New York — More than a year ago, Condé Nast Portfolio senior writer Jesse Eisinger began making predictions about the current crisis on Wall Street. In “The $300 Trillion Time Bomb” (May 2007), Eisinger, delineating the problem with derivates, wrote, “When it comes to the really big stuff—such as global market collapses—derivatives could turn from vaccine to contagion.” In “Wall Street Requiem” (November 2007), foreseeing much of the current carnage, he laid out the shaky state of Wall Street’s investment banks and correctly predicted that not all of them would survive: “There is an end-of-era feel to the whole thing.” Now, in the November issue of Condé Nast Portfolio, Eisinger reports that the roots of the financial meltdown go back to the team of J.P. Morgan bankers who invented credit derivatives (“The $58 Trillion in the Room,” p. 108). Eisinger notes that Bill Demchak, now vice chairman of PNC Financial in Pittsburgh, was once the leader of a small group at J.P. Morgan in New York that pioneered the kind of financial instruments that eventually led to this autumn’s wreckage on Wall Street. “The J.P. Morgan team created and then industrialized credit derivatives, which have enveloped the global markets, growing to a mind-numbing $58 trillion worth of credit contracts,” Eisinger writes. “The new credit vehicles encouraged banks and other financial firms to take on riskier loans than they should have, helped increase leverage in the global financial system, and exposed a much wider array of financial firms to the risk of default.” While Eisinger acknowledges that credit derivatives aren’t solely to blame for the current crisis, he maintains that they made the financial world more complex and opaque, ultimately exacerbating the market panic.

“The Morning After” (p. 45). Contributing editor John Cassidy tackles the thorny issue of how the next president will clean up the economic mess. “Three pillars of American economic supremacy have been badly dented: the unrivaled power of Wall Street, our ability to dictate policy to other countries, and the appeal of the dollar,” Cassidy writes. “Today, the images of America being broadcast around the world often feature desperate homeowners, failing banks, and panicked policymakers—none of which are likely to inspire confidence in, or affection for, Uncle Sam.” But Cassidy argues that a period of living within our means, behaving less arrogantly toward other countries, and relying on creativity and honest toil rather than speculative bubbles might well help the country out of this mess.

In this months Viewpoint (p. 31), Jesse Eisinger maintains that as Wall Street collapsed, it wasn’t mortgage-backed securities that were the most powerful intoxicants, but rather denial that the financial landscape had indelibly changed. “[Treasury Secretary Hank] Paulson was hardly alone in denying that investment banking as we know it has ceased to exist,” he writes. “The dealmakers were still desperate to make deals, and regulators and politicians were still acting as their handmaidens, arranging shotgun marriages in haste that might be regretted at leisure.” Eisinger believes that Paulson has never understood either the origins or the magnitude of the crisis, as evidenced by his insistence that the situation was contained the moment panic struck. “So it’s no surprise that [Paulson] and the Federal Reserve would suggest patchwork fixes and recklessly applied bailouts,” Eisinger writes. “The economy won’t heal itself without time and the terrible societal pains of recession.”

Also in the November issue:

THE GENEROSITY INDEX

“The Giving Game: Billionaire Edition”(p. 85). Condé Nast Portfolio looks at which billionaires are giving the most to charitable causes, relative to their wealth; which are giving the least; and who is refusing to say. Contributing editor Duff McDonald reports that in the upper tier of philanthropy, it’s not just about the cause and the gift—it’s about outdoing the other guy. “Many of the nation’s richest people have become a lot less rich in recent months,” McDonald writes. “But their largesse is taking on a heightened importance amid the current economic turmoil.” Ronald Perelman tells McDonald, “I think that in times like this, when the economy is having difficulties, it’s more important to step up and do stuff privately that may have historically been funded by public money. That’s going to be a task for us going into the next two years.”
The top 10 most generous billionaires (in order of giving): Warren Buffett, Bill Gates, Eli Broad, George Soros, John Kluge, Michael Bloomberg, David Koch, Pierre Omidyar, George Kaiser, and Michael Dell.  
Among the wealthiest people in the country with no record of public giving in the past several years (in order of giving): Kirk Kerkorian, Sumner Redstone, Anne Cox Chambers, Steve Ballmer, and Rupert Murdoch.
“Goldman’s Conspicuous Compassion” (p. 54). Senior writer Kevin Gray travels to Nigeria for the first stage of the 10,000 Women initiative, the biggest and boldest philanthropic project ever attempted by Goldman Sachs. Gray reports that the firm has pledged to spend $100 million over five years to educate 10,000 women in developing countries about business. “Toward that end, the Goldman team has secured $600-a-night hotel suites, set up the media center, reviewed the briefing books, and drawn up the reception menu,” Gray writes. However, with the current crisis on Wall Street, Goldman C.E.O. Lloyd Blankfein candidly admits, “Would we have committed so much this year had we known? No. It wouldn’t have occurred to us.”  

“The Price of Immortality” (p. 102). In an exclusive profile, contributing editor Gary Weiss sits down with the second-richest man in New York City, billionaire David Koch (ranked seventh in Condé Nast Portfolio’s Generosity Index), a political conservative in a liberal town who is known as much for fighting with his brother as he is for his charitable causes. Addressing his success, Koch tells Weiss, “I had more social standing than I could possibly handle.” After surviving a terrifying airplane crash in which all of his fellow first-class passengers perished—and after battling cancer—Koch committed to broadening his approach to giving, Weiss reports. Having recently donated $100 million to New York City’s State Theater, Koch saw his status instantly rise in the world of Manhattan charity. Koch’s giving entails a “shaming of other billionaires,” Weiss asserts. “They see massive gifts by Stephen Schwarzman or David Koch and say, ‘Hey, I’ve got $100 million. I can certainly give it away.’ ”

“A Beef With the Rabbis” (p. 120). David Levine investigates Agriprocessors, the largest kosher meatpacking company  in the country that some have compared to Anheuser-Busch. In May, the company’s largest plant, in Pottsville, Iowa, was raided by Immigration and Customs Enforcement agents, exposing hundreds of illegal workers and resulting in allegations of more than 9,000 violations of child-labor laws. Agriprocessors founder Aaron Rubashkin, a Hasidic Jew who fled Soviet totalitarianism in the early years of the cold war, speaks with Levine about the mission of the company, which he says includes “a chance to help all Jews become more observant.” Levine interviews a 15-year-old Guatemalan worker, who says he applied to Agriprocessors with phony documents showing he was of legal working age for the plant—which in Iowa is 18—and that a manager told him it would be preferable if his paperwork made him 21, so he came back again with new papers. Stories of onerous and exploitative labor conditions pile up, including claims by female employees of sexual harassment. When pressed on the allegation that he hired illegal workers, Rubashkin responds, “With me, everything was documented! But they say the documents are not real. Did I make the documents? Am I selling documents?”

“Barely Legal” (p. 114). American Apparel C.E.O. Dov Charney talks with contributing editor Claire Hoffman about Charney’s crusade on behalf of illegal-immigrant workers; his three sexual-harassment lawsuits to date; and his unconventional work environment, which includes a young apprentice named Johnny Makeup who lives at Charney’s mansion and calls his boss Daddy. “I’m an industrialist!” Charney shouts at a TV screen showing Lou Dobbs, who has just declared that “illegals” are destroying the U.S. economy. “When you have a factory with more than a couple hundred people, you get to call yourself an industrialist…. Some people call me the masturbator. Okay. But I’m the industrialist!” Hoffman reports that Charney, whose company is the largest clothing manufacturer in the United States, has taken a progressive and potentially hazardous stand on the subject of immigration, taking out ads in the New York Times last year that championed the rights of the “voiceless.” “Charney’s newspaper spots all but said that American Apparel, like many other U.S. employers, makes use of illegal-immigrant labor,” Hoffman writes. She reports that Charney and his lawyers have spent their days bracing for a raid at any time on American Apparel’s factories.

“School of Hard Knocks” (p. 132). Senior editor Dan Golden investigates the story behind the decision of Tommy Frist, brother of Bill Frist, to build a private high school in Nashville. Frist funded the project after his alma mater, Montgomery Bell Academy, rejected his multimillion-dollar donation because of the strings attached. Golden reports that Frist had offered Montgomery Bell, an elite all-boys private high school in suburban Nashville, a gift of $100 million on one condition: The school would have to become co-ed. When the board rejected his offer, he built a rival co-ed high school a quarter of a mile away. Well-known around Nashville for his charitable donations, Frist is also notorious for offering gifts only if his conditions are met. Vanderbilt University rejected a multimillion-dollar gift of H.C.A. stock because Frist insisted on the right to decide when the university could sell the shares, a policy strictly prohibited by the school. Golden writes, “It’s widely said in Nashville that there are three ways to do things: the right way, the wrong way, and the Frist way—‘Do what I tell you or I’ll take my marbles and go home.’ ”

“How to Value It: The Bond Market” (p. 62). Contributing editor Duff McDonald and Miriam Datskovsky calculate how much money the world’s most famous spy, James Bond, has generated since his 1953 debut. Looking at the profit from Bond movies, books, and videogames, they estimate a total of $13.8 billion, rendering Bond one of the most lucrative fictional characters in history, ahead of both Harry Potter and Batman.

This month on Portfolio.com
The November issue of the magazine, plus ongoing coverage of the global financial crisis, additional content from the generosity index including more profiles and web interactives, plus a video interview with Marc Andreessen.

PRESS CONTACTS:

Perri Dorset
perri_dorset@condenast.com
212-286-5898
 
Sarina Sassoon Sanandaji
sarina_sanandaji@condenast.com
212-286-6898
 
Emily Weber
emily_weber@condenast.com
212-286-6373