|New Foundation To Focus Awareness on Serious Issues||02.15.08|
Billions to Enhance Awareness of Fiscal imbalances, Social Security Imbalances and Nuclear ProliferationNew York Times
Billionaire philanthropist Pete Peterson unveils the Peter G. Peterson Foundation and announces his plan to allocate his newfound billions to projects that will increase public awareness of fiscal imbalances, Social Security deficits and nuclear proliferation.
“Where is it ordained that private equity pays only a 15 percent tax?”
The ballroom at the Mandarin Oriental in Manhattan is loud with the cocktail chatter of Blackstone investment bankers and pension fund managers so Peter G. Peterson, 81, leans closer to hear the shouted question from Michael D. McCurry, the former White House spokesman for President Bill Clinton.
“When is Pete Peterson going to stand up and say taxes must go up?” Mr. McCurry asks, pressing his point.
In the past, Mr. Peterson the billionaire co-founder of the Blackstone Group and public scold of costly entitlement programs, ballooning government deficits and cozy tax arrangements would rise to such a debating challenge.
But this is more than an arcane policy question: Mr. Peterson has just reaped a $1.8 billion profit from Blackstone’s public offering a payout that was a direct result of just such an amenable rate.
He feels terrible, too. His shoulder aches from a recent fall and his blood pressure is up, all of which has left him short of sleep. Finally, he gathers himself.
“Any package will have to include tax increases,” he conceded.
On Friday, Mr. Peterson will unveil the Peter G. Peterson Foundation and announce his plan to allocate his newfound billions to projects that will increase public awareness of fiscal imbalances, Social Security deficits and nuclear proliferation.
But the larger question that was posed by Mr. McCurry is unavoidable: Can a man who has scored riches from an industry that has benefited from a generous, controversial tax break emerge as a credible voice in favor of broad fiscal constraint in Washington?
It is a quandary that has plagued Mr. Peterson for years. And while he supports increased taxes on the wealthy (along with broad-based benefit reductions), he remains firm in his defense of the special provision for private equity partnerships despite the view of many on Wall Street, including the billionaire investor Warren E. Buffett, that the rate is too low.
“This is a fairness argument,” said Mr. Peterson, who says that increasing the 15 percent rate for so-called carried interest, compared with ordinary tax rates of roughly double that, would force private equity companies overseas. “There are so many other partnerships, why pick on this high-growth sector?”
At a time when hedge fund and private equity magnates have garnered billion-dollar fortunes from the fading alternative asset boom, how they put such riches to use has become a matter of increased public concern. To many a hardened capitalist, philanthropy has long been a nice way to enhance their social status and show a softer side by financing museum wings, medical centers and concert halls.
But that is not Mr. Peterson’s goal. For Mr. Peterson, a former commerce secretary under President Richard M. Nixon, his giving reveals who he really is less a Wall Street titan than a persistent Jeremiah who for 26 years now has prophesied that fiscal and trade deficits will lead to a financial Armageddon.
The end of the world has not yet come and during this time Mr. Peterson has gone from being a millionaire to a billionaire. But the dollar’s fall, renewed worries about America’s propensity to consume rather than save and pressing concerns over the future budgetary consequences of caring for the elderly has brought newfound currency to Mr. Peterson’s dire warnings.
“We are at a make-or-break point in American history,” Mr. Peterson said. “The entitlement monster is unfunded. We are dangerously dependent on foreign capital, our health care costs per capita are twice the level of the developed world. The goal is to integrate public policy and charitable giving and to answer this question: How do you educate a public that has become largely inert?”
Philanthropy on the Agenda
Out of the gate, the Peterson foundation will be worth about $100 million and Mr. Peterson expects it to grow to $1 billion, a large part of his total fortune.
He has hired David M. Walker, the respected head of the Government Accountability Office, to be chief executive and has already committed $5 million a grant that will be matched by Mr. Buffett to the former Senator Sam Nunn for his work on curbing nuclear proliferation, as well as funds to the Concord Coalition, a group he helped found that lobbies for deficit reduction.
For a man who has conspired with Henry Kissinger in the Nixon White House, led Lehman Brothers away from the brink of bankruptcy and been a co-founder of the world’s most recognized private equity firm, his final act is arguably his most ambitious and deeply felt.
And it is one he hopes to be in a position to complete. Since Blackstone’s public offering in June, Mr. Peterson has battled a string of mishaps and maladies that has left him in a weakened physical state. In July, he tripped after giving a speech at a luncheon in his honor, ripping tendons in his shoulder. In November he broke his wrist in a fall at his vacation home in Florida.
“Aging is not for sissies,” he jokes, suppressing a round of coughs.
Even so, and despite his diminished role at Blackstone he is to retire officially from the firm by the end of this year he reports to the office most mornings, formal and precise in his dark suit and gaudy shirts. His principal indulgence from his newfound wealth has been the $37 million he recently paid for a Fifth Avenue apartment with the terrace view of Central Park he has long pined for.
“Intellectually and socially he has not slowed down it’s a hell of a pace,” said James F. Hoge Jr., the editor of Foreign Affairs. “Like David Rockefeller and John McCloy before him, he is using what comes his way for a purpose larger than his own.”
The son of George Petropoulos, a Greek immigrant restaurateur who settled in Nebraska (and later changed his name to Peterson), Mr. Peterson, has strived to daub the gray bureaucratese of his lectures and books with the reds, whites and blues of his embrace of the American dream. And with the smarts of an adman he was a senior executive of McCann-Erickson in the 1950s he has gotten his message out by writing books, sitting on blue-ribbon commissions and sponsoring research and advocacy groups.
But despite the ceaseless exhortations, there has been scant progress in rectifying these matters. “It’s one thing to write the books and to create the Concord Coalition,” said Leslie H. Gelb, the former president of the Council on Foreign Relations. “It’s quite another to figure out what buttons to push to get things done.”
Mr. Peterson’s ideas are many. One is organizing a youthful equivalent to the powerful lobbying group for senior citizens, AARP. Another is working with HBO on a documentary film adaptation of his book “Running on Empty,” in the hope that the American public wakes up to the dangers of deficits and entitlement spending as it did to global warming after Al Gore’s film “An Inconvenient Truth.”
His coup is snagging Mr. Walker, who for years has been a vocal critic of entitlement excesses.
“I am convinced that Washington is broken,” said Mr. Walker, who informed his bosses in Congress on Thursday that he would resign. “We have a closing window of opportunity maybe five years to demonstrate to our foreign lenders that we are serious about our future.”
Seeking a Name for Himself
Given Mr. Peterson’s many accomplishments and extraordinary wealth, he retains a surprisingly starry-eyed quality. As if he has to pinch himself that he is not still behind the counter at his father’s diner.
David Rockefeller, Alan Greenspan, Diane Sawyer, Robert Rubin, Warren Buffett, Margaret Thatcher these names and more are rolled out with a metronomic quality.
“My father used to say that Pete used Henry Kissinger’s name like other people use commas,” said Michael M. Thomas, a former Lehman Brothers executive whose father, Joseph A. Thomas, was at Lehman with Mr. Peterson. “Pete may have $2 billion, but in terms of impact on the world relative to the positions he has held, it’s been small. Philanthropy is his last best shot.”
More deeply, some say, Mr. Peterson carries a visible weight on his shoulders: despite being seen as a respected cabinet member, investment banker and public intellectual he cannot point to any defining moment in his career that can match his vast hunger to be seen as a great man.
Felix G. Rohatyn, the Lazard investment banker, can boast of his work in the 1970s when he advised the City of New York as it faced bankruptcy. And a previous generation of establishment titans like Robert A. Lovett, Cyrus R. Vance and John J. McCloy effectively straddled Washington and Wall Street by cultivating reputations as political insiders, always ready to serve in high office or offer words of wisdom when the White House called.
Since his time in the Nixon administration, Mr. Peterson’s contacts with presidents have been minimal. He has sat on commissions, spoken some hard truths to President Bush on entitlements but, perhaps because of his admonitory ways, has not been called back to Washington.
Mr. Rubin, the former Treasury secretary and chairman of Citigroup, sees Mr. Peterson as a necessary Paul Revere.
“He is a public citizen,” Mr. Rubin said. “The fact that entitlements are on people’s minds and in the political and policy arena, even though the political system does not want to be serious about it, is because of Pete. He has kept this issue alive and in the domain.”
Others, though, view the proselytizing as mostly self-serving.
“Pete Peterson has been writing books and funding think tanks, calling on people to make sacrifices,” said Jeffrey Faux, an economist at the Economic Policy Institute. “For him to have any credibility at all he should be the first one to say we ought to be paying more taxes on these tremendously profitable arrangements.”
To some degree, that may be asking for the impossible. As a co-founder of Blackstone, Mr. Peterson has a fiduciary responsibility to the firm, his partners and its employees, restraining any impulse he may have had to call for a tax increase that would have halved his company’s profits, to say nothing of his own wealth. Mr. Peterson points out that an increase in the tax will not come close to narrowing big fiscal gaps.
Still, his position has provided further fire to critics who claim that given his wealth, he is in no position to call for benefit reductions.
“Look, I am a genuine fat cat,” Mr. Peterson said, his voice rising in frustration. “But my response to my critics is, What do you want to do about the problem? Shared sacrifice has become politically incorrect and politically terminal in this country, and we are going to spend a lot money to dramatize these issues.”
Holding Court at Lunch
At the Four Seasons restaurant in Manhattan, where Mr. Peterson has been regularly having lunch for 22 years, he is treated with the consideration and regard of an aging don. With his broken right wrist in a cast, he picks vaguely at his tuna burger while a procession of executives, including the police commissioner, Raymond W. Kelly, come by to pay their respects.
Julian Niccolini, a co-owner of the restaurant, ribs Mr. Peterson about a spot on his tie and the grand habits of Stephen A. Schwarzman, his founding partner best known for his extravagant 60th-birthday party. Mr. Peterson counters with an unrelated joke so filthy that it sends Mr. Niccolini scurrying.
By 3 o’clock the restaurant is empty, yet Mr. Peterson is in no hurry to leave. His eyes, watery behind thick-framed glasses, have a faraway look. He reminisces on the randomness of his journey from being poor in Nebraska to being among the world’s richest.
“I call it dumb luck,” he laughed, recalling the humiliation he felt in 1983 when he lost a power struggle to a rival executive at Lehman Brothers and was forced out.
Two years later he started Blackstone with Mr. Schwarzman. “I thank Lew Glucksman every day of my life,” he said.
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