NY Public Library 'Trades Naming Rights' to Greedy Hedge Fund Billionaire for Big Bucks

By David Morris, AlterNet. Posted March 24, 2008.

Recently, the New York Public Library announced it would rename its main library the Stephen A. Schwarzman Library in return for his contribution of $100 million to its $1 billion capital fund drive. As a born and bred New Yorker, I recoiled at the news and the message it sends to future generations of New Yorkers.

The 42nd Street library is by all accounts the jewel in the crown of the New York Public Library system. In both form and function, it honors the word "public." Henry Hope Reed has accurately described the library as "a people's palace of triumphant glory." The pair of marble lions flanking its flagstone plaza arguably is more readily identified as New York than the Empire State Building. Twenty years after the library opened, Mayor Fiorello LaGuardia dubbed the lions "Patience" and "Fortitude" to remind the hundreds of thousands who passed the building each week of the values needed to get through the Depression.

Its newly redone main reading room -- 297 feet long, 78 feet wide, and just over 51 feet high -- is nothing short of remarkable. Its ceiling murals rival those of European cathedrals. Some come simply to walk around and admire. The vast majority comes to a library unusual in that it is both one of the world's largest lending libraries and one of the world's foremost research libraries.

The 42nd Street library is a poster child for the public, for the "we," for generosity and openness and sharing.

Stephen A. Schwarzman, on the other hand, is a poster child for the private, for the "me," for greed and secrecy and accumulation.

To be honest, I'd oppose renaming the 42nd Street library for any person, but renaming it for this man, at this historical moment is mind-boggling.

Schwarzman is co-founder and chairman of the board of the Blackstone Group, one of the leading companies that have designed and promoted the financial architecture that has led to the current ever-widening collapse. Blackstone is to the first years of the 21st century what Enron was to the last years of the 20th century.

Blackstone is involved largely with private equity, the new name for what in the 1980s were called leveraged buyouts. Leveraged buyouts gained a deservedly bad reputation for pension raids, mass layoffs and the looting of venerable and sustainable companies. The name changed, but the game stayed the same.

In recent years, the fastest growing part of Blackstone's portfolio is what it calls "marketable alternative investment assets." This is the secret, unregulated and largely unmonitored world of hedge funds and credit derivatives and collateralized debt obligations. Warren Buffett, the second-richest man in the world, who knows the financial game as well as anyone, once called credit derivatives "financial weapons of mass destruction." As the destruction of millions of lives continues, I leave it to others to decide whether those who built and used these weapons could be considered terrorists.

In recent years, funds like the Blackstone Group gained the public eye because, even in this new anything-is-OK gilded age, its directors' annual salaries, as much as a billion dollars, seemed over the line. And then reporters discovered that much of this income was taxed at less than half the rate the average Joe and Jane would pay on their salaries.

Here's how it works. In 2007, Schwarzman received a salary of $350,000, which is treated as ordinary income and taxed at a 35 percent rate. He also received some $400 million in cash distributions, which is considered a capital gain and taxed at a 15 percent rate. No one with a straight face could argue that this was truly a capital gain, because no one's personal income was at risk.

In 2007, Congress tried to close this loophole. The bill, appropriately was called the Blackstone bill. Blackstone and several other hedge fund firms quickly founded the Private Equity Council to defend their ill-gotten gains. They could afford to spend liberally to influence politicians. And they did. In 2007, private equity firms spent over $10 million on lobbying. Blackstone spent twice as much as the rest of the industry combined.

The bill died in December.

In May 2007, Schwarzman and Blackstone created their own jewel in the crown: one of the largest IPOs (initial public offering) in history.

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David Morris is co-founder and vice president of the Institute for Local Self Reliance in Minneapolis, Minn., and director of its New Rules project.