published in Inquiry,
27 April 1981.
It is, as
everyone knows, the Age of Conservatism. Hordes of flacks and
flunkies who until recently had to be content with gracing the
offices of conservative think tanks are busily jostling at the
trough for cushy jobs in the Reagan administration. Every group
in America is "reexamining" itself and shifting sharply
rightward. Liberals are hunkering down in the trenches, hoping
to minimize the damage.
on the defensive, the "corporate liberal" – the
well-connected big businessman – is one of the most effective
members of the club. Most businessmen have conservative instincts.
Though willing to go along with what is now euphemistically called
"the partnership of government and industry" –
and grateful for the power and boodle that come along with
it – they are obscurely uncomfortable moving too far from
their own free enterprise rhetoric. The "cognitive dissonance"
becomes a bit disquieting. What's needed is a corporate spokesman
who embraces the government-business partnership with enthusiasm
and joy – a kind of Big-Businessman-as-Philosopher. When
such a champion emerges, Mr. and Ms. America, keep a sharp eye
on your wallets – you are about to be fleeced.
For a while
Thornton Bradshaw, former president of ARCO and big daddy of the
trendy Aspen Institute, looked like the front-runner. But he faded
in the stretch, and, as every "in" person now knows,
there is only one man for the job – Felix Rohatyn.
came into the public eye in the spring of 1973, when Business
Week, adept at spotting likely comers, put the unknown financial
whiz on its cover. Our hero, then forty-four, was already a leading
partner in the extremely powerful international banking firm of
Lazard Frères. Not only that; he was the handpicked protégé
and "son" of Lazard's legendary octogenarian guru and
senior partner, André Meyer. Rohatyn, a demon negotiator
and behind-the-scenes manipulator, was touted by BW
as "dynamic," "remarkable," and a merger
He did not
exactly rise to his post by the Horatio Alger route. Rohatyn and
his family, wealthy Viennese bankers, fled from the Nazis to New
York during World War II. Rohatyn's mother divorced his father
and, luckily for young Felix, married Henry Plessner, a partner
in the Paris branch of Lazard Frères. Thanks to Plessner,
Felix landed a summer job at the New York branch of the bank while
still in college; after he graduated in 1949, he went to Paris
to work personally under Meyer. From then on, there was no looking
Lazard's man on ITT's board of directors, and also a merger man
there and a disciple of ITT chairman Harold Geneen. As a negotiator
for ITT, the short, wiry, bucktoothed, perpetually grinning Felix
found himself the object of sustained serious criticism for the
first time in his career. In the early 1970s, the Nixon administration
was hitting ITT with a series of whopping antitrust suits, and
Rohatyn started shuttling to Washington. Using his far-flung contacts
and negotiating talents, he met many times with Deputy Attorney
General Richard Kleindienst, and with White House aide and ex-Wall
Streeter Peter Flanigan.
differ about what was discussed. Rohatyn insists that the conversations
were solely about broad antitrust philosophy. Flanigan remembers
it differently; he says that the specific ITT suits were hashed
over. At any rate, the upshot was a dropping of the suits and
a favorable out-of-court settlement for ITT, followed swiftly
by a hefty $400,000 ITT contribution to the Republican party for
its 1972 convention. The affair led Nicholas von Hoffman to dub
Rohatyn "Felix the Fixer," an encomium which, we are
assured, he cannot abide. By way of justification, Felix claims
to have been given a clean bill of health by Leon Jaworski who,
pace his recent performance on Alexander Haig, seems to
have become an expert in granting such Watergate indulgences.
liberals, inexpert in the ways of their corporate liberal comrades,
see an anomaly in Felix's ITT record and his rise as a leading
liberal Democrat in New York City. Not so; Felix is simply more
consistent than others in applying the government-business partnership
concept. Corporate liberalism is nothing if not fundamentally
bipartisan. At the same time that he was fixing things
for ITT, Rohatyn became a good friend of Dorothy Schiff –
of the international banking family of Kuhn, Loeb – who was
then owner of the major organ of New York liberalism, the New
York Post. He also became a fund raiser for good gray Senator
next big leap into the limelight came with his role as the savior
of New York City's finances. In 1975, as the city's government
was sliding toward bankruptcy, Felix set up and became chairman
of Big MAC (the Municipal Assistance Corporation), which managed
to engineer partial default and dub it a mere "stretchout"
from short-term debt into long-term municipal bonds. In addition
to the compulsory stretchout, the main idea of this New York State-run
outfit was to put the rather shaky credit and prestige of the
state squarely behind the collapsing credit of the city. It worked
– for a time – although eventually state and city
will go down the fiscal tubes together. But, heck, that's a long
way off, by that time Felix will be out for bigger and better
things. Après Felix, le deluge.
and chairman of Big MAC, Rohatyn managed to induce the reluctant
Ford administration to kick in the requisite massive aid to save
his financial package. His success there seems to have completed
the flowering of Felix as an economic philosopher on a grand national
scale. For if some federal aid could save the bankers, municipal
officials, and bondholders of New York, why couldn't still more
federal aid produce more such good deeds? Rohatyn had discovered
the soul-satisfying humanitarian expansiveness of post-New Deal
small. Why shouldn't the federal government assume all state and
local welfare costs throughout the nation? Wouldn't that be a
marvelous bonanza for hard-pressed urban and state governments?
(Yes, it sure would. In practice, it would mean that these governments
would have more money to lavish on massive construction contracts,
school administrators, and legions of what are known in the Bronx
as invisible "pothole inspectors." But Felix, oh Felix,
where would the federal government get the money? Did you ever
give one thought to that, O Wizard of Lazard?) In addition, Rohatyn
called for a massive new "domestic Marshall Plan" to
reconstruct our shattered inner cities by creating a new and more
magnificent version of the Hoover – FDR Reconstruction Finance
Corporation, which had used taxpayer money for massive handouts
to quasi-bankrupt corporations and their anxious creditors, many
of whom happened to hail from Felix's own bailiwick of investment
banking. (More on this later.) Felix the Fixer may not know where
the money is going to come from, but he sure knows where it's
going to go.
1977 it was revealed that Felix was also pretty sure where his
money was coming from. The previous summer, Rohatyn, as the
top official in Big MAC, was forced, by executive order of New
York Governor Hugh Carey, to make a public disclosure of his finances,
something he did with considerable reluctance. Not for Felix
any nonsense about owning any Big MAC bonds personally –
he didn't get this far by being a dodo. Indeed, he owned
precious little stock in the various corporations he helped direct.
Much of his money, interestingly enough, was invested in tax-sheltered
real estate. His major real estate shelter, in which he managed
to combine his quest for big bucks and his enthusiasm for social
significance, was Lambert Houses, a publicly subsidized development
in the Bronx. Rohatyn's personal devotion to government-business
partnership was also reflected in his investment in the Stevens
New Haven Associates urban renewal project, as well as in the
National Corporation for Housing Partnerships (an organization
created by Congress in 1968 to attract private capital for the
construction of publicly aided housing).
At the end
of 1978, his salvage task accomplished, Rohatyn resigned his powerful
though unpaid post as chairman of Big MAC and returned to Lazard
Frères, though still keeping a hand in state affairs as
chairman of the New York State Council on Economic Development.
Going back with him to Lazard was Eugene Keilin, the most emphatically
not unpaid executive director of Big MAC under Rohatyn,
and now Lazard's unofficial man on Big MAC's board of directors.
In March of the following year, Big MAC announced as its financial
adviser (for an annual fee of a quarter of a million dollars)
the investment-banking firm of – you guessed it – Lazard
Frères. No other investment banking firms were considered.
At this point, New York's outspoken and rather buffoonish mayor,
Ed Koch, denounced the deal as a "moral conflict of interest"
– at which Lazard withdrew in a huff, loftily professing
to be unable to understand why such an act of altruistic public
service should subject the firm to "needless abuse"
from the peanut gallery.
record, we could have predicted to a tee what stand Felix would
take on the Chrysler bail-out question. Writing in the New
York Times on January 13, 1980, Rohatyn explained that the
Chrysler bail-out – the federal rescue of a corporation not
tied in with defense contracts as was Lockheed – had
set an unshakable precedent: Every large-scale business must now
be a candidate for federal rescue. Any refusal to bail out a large
corporation henceforth and forevermore would be unjust discrimination;
moreover, such refusal would involve terrible "dangers to
the economy" and "untold human suffering" (not
least, of course, among the big stockholders of some future Chrysler).
Felix also had the gall to say that the bankruptcy of a large
corporation would cost the taxpayers a lot of money, a fascinating
inversion of the obvious fact that it is the federal rescue
of inefficient and insolvent corporations that will cost the
taxpayer – and the consumer, because it perpetuates the inefficient
use of resources – all too dear.
precisely how are future bailouts to be performed? Not by Congress,
warns Felix: too subject to political pressures (i.e., complaints
of voters) and too chancy. What is needed is a mighty federal
agency, staffed with financial experts, removed from the vulgar
pushing and pulling of the political arena, able to spot insolvent
or troubled corporations far in advance and move in, quietly and
efficiently, to help. In short: SuperFelix! Why confine Rohatyn's
wondrous talents to one city, however big? The entire nation needs
Rohatyn goes on, the bailout by the federal government should
not be quite automatic. For how can the government, staffed
by the best financial brains, force corporations to toe the governmental
line without having the threat of bankruptcy as a weapon? As Rohatyn
writes, "The possibility of bankruptcy must not be eliminated
since that is the only real leverage." Once again he suggests
that what is needed is a massive new Reconstruction Finance Corporation.
The new RFC should be run by professionals, as part of an "overall
plan." It should be free to make any form of investment in
a corporation it wishes: equity, preferred stock, loans, loan
guarantees – leave that to Felix and his friends.
the new RFC should be able to invest in corporate stock –
the original RFC having been hobbled, one supposes, by being limited
to old-fashioned loans. Felix cautions that RFC investment should
be "limited" to 50 percent of corporate stock in any
one firm. (Anyone familiar with the business world knows, of course,
that 50 percent is more than sufficient, thank you, to ensure
total control and domination of the enterprise.) It is also important
to give the new Big RFC enough power to do the job; it must be
able to "do unpleasant but necessary things such as changing
the board of a company it invests in and replacing management."
One of the
nice things about being a corporate liberal is that it allows
one the luxury of being in the comfortable middle of the road.
And so Felix gives us the familiar incantation: He knows, sadly
but wisely, that his plan will be attacked from left and right.
"The specter of socialism will be raised by the conservatives
[Heavens, why?] and the cry of u2018big business bail-out'
by the liberals [again, why?]." Of course,
he adds, such objections will have to be discussed and even heeded
a bit, but they must not be allowed to stand as roadblocks in
the path of social progress. Besides, he assures us, Big RFC would
not really be "mammoth"; its bail-outs and investments
would only be "temporary" (like Chrysler?) and would,
initially at least, be limited to a mere $5 billion fund contributed
by the Treasury Department plus another $10 billion in guaranteed
U.S. bonds of the sort with which our banking wizard is all too
by warding off criticism in advance. "Public-private partnership,"
he exults, "is here to stay.” Even if Chrysler "ultimately
fails," he warns, that would not mean that we shouldn't have
bailed out that company; it would only "prove that the right
medicine [Big RFC] was not applied at the right time." Give
the job and the tools to SuperFelix and we will be sure that,
as he puts it, "the right medicine" will be "available
in the future."
of Felix Rohatyn as corporate liberal philosopher came with two
elaborate think pieces in that prestigious oracle of the left-liberal
intelligentsia, the New York Review of Books (December
4, 1980; March 5, 1981). Stamped with this imprimatur, Felix has
now succeeded in scaling the heights of intellect as well as those
of big business, finance, the media, and government. With such
conquests to his credit, can the entire nation be far behind?
New York Review articles elevate him to the status of Global
Thinker. He urges the "reconstructing of America," but
it is clear that now the whole world is his oyster. We are in
grave crisis, says our philosopher, and to cure it we cannot be
content with the old ways; a radical rearrangement of America
and the world is necessary. Liberal measures for public spending
have failed, says he, but so has conservative monetarism, which
Felix repeatedly terms "theological." But do not despair,
fellow Americans, there is an Answer, temporarily unpleasant and
austere though some of it may be.
unrolls his proffered solution, it becomes clear that he is calling
for nothing less than all-out collectivism. Big RFC is now only
a cog in the great machine that looms before us. A vast network
of taxes and subsidies will revitalize industry and, particularly
important, direct it into the channels desired by government.
A "stiff' gasoline tax will force Americans to use less gas;
massive government subsidies to coal and nuclear power will beef
up energy supplies. Big RFC and other subsidies to business are
a far better means of revitalizing industry than are tax credits
because, Rohatyn explains, the former gives the reins to the government.
inflation? That is to be stopped cold, first by a "temporary"
price-wage freeze, to be succeeded by what Felix repeatedly calls
a "tough incomes policy." Translated into English this
means tightly controlling wages while permitting prices to rise,
one of the fascinating "humanitarian" outcroppings of
with justified alarm to Rohatyn's geopolitical ideas. Predictably,
he calls upon us to learn before it is too late, from the examples
of Germany and Japan, that we must have continued, pervasive "partnership
of business and labor in government." Furthermore, the Middle
East, "vital to our security and our economy," must
be secured; the Third World must be aided and brought to its senses;
and the United States must greatly beef up its air force and conventional
arms, in which we are "dangerously deficient" compared
to the Soviet Union. In particular, "we must have an adequate
conscripted army with low pay" and everyone except
the halt and the lame must be drafted. The low pay scale, of course,
should not extend into the upper ranks; there, we need a "highly
professional, highly paid cadre of officers and non-coms."
One reason the conscript army may be needed, in Rohatyn's view,
is that oil-rich Mexico doesn't seem to have quite the proper
deferential attitude toward the United States.
that his plan will be greeted with "cries of elitism"
and of a "new establishment"; he is prepared to live
with these quibbles because any other course of action would be
"infinitely worse." But Rohatyn's recent writings are
filled with apocalyptic despair. A few piddling reforms and holding
operations may take place, but he sees that his fundamental shift
to all-out collectivism is not likely to occur in the normal course
of events. Democracy is just too darned messy and diverse and
"balkanized." Only a major crisis of some sort can put
his collectivist program into effect. Felix the revolutionary
thinker doesn't know what form this crisis will take, or when
it will come, but he is confident that come it must.
then, fellow Americans, "when a crisis of sufficient
magnitude creates the possibility for fundamental change, it will
carry with it enough of a popular majority for action so that
a president with a real vision of the future will be able to put
his program through." Then Americans will decide "that
the drift has got to stop, and a president with a sense of the
future [will] give direction to the power that will be unleashed."
Felix recognizes, with some delicacy, that this will pose a "risk
for democracy," but it is, after all, also a great hope.
who will play the role of this updated and well-scrubbed Mussolini,
conscripting everyone, collectivizing industry in a giant partnership
of government and business, and unleashing all that mighty power
through swift and revolutionary change of our political institutions?
No one can say – but it won't be Felix Rohatyn, who by lucky
accident was born in Vienna and thus is constitutionally ineligible.
Well, we can't have everything. But we can all rest assured that
when the Man on the White Horse, our humanitarian armed with the
guillotine, arrives on the scene, Felix the Fixer will be at his
N. Rothbard (1926–1995) was the author of Man,
Economy, and State, Conceived
in Liberty, What
Has Government Done to Our Money, For
a New Liberty, The
Case Against the Fed, and many
other books and articles. He
was also the editor – with Lew Rockwell – of The