Charles and Tammi Eggleston, with their daughters, Shelby and Sydney, have been trying to sell their home in Maple Heights, Ohio, since May 2006. Nearby houses sit vacant. David Maxwell for The New York Times
Michael Ciaravino, mayor of Maple Heights, has had to cut services. David Maxwell for The New York Times
Members of the East Side Organizing Project help mortgage holders work out new terms with lenders. David Maxwell for The New York Times
Mark Seifert, left, executive director of the East Side Organizing Project, with Nathaniel Marshall during a meeting with homeowners. David Maxwell for The New York Times
Unlike most of his competitors, Marc Stefanski, chief of Third Federal Savings and Loan, resisted the urge to cash in on the subprime lending boom. David Maxwell for The New York Times
By NELSON D. SCHWARTZ Published: September 2, 2007
Maple Heights, Ohio
TAMMI and Charles Eggleston never took out a risky mortgage, never borrowed more than they could afford and never missed a monthly payment on their neat, three-bedroom colonial in the Cleveland suburbs. But that hasn’t prevented them from getting caught in the undertow of the subprime mortgage mess now submerging this town.
Over the last 18 months, the Egglestons have watched one house after another on their street, Gardenview Drive, end up foreclosed and vacant. Although lawns are still tidy and empty homes are not boarded up and stripped as they are in inner-city Cleveland, the Egglestons say Maple Heights no longer feels safe after dark. Nor do they have the confidence they had when they moved in a decade ago that this is the ideal place to raise their 6-year-old twin girls, Sydney and Shelby. So, in May 2006, they put their home on the market in order to move closer to Mrs. Eggleston’s parents in another middle-class Cleveland suburb, Richmond Heights.
They have had no takers. Although they lowered the asking price to $99,000 from $109,000, no one has even come to look at it in more than six weeks. “My heart panics every time I drive down the street and I see another for-sale sign,” says Mrs. Eggleston, pointing past the placards in front of her porch to others that dot surrounding yards like lawn furniture. “Some people on the street couldn’t pay, so they just left. The competition to sell is just ridiculous.”
It is a scene being repeated in cities and towns across America as loans that were made to borrowers with little or no credit history, many of whom could not even afford a down payment, fail in ever-growing numbers. It is also a story of how local economic trends are intersecting with national politics, with local foreclosures drawing the attention of Democratic presidential candidates, including John Edwards and Representative Dennis J. Kucinich of Ohio.
On the Republican side, President Bush announced on Friday several steps aimed at alleviating the impact of the subprime crisis on homeowners. In a Rose Garden appearance, he ruled out a federal bailout, citing both “excesses in the lending industry” and unduly optimistic homeowners who took out “loans larger than they could afford,” as reasons for the mortgage woes.
Indeed, what was once a problem confined mostly to economically struggling areas is quickly becoming a national phenomenon. Last year, there were 1.2 million foreclosure filings in the United States, up 42 percent from 2005, according to RealtyTrac, a firm that analyzes such data. At current rates so far this year, RealtyTrac expects foreclosure filings to hit two million in 2007, or roughly one per 62 American households — a rate approaching heights not seen since the Great Depression.
Analysts also say that the fallout from mortgages gone bad is spreading well beyond borrowers now in default. It has begun to engulf middle-class communities like Maple Heights, where nearly 10 percent of the houses — or 910 properties — have been seized by banks in the last two years. And it foreshadows what could lie in store if mortgage holders default on what the Federal Reserve conservatively estimates to be $100 billion in risky subprime loans. Many of these loans were made in 2005 and early 2006, when standards were at their most lax and cities like this were blanketed with aggressive pitches from mortgage providers.
“I don’t think we’ve hit bottom,” says Michael G. Ciaravino, the mayor of Maple Heights. “My fear is that foreclosure rates could go to double where they are today.”
IN terms of the subprime mortgage meltdown, Ohio has been among the hardest-hit states, according to the Mortgage Bankers Association. In Cuyahoga County, which includes Cleveland and surrounding suburbs, roughly 30 percent of subprime mortgages are either delinquent or in foreclosure, says Jim Rokakis, the county treasurer.
But this leafy community of bungalows and small family homes built after World War II could be described as its epicenter. Already, Maple Heights, with a population of 27,000, ranks No. 1 in Cuyahoga County in foreclosures per capita, according to Policy Matters Ohio, a nonprofit research group. Ranked by ZIP code, the number of foreclosures here puts Maple Heights in the top one-half of 1 percent nationally, RealtyTrac says.
Mayor Ciaravino has already had to shut his town’s two swimming pools, cut the ranks of police officers and firefighters and eliminate services like free plowing for senior citizens with snow-covered driveways.
With so many houses vacant, says Michael H. Slocum, the finance director of Maple Heights, “it puts a big question mark out there; historical collection patterns for taxes are becoming less reliable.”
In fact, when the town made its annual assessment on homes for garbage collection last month, receipts came in 15 percent below projections, forcing a 50 percent rate increase.
“There is truly a cascading effect,” says Mr. Ciaravino, 43, who grew up in Maple Heights and was a local prosecutor before being elected mayor four years ago. Sitting in his 1950s-style wood-paneled office in City Hall, he says that “the folks living next to these empty homes get discouraged, and middle-class people are leaving.”
For a mayor presiding over a town in crisis, Mr. Ciaravino doesn’t seem angry, but beneath an affable exterior is barely concealed frustration that the danger of subprime debt became a national issue only after Wall Street began to wake up to the threat this summer. “We’ve been warning of problems for years,” he says. “I’m just a small-town mayor. Where was the foresight?”
That same question is echoing among politicians with constituencies far larger than Mr. Ciaravino’s. In July, Mr. Edwards came to Cleveland to tour a neighborhood hammered by foreclosures. Two months earlier, Mr. Kucinich took reporters on a walking tour of the neighborhood where he spent part of his childhood, Slavic Village, pointing out boarded homes and criticizing what he called “predatory lenders.”
What’s more, Cleveland is key in a crucial battleground state in the next presidential election, so it is a good bet that more candidates from both parties will be here touring neighborhoods dotted with foreclosed homes, much the way Ronald Reagan went to the South Bronx in 1980 to highlight what he called the failure of Jimmy Carter’s economic policies.
“There’s plenty of blame to go around,” warns Mr. Ciaravino.
TWICE a week, the East Side Organizing Project, an advocacy group in an industrial neighborhood midway between downtown Cleveland and Maple Heights, is host to what its executive director, Mark Seifert, calls “the cattle call.” The group helps mortgage holders keep their homes, and these afternoon sessions are when new clients first go over their cases.
Until this year, he says, about 80 percent of the people who came for help lived in the city, with the balance from close-in suburbs like Maple Heights. Today, the mix is split evenly between city and suburb.
So, in a windowless conference room in late August, as ceiling fans buzz overhead, James Jones, an intake specialist, tells newcomers: “We’re in the business of trying to save your home. The information we get from you is what we use to negotiate.”
The group uses other resources, too — like a bit of street theater to coax recalcitrant banks into renegotiating loans going sour. Mr. Seifert and his colleagues have scattered plastic sharks on the lawns of regional Countrywide Financial Corporation managers, and organized protests outside their offices. “We have cellphone numbers of the folks in the ivory tower making decisions, and we can call them at 1 a.m.,” Mr. Jones promises the group.
It usually doesn’t come to that. The project holds conference calls with Countrywide, CitiFinancial and others, mediating between the lender and individual mortgage holders. In successful renegotiations — which happen in about 85 percent of the cases the project handles — Mr. Seifert and his team persuade lenders to accept lower interest rates, or even a reduction in the total value of the loan, instead of foreclosing.
Lenders have incentives to negotiate. In addition to the plastic sharks and bad publicity, Mr. Seifert says, they can avoid the loss that comes with the seizure of a property. “Let’s say the loan is for $100,000,” he explains. “The banks know that if the house ends up getting foreclosed, they’ll only walk away with $50,000 or $60,000.”
If foreclosures ultimately harm underlying property values and cause losses to both lender and borrower, why are they still so prevalent?
“Some lenders understand; others don’t,” Mr. Seifert says. “Countrywide doesn’t.” Out of 120 recent mortgages cases with Countrywide, Mr. Seifert says, 15 have resulted in work-out deals, only two of which he said were “very good.”
One of those loans belonged to Audrey Sweet, a Maple Heights resident and a first-time home buyer who borrowed $118,000 from Countrywide in late 2004 without putting any money down. Because of Mrs. Sweet’s poor credit history and lack of assets, the adjustable loan’s rate was 10.25 percent, but she says she was told that if the couple “just proved themselves,” they could quickly refinance at a lower rate.
Mrs. Sweet says Countrywide advised her that the monthly property tax bill would be $100, but it turned out to be $230 and the Sweets quickly fell behind. Countrywide stepped in and paid $3,493 in back taxes in March 2007, and the next month raised the Sweets’ monthly mortgage bill to $1,713 from $1,055.
That was far beyond the budget of the couple, so Mrs. Sweet turned to the East Side group in April. She says Countrywide finally budged in late July, the day before she testified before Congress at a Joint Economic Committee hearing about her experiences with Countrywide. Working with a local lender, Third Federal Savings and Loan, the Sweets managed to refinance the loan at a fixed rate of 7.2 percent, and the original $1,055 monthly payment now covers the property taxes the Sweets couldn’t afford before.
Countrywide says it has tried to work with East Side but “has been met with nothing but derision and grandstanding,” adding that it does not believe “these efforts help to save anyone’s home from foreclosure.” Nationally, Countrywide has completed 35,000 successful renegotiations so far this year, including 50 in Cleveland in a two-day period last week, according to Rick Simon, a Countrywide spokesman.
“We have made a tremendous effort to avoid foreclosures and work with customers,” he says.
It is also clear that the Sweets bear some responsibility for their predicament. “I do blame myself a little bit,” Mrs. Sweet acknowledges. “I feel dumb.” She explains that she was focused on the monthly payment when she borrowed from Countrywide, not the interest rate or taxes due. “Once we got the loan documents at the closing, I just came home and stuck them in a drawer.”
Although the Sweets’ story has a happy ending, some neighbors have not been nearly as lucky. Three houses on their street have gone through foreclosure, including one home three doors down, where their neighbor’s possessions were dumped onto the lawn. “And I live on the better end of town,” Mrs. Sweet says.
AS he drives through the Slavic Village neighborhood, passing homes stripped of aluminum siding, copper pipes and other remnants, Marc A. Stefanski says, “There are still S.& L.’s and banks that lend with a conscience, but, man, you got to find them.”
Mr. Stefanski should know: as the chief executive of Third Federal Savings and Loan, a Cleveland thrift that his parents founded in 1938, he has an unusual perspective on the mortgage mess. Unlike most of his competitors, Mr. Stefanski resisted the urge to cash in on the subprime lending boom.
His bank never offered no-money-down loans, piggyback mortgages, exploding adjustable-rate mortgages or the other financial exotica that ultimately tripped up the Sweets and millions like them. Third Federal pays its loan officers salaries, rather than commissions, so there is no incentive to go for volume. Even more remarkable is that Third Federal holds onto a sizable portion of its mortgages and keeps them on the books, rather than selling them to Wall Street to be sliced and diced into asset-backed securities owned by investors on the other side of the globe.
The result is that unlike many other mortgage lenders, Third Federal has a vested interest in making sure its loans do not go bad, so foreclosure is a last resort.
“The model has shifted,” says Mr. Stefanski. “It became very lucrative. But it was totally irresponsible for the sake of greed.” Not that Mr. Stefanski didn’t notice the profits to be had. “Absolutely, we were tempted,” he acknowledges. “We arm-wrestled and talked, but we decided not to change the model. We felt it wasn’t the right thing to do.”
Mr. Stefanski is no social worker. He lives in an affluent suburb of Cleveland and earned nearly $2 million last year. But he does not hide his feelings about just what went wrong in places like Maple Heights. “The whole system was based on raping the public,” he says, matter-of-factly. “Not everyone should own a home — just those who can afford it.”
Third Federal has a branch in Maple Heights, Mr. Stefanski says, and in the past, “we owned Maple Heights.” But in recent years, he says, “The predators just jumped on it.”
Third Federal’s share of the mortgage market in northeastern Ohio fell to a low of about 11 percent by 2001 from more than 30 percent in the early 1990s.
Tammi Eggleston also watched the more aggressive lenders move in, albeit from a different vantage point. “They were canvassing the neighborhood,” she recalls. “Letters in the mail, knocking on the door, calling on the phone. They were everywhere.”
Now, with other lenders pulling back and some fighting to stay in business, Third Federal has increased its share of the mortgage market to 24 percent, picking up mortgages like that of the Sweets and earning praise from community activists like Mr. Seifert. Perhaps even more significantly, Third Federal has created a program for more risky borrowers like the Sweets, with required classes so that mortgage holders understand exactly how their loans work and what they will owe.
WHY has the impact of the subprime meltdown been so much more severe in communities like Maple Heights than in other parts of the country? Mr. Rokakis suggests that it is a combination of Cleveland’s underlying economic problems and a lack of the steadily appreciating housing prices that other areas enjoyed. That shut off a crucial safety valve — in other regions, overwhelmed borrowers could often turn around and sell their homes for at least a slight profit.
In Maple Heights, the situation is now reversed: with so many properties on the market, home values are dropping, and some delinquent mortgage holders owe more than their homes could now fetch in a sale. “The tax base is eroding,” says Mr. Ciaravino, the mayor. He warns that property values may soon have to be reassessed downward, further crimping tax revenue and raising the heat on Maple Heights’ remaining property owners. “This has affected virtually every aspect of community life, like increasing the rate of transient students in the schools,” he says.
All of these factors are reasons the Egglestons want to move, but they are not sure they will be able to do so anytime soon. “We’re torn,” says Mrs. Eggleston, who works as an executive assistant at a Cleveland nonprofit organization. “You can see and feel the change in the neighborhood. We’re really not sure what to do.”
Mr. Ciaravino is torn, too. He understands the Egglestons’ fears but needs middle-class families like them to stay if Maple Heights is to have a decent future. “We’re not giving up the fight here,” he says, with a trace of weariness in his voice. “It’s frustrating because this could have been avoided. We as a nation are capable of much better than this.”
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Podcast
Weekend Business
This week: Reactions to Ben Bernanke's comments, how the subprime crisis is affecting a neighborhood in Ohio, the strength of Hollywood and its ceos, and the question of whether we are heading for a bear market.
[F6 note -- in addition to (items linked in) the post to which this post is a reply and preceding and (other) following, see also in particular (items linked in) http://investorshub.advfn.com/boards/read_msg.asp?message_id=15834176 and preceding and following -- and just by the way, I grew up in Maple Heights]
The yacht owned by Microsoft co-founder Paul Allen, anchored off Hong Kong in 2007. The yacht, named Octopus, is more than 414 feet long. Ted Aljibe/Agence France-Presse — Getty Images
Despite fear of an economic recession and unrelenting job pressures among those who remain yachtless, there’s still a lot of money floating around the world. And as the superrich get richer, the size of yachts grows bigger and bigger, too. The 377-foot Pelorus shown here is owned by Russian billionaire Roman Abramovich. Photo: Grame Robertson/Getty Images
The Maltese Falcon, at Fort St. Angelo in Valletta, Malta. Photo: Darrin Zammit Lupi/Reuters
The Maltese Falcon with its sails unfurled. Photo: Luca Zennaro/European Pressphoto Agency
The Mirabella V is owned by Joe Vittoria, the former chief executive of Avis Rent A Car System. The vessel's 292-foot mast is so tall it can't fit under the Golden Gate Bridge. Photo: Pascal Guyot/Agence France-Presse — Getty Images
The Octopus, owned by Microsoft co-founder Paul Allen. Photo: Dana Jinkins/Associated Press
By PATRICIA KRANZ Published: March 16, 2008
IN a shipyard in Germany, Blohm & Voss workers are building a mammoth yacht called the Eclipse.
Like many things in the secretive world of superyachts, its exact length is hard to pin down. So is the name of its owner, and the cost of building it.
But according to the Web site of The Yacht Report, one of several publications that track yachting with the same intensity that gossip magazines cover Hollywood hunks, the Eclipse is 531.5 feet long.
That’s six and a half feet longer than the Dubai, an 11,600-ton behemoth that now holds the record as the world’s largest yacht. Its owner is the ruler of Dubai, Sheik Mohammed bin Rashid al-Maktoum.
The extra length on the Eclipse isn’t an accident. Supersized yachts are the latest examples of one-upmanship among billionaires, many of whom already own a private jet, a Rolls-Royce or two, and multiple mansions.
Despite fear of an economic recession and unrelenting job pressures among those who remain yachtless, there’s still a lot of money floating around the world. And as the superrich get richer, the size of yachts grows bigger and bigger, too.
“When a yacht is over 328 feet, it’s so big that you lose the intimacy,” says Tork Buckley, editor of The Yacht Report. “On the other hand, you’ve got bragging rights. No question, that’s a very strong part of the motivation.”
Who will be the one to wrest bragging rights from the sheik? Blohm & Voss, a leading shipbuilder, isn’t saying. According to an executive at a different yacht company, who requested anonymity because he was concerned about losing clients, it is being built for Roman Abramovich, a Russian tycoon.
Mr. Abramovich already owns the 282-foot Ecstasea and the 377-foot Pelorus, and Web sites that track yachts speculate that he may be the owner of a new 394-foot yacht called Sigma that resembles a battleship. A spokesman for Mr. Abramovich declined to comment.
Just four years ago, when Lawrence J. Ellison, the chief executive of the Oracle Corporation, took possession of the 454-foot Rising Sun, he gained crowing rights over Paul Allen, the Microsoft co-founder. Mr. Allen’s yacht, the Octopus, is relatively minuscule at 417 feet. (Since then, David Geffen, the Hollywood mogul, has bought a 50 percent share of the Rising Sun from Mr. Ellison.)
Many yacht owners are entrepreneurs or industrialists, rather than royalty or bold-faced names from Silicon Valley, according to yacht designers and builders. “One of my clients is a woman who started her own business and ended up making cocktail-type quiches sold through Costco and Wal-Mart,” said Douglas Sharp, who owns a yacht design company in San Diego.
Like Mr. Abramovich, a growing number of yacht buyers are from emerging markets. “There’s an incredible amount of disposable money in the world at the moment, and a lot of money is coming out of new markets like Russia and Ukraine, as well as India,” says Jonathan Beckett, chief executive of Burgess, a company that helps owners build and charter yachts. “These people have made a lot of money very quickly and have an appetite.”
According to ShowBoats International, a luxury yacht magazine, 916 yachts measuring 80 feet or longer — the traditional definition of a superyacht — were on order or under construction as of last Sept. 1, four times the number in 1997. The biggest gains were among the biggest yachts: 47 yachts were 200 to 249 feet long, up 68 percent from a year earlier, while 23 were 250 feet or longer, an increase of 28 percent.
“When I started in the early 1970s, a 60-foot boat was considered pretty large,” Mr. Sharp said. “A 150-foot boat was queen of the show in Monaco in 1982. In 2008, you wouldn’t be able to find that boat in the marina.”
Some new megayachts are so big that they have to dock in commercial ports. The growth in the number and size of yachts is also making it hard to find qualified crew members.
Still, many yacht owners trade in their boats every few years for bigger models.
“People want more toys to play with. That’s something that drives it,” says Wim Koersvelt, director of Icon Yachts in the Netherlands. “Gyms were unusual 20 years ago, and no yacht is being built now without a gym. They’re buying two- to four-person submarines, have four Jet Skis and little sailboats stored on board, as well as helicopter landing pads.”
It takes two to four years to build a yacht, and prices are rising so quickly that some owners are selling their boats before they’re even finished — for a tidy profit. Mr. Beckett of Burgess says prices have risen 10 percent to 20 percent in the past two years alone. He estimates that a yacht 328 feet long would cost about $230 million today, with prices rising to $650 million for a 500-foot yacht.
Some owners recoup part of their costs by chartering their yachts. Want to sail the Maltese Falcon, the innovative clipper ship built by Tom Perkins, the Silicon Valley venture capitalist? That will put you back around $539,000 to $555,000 a week, not counting expenses for fuel, food or crew. Or the Mirabella V, the elegant sloop owned by Joe Vittoria, the former chief executive of Avis Rent A Car System? That’s $325,000 to $375,000 a week, depending on the season.
There are no signs that demand will slacken. “There are 2,000 superyachts in the world today” over 120 feet long, “and nearly 200,000 people who could afford to buy them,” Mr. Beckett says.
The arms race in yachts echoes the competition among business titans in the last century to build the world’s tallest skyscraper. In his book “Mine’s Bigger,” David A. Kaplan describes the battle between Mr. Perkins and Jim Clark, the co-founder of three Silicon Valley companies, including Netscape, as they competed to build the world’s biggest sailing megayacht.
By the time Mr. Perkins completed his Maltese Falcon, measuring 288 feet, in 2006, it was substantially longer than Mr. Clark’s Athena if measured at the water line.
“Clark could console himself only with the fact that if you included his 33-foot stainless steel bowsprit as part of the length, then his was bigger than anybody else’s,” Mr. Kaplan writes.
Mr. Vittoria holds a different record. His 247-foot Mirabella V has a 292-foot mast — so tall that it can’t fit under the Golden Gate Bridge.
[F6 note -- in addition to (items linked in) the post to which this post is a reply and preceding and (other) following, see also (items linked in) http://investorshub.advfn.com/boards/read_msg.asp?message_id=27690633 and preceding -- and comment -- another hundred feet or two, a modified private jet, and some jackass'll start the new fad -- personal aircraft carriers -- heck some of them probably could already handle a VTOL craft ( http://www.skywalkervtol.com/ ) -- . . .]
Sandy Weill says that Citigroup didn't want his help to recover, so he is trying to move on. Damon Winter/The New York Times
In 1998, John Reed, left, and Sandy Weill merged two financial giants, Citibank and Travelers. Ozier Muhammad/The New York Times
By KATRINA BROOKER Published: January 2, 2010
“THIS is my final annual meeting as chairman,” says Sandy Weill, standing near the window of his office, peering at a grainy photograph of him and his wife on stage at Carnegie Hall more than three years ago. They are smiling broadly, and behind them is a packed house of cheering Citigroup shareholders. A huge banner dangling from the balcony reads “Thank You Sandy.”
On that day, April 18, 2006, Citi’s share price was $48.48. After studying the photo for a few moments, Mr. Weill says quietly, “I thought the company was impregnable.”
He knows now, of course, that he was wrong.
Over the last two years, Mr. Weill has watched Citi — a company he built brick by brick during the final act of a 50-year career — nearly fall apart. Although every taxpayer in the country has paid for Citi’s outsize mistakes, for Mr. Weill the bank’s myriad woes are a commentary on his life’s work.
“Sandy will forever be identified with Citigroup,” says Michael Armstrong, a Citi board member and a former chief of AT&T. “He put everything he had into its creation.”
Mr. Weill built his wealth, status and power by creating what was once the world’s largest bank. Now, as Citi struggles to regain its footing, Mr. Weill’s legacy has taken on a darker hue. Though he was once viewed as a brilliant dealmaker, some critics now cast him as the architect of a shoddily constructed, unmanageable financial supermarket whose troubles have sideswiped investors, employees and average citizens nationwide.
“The dream, the mirage has always been the global supermarket, but the reality is that it was a shopping mall,” says Chris Whalen, editor of The Institutional Risk Analyst, of Citi’s evolution over the last decade. “You can talk about synergies all day long. It never happened.”
Citi’s troubles are well chronicled: a failure to integrate its disparate parts worldwide or to keep tabs on risky investments and free-wheeling operations. These lapses led to billions of dollars in losses and multiple bailouts, and the government now owns a quarter of the company. Citi’s shares fell from a high of $55.12 in 2007 to about a dollar early last spring, and now trade at $3.31.
In its efforts to recover, Citi is dismantling itself, scrapping many of the assets that Mr. Weill threw together.
During a series of recent interviews, Mr. Weill spoke candidly about the loss, frustration and humiliation caused by Citi’s fall. “I feel incredibly sad,” he says. He remains baronially wealthy, but says he has endured financial pain, too: until a year ago, he says, the bulk of his investment portfolio was split equally between Citi stock and Treasuries.
While he acknowledges some of his own mistakes for the Citi debacle, he is also quick to give the back of his hand to his former co-C.E.O., John Reed, and his successor, Charles Prince.
And Mr. Weill vigorously defends his record, rebutting critics who say that Citi was an unstable creation. Judah Kraushaar, a hedge fund manager and former banking analyst who worked with Mr. Weill on his autobiography, said that Citi’s problem wasn’t that it was unmanageable, but that it lacked enough good managers — and that Mr. Weill was a good manager.
“When he left, the company had all the hallmarks of how Sandy ran a business: it was lean; it didn’t have a bloated balance sheet,” says Mr. Kraushaar. “Had he picked a different successor things could have turned out very differently.”
At one point, Mr. Weill had hoped to return and help the company recover and to defend his legacy himself. But the bank no longer has a place or a need for its old C.E.O. Now, Mr. Weill, 76, is trying to move on to a life without Citi.
“It’s never going to be the same company that it was,” he said one morning shortly before Christmas.
Sitting in his office on the 46th floor of the General Motors building in Manhattan, he is surrounded by reminders of a lifetime on Wall Street. The space is breathtaking with floor-to-ceiling windows and views stretching out over Central Park. One wall is devoted to framed magazine and newspaper articles chronicling his career. A Fortune magazine clipping from 2001 declares Citi one of its “10 Most Admired Companies.”
On another wall hangs a hunk of wood — at least 4 feet wide — etched with his portrait and the words “The Shatterer of Glass-Steagall.” The memento is a reference to the repeal in 1999 of Depression-era legislation; the repeal overturned core financial regulations, allowed for the creation of Citi and helped feed the Wall Street boom.
“Sandy took advantage of changes in the industry to build a financial colossus,” says Michael Holland, founder of Holland & Company, a money management firm. “In the end it didn’t work, and we are now paying for that as taxpayers.”
Elsewhere in Mr. Weill’s office, a bust honors him as Chief Executive magazine’s “C.E.O. of the Year” in 2002. There are pictures of him with world leaders like Nelson Mandela, Bill Clinton, Vladimir Putin and Fidel Castro. There is also one of his humble childhood home in Brooklyn — a reminder of how far he has come.
Despite these trappings, what’s most noticeable about Mr. Weill’s office is this: It feels empty. Other than a few assistants, he is alone. Down the hallway, some furnished offices are uninhabited; a conference room big enough for a Citi board meeting has no executives to fill it. The phones are largely silent. It seems incongruous for a man who once commanded a global powerhouse of 200,000 employees.
Here, from this solitary perch, Sandy Weill has watched his banking colossus come undone.
“IN the beginning I felt that we should be able to weather that storm,” Mr. Weill says, recalling the late summer days of 2007, when the collapse of the subprime market brought Citi’s troubles to the surface. The early warning cries were dire but didn’t seem terminal: a $6 billion write-down, a $2.8 billion third-quarter loss and the announcement of $55 billion in exposure to souring assets. At this point, Mr. Weill believed that the company could be fixed, and he wanted to fix it.
He no longer had any official position at Citigroup, having retired as chief executive in 2003 and as chairman in 2006. But he was still hugely invested in the company. He owned more than 16 million shares in 2006, according to his last public filing as Citi chairman. In January 2008, he bought more stock.
At the same time, he remained close with Citi employees, shareholders and board members. They had been keeping him up to date about events at the company. “People were calling him all the time, trying to get him wound up, get him mad,” says Todd Thomson, the former head of wealth management at Citi.
When Mr. Thomson was forced out in 2007, Mr. Weill was one of his first calls: “I unloaded to Sandy,” Mr. Thomson says.
For Mr. Weill, calls like these — coupled with the collapsing share price — burned; they made him want to act.
Starting in late 2007, he began approaching some members of Citi’s board about returning to help with its recovery. He tried first when the board was looking to replace Mr. Prince as C.E.O., and later after Vikram Pandit got the job. At the time, Mr. Weill imagined that he would be welcomed. “I had 50 years of experience,” he says. “I think I was a pretty good student of the markets, and the business. I had a good feel of things. I felt that just because I retired didn’t mean my brain went to mush. Maybe I could help.”
No one responded to his offers.
The rejection stung. Citigroup had for so long been central to his life. It was hard to accept that he had no control or influence over it anymore. “It’s very hurtful. Even though he says, ‘No, no, it’s fine,’ ”says Joan Weill, his wife of 54 years. “I know him. The company means so much to him. It was his baby.”
Mr. Weill continued to track it closely. “He was watching every movement of the stock; he was reading everything,” recalls Mike Masin, a longtime friend and a former chief operating officer of Citigroup. “We have had conversations about the fact that he has to make Citi less a part of his life.”
One news item, in particular, was crushing: Last winter, The New York Post ran a picture of Mr. Weill on its front page with the headline, “Pigs Fly: Citi Jets Ex-C.E.O. to Cabo.” He had taken the corporate plane to vacation in Mexico, weeks after Citi had accepted a $45 billion taxpayer bailout. The flight provoked a public outcry and media frenzy.
Mr. Weill says he was horrified by being cast as a greedy, out-of-touch Wall Streeter taking advantage of taxpayers. That is not how he sees himself or how he wants the public to see him. The night the Post article came out, he issued a press release promising to never again use the Citi jet.
In April, Mr. Weill and Citi agreed to terminate the consulting contract in which he was provided use of that jet, as well as office space, cars and security.
Mr. Weill firmly contends that what he built at Citigroup created huge value for employees and shareholders. Beyond that, he has been an enormously generous philanthropist, giving some $800 million to charity over the last three decades, he says. This, he says, is what he wants to be remembered for.
“The most important thing to my husband was his reputation, ” says Mrs. Weill, who still feels angry at the portrayal of him in the press. “There are a few people I want to kill, but I am not going to name names.”
Still, many people see Mr. Weill as a root cause of Citi’s troubles. He bought up businesses around the globe, from New York to Tokyo to São Paolo, but his critics say he never managed to meld them into a cohesive company. To some, this was the foundation of its failure.
Old accomplishments — once sources of admiration — now draw criticism. Mr. Weill’s successful push to repeal the Glass-Steagall Act is under attack. To create Citi, he fought to change laws that had prevented banks, insurers and brokerage firms from merging. But in the wake of the economic crisis last year, Congress has introduced laws to reinstate parts of the legislation. In November, Mr. Weill’s former co-C.E.O. at Citi, John Reed, told Bloomberg News that he was sorry for his role in helping to end Glass-Steagall.
When asked about Mr. Reed’s apology, Mr. Weill says: “I don’t agree at all.” Such differences, he says, were “part of our problem.”
Mr. Reed, who lost a battle with Mr. Weill for control of Citi, declined to comment for this article.
Mr. Weill says that the model on which he built the company was not at fault, that it was the management that failed. For this, he accepts partial responsibility.
“One of the major mistakes that I made was my recommending Chuck Prince,” he says of his handpicked successor, who ran the company from 2003 to 2007. Mr. Weill blames Mr. Prince for letting Citi’s balance sheet balloon and taking on huge risks.
Once close friends and colleagues, the two men no longer speak. In their last conversation, in fall 2007, Mr. Prince called his old boss, furious because he’d heard that Mr. Weill was urging directors to replace him. “He hung up on me,” Mr. Weill recalls.
Mr. Prince declined to comment for this article.
In addition to initially supporting Mr. Prince as C.E.O. — even though Mr. Prince had never run a bank — Mr. Weill also pushed out Jamie Dimon, a well-regarded banker who now runs JPMorgan Chase. And Mr. Weill personally recruited Robert Rubin to Citi after Mr. Rubin stepped down as Treasury secretary. Mr. Rubin, who has since left Citi and declined to comment about his tenure there, has been criticized as failing to help rein in the bank’s excesses.
Mr. Weill says he has no regrets about hiring Mr. Rubin and wishes that things with Mr. Dimon had worked out differently.
“The problem was in 1999 he wanted to be C.E.O. and I didn’t want to retire,” he says of Mr. Dimon. “I regret that it came to that. I don’t know what else could have been done except for him to be more patient.” A JPMorgan spokesman said Mr. Dimon declined to comment.
Analysts say that managerial problems plagued the Citi empire and that its board, which might have imposed some order, became little more than a rubber stamp during the Weill era. “Sandy surrounded himself with yes men,” says Mr. Whalen. “He never wanted anyone second-guessing him.”
THESE days, Mr. Weill keeps busy with charities and his personal investments. He is up at 5 a.m., reads all the papers, turns on CNBC. He is chairman of Carnegie Hall, Weill Cornell Medical College and the National Academy Foundation and is on the boards of six other institutions.
His foundation gave $170 million in cash last winter to Weill Cornell; such generosity has endeared him to the philanthropic world. He has raised $950 million for Weill Cornell’s $1.3 billion fund-raising campaign and recently put together a $110 million bond offering for Carnegie Hall.
“It was like being back in business again,” he says. “I get the same kind of kick by getting somebody to make a major charitable contribution. It’s the same kind of adrenaline rush.”
Such giving shows that Mr. Weill remains in far better shape than most other Citi investors. Although Forbes bounced him from its list of the 400 wealthiest Americans — the magazine once estimated his net worth at $1.5 billion — he still lives regally: a $42 million apartment in Manhattan; homes in Greenwich, Conn., and the Adirondacks; and a yacht.
Citi, meanwhile, has recently shown some signs of improvement: it posted a third-quarter profit and repaid $20 billion to the government last month. But for so many who depended on Citi, the bank has caused irreversible damage. It’s a reality that Mr. Weill says pains him.
“Look what it’s done,” he says. “It’s hurt the dreams of so many people.”
Bill George, Goldman Sachs Board Member, Compares Bankers To Pro Athletes, Movie Stars (VIDEO)
First Posted: 01- 6-10 02:09 AM | Updated: 01- 6-10 03:23 AM
Goldman Sachs board member and Harvard professor Bill George defended the firm's massive bonuses and compared employees' compensation to that of professional athletes and movie stars during a recent interview.
In an interview posted Dec. 23, 2009 [ http://bigthink.com/ideas/17910 (page reached via http://bigthink.com/billgeorge/a-goldman-board-member-on-the-culture-of-big-bonuses link at HuffPo) (in full next below)], George told the ideas web site Big Think "I think that one feels like the shareholder value is made up in people and you need the people there to do the job and if you don't pay them for their performance you'll lose them and it's much like professional athletes and movie stars I think."
He went on to admit that he couldn't justify the size of a banker's salary compared to that of a school teacher's, but he said that the same could be said about the salary of a professional athlete.
Bill George, a board member of Goldman Sachs, on the changing landscape of Wall Street bonuses in the wake of the economic crisis—and why government intervention is more harm than help.
Question: There was a report that shareholders were angry that such a large portion of Goldman’s profits were going to employee bonuses. As a board member, where do you stand? (Dan Indiviglio, the Atlantic Business Channel)
Bill George: I’m very concerned about the compensation issues and the public’s reaction to that. I frankly think that the public perception is a much bigger issue than the shareholder issue. I think that is a limited group of shareholders. Shareholders seem to be quite pleased with Goldman and there is a linkage between pay and performance and I think as long as we follow our principles of long term pay for long term performance then the firm is going to do well. If it gets back to play, if it goes to a short term game like Citigroup did of paying out large cash bonuses I think that would be a disaster and I don’t think you’ll see that happening. There is always a question of the amount and I think one has to look at that in relationship to the profits and I think you’ll see even that percentage coming down. It’s been very high on Wall Street, much higher than any industrial corporation that I know of, but I think those percentages need to be re-looked at and I know the Goldman board and compensation committee in particular are taking a hard look at that right now.
Question: How does this pay reflect real value added to the real economy?
Bill George: One of the statements at Medtronic mission is that employees should have a means to share in the company’s success and to me that meant a lot more than salary or wages and benefits and so what we tried to do at Medtronic was to spread the wealth around. When the company is successful everyone got stock. In fact, we made sure every employee had stock. Now it was in a restricted plan, but still, everyone had stock because we wanted them to be the beneficiaries to the extent the stock went up they benefited and we gave out, converted a lot of profitability into stocks spread broadly across the company in stock options. I was a beneficiary of that, but only because the shareholder value went from $1.27… went from 1.1 billion to 60 billion while I was there, so everyone else had a chance to benefit and I think that is the way it should be. Now you can’t say in a firm like Goldman that they don’t do that. I think just the numbers are so much larger on Wall Street and it’s not just Goldman and if you think they’re large on the publically held firms where you know all the numbers then look at what the hedge funds pay and you can just add a zero on that and one of the characteristics there is it is a fairly free market for traders. I’m not saying that the top executives are going to move into hedge funds, but it’s a fairly free market for traders moving from publically held firms into privately held hedge funds and private equity and so this is one of the sensitive issues I think that one feels like the shareholder value is made up in people and you need the people there to do the job and if you don’t pay them for their performance you’ll lose them and It’s much like professional athletes and movie stars I think. I can’t justify the relationship between a trader’s bonuses and what a school teacher makes for instance. I think we have much societal issues. It’s hard for me to justify that or what an athlete makes you know who plays basketball compared to what you know what a school teacher makes or even an engineer, so I worry about these a lot, but I haven’t figured out how to solve them either.
I don’t buy the market efficiency argument. I’ve heard that from The Economist for a couple of decades. I don’t really buy that argument. The argument I would buy is that we need strong financial institutions to finance business, to finance individuals and right now that is a huge problem. The credit crunch may be over for big business and may be over for Wall Street, but it’s certainly not over for small business and individuals still having a lot of problems getting financing and I would be the first to say that financial institutions like Countrywide Financial and New Century Mortgage went way overboard in offering it to everyone in totally inappropriate ways, but I do think we depend upon strong financial institutions to facilitate the start up of business with venture capital, to facilitate the growth of business, small business and this is where the jobs come from. 70% of all jobs in this country are created by small business and most of those are newer companies. My company started with two people and had it not been for some venture capital. Now admittedly it was only $200,000 in 1962, but it saved the company from going bankrupt and gave the company the wisdom and the focus to go forward, but I think I know lots and lots of young people that would like to start companies today and can’t get financing and don’t have a lot of money personally and I think that is the fuel behind the system, so now do you put that pay in proportion and does it payoff with hedge funds trying to say they’re providing efficiency when they make their money selling short? I think that’s a stretch as an argument.
Question: How does one go about determining how much the CEO of Goldman Sachs should get paid and has that changed in the wake of the crisis? (Felix Salmon, Reuters Finance)
Bill George: Well I think this is a very tough question. I think it’s got to be looked in relationship to peers and what they’re paid. First it starts with performance. Is the performance there? Lloyd Blankfein and the top six members of management including Blankfein were the first company to take no bonuses last year in the top six, not just top person, took no bonuses because they felt it was a very rough year and they had had a lot of support getting through the year. When they perform they should be paid. Now how much that is I think it should be spread around at Goldman so it isn’t just the CEO getting the money. I don’t like this idea the CEO is way up here and the executives are up here and everyone else is down here, so I think there has got to be a relationship internal, that internal equity and I think that amount that needs to be looked at in relationship to profitability, but I don’t think it should be paid out in cash. I think it should be long term pay for long term performance. If you payout for fourth quarter performance or one year performance and let people cash out you’re just creating more of the problem. You’re asking people to get more fee based income to enrich themselves today and walk across the street to somebody else tomorrow.
Question: Should the government impose a fixed time frame on bonuses?
Bill George: I think it’s very hard for the government to legislate compensation. Every time they do there are unintended consequences. A good example right now is Robert Benmosche. The CEO of AIG is making 7.3 million dollars in a firm that is 80% owned by the U.S. government. Is this right? He is the highest salary of a publically held corporation in history. Why are we doing this? Just because of the Dodd Amendment you couldn’t pay more than 50% in bonus. This is ridiculous. You know the CEO at Goldman Sachs gets paid $600,000 salary, okay. That’s more inline and I think you’ll see that people like Blankfein and others at Goldman, all the top group will take it all in long term stocks just like Paulson did. Paulson never took any cash. He took it out in stock, so if the firm does well he does well. If the firm collapses they collapse and you know there was a lot of net worth loss in the fall of 2008 on the part of a lot of top people and some of them like JP Morgan and Morgan Stanley and Goldman Sachs bounced back and some of them like Lehman Brothers and Citigroup and Wachovia never came back and probably won’t.
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