Photo by Arnaldo Magnani/Liaison

“Thirty years ago, the Anglo-American capitalist system was the apartment block everyone in the world admired,” Lady Lynn Forester de Rothschild told a gathering of business and political influentials gathered on the 28th floor of Bloomberg LP’s Lexington Avenue office tower on Thursday morning.

“Now, that apartment block has really nice apartments up on top. In the middle, they’re kind of cramped and dowdy, and on the lower floors, they’re underwater. But the worst part of it is—the elevator’s broken.”

The metaphor wasn’t hers (she’d borrowed it from Harvard economist Larry Katz), but the morning was. Wearing a slim-fitting sleeveless dress and lots of gold, Ms. de Rothschild was welcoming guests to the U.S. launch of something called the Henry Jackson Initiative for Inclusive Capitalism. It was less a think tank than a movement, less a movement than a platform for a double-edged idea: That everyone should benefit from gains made by the capitalist system, and that it’s good for capitalists when everybody does.

The initiative, which grew out of the Henry Jackson Society, a right-leaning British foreign policy think tank named after the Cold War-era American senator, has some recommendations: corporations should invest in training workers for the jobs they’ll need filled in the future, nurture small- and medium-size businesses, and take a long-term view of creating value for shareholders.

But those ideas seemed less important than bringing business leaders together to address a more central concern: In an era of rising income inequality and grim economic outlook, people seemed to be losing confidence in capitalism altogether.

Inclusive capitalism, it turns out, has a pretty exclusive following. Former Treasury Secretary Larry Summers gave the keynote address at Thursday’s launch. Former Fortune 500 CEOs Bob Nardelli and James Robinson III attended, along with an assortment of executives, entrepreneurs, scholars and consultants. Their central question: What could they do to revive an economy in which smart, hard-working people were losing faith in the idea of earned success?

“You have college-educated kids who aren’t finding jobs,” Ms. de Rothschild, 58 and currently CEO of the private investment firm E.L. Rothschild, told us later. “You do that for too long as a society, and people start questioning whether the system works, and then the system becomes something else. Now we have 25 percent of 18- to 24-year-olds thinking this system isn’t working. I am not happy with that.”

Later, Ms. de Rothschild was sitting in the perfumed living room of her duplex in the River House, an East Side co-op of such refined reputation that management has long discouraged brokers from the naming the building in advertisements. In another era, the co-op was famous for turning down Diane Keaton and Gloria Vanderbilt over the company they kept. Blackstone co-founder Peter Peterson and former Salomon Brothers chief John Gutfreund have moved, but Ms. de Rothschild’s friend Henry Kissinger still lives downstairs.

It seemed an exalted place to talk about the gap between rich and poor even before Ms. de Rothschild’s husband, Sir Evelyn, wandered down the stairs in shirt and tie, looking as if he’d just awoken from a nap.

“I thought your American visitors might enjoy this,” he said to his wife, then recited from the printed page in his hand: “I believe that banking institutions are more dangerous to our liberties than standing armies.” Did we know who wrote that? Thomas Jefferson!

“He was remarkably far-sighted, and of course, he had excellent taste in wine,” Sir Evelyn told us. (Unfortunately, none was offered.)

Back, then, to the issue on Ms. de Rothschild’s mind: that today’s under-25 set is doomed by student debt and joblessness to the point of dire national pessimism. It wasn’t that way when she grew up. Few have so thoroughly conquered the American dream as Ms. de Rothschild, who went from a modest childhood in New Jersey to make millions in telecom and then ascend, not merely to the 1 percent but to the upper-upper reaches of American business and politics. Introduced by Mr. Kissinger to a member of one of the world’s wealthiest families, she married British banking scion Sir Evelyn (financial advisor to Queen Elizabeth II) in 2000, and honeymooned for a night at the Clinton White House.

“I wish everyone could live the life I’ve led,” she told us. “It’s not a life you have, then close the door on the rest of the world. There’s a very hot place in hell for people who do that.”

It’s de rigueur to describe Ms. de Rothschild as one part knockout, one part business tycoon. Two years ago, she decided that a woman her age could do the job of an NFL cheerleader. And such a woman could, it turned out—if she was friends with Jeffrey and Christina Lurie, who own the Philadelphia Eagles, and the type to charm her way onto the field and then work hard enough to keep up with women half her age. (In telling the story, Ms. de Rothschild flexed a bicep to prove she hadn’t given up her training regimen.)

If she could use her connections to get onto the 50-yard line at the Eagles’ Lincoln Field, she could probably leverage her friends for a more elevated cause. As she told the business leaders assembled at Bloomberg headquarters on Thursday morning, “We are pretty much all children of the ’60s. Our definition of virtue was, ‘Let’s stop the war in Vietnam, let’s end sexism, let’s end racism.’ Now we have the power and influence to actually do something.”

As recently as four years ago, Ms. de Rothschild might have sought to change the world by playing in politics. She was the first employee of Pat Moynihan’s senate campaign in 1976. In the 1980s, she traveled in Democratic party circles with her husband Andrew Stein, the Manhattan borough president.

Now, however, the political wells have been tainted. In 2008, she raised money for Hillary Clinton, refused to support President Obama and voted for John McCain. (She famously called President Obama an elitist, which some saw as a strange slam coming from a woman who puts Lady in front of her given name and de Rothschild after it.) Despite Bill Clinton’s stumping for Obama at the Democratic National Convention, she told us she plans to vote for Mitt Romney next month, though she wasn’t overly enthusiastic about the prospect.

“Politics is part of this despair that we’re in,” she told us. “I don’t blame it on one or the other. They’re both in this together.”

Ms. de Rothschild was raised 19 miles from the River House in the bedroom community of Oradell, N.J., a town of white picket fences and Country Squire station wagons. Her father was an Air Force veteran who went to work managing an electrical cable company. He started an aviation business out of Teeterboro Airport, but it wasn’t with any grand vision in mind. “He couldn’t have spelled entrepreneur,” Ms. de Rothschild told us. “He was putting food on the table.”

Her mother raised four children, played piano at church and attended New York Giants games. “I told her I wanted to be a stewardess once, and she said really that was just a waitress in the sky,” Ms. de Rothschild said. Still, her parents didn’t have extravagant ambitions for their children. “They wanted us to be saved by Jesus Christ and have happy, healthy lives.”

Ms. de Rothschild graduated from Columbia Law School in 1979 and accepted a job at the white shoe firm of Simpson, Thatcher & Bartlett. She came to specialize in the nitty-gritty details of telecom deals, and then went to work for her most successful client, the visionary telecom mogul John Kluge, who had turned a series of investments in radio and television stations into what was at the time America’s largest fortune. In 1989, when Mr. Kluge was in the process of breaking up his company, Ms. de Rothschild asked him to look at a Puerto Rican company. The billionaire said he wasn’t interested, but suggested she buy the business herself.

“I said, ‘I can’t buy it, I have no money,’” she told us. “He said, ‘It’s not a problem, you raise the money,’ and I did.”

These were the early days of wireless technology, when even she thought “cellular” was a biotech term. By the time she sold her first company in 1995, it was said to be worth $100 million. Meanwhile, Ms. de Rothschild had begun requesting government concessions for the frequency spectrum that would eventually be used to deliver wireless broadband service. Bigger players crowded into the business, and Ms. de Rothschild struck a deal with Teligent, netting herself a reported $100 million in cash and stock.

“I never doubted that a middle class girl whose father was working two jobs and didn’t have a university degree could be top of her class in high school, get to top college, get to top law school, and be as successful as I wanted to be,” she said. “Why did I have the view I had? That was the zeitgeist; that was the world I was in.”

Of course, there are many groups in many rooms with many ideas on how to lift the current malaise. Dr. Laura Tyson, a professor of economics at Berkeley’s Haas School of Business, says the Henry Jackson Initiative is different, owing to its C-level focus on jobs—and its “high-energy and creative” leader. “She’s very smart, and she understands business issues,”  Dr. Tyson told us. “She’s got all the ingredients to make this a success.”

Up in the River House, the living room offered a close-up view of Louis Kahn’s newly built Four Freedoms Park, a memorial to Franklin Delano Roosevelt. Ms. de Rothschild and her husband paid for a line of Littleleaf Linden trees leading up to the monument, a gift made with one eye toward the river and one eye to the past, when FDR allowed British children to seek refuge in the U.S. ahead of the Battle of Britain. Sir Evelyn was one of them, she told us.

“I haven’t always had money, but I’ve always had hope,” Ms. de Rothschild said. “I think that a lot of kids have neither money nor hope, and that’s really bad. Because then they’re going to get mad at America.

“What our hope for this initiative, is that through all the efforts of all of the decent CEOs, all the decent kids without a job feel optimistic.”

At the very least, they’ll have a new cheerleader.

pclark@observer.com

And so we were interested to learn about the Henry Jackson Initiative for Inclusive Capitalism, a new think tank formed with the intent "to promote a more responsible, sustainable and inclusive capitalist system."

The initiative, which launched in the U.K. in May, grew out of a task force chaired by Dominic Barton, Global Managing Director of McKinsey, and Lady Lynn Forester de Rothschild, CEO of El Rothschild, and proposes to make the case for capitalism in an era defined in part by Occupy Wall Street.

To that end, HJI is hosting a U.S. launch tomorrow, with presentations by business and policy leaders such as Time Warner Cable chief executive officer Glenn Britt, former Treasury Secretary Lawrence Summers and Sir John Peace, chairman of Burberry, Experian and Standard Chartered.

“Industry, innovation and enterprise must be anchored by an ethical, responsible and inclusive capitalist system," said Ms. de Rothschild. "We started this initiative to foster debate and dialogue about how capitalism can be improved, and to highlight the many excellent efforts of businesses that are taking the lead in the areas that most need improvement."

The Observer intends to check out tomorrow's launch. Meanwhile, a taste of the areas in which HJI thinks business "can make, and are making, positive progress," gleaned from a report published by the organization:

Education for employment: "In the U.S., the current mismatch between today’s educational model and the needs of today’s job market has contributed to an unemployment rate of 24.9 percent among those aged 16-24. In the U.K., over one in five young people is unemployed."

Nurturing start-ups and small and medium enterprises: "We believe large companies can help SMEs without making any significant compromises to their own profitability. For this to happen, however, they must mentor SMEs in working more successfully as suppliers to large companies. SMEs also need better access to credit."

Reforming management and governance for the long term: "Today’s focus on short-term performance must be replaced by long-term thinking on everybody’s part. Companies need not offer quarterly earnings guidance. They should seek ways to reward investors who hold their shares for the long term."

Dear President Faust,

We (Cameron Winklevoss '04, Divya Narendra '04 and Tyler Winklevoss '04) are writing to discuss the recent remarks made by currentCharles W. Eliot University Professor of Harvard Lawrence H. Summers at Fortune's "Brainstorm Tech Conference" on July 19, 2011.  Specifically, Mr. Summers referred to us as "assholes" for wearing ties and jackets to our meeting with him in April of 2004.  To be clear, his remark was not limited to us, but extends to any undergraduate who chooses a particular form of attire.

As a matter of background, on March 15, 2004 we petitioned the Administrative Board (Ad Board) of Harvard regarding a disciplinary issue concerning Mark Zuckerberg '06-'07 in connection with the development of a website the four of us had been working on together.  Despite what was, from our perspective, a clear violation of the Student Handbook, which states "all students will be honest and forthcoming in their dealings with members of [the Harvard] community," the Ad Board declined to involve itself.  As students of a university that promulgated an expectation of "intellectual honest[y] [and] respect for the dignity of others," we sought a discussion with then President Summers regarding what we believed to be an inconsistency in the University's posture on this matter.

As a result, we decided to attend student office hours of the President, a two hour monthly block of time specifically allotted by President Summers for students to discuss any and all matters of concern with him.  We sent a polite and rather un-swaggering email beforehand for the purposes of background (please see attached).  It should be noted that Mr. Zuckerberg's name was purposely omitted from our email in an effort to focus the discussion on what we perceived to be a larger issue than the incident specific to ourselves.  Simply put, we went to his office seeking advice and mentorship, not further conflict.

At office hours, we waited in his reception area but were told that we would have to return next month because there were more students in the queue than time allowed.  In April of 2004, we returned to office hours and were successful in meeting with President Summers.  His manner was not inconsistent with his reputation and present day admissions of being tactfully challenged.  It was not his failure to shake hands with the three of us upon entering his office (doing so would have required him to take his feet off his desk and stand up from his chair), nor his tenor that was most alarming, but rather his scorn for a genuine discourse on deeper ethical questions, Harvard's Honor Code, and its applicability or lack thereof.

We now further understand why our meeting was less than productive; someone who does not value ethics with respect to his own conduct, would likely have little interest in this subject as it related to the conduct of others.  Perhaps there is a 'variability of aptitude' for decency and professionalism among university faculty.

Regardless, it is deeply disturbing that a professor of this university openly admits to making character judgments of students based on their appearance.  It goes without saying that every student should feel free to bring issues forward, dress how they see fit, or express themselves without fear of prejudice or public disparagement from a fellow member of the community, much less so from a faculty member.

Ironically, our choice of attire that day was made out of respect and deference to the office of the President.  As the current President, we respectfully ask for you to address this unprecedented betrayal of the unique relationship between teacher and student.  We look forward to your response.

Sincerely,

Cameron Winklevoss '04
Divya Narendra '04
Tyler Winklevoss '04

Will the Winklevii be dignified?
Will they get a response?
Will they be called assholes by yet another Harvard President?
Will this continue to sway public opinion in their favor, such as it is?
Will the rights of Harvard undergrads who wear ties in the afternoon ever be so valiantly fought for ever again?
And will they ever find out which one is older?

They're the questions we want answered. And they lay in the hands of one Harvard president, who is likely very, very inundated by all of this right now.

fkamer@observer.com | @weareyourfek

Reuters reports:

"During the visit, they also discussed ideas for growing the economy and making America more competitive including investment in education to better prepare the next generation and investing in innovative areas with opportunity for growth," the White House said in a statement.

Investment in education and investing in innovative areas? That sounds so simple -- makes you wonder why we haven't tried it yet. Maybe because those are empty platitudes.

mtaylor [at] observer.com | @mbrookstaylor

The rumored appointment comes at a time when the White House is confronting multiple criticisms on its economic policy. Some critics say Obama has relied too heavily on old Clintonites who contributed to the financial crisis, while others say Obama has frozen out Wall Street and cultivated antibusiness sentiment.

Sources told Bloomberg the administration is considering Altman because "he might be able to repair the rift that has emerged between Obama and investors." It looks at the moment like the president is more interested in rekindling his romance with Wall Street than with making a break with the Clinton era.

mtaylor [at] observer.com | @mbrookstaylor

• National Economic Council head Larry Summers, whom we'd forgotten about since he announced in September he'd be leaving the White House, said getting along with China would be crucial to America's economic recovery. [WSJ]
• The Congressional Oversight Panel has an idea for what to do about the foreclosure crisis: Stress tests! [CNNMoney]
• The Federal Reserve is pouring $600 billion in monetary stimulus on the economy -- economists, foreign officials and politicians be damned. [NYT]
• In fact, New York Federal Reserve head William Dudley, who's normally press-shy, gave an interview about quantitative easing. [CNBC]
• Investors are so stoked to get a piece of majority government-owned automaker General Motors that the company is raising the price on tomorrow's initial public offering. [Bloomberg]

mtaylor [at] observer. com | @mbrookstaylor

I will always be grateful that at a time of great peril for our country, a man of Larry's brilliance, experience and judgment was willing to answer the call and lead our economic team. Over the past two years, he has helped guide us from the depths of the worst recession since the 1930s to renewed growth. And while we have much work ahead to repair the damage done by the recession, we are on a better path thanks in no small measure to Larry's wise counsel.

--

Larry Summers is expected to depart his role as director of the National Economic Council, Bloomberg reports.

Citing three sources, Bloomberg says that the former Treasury Secretary under Clinton, former World Bank chief economist and former Harvard president will be stepping down. The White House is now looking for a corporate executive in hopes of shedding President Obama's purported anti-corporate image. Bloomberg also reports that the administration would like to fill the role with a woman, in addition to desiring someone with the Summers' depth of experience.

Summers' departure would follow that of two other key figures from the Obama economic team. In July, Peter Orzag resigned as White House Budget Chief, and his replacement, Jacob Lew, currently awaits Senate confirmation. Christina Romer left her position as chair of the Council of Economic Advisors on Sept. 1. Austan Goolsbee replaced her a week and a half later.

The fund will now move into floors seven through nine, which insurer Marsh & McLennan, a major landlord in the building, currently subleases from Edward J. Minskoff. Minskoff is also the landlord for D. E. Shaw’s prior office space. The transaction roughly doubles the hedge fund’s square footage in the building, which now amounts to 240,000, according to the New York Post.

The deal ignited speculation that D. E. Shaw’s offices at 120 West 45th Street might be consolidated into the Sixth Avenue tower.

D. E. Shaw, once run by Larry Summers, has recently been doing some reorganizing, announcing, for instance, a move into Dubai. Since the financial collapse, the Gulf region has again become a highly sought destination for private-equity firms and hedge funds forced to de-leverage and seek out quick liquidity.

Cushman & Wakefield’s Andrew Sachs and Timothy Gibson represented Marsh & McLennan.

egeminder@observer.com

PUBLIC SCHEDULE FOR ATTORNEY GENERAL ANDREW M. CUOMO

 

FRIDAY, OCTOBER 9, 2009

 

 

Attorney General Cuomo is in Washington, D.C.

 

1:15PM     Attends meeting with President Obama, Cabinet members, and Congressional leaders regarding financial regulatory reform

 

2:00PM     Attends President Obama's remarks on financial regulatory reform

 

Often these public schedules include an admonition of "for planning purposes only." This one doesn't. It's "for immediate release."

A Cuomo aide said the trip was made at the White House's invitation, and that he will be meeting with Larry Summers, Tim Geithner and Valerie Jarrett as well as Senator Chris Dodd and Representative Barney Frank. Cuomo is discussing a consumer protection agency, and how state lawmakers can enforce these tighter regulations; Cuomo has styled himself as "the people's lawyer" and taken many consumer protection actions as attorney general, including actions involving student loan companies and a health care billing company.

"It's about working with the administration to better protect consumers," said Benjamin Lawsky, a special assistant to the attorney general who is accompanying him on the trip.

This trip follows a big conspicuous sloppy kiss Cuomo got from Obama when the president came to an event in Troy. Obama aides have reportedly expressed to David Paterson that they do not support him for election next year; Cuomo insists "at this time" his only plan is to run for another term as attorney general. Period. The trip is entirely work related, Lawsky said, and Cuomo has no plans to meet with Patrick Gaspard, Obama's political director.

And Paterson? His public schedule indicates he's "in New York City and has no public schedule."

But since, there has been a gradual crescendo of calls for greater intervention by Washington, with property owners and industry groups insisting that a destructive crisis still very much awaits—that is, unless the arms of government come in to cushion the impending blow.

It seems they’re being heard. Top economic officials in the Obama administration have begun to publicly suggest that further action will be needed for the commercial real estate industry.

The push on the subject comes mainly in the form of two separate—but not unrelated—efforts: to mitigate the pain on lenders when the loans for buildings that were traded at absurdly inflated prices come due; and to prevent the plethora of overleveraged apartment buildings from tumbling into disrepair as owners fall behind on debt payments or enter foreclosure.

By the numbers, both issues stand to be highly problematic without—and probably even with—government intervention, particularly for New York City, given that many of the lenders are based here, as are many of the overleveraged buildings. A Deutsche Bank report estimates that at least two-thirds of mortgages in CMBS that mature by 2018—accounting for $410 billion—are unlikely to qualify for a refinancing, risking default. The riskiest are those for buildings traded at the market’s peak, in 2007: Deutsche Bank estimates “well in excess” of 80 percent of the loans from that year are unlikely to qualify. 

And a recent report by the Citizens Housing & Planning Council, a think tank for housing issues, estimated that close to 100,000 apartments in New York City are in multifamily buildings bought with loans that have values greater than the buildings are now worth. This is the case with buildings across the city, from Stuyvesant Town to complexes in the South Bronx, where buyers paid prices far greater than the money from current rents justified, banking on hopes that rents would continue to shoot upward. There is concern that once these loans mature—or sometimes before—building owners will stop spending on maintenance, particularly if there is a lengthy foreclosure process, opening the door for a contagious downward spiral of housing disinvestment that was last seen in 1970s New York.

TO THIS END, VARIOUS business and housing groups are trying to craft palatable responses by the federal government, and are supporting existing legislation that would put federal money toward stabilizing some multifamily properties.

“We saw it coming down the pike as yet, potentially, another emerging problem that Congress was going to end up feeling a lot of pressure from,” said Kathryn Wylde, president of the Partnership for New York City, a group working on the issue that represents banks and large businesses.

“We saw the toxic assets were being treated as if they were pieces of paper or financial obligations,” she added, recognizing that a different response was needed for buildings where people live.

Working with a group of housing advocacy organizations including the Citizens Housing and Planning Council, the Partnership has enlisted the city’s former president of the Housing Development Corporation, Emily Youssouf, to propose some fixes that Washington could apply to address the issue.

Ms. Youssouf, who has been discussing the issue with the New York congressional delegation and federal and state agencies, said her focus has been on offering ways to get toxic apartment building loans refinanced at realistic values. By using and expanding existing programs so more loans on multifamily buildings can qualify for government backing of some sort, she said, banks would have an incentive to write down their holdings to the actual values, rather than keeping the old loans—with their unrealistic values—on their books.

Similarly, those pushing for more government assistance in the broader commercial real estate industry, of which multifamily buildings are a part, are looking to expand TALF and other programs, as without more action, all the forthcoming debt expirations could topple more banks and other lenders.

“This problem is going to keep getting worse,” said Bill Rudin, chairman of the Association for a Better New York and a major New York landlord.

There already seems to be a broader fatigue with putting additional government money at risk to cover private-sector losses, a clear obstacle to anyone pushing for starting new rescue programs.

So why should financial institutions get another round of government intervention—why not let the banks eat the losses? The argument by Mr. Rudin and others who want federal help is that lenders still cannot afford to take such losses, and the economy will be further destabilized as loans default and foreclosures mount over the next three or four years.

“TALF isn’t enough,” he said. “There needs to be other mechanisms to bring back liquidity. There needs to be some broader guarantee, backstop facility.

“If you don’t do this, you’ll waste the hundreds of billions of dollars,” Mr. Rudin said, referring to existing government money that’s been used to try to stabilize the economy.

WITHIN WASHINGTON, THE REAL Estate Roundtable, a trade group, has been pushing to extend TALF to the end of 2010—it recently was extended to March—along with other measures, including tax relief.

Of course, it’s not as though the Obama administration has ignored the issue. TALF was just extended in August, and on Sept. 15, the Internal Revenue Service changed a tax rule involving real estate mortgage investment conduits (REMICs) that makes it easier for some landlords to renegotiate and extend troubled loans.

But in recent weeks, it seems that federal officials have been preparing for more action on commercial real estate. Several top Obama officials publicly sounded alarms about the commercial real estate sector in various public appearances in September, noting that the problem is one that particularly affects smaller and regional lenders, which hold a good amount of the debt.

“It appears to be a problem whose locus is less towards the major, most systemically important financial institutions, and more toward regional and smaller banks,” Larry Summers, a top White House economic adviser, said of commercial real estate problems at a speech at Georgetown in mid-September.

“It is obviously something that is going to require—that has required and is going to … receive attention,” he said.

ebrown@observer.com