Wednesday, December 11, 2013
William D. Cohan
THE MOST DISAPPOINTING fact about how little things have changed on Wall Street five years after the collapse of Lehman Brothers Holdings Inc. is not that the Dodd-Frank Act is ineffective. Or that no substantive regulations are in place that might prevent the recurrence of a crisis. Or that no Wall Street executive has been held even remotely accountable for failing to manage his firm effectively. Or even that the Federal Reserve's easing policies have mostly propped up Wall Street banks at the expense of American savers.
www.businessinsider.com.au This 20,000-square-foot mansion in the Hamptons was listed for sale this spring for $58.5 million, according to The Real Deal. The eight-bedroom home and 4 acres on Mecox Bay has a tennis court, Jacuzzi, infinity pool, eight fireplaces, a wine cellar, and a private pier. The property also comes installed with Crestron security cameras that can be controlled and monitored from anywhere in the world — an important security measure for anyone willing to spend $58 million on a house.
No, what is most appalling about the state of play on Wall Street in September 2013 is how much it resembles the state of play on Wall Street in September 2006, when markets were booming, profits were high, and bankers, traders and executives were getting paid small fortunes just to do their jobs. Mostly that meant they were rewarded to take risks with other people's money.
It's all back -- the booming markets, the huge profits (notwithstanding its legal problems, JPMorgan Chase is on track to make $23 billion in net income in 2013) and the excessive pay. The wider economy, meanwhile, is still sluggish and unemployment remains stubbornly high at 7.3 percent, a figure that overlooks those who have given up the job hunt. Interest rates remain artificially low -- to the pain of savers -- thanks to the Fed's relentless buying of $85 billion in Treasury and agency bonds every month.
Then there is the scene in the Hamptons, on the eastern edge of New York's Long Island. According to an excellent yet horrifying Aug. 26 article by Jim Rutenberg in the New York Times, Hamptons builder Joe Farrell is partying like it's 1999.
Farrell, 50, a former commodities trader who left Wall Street in 1995, told Rutenberg: "We're as busy as we've ever been." He noted that he can't keep in stock the speculative homes he builds that cost $3 million to $10 million. "Mostly, though, $3 million to $6 million," he told Rutenberg. "I love that market -- there are probably 10 times as many people in that market than to buy an eight- or nine-million-dollar house, right?"
The builder to the millionaires said he is making as much money as he did in 2006, the peak of the last market cycle, by selling the homes before they are completed, keeping his liquidity high and his debt low.
Farrell isn't building for the hedge-fund crowd, who can afford a much higher price point. Rather, these new homes -- at an average size of 6,500 square feet, with six or seven bedrooms, a pool and a tennis court -- are clearly aimed at the Wall Street banker or trader in his or her late 40s who has been at the game for a decade or more. What's astonishing is that, five years after almost causing the collapse of capitalism as we know it, this cohort is back and doing better than ever.
Some of Rutenberg's additional details of life in the swanky Hamptons make that clear. For instance, Farrell gave Rutenberg a tour of his own $43 million, 17,000-square-foot estate, known as the Sandcastle. It comes complete with "two bowling lanes, a skate ramp, onyx window frames and, just for fun, an ATM regularly restocked with $20,000 in $10 bills." Farrell rents the home for $500,000 for two weeks; last year, Jay-Z and Beyonce were tenants. Farrell also somehow got hedge-fund manager Marc Leder to pay $900,000 for another summer rental.
Rutenberg also reported that local yacht and Porsche sales are climbing again in the Hamptons and that it is no longer unusual for people to buy six-liter bottles of Dom Perignon for $30,000. (Smaller bottles of Dom sell for $8,000 each.) "It was a bit lean for a couple of years in the Hamptons," one local club owner told the Times. "There's this at least perception that we're doing a lot better than perhaps we were, so people are freer to spend money because they're being psychologically conditioned with the highs in the market."
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