore at Kinahan mercilessly—a left cross for Kinahan’s secretary, who made three times more than Weintraub’s secretary, a right jab for the three top earners Goldman had stolen from Bear the year before—finally stunning him with a right hook that dropped the Goldman trader after ninety seconds The crowd cheered like it was V-E Day, led by a boisterous Weintraub entourage He had personally forked out $65,000 for premium tickets for friends, family, and crew, followed by an after-party at a nearby club As eight sets of boxers slugged through the night, traders and bankers streamed toward Hammerstein, unfurling rolls of hundreds in hopes of charming the check-in girls and buying their way into the capacity event Via text messages and cell phone calls, The Word had gone out: Wall Street was celebrating tonight The past month had seen the Dow Jones Industrial Average surge past 14,000 points for the first time Guys like Josh Weintraub were making fortunes by creating securities more complicated than the Rosetta stone and also far more valuable And Bear had just beaten Goldman For these guys—my guys, for better or worse—all was right and just with the world No one had yet developed a name for this era, this decade with the once-a-millennium calendar quirk of two zeroes perched in the middle As I gazed across the room in front of me, “the Zeroes” seemed fairly spot-on Wall Street’s breathless pursuit of zeroes, that easy-money mentality, had permeated every aspect of our culture In my role as Wall Street’s scorekeeper, I too had fallen prey to the mind warp But I had no inkling that, when the figures were tallied at the end of 2009, there would be zero increase in household net worth for the decade Zero net job creation Zero median income growth Zero stock market appreciation Or that the global economy, imperiled by a group of collective zeroes, faced an imminent meltdown that would wipe out millions of people financially—myself included Given my unique perch, perhaps I should have But wealth and excess have a blinding effect, especially amid the kind of greedfest that comes along only once every thousand years That was exactly the problem It calls for an explanation Lauer, Matt Lava Trading Lazard Frères Leary, Denis Le Cirque Lee, Jennifer Leeson, Nick Legacy Lehman Brothers Lending Tree Leno, Jay Lesser, Jonathan Lethaby, William leveraged buyouts Lewinsky, Monica Lewis, Lennox Lewis, Michael LinkedIn Lipton, Joshua liquidity Lisovicz, Susan Litvak, Uri loans, bundling and selling of London London International Financial Futures and Options Exchange (LIFFE,“The Life”) Long-Term Capital Management LTB Media Lucas, George Lufthansa Airlines heist Lynch, Peter McCain, John McCall, Carl McCoy, LisaRaye MacDowell, Andie McEnroe, John MacFutures MacLeod, Jamie McNamee, Brian Macpherson, Elle Mad Money Madoff, Bernie magazine failures magazine industry Magrino, Susan “Making It Big and Keeping It” Maloney & Porcelli Mandarin Oriental Hotel Mandel, Stephen Manet, Édouard Manriquez, Ramon MarketWatch Marshall, David Martinez, David Massey, Drew Massey Energy Max, Mary Max, Peter charity fund-raiser of cigar party deal with eccentricities of One-Plus-Three scheme of, see One-Plus-Three photographs for portraits by portrait parties of purchases of portraits by tax evasion conviction of MAXjet Maxwell, Ghislaine Maxwell, Robert May, William Talcott “Billy” Maybach, see Mercedes Maybach Medallion fund media see also specific media MediaPost Mediaweek Mehta, Punit Mercedes Maybach Merckle, Adolf Mercorella, Robert Meriwether, John Merrill Lynch Miami Heat Miami Herald Michaelson, Zach MidOcean Partners Mies van der Rohe, Ludwig Milken, Michael Mindich, Eric Miramax Films Mirsky, Andy Misick, Michael Mitchell, George Mitchell Report mixed martial arts (ultimate fighting) Moby (Richard Melville Hall) Modern Luxury Mojo TV “money good” Moore, Doug Moore, Jerry J Moore, Julianne Moore, W Chris Morgan, J P Morgan, Piers Morning Call Morrison, Edith “Deedee” multiples Munk, Nina Murdoch, Rupert Music Festival for Mental Health mutual funds MySpace Myst “Nails Investments” Nails on the Numbers Najarian, Jon Najarian, Pete NASD Nasdaq Nash, Graham natural gas Navellier, Louis NEA Neil, Andrew Neuger, Win Newhouse, Jonathan Newhouse, Si News Corp New York Mercantile Exchange (NYMEX) New York Mets New York Post New York Rangers New York Stock Exchange New York Times Nicaragua Niccolini, Julian Niche Media Nikki Beach NINJA loans Nino’s Bellissima Nitke, Marla Niven, Jamie Nobel Prize Norfleet, Philip Norma’s Novogratz, Michael Oaktree Capital Obama, Barack Ocean Club O’Connor, Richard Old Homestead steakhouse Olympic Games Omega Advisors One-Plus-Three “Operation Dr Evil” Operation Smile OPM (Other People’s Money) OPR (Other People’s Risk) Options Group Orman, Suze Orr, John Ortega, Daniel Paret, Benny “the Kid” Park, John Ho Park Avenue Armory Parker, Katharine Pastenkos, Nora Patricof, Alan Paul, Chris Paulson, Henry Paulson, John Paulson and Co Peck, Andrew Peel, Keith Pelaccio, Zak Pellegrini, Paolo Pelosi, Nancy Peloton Partners Peltz, Nelson Penn, William penny stocks Penthouse Penthouse Club Penthouse Executive Club People Peretz, Marty “Performance” Perkins, Bill Peter Max store Peters, Scott Petersen Peterson, Pete Petrossian Philadelphia Phillies Phillips, Tom Physical Impossibility of Death in the Mind of Someone Living, The (Hirst) Picasso, Pablo Pickens, T Boone Pierson, James Pine, Rachel Pistone, Joe “Donnie Brasco” Play Players Club Players Club Dykstra’s theft of launch party for Pocantico Hills poker Ponzi schemes Poor Richard’s Almanack (Franklin) P.O.V Power Lunch Prestige Capital Preventicum Prime, The prime rate Priston, Andy “Braveheart” Trader Monthly cover shoot of Private Air Doubledown purchase of Travolta cover shoot for Private AirMart private equity in financial crisis negotiations for ProElite “promote” proprietary (prop) traders props (proprietary desks) Prostate Cancer Foundation Puerto Rico Pursuit of Happyness, The Putin, Vladimir Qatar Airways quants Quayle, Dan Rainmakers Ramsay, Gordon Ratner, Bruce Razors (trader) Reader’s Digest Reagan, Ronald reality television Real Sports Refco fraud and implosion of Reilly, Jack Reingold, Jennifer Renaissance Technologies Restaurant, The Retirement Letter, The Reuters Ringside for Mercy’s Sake risk in hedge funds as OPR in real estate in retirement plans risk managers Ritz-Carlton “Riviera of the Caribbean” Robb Report Roberto (trader) Robin Hood Foundation annual gala and auction of Rockefeller estate Rockit Roddick, Andy Rodriguez, Alex Rogers, Warren Rolling Stone Room to Read Rose, Peter Ross, Diana Ross, Steve Rothko, Mark Rubik’s Cube business model Rushmore, The Saatchi, Charles SAC Capital St Regis Sanchez, Rick San Pietro Santa Monica Media in deal to buy Doubledown Sarbanes-Oxley Act (2002) Sarsgaard, Peter Saturday Night Fever Savin, Garry Say Yes to Education Scala, Denise scalpers Schaap, Jeremy Schack, David Schmitt-Carey, Mary Anne Schwarzman, Christine Schwarzman, Steve birthday party of Scorsese, Martin “Scrum and the Fury, The” Seagram Building Seaside Marina SEC “See It, Make It, Spend It” Self, Jason September 11, 2001, terrorist attacks Serenade of the Seas Serendipity Sevigny, Chloë Shannon, Pat Shannon, Ryan Shattered Glass Short, Martin short-selling Shostak, Mitch Showtime Siebert, Muriel Sigler, Jamie-Lynn Sigmond, Aaron Silverjet Simons, James Simpson, O J Singh, Dinakar Siva-Jothy, Christian Skadden, Arps SkyNews Smith, Dave Smith, Greg Smith, Tobin Smith, Will Smith Barney social media social networking Société Générale Soros, George Sotheby’s South China Morning Post Space Adventures SPACs (special-purpose acquisition companies) spam Spanier, Ian Sparks Sperling, Marc Spielberg, Steven Spitzer, Eliot Sports Illustrated “Spreads” Spy Squawk Box Staglin, Brandon Staglin, Garen and Shari Staglin Family Vineyards Standard & Poor’s 500 Stark, David Starr, Ringo State Department, U.S status symbols: airplanes as cars as cigars as clothing as food and spirits as jewelry as real estate as watches as women as Steinhardt, Michael Stella, Frank Stephenson, Kirk steroids scandal Stewart, Jon Stewart, Martha Stewart, Rod Stiles, Alan Stiles, Christina Stone Rose Stringer, Howard strippers, strip clubs “Stu” and “über-Stu” (prospective watch buyers) subprime mortgages suicides Suka Sundeck supermarket real estate Survivor Suttmeier, Richard Sykes, Tim bar mitzvah story of in reality TV gig RL attacked on Web by T3 Securities Tabitha (Douglas’s aide) “Tank McNamara” Tao Tarrytown, N.Y Tauwhare, Richard television real estate shows on reality TheStreet.com Thomas, Dylan Thornton, Billy Bob thrift Tim (flight attendant) Time Inc Time Out New York Times (London) Time Warner Time Warner Center Tisch family TMG Tony (assistant) “too big to fail” “Torch of Strength” toxic investments TPG Axon “Trader Dater” Trader Monthly advertisers in attempted selling of awards parties of Bonus Issues of brainstorming for as champion of women’s causes chauvinistic approach of covers and cover shoots for credibility of Dunning and launch parties for loyalty of staff of New York office of in shift to database as TV source in UK Trader Monthly Brazil Trader Monthly Europe Trader Monthly 100 Trader Monthly 30 Under 30 parties for traders, trading: “buy low” mind-set of criminal investigations of drug use of ethics vs profit motive of as global casino as male dominated as New Moneybags proprietary (prop) risk as factor in salaries of schemes of as superstars traditional vs electronic viewed as villains after financial crisis youthful environment of; see also Trader Monthly 30 under 30 see also financial elite; hedge funds; individual traders TransMarket Group Travolta, John Trend Offset Trinity Gym Trump, Donald Trump, Donald, Jr Trump, Melania Trump Tower Tuesday’s Children Turks and Caicos charity auction party of Turow, Scott TV Guide Twitter 2-and-20 Tyler, Steven UBS United Capital Markets Valerie Fund Vanity Fair Verizon VH1 Vibe Vigliano, Dave vodka Vogue House Wachovia Wade, Dwyane Wade, Zaire Wadood, Ghazzali Wall Street Wall Street Boxing Charity Championships see also Extell Wall Street Boxing Charity Championships Wall Street Burger Shoppe Wall Street Journal Wall Street Smoke Wall Street Warriors Wall Street Watch Club Wall Street Wine Club Walraven, Wes Walters, Barbara Ward, Anthony “Chocolate Finger” Wardour Soho Warhol, Andy war on terror Washington Mutual Watkins, Henry Way to Wealth, The (Franklin) weapons of mass destruction Wedner, Marcus Weill, Sandy Weinberg, Sidney Weinstein, Harvey and Bob Weintraub, Josh Welch, Nathaniel Welcome Back, Kotter Wenger, T J Wenger, Ty Western Union telegraph cable Wexner, Les “Where Wall Street’s Caviar Set Still Thrives” Whitewater scandal W Hotel, Casino and Residences William B May Wilson, Steve “Window on America” Winfrey, Oprah Winsor, James women as championed by Trader Monthly discrimination against Dykstra’s view of as entertainment as status symbols, see status symbols as target audience for Justice “Women of Wall Street” parties Woodstock festival “Working Wealthy” World Series of Poker World Trade Center W Times Square Wyard, Brett Wyndham Hotels Wynn, Steve Wynn Las Vegas Yackow, Mark Yankee Stadium Yasgur, Max Yellowbird Youbet.com YouTube Yu, Dan Zannino, Rich “Zeroes,” origin of term 02138 Zeta-Jones, Catherine Ziff-Davis Zuckerman, Mort ... Penguin Group (USA) Inc Copyright © Randall Lane, 2010 All rights reserved LIBRARY OF CONGRESS CATALOGING -IN- PUBLICATION DATA Lane, Randall The zeroes : my misadventures in the decade Wall Street. .. day, rather than mine, was the more definitive one You can always tell a trader by his watch They’re the wedding rings of the financial world, an accessory that informs knowing observers of the. .. reverse-engineering him Rather than take the Life’s detritus and turn them into electronic traders, he began taking smart kids with instincts and math skills and training them to scalp During the trading day,