The Private Equity Confidence Game

0:09Hello and welcome to Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Bloomberg with Elizabeth Spiers of the New York Times. Hello. With Emily Peck of Axios.

0:23Felix Salmon: Hello, hello. And with the one and only Bill Cohen of more different publications than you can count, but mostly of Puck. Welcome, Bill. Thank you, Felix. It's great to be here. Introduce yourself. Who are you? And plug your book.

0:38William D. Cohan: Well, I don't know. Who am I at this point? I'm a grandfather. Oh, congratulations. I have a four-month-old grandson. I am a former investment banker, a best-selling author, co-founder of Puck, former special correspondent at Vanity Fair, and the author of the new Money to Burn, a book about Leon Black, Apollo, and the creation of a new Wall Street. We are going to talk about this new Wall Street, how risky it is, how levered Apollo is and Athena is. We're going to talk about the sordid personal affairs of Leon Black and his relationship with Jeffrey Epstein. We're going to talk about Leon's wealth, his psychology.

1:20We're going to talk about Apollo more broadly. It's a very fascinating, super important conversation. And then we also have a slight plus segment about Donald Trump, who is a former associate of Leon Black, and his great idea to give everyone$5 ,000 if he wins the election. So that is all coming up. I hope you stay tuned. It's all coming up on Slate Money.

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3:04Felix Salmon: Mike and his guests offer their perspective on how policy changes could affect what you do with your portfolio. Download the latest episode and follow at schwab.com slash Washington Wise or wherever you listen. So, Bill, you have written this massive book about, well, let's say one of the top two private equity companies in the world, Apollo. It is feared and admired. And so I thought I would start just by asking you the big question, which I think comes up in various different flavors over and over again on this show, which is private equity. Is it a good thing or is it a horrible, destructive force that we should be very mean about?

3:47William D. Cohan: And I assume by private equity, you mean private equity as opposed to private equity and private credit? Well, we will move later. We will get there. to enter into the question of whether Apollo is now really an equity shop or whether it's always been a debt shop, because that's nerdy and we don't start off with that kind of thing. We don't want to start out to be too nerdy.

4:07Felix Salmon: Start out big. Start out big. People's concerns. But let's just say private capital stacks. So the whole thing, private equity, private group, whatever it is that Apollo does, is it good or is it bad?

4:16William D. Cohan: So first of all, let me just say that, yes, the book is long. All my books are long, but they're long and involved. They're great narratives. And I've always felt just to say this, that I try to write books that I would want to read that have great stories attached to them. So yes, it requires some effort and more than just like an hour sitting down. But I think there's a reward at the end of that. Okay, enough of that commercial. So look, I don't think that private equity, private debt, private credit, I know people love to try to moralize about it. Like, is it right or is it wrong? Is it good or is it bad?

4:53William D. Cohan: It's the results of years of smart people highly rewarded to pursue this activity, being clever and creating various forms of financial engineering that they are rewarded for. This kind of thing exists because the system that we live under has created the incentives for people to do this, get big rewards. It's not illegal. And there's a need in the marketplace. So I'm not sure whether it's right or wrong. I mean, some deals are bad. Some deals are good. Yeah, okay. So Adair Turner, Lord Turner, famously said basically that this is socially useless activity. That we have the best and the brightest in society, the people who could be doing something productive in the world.

5:38And instead, they're moving numbers around and making vast amounts of money. And almost any other use of that talent would be better for society as a whole. Would you agree with him on that?

5:49William D. Cohan: I certainly wouldn't disagree with him on that. And I don't mean to parse. Yeah, I mean, it is amazing to me. And I've chronicled this now. First of all, I was part of it. I mean, let me just tell you a little story, OK? Because this illustrates, I think, exactly your point. Once upon a time, I wanted to be a journalist because I wanted to change the world. I was a child of Woodward and Bernstein and the Watergate era. And I thought that was, like, mind-blowing, OK? So I did that for two years. I covered public schools in Wake County, North Carolina. I won investigative reporting awards. And I really wanted to get a job at the Wall Street Journal.

6:25William D. Cohan: And I kept trying to do that. And I was very unsuccessful. My father kept saying, you know, go get your MBA. And I didn't want to do that because I wanted to be a journalist, not an MBA type or a banker. But after I couldn't get a job at the Wall Street Journal after trying repeatedly, I thought to myself, well, if I got my MBA and I have my journalism degree and I've won investigative reporting awards, then OK, of course, then I can go to the journal. So I went and got my MBA at Columbia, came out, finally got a job interview with the national news editor of The Wall Street Journal. I get to his office and he looks at me and says, what are you doing here?

7:02William D. Cohan: I said, I'm here for a job interview, of course. He said, no, no, no, no, no. Forget that. We have a hiring freeze on. When that hiring freeze comes off, I've got my eye on this guy from Forbes and that guy from Fortune. I said, OK, I'm either going to go to Wall Street or the Wall Street Journal. Your choice. And he said, goodbye. So I went to GE Capital and I started financing leveraged buyouts. That was my job. So to your point, I went from covering public schools in Wake County, North Carolina, to financing leveraged buyouts. So this was just something that was in the air. All you had to do to get a job on Wall Street in May of 1987 was to breathe, okay?

7:41William D. Cohan: Just to be able to fog a mirror. That's a long-winded way of saying that on Wall Street at that time, it was the most money you could make without having to risk any of your own capital. So no surprise, people flocked to that.

7:54Felix Salmon: The blacks also didn't really want to go into business, but kind of got sucked into it as well, right? I could really relate to that.

8:01William D. Cohan: I didn't know that.

8:02Felix Salmon: The magnet of money, just you can't resist it.

8:04William D. Cohan: Well, his dynamic was different than mine because his father committed suicide, jumped out of the Pan Am building when Leon was in his second year at Harvard Business School, which, like me, he also didn't want to go to. But, you know, his father urged him to do that. They were a very wealthy family, but much of his wealth was tied up in company stock, which tanked after he committed suicide as the CEO. Leon's mother was an artist and his sister was a teacher. So he realized he was going to have to be the breadwinner for this family. And that's how he ended up at Drexel, even though he was reluctant, I think, to go to Wall Street.

8:39Although something happens, right? When you're talking about the billionaires as opposed to the decimillionaires that we all know and love, like they don't stop, right? Leon goes to Drexel. He makes enough money that his family will be set for life. And then he just keeps on going and going and going. He sets up Apollo. He becomes richer than God. And he puts together a$5 billion art collection. He has so much money, it's almost incomprehensible how much he has. At this point, he is not sort of trying to make sure that his family is safe because his dad doesn't come.

9:13William D. Cohan: We're well beyond that. Yeah, we're well beyond that. You know, it's Maslow's needs hierarchy. He had topped out on all the needs that Maslow identified. And we're going to talk in the next segment a little bit more about his sort of weird personal psychology and actions. but I do want to stick a little bit with private equity broadly and especially Apollo. And instead of asking whether it's a good thing or a bad thing, let me ask you this. You mentioned at the, towards the end of the book, that there's a risk that it will be designated a systemically important financial institution, that there's a bunch of like embedded leverage in there that it is actually not just investing money.

9:51It is borrowing money. It is making money on the spread between borrowing and lending. It's kind of a sort of bank-like activity there. And a few months ago, especially a lot of people were very worried about private credit and which is a place it is very big in and the systemic implications of that. Do you think that there is a risk that Apollo is could cause some big systemic crisis? Absolutely. Yes. And that would happen a little bit like a bank when the value of its asset has risky assets, the value of its assets can go down, the value of its liabilities stay constant, and then pretty much overnight it becomes insolvent.

10:31Explain to us why Apollo being insolvent would be a really bad thing.

10:37William D. Cohan: Insolvent is a big word. I don't know that it would be insolvent, but Wall Street generally is, Felix, is a confidence game. And if people lose confidence in a particular institution or group of institutions, this happened in 2008, we can see what happens very quickly. Could Apollo trigger a financial crisis? I think there's a risk that the architecture of Apollo right now, which has also been basically copied by KKR and Brookfield Asset Management. But basically, the architecture of the private credit industry now, as epitomized by Apollo, is that they created Athene, this insurance company that provides annuities.

11:16William D. Cohan: So it's not like a property and casualty insurance company. It's not a life insurance company. they provide annuities. Basically, they ensure people's retirement in a way. That's a nice way of saying what they do. What they really do is they've given bonds to all these annuitants, all their customers. In other words, you give us your money, we'll give you 5 % a year for 7 or 10 years, however long the annuity is. And at the end of that, you get your money back. So now what Mark Rowan, who's the CEO of Apollo, would say is we've created a better mousetrap. One of the major problems in fractional banking, which is the way our system is set up, is borrowing short and lending long.

11:58William D. Cohan: The liabilities are short term, like you can go to the ATM machine at Silicon Valley Bank and get your money out. And even though Silicon Valley Bank invested predominantly in treasuries, they couldn't liquidate them fast enough or close enough to par to pay off the deposits that were leaving the bank very rapidly. The same thing happened in effect at Bear Stearns, Lehman, Merrill, all of that. It's always the same story over and over again. But Mark is making the argument that Athene and Apollo are different because the duration of the liabilities are, say, seven years, and the duration of their assets are, say, seven years.

12:38So they've actually

12:39William D. Cohan: matched the duration of the liabilities to the assets. So they're not borrowing short and lending long. They're borrowing long and lending long. And so there can't really be a run on the bank. But if confidence is lost in Apollo for whatever reason, like maybe they've made too many private credit investments that are like coming a cropper. I mean, that doesn't appear to be the case, but it certainly could. Confidence is lost in the architecture of Apollo's bank, because it really is a bank. It's an unregulated bank. It's not regulated by the Fed. And if these annuitants want their money back, they can get it back.

13:14William D. Cohan: They have to pay a penalty. But if enough of them are unhappy and concerned about what's going on at Apollo, or if there's rumors or whatever it is, just like there were rumors at Bayer and Lehman and all that, then they're going to get their money back. And Apollo is going to be in big trouble because of Apollo's trillion dollars of assets under management,$850 billion now are in private credit and$150 billion are in private equity. So that$850 billion is going to rule the day. And there could be, as one person said, a walk on the bank, you know, if not a trot on the bank, I don't know, could even be a run on the bank.

13:48William D. Cohan: And, you know, if Apollo goes down, like long term capital management or Bear Stearns before it, that's going to make people very, very, very nervous. Yeah, like debt crises are always worse than stock market crashes. Yeah, always. So there is a risk. Yes, there is a risk. You said sort of in passing, of course, Apollo is a bank. Can you explain that a little bit? Well, it's an unregulated bank. Okay, so the big Wall Street banks are now regulated by the Federal Reserve. They are depository institutions. Their liabilities are still short-term liabilities, like go to the ATM machine, take out your money.

14:22William D. Cohan: And by and large, their assets are long-term assets, and they make money on the spread between what they pay us for our deposits, which is basically zero, and what they lend the money out, 7, 8, 9, 10, 11, 12 percent. And JPMorgan Chase is going to make $66 billion in net income this year, most of which is coming from that spread. Apollo is also in the spread business. They don't take deposits. There's no Apollo ATM machine, but they do take money from customers, annuitants, and they owe that money back to them. There's no equivocating on that. They owe them the 5 % or whatever it is, interest annually, and they owe them their money back at the end of the term of the annuity.

15:07William D. Cohan: And if for some reason, either of those things can't be done, like for instance, if interest rates are cut, and they can't make the 10 % on their loans that they used to make or whatever it was, but they still owe 5 % to their annuitants, and their spread contracts, there could be concern about whether or not the annuitants will get that money. You had a really quite startling statistic in the book where you said that the spread between Athene, which is the annuity arm of Apollo, the spread between the value of the assets and the value of the liabilities is like 1.2%. If the assets went down in value by 2%, which is not much, yeah, that would go negative.

15:51William D. Cohan: That's right. And that's what happened at Bear Stearns. They're not as levered as Bear Stearns was. And once upon a time, Bear Stearns' inner quarter was levered 50 to 1. So a 2 % change in the value of the assets wiped out the equity. And guess what? That's exactly what happened. They're not as levered as 50 to 1, but they are levered. They're levered like 15 to 1, right? Right. But it doesn't even have to be a change in the asset value. It could be a change in just the confidence that people have in whether or not they're going to get their 5%.

16:18Felix Salmon: You had this thing in the book about in the case there's some kind of confidence issue or some kind of run or whatever, equity investors would be faster moving and be able to get their money back first before the annuitants. Oh, the GICs, whatever that called.

16:32William D. Cohan: Yeah. Yeah. It wasn't the equity investors. It was another owner of debt in their capital structure. In other words, annuitants are like you and me, right? I mean, you know, we're just, we worked our whole life with these schmoes who worked their whole life. We'll buy an annuity because that'll give us 5 % on our money and we can live off that 5%. It's really no different than buying a treasury bond, theoretically, or any kind of other bond. Now, that's not the only part of the Athene capital structure. There's also these GICS guaranteed investment contracts. Yeah. And that's institutional investors.

17:09William D. Cohan: So one of the people I talked to, Tom Gober, about this suggested that those people are more sophisticated than you and I. And, you know, we're just like sitting there clipping our annuity coupons, right, our 5 % and like going about our, you know, playing golf down in Sarasota. But institutional investors whose job it is to manage vast sums of money and keep their fingers on the pulse of what's going on, you know, if there's suddenly some sort of loss of confidence, the institutional investors are going to be on top of it more quickly than you and I are going to be on top of it. And then therefore, we'll somehow demand that they get their money out and probably will get their money out before retail investors, because institutional investors are like the left ventricle of capitalism, like, you know, everybody's catering to them, because that's where the big money is.

17:56William D. Cohan: And so their feeling is that even though there should be pari-pusu in the capital structure, in other words, even though they shouldn't be able to get paid before, it was a theory, even though they should be able to get paid before retail annuitants, they'll figure out a way to do that. And once again, the retail investor will get screwed. What are some scenarios that would precipitate this kind of loss of confidence that you're talking about? No one ever knows. I mean, no one rings a bell at the top of the market. I mean, it's just like this collective sense that something is wrong in the capital markets and sort of starts leaking out little by little.

18:33William D. Cohan: And then it becomes like a debate. Like, you remember in the week in March leading up to the eyes of March 15th of 2008, when Bear Stearns essentially went bankrupt and then was bought before that by JPMorgan Chase, as we all remember, There was rumors in the market that Bear Stearns was having trouble rolling over its short-term credit, its repo credit, and that there was a potential run on the bank. And then Jim Cramer would go on CNBC and say, no, no, it's great. Don't sell your Bear Stearns. It couldn't be better. No, all these rumors are crap. And then Alan Schwartz went on CNBC, who was the CEO of Bear Stearns at that time, from Palm Beach, where he was at some conference.

19:12William D. Cohan: He said, no, no, everything's great. Everything's great. Well, two days later, boom, it was over. So, I mean, when loss of confidence happens, again, Wall Street, capital markets are a confidence game. It only works when everybody is feeling good about it, like they are now. I mean, no one would ever think we're headed towards trouble now. But it's like a light switch. It can change instantly. It's sentiment. J.K. Galbraith called it the bezel. It's just this feeling of abundant money, which we certainly have right now. Irrational exuberance, I believe Alan Griesman called it. And I should also plug, by the way, for all the listeners out there, you have written more words than is humanly possible to write.

19:49You're an incredibly feck and writer. But my favorite words of yours that you have ever written was the wonderful profile you wrote of Jim Cramer for The Spectator in England. And so everyone should go out and read that.

20:00William D. Cohan: Thank you for that. But guess what? That profile got me canceled forever on CNBC. What? And that is another silver lining to writing good stuff. You never need to go back on CNBC. Wow.

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24:49It's just pure us. On top of that, you get the Slate Money bonus episode. You don't get ads in any of the other podcasts. You get unlimited reading of all of slate.com, including all of my articles. You get the Slate app. You get every Slate game. You get the members-only weekly Slate Plus Digest from Editor-in-Chief Hilary Fry. And you are supporting Slate's independent journalism in a moment when independent journalism needs all the support it can get. So unlock this deal at slate.com slash money plus. When you enter the promo code slate.com slash money plus at checkout. So I want to move on here and sort of talk about like one of the reasons why Apollo has become this bank rather than what it ostensibly used to be, which is a private equity company, is that there was this incredibly wrenching saga around the end of Leon Black's time there.

25:51When it started becoming obvious how close he was to Jeffrey Epstein, he started facing a bunch of very explosive lawsuits from a former mistress. And you cover this quite extensively in the book. And basically, as he gets pushed out, his successor, Mark Rowan, it's the inside of the business. And then the whole business does this pivot into debt, which is more systemically dangerous. And like on some level, there is this story that you tell in the book of, you know, Apollo 2.0 being a function of the fallout from the Epstein scandal. So we want I do want to ask you a little bit about this. Leon and Jeffrey Epstein were extraordinarily close.

26:30So let's start with that. What was it about Jeffrey Epstein that Leon Black trusted so much?

26:37William D. Cohan: They were very close, and he paid him$158 million. Others like to say it was$170 million. That's a quibble. It happened to be the result of a loan that Leon made to Jeffrey, and Jeffrey didn't pay it back before he died. And I asked Leon, why didn't you make a claim against the estate? And this was like another sort of interesting Leon answer. Yeah, it was only like$20 million. What's the big deal? I wasn't going to go fight with the estate for$20 million, but I guess if you're worth$18 billion, you can look at it that way. And that's sort of actually the way he looked at the 158, too. It wasn't until the Deckard Report that the special committee of the Board of Directors of Apollo commissioned at Leon's request.

27:19William D. Cohan: He says he did it because he believed he didn't do anything wrong. And I think that report basically exonerates him of criminal behavior or any involvement, whether we can believe that or not, I don't know, but any criminal involvement with Jeffrey Epstein. But their relationship revolved around, I think, Leon enjoying the social benefits of hanging around with Epstein. And I don't mean underage women because I don't believe Leon was involved in underage women. But he was involved with lots of women who were not his wife. But I think he enjoyed the people that hung out with Jeffrey Epstein and the people that Jeffrey Epstein could introduce him to.

28:00William D. Cohan: He told me that the only person who introduced him to Bill Gates was Jeffrey Epstein. And then he came to his office and they talked about philanthropy for two hours or whatever they talked about. And then it evolved into this relationship where somehow Jeffrey Epstein, who graduated high school but no further in formal education and was basically an autodidact, became somebody that Leon turned to for tax and estate advice. Not initially. initially he turned to the typical sources one turns to wall street law firms and he hired what he thought was the best tax and estate lawyer to set up grats for his four kids i don't know why they were like grats that expired after five years or whatever but they did and as they were getting ready to expire he realized that there had been a drafting error in the grats again i find that hard to believe, and that he was going to own as much as a$2 billion tax liability.

28:59William D. Cohan: So he went and tried to figure out how he could prevent that from happening, talked to all the usual suspects again, and no one had a solution. So as a last ditch Hail Mary, Doug Flutie passed, he called up Jeffrey Epstein, who Leon had come to realize over the years was very good at sort of tax structuring and tax insights. And then it turned out, and again, I don't know how this happened or even if it's true, but that Leon had gotten like an extra over the years$400 million dividends on his Apollo stock, which for some reason he wasn't entitled to or it was some sort of error. And so Epstein said, look, if you give that up, that'll be the consideration for changing these documents so that you could avoid the$2 billion tax liability.

29:46William D. Cohan: In other words, give up the$400 million and saved$2 billion. And they were redrafted. And I don't believe the IRS has challenged that. That was part of what the 158 went for. And then after that happened, you can see from various emails that Epstein wrote ad nauseum in a sort of E.E. Cummings-like verbal diarrhea kind of way to Leon over and over the years, none of which Leon responded to, because I guess that was his philosophy of email. And you can see that then after that success that Jeffrey Epstein had for Leon. He started worming his way into all sorts of other things that Leon was doing, buying jets, buying art, buying boats.

30:25William D. Cohan: And over the years, as Epstein did more and more things for Leon and structured this tax thing, structured that tax thing, structured this purchase or that sale, he would pay him a fee. And over time, Epstein kept getting more and more that he wanted more money out of Leon. Leon got fed up with Epstein's request for more and more money. And then that was the end of their relationship in 2017, two years before the denouement of Jeffrey Epstein occurred. Now, that's the story that I was told. That's the story that I report in the book. I'm still, like many people, still somewhat incredulous with that because$158 million is a lot of money for something that you could probably get a lot cheaper.

31:09Felix Salmon: The typical fee for that from a law firm would be like 10 million.

31:12William D. Cohan: 5 million, 10 million, not 158 million.

31:15Felix Salmon: And then you have this whole other story in the book about Black's affair with, what's her name? Giselle.

31:20William D. Cohan: Giselle Gagneva.

31:23Felix Salmon: And you have the really a delightful chapter in which Giselle and Leon Black go to these various, very fancy midtown Manhattan restaurants and have these very civilized meals together. And you detail what they order. They both got the Dover soul. And she says, you know, I need$100 million. And he's like, what about$100 ,000 every month? And she's like, I really need more. You've really been abusive to me. And then he's like, did you want dessert? She's like, yes. And then it's just.

31:58William D. Cohan: Can you help me get a job at Goldman? Can you help me get a job at business school?

32:01Felix Salmon: So I walk away thinking like he's clearly willing to pay people to avoid his own embarrassment. He's clearly willing to negotiate that kind of thing. And his ultimately agrees to something like$24 million for this woman.

32:15William D. Cohan: $21 million.

32:16Felix Salmon: $21 million, which she kind of cocks that up, which is interesting. Separate story. But he's willing to sort of like pay for silence to do deals. So then you go back and you think, OK, well, why did he pay$158 million to Epstein? And I think they buried you with these details about Graz that is just, I don't know. You're not convinced. It's pretty tough stuff. None of us feel convinced. I want to stick with this Ganieva thing for a minute, though, because she does get this$21 million deal from Leon Black, which is a pretty good deal. She signs an NDA. Great deal. And then at the height of Me Too, she blows it all up.

32:51William D. Cohan: And after the, this is also an important point, after the release of the Deckard Report, which sort of put Leon back on his back heels. And as part of the release of the Deckard Report, he had already said he was going to give up being CEO six months later in June on his 70th birthday and that Mark Rowan would succeed him. But he would stay as chairman of the board. And so she comes out with, like in violation of her NDA, with a series of just. Tweets. Well, first tweets, but then eventually extremely explosive complaints, legal complaints, losses, where she, you know, accuses him very vividly of criminal violent rape and very, very nasty acts indeed.

33:37All of which were tossed out. The obvious reason to do that is because he is a criminal violent rapist and you want him to be held accountable for his actions. Is there any other reason for her to do that?

33:51William D. Cohan: That would definitely be one reason to do that. Now, again, it was adjudicated and thrown out, even on appeal. That doesn't necessarily mean it's not true, but it wasn't proven in a court of law. So the other reason potentially to do it is that somebody came along and said to her, hey, I know he's promised you$21 million, and he's paid you$9 million, and you're going to get another$12 million or so if you just stay quiet for another bunch of years. We can get you more. If we file these lawsuits and make these claims, we'll get you more. And this Wigdor law firm is sort of known for bringing these plaintiff style lawsuits from women.

34:32William D. Cohan: They, in fact, did two more against Leon. One of them has been thrown out as well. The other one's about to be thrown out. So they're kind of 0 for 3 with Leon. But just as Gagneva asked for$100 million and she settled for$21 million. You know, at this point, Leon's worth, you know,$15 billion. So Wigdor comes along and says, hey, Gagneva, if you break your NDA, make these accusations, file lawsuits, you know, you'll end up with more than the$21 million you bargained for, of which$12 million is still to come. So, I mean, that's the other possible scenario here. Gagneva did not return my request to comment and Wigdor didn't either.

35:13William D. Cohan: So who knows what was up with that, but that seems equally plausible to me.

35:18Felix Salmon: One thing that struck me sort of tangentially is just the International Women's Day event.

35:24William D. Cohan: Yes, that's one of my favorite details.

35:26Felix Salmon: Oh my God.

35:27William D. Cohan: So this guy who Leon knew from Drexel days, a guy named Donnie Engel, who has since passed away, you know, he was the fixer at Drexel, he was the one that put together the Predator's Ball. And so he holds this International Women's Day party at his apartment every year. And he invites all these newly arrived international women from mostly from Europe and Eastern Europe, attractive women, he invites them to the party, along with men, wealthy men. Not newly arrived men from Eastern Europe. Not newly arrived men, wealthy men who might be interested in meeting these kinds of ladies and whether they are married or not i think isn't particularly relevant and that's where he meets gagneva and they begin to have a an affair for six or seven years off and on their love story began yeah it's a love story what an adorable meet cute yeah it's a change from meeting at oleg deripaska's chalet in Badavos, right?

36:26You've got to mix it up sometimes. It's a beautiful thing.

36:28Felix Salmon: Any model from an Eastern European country can meet a rich older man and who knows where they can wind up. I'll just say that. Married to a president. I don't know. I don't know what their love affair was like

36:43William D. Cohan: but at the end of it she decided to ask for$100 million. I mean, this is the part you just literally can't make up. He's paid for her education at Columbia. He's paid for her son she's a single mom from Russia to go to school he's paid for her apartment in New York which she wanted an upgrade on he was like giving her every time she asked for money he gave her money hundred thousand dollars sort of at a clip and there's all these lovey-dovey texts between the two of them and then like out of the blue she says we have to meet it's very important he thinks maybe something's up he starts wearing a wire like in an HBO show and then they go to these fancy restaurants in New York and London, as you mentioned.

37:25William D. Cohan: And she like immediately hits him up for$100 million. And, you know, tax advice. This is her mistake. She should just have been giving him tax advice. And he's happily given her the$100 million.

37:39Felix Salmon: I mean, then the price goes up and you're you're fine. You're golden.

37:42William D. Cohan: Now, again, 158 is over many years. And it's a compilation of many different assignments that Jeffrey Epstein wormed his way into with Leon. Again, I don't know why he was able to worm his way. I mean, if a guy like that was worming his way in with me, I would have said, get the hell out of here.

37:59Felix Salmon: I mean, the emails are so like crazy. Cringe. You read them and you're like, I'm not taking advice from this person. Like this isn't a serious person. It's like a little bit unhinged, I think it's fair to say.

38:11William D. Cohan: Very much so. Verbal diarrhea, late night rant rantings, which Leon doesn't respond to. Larry Summers should have learned something from that instead of seeking love advice from Jeffrey Epstein. I mean, seriously, the first rule is just if someone sends you an email and you want to respond, just pick up the phone and call them. That way there's no record. Certainly was Leon's philosophy. But I would have thought, Felix, the first thing is, you know, this guy is a lunatic. Get out of my life. How did you even get my, lose my number, lose my email? I mean, to the credit of Mark Rowan and Josh Harris at Apollo, Epstein tried to worm his way in with them and basically they shut him down.

38:48All these guys who were close to Epstein, they're famously people who don't have problems telling people no.

38:54William D. Cohan: I know. It begs the question, why didn't they say no to this guy?

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41:44Felix Salmon: I have a question about just the psychology of Leon Black. You start the book with his father dying by suicide, jumping out of the window. Obviously, that's significant and shapes his whole life. But can you draw the line from that to how he ends up, which is he's become so successful, billionaire, but then ends in sort of this like disgraceful way.

42:05William D. Cohan: Well, that's what I think is Shakespearean. I mean, I think on the one hand, as I said, he was thrust into the role of being the breadwinner for his family. So he had to figure out a way. You know, he's a philosophy major at Dartmouth. I mean, I think he would have been happy to go into the film business or journalism or something completely unrelated to Wall Street. But he comes from 10 generations of Orthodox rabbis. His father was an Orthodox rabbi until he decides enough of this and he goes to Columbia Business School and then gets a job at Lehman Brothers and then leaves Lehman, goes to work for one of his clients, takes over one of the client's portfolio companies and turns it into a conglomerate.

42:42William D. Cohan: And it's like this big time Wall Street conglomerate worth$100 million at that time in the 70s, which is a lot of money. And they lived on Park Avenue and had a house in Bedford. Well, you know, they were living the good life. And there's a scandal. I won't, you know, it's worth coming to it on your own. So I won't say what it was. But so the father has a scandal and then commits suicide by jumping out of the Pan Am building. And his suicide is on the front page of the New York Times, while Leon is in his second year at Harvard Business School. So I mean, that has a major impact on his life. And then of course, he decides, okay, I have to work on Wall Street, becomes very good at that.

43:19Drexel, Apollo, worth$18 billion.

43:22William D. Cohan: And then, you know, I think he's like thinking, I want to, in part, try to restore the good name of my family. And then the ironic part is he finds himself in a scandal related to Jeffrey Epstein and Gagneva. And he's, he also has a scandal and brings a little bit of more than a little bit of disgrace onto his family's name as well.

43:41Felix Salmon: He holds on to his money, I guess, is the difference.

43:44William D. Cohan: He has held on to his money because he's a very smart investor and negotiates hard with people who are trying to extort him. He did pay Jeffrey Epstein$158 million. Jeffrey Epstein wanted a lot more, you know. What's the plan? I mean, like, you know, what do you think is going to happen to the$18 billion? And I'm going to break this question up into two parts. Number one, the cash. Is that just going to go to his biological kids and heirs? And number two, because, yeah, this is selfishly, I just want to know this, the art. What's going to happen to the odd? He has a foundation with more than a billion or a billion dollars into it.

44:20William D. Cohan: It's outlined to me, and I put in the book all the many of the things, his philanthropic interests. You know, he's been pretty generous, to be honest. His wife had melanoma. He's given$100 million to melanoma research, had some interesting breakthroughs on that front. He's given a lot of money away. He told me he'd like to give more of that, all of that money away. And he finds that some people don't want it. So people who have ideas for his billion dollars or a portion of it should reach out to him. Obviously, he's set up money for his kids. I assume if he dies, his wife succeeds him. The money goes to her.

44:57William D. Cohan: So, I mean, I'm sure. By this point, as we all know, he got lots of tax and estate advice. So I assume that's all set up. I mean,$18 billion, it's a lot, but it's not$600 billion. What's happening to Elon's money? I mean, Leon's a piker compared to the guys at the top of the Bloomberg's Billionaires Index. I don't know what happens to all this money. A lot of it is tied up in art. And it's the most incredible art collection I've ever seen. But maybe one of the best in private hands in the world. He did just buy the Woolworth Mansion that had been on the market for a while. He bought it at a discounted price because it had been on the market so long.

45:37William D. Cohan: And he told me he's going to turn it into his version of the Neuer Gallery, which his friend Ronald Lauder did. And I'm sure it's not lost on Leon that Ronald Lauder just quote unquote donated the Neuer Museum to the Met. I'm sure there was some tax benefit for Ronald Lauder and all that. And so he's going to renovate it and put a portion of his art collection in there so that people can go visit it like they do at the Neuer Gallery. And probably maybe perhaps set it up in perpetuity in much the same way by down the line donating it to the Met. I wouldn't be the least bit surprised. It's right near the Met.

46:14It's very close.

46:15William D. Cohan: It's very close. It's very close. It's even close to the Neuer Gallery. It's even close to the Neuer Gallery. It seems that there's tax benefits for donating. He was, I think, one of the only people who was on the board of both the Met and the MoMA. He gave up his Met seat to his wife. He was chairman of the MoMA as a result of this Epstein stuff. He had to give up being chairman of MoMA and is now just a board member. I think he's already given$40 million to MoMA. He's lent his artworks. You know, I've seen, I mean, he owns The Scream by Edvard Munch, one of the four versions of that. He paid$130 million for that, which at that time was the most ever paid for an artwork.

46:53William D. Cohan: I mean, he's a serious, serious art collector. And unlike a lot of the guys on Wall Street who I know who have art, because, oh, I've got to have art because I've got to show people I'm a rich, smart guy. He really understands. I mean, he's very smart. I mean, he wrote his undergraduate thesis on The Scream, right? He knows this shit. He wrote his undergraduate thesis on the use of the mask in art and literature. And the writing of that thesis, which is kind of incredible. I mean, I have a copy of it. I've read it. Not sure I understand all of it. But there are parts of it that are quite amazing.

47:25William D. Cohan: And the other night at the 92nd Street Y, Andrew Ross Sorkin quoted from a part of the thesis which Leon wrote about masks and the use of masks. And it seems to me it's a bit of a metaphor for Leon's own life. But that knowledge of art and art history and modernism led him to want to buy the scream because he thinks the scream is like the preeminent example of the beginning of modernism in art history. And it's a very important artwork because it shows the desperate nature of man and mankind and God is dead and Nietzsche and all that. So he thought about this a lot and he's willing to put his money up for all that.

48:04William D. Cohan: I mean, he's a very complicated individual. The most complicated guy I've ever written about. Oh, interesting. Without question.

48:11Felix Salmon: More complicated than Jim Cramer?

48:13William D. Cohan: Yes, much more complicated than Jim Cramer.

48:16Felix Salmon: Have you heard from Leon Black since it published?

48:19William D. Cohan: I've heard from his people. I was told that he went and bought a copy.

48:23Felix Salmon: It's commendable that he would speak to you so much.

48:26William D. Cohan: Absolutely.

48:27Felix Salmon: I don't know if commendable is the right word or impressive.

48:29William D. Cohan: How loyal was it? They were all on the record. I haven't, knock wood, I haven't heard of people.

48:34Felix Salmon: Have you heard from Matthew Goldstein? If anyone ever got a hold of my text exchanges with sources and published them, I'd be so sad.

48:42William D. Cohan: You know, Matthew needs to come forward and tell people about what really happened between us. But yes, I got these texts. I mean, it was between him and Gagneva, him trying to get Gagneva to go on the record and become another Me Too story for the New York Times. I totally understand why he did that. I mean, he's a journalist.

49:03Felix Salmon: Yeah, there was nothing bad in the text. No, there's nothing bad about it.

49:05William D. Cohan: But the reason I included some of the text is because it shows the lengths that journalists will go to try to get a story and get a source on the record. It ultimately didn't work out for him because she wouldn't go on the record with him, which is sort of ironic because obviously later in these lawsuits, she made all sorts of accusations on the record. So, of course, I wanted to talk to Matthew about this. He agreed to see me. I went over to the New York Times and we had a conversation about all of his texts and why he did it. He wouldn't go on the record except for one comment about what his initial interest in the story was, which, you know, I found was a little bit hard to believe.

49:45William D. Cohan: But he said that he had heard that Leon had consulted with Epstein about his, you know, having affairs with women or the affair with Gagneva. And that's what he was interested in pursuing, which frankly doesn't make a lot of sense and doesn't really show up in any of the texts to Gagneva, which was all about getting Gagneva to go on the record about how horrible Leon was to her, which she did not do. And so he couldn't write the story. Then I'm hearing that he's upset because I quoted from his texts and didn't reach out to him, which is not true. I did reach out to him and he gave me an on-the-record comment.

50:19William D. Cohan: So I don't know what the hell's going on over there at the New York Times, but so be it.

50:35We should have a numbers round. Emily, do you have a number?

50:38Felix Salmon: I have a number. It's 6.0556. I like it. That's dollars. It's the price of a gallon of diesel gasoline. That is the highest it's ever been. And that happened on Friday. And this is a big deal because diesel is the fuel that goes into the trucks that take the stuff all around. So that raises the prices of everything. And also a fun addendum. And my alternate number was 9.99, which is the price of diesel in California at some gas stations. And that's the highest. Yeah, five. Five gas stations in California, which I love so much. I knew you would like this. Actually, the highest the gas pump can show is 9.99.

51:15Felix Salmon: So it's like, what's going to happen now? How can they raise the price? They can't. Yeah, it's like, if the sign won't let you go any higher, what are you going to do? You're just going to have to stick it. That's price control. That's price control. This is the way we cure inflation. is with LED displays that can't go above$9.99 and$0.9. Elizabeth, do you have a number? Yes,$24.99. And that's how much you would pay for something called a Nepenthes Furious Tramp, which as it turns out is a carnivorous plant. So this is from a time story about carnivorous plants being super trendy now thanks to TikTokers who are obsessed with them.

51:52And so there's a store called California Carnivores where you could get all sorts of them with these crazy names like Nepenthes, Furious, Triumph, and their sales were up 30 % over last year, which was their highest revenue year in two decades.

52:07Felix Salmon: But the price of beef is so high. How can the plants afford to eat? What do they eat? Mostly bugs. And then if you do not have an adequate supply of bugs, you can feed them fish food for some reason. I have to say, my number was going to be diesel-related, so I'm having to... Oh, I'm so sorry. It's okay. This is a new one. a backup number here, which is 70 ,000, which is the number of dollars that this chap named Daniel Belk, he's 32 years old, he's sold his business. And so what he has decided to do with the million dollars that he sold his business for is he's going to take$70 ,000 of it. And he's now going to spend that traveling around the United States and playing the top 100 US golf courses.

52:55That's his like dream. Just go around and spend$70 ,000 playing 100 rounds of golf in 100 different golf courses.

53:02Felix Salmon: It only costs$70 ,000? My guess is he's probably going to go over budget. I don't know. I feel like that is the khaki pants of American dream kind of ambitions. Like I'm going to play the top 100 golf courses. What are you going to do when you make your first million? Oh, I think I'll play some golf. I mean, golf seems nice. Bill, do you play golf?

53:20William D. Cohan: I used to be a caddy, so I carried golf bags. for a summer and was good at it.

53:27Felix Salmon: That's your first connection to power.

53:29William D. Cohan: Exactly. That's not crazy, actually. I did see that. And also, just for the record, how much insider trading goes on golf courses? Well, Felix, I was doing this in the early 1970s when nobody even knew what insider trading was. So it was more like my teachers at grammar school and could I impress them that I wasn't a total idiot and could carry a golf bag. My number, I'm going to go with the$5 billion, and that is the purported value of Leon's art collection, which I just got to tell you is one of the highlights of this whole experience writing this book was seeing a portion of his art collection and sort of having him walk me around it and explaining the new piece he got and just surrounded by all these masterpieces inside.

54:18You know I'm a total art nerd. What was your favorite piece?

54:21William D. Cohan: You know what? one cannot help but be captivated by the scream of course in the flesh and then there was this jasper johns painting that he shares ownership with ken griffin of of like the map of the united states oh i like yeah that's a good one and they and they just like ship it back and forth he gets it for six months they have joint custody i don't know how it moves around i don't know whether ken just lets leon keep it and they own it together but he owns so much more like he owns these incredible first editions of Torah and Shakespeare and Leonardo da Vinci and an incredible collection of Chinese porcelains.

54:56William D. Cohan: I mean, and that's an addition to this astounding art. I mean, he's the real deal when it comes to this. He really is. I'm not one to give Leon Black a huge amount of credit. No, no one is. But I will say his art collection is legit. And one of the interesting things about The Scream in particular, there are four versions of it. And this one is a pastel on it's a work on paper and like you said it was very expensive for a work of art but it's by far not even close to and there's nothing even close in terms of like there's no other work on paper that even approaches a fraction of the value that he spent it's the only copy of the screen that was in private hands a family owned it in norway and he bought it the others are in museums in norway but he does have and he and his wife have an astonishing collection of works on paper and like you need to be a real nerd to get into works on paper because they're very fragile there's lots of conditioned things can't expose them to sunlight but anyway yes i actually i

55:54Felix Salmon: thought of you felix reading bill's book because at some point leon tells you like it's irrational how much i'm willing to spend on art compared to how sort of like penny pinching i can be in the other side of my life and deal making and i was kind of thinking like that sounds like a felix kind of vibe. It'll just splash out on the art and cheap out on some other things. Yeah, I get really weird about how much it costs me to take city bikes. But then, yeah, I spend thousands of dollars on an artwork. But if a pair of concrete bananas are calling your name, it's just all bets are off. Or a$60 loaf of sourdough.

56:30Yeah, or a$60 loaf of sourdough. That should have been my number. But yes, it's true. Bill, thank you. This has been a fantastic conversation. We do want to actually ask you about something completely different. It's all well and good talking about billions, but sometimes we want to talk about trillions. So we have a$1.3 trillion question for you, which we're going to ask you in the Slate Plus segment. But other than that, I do want to thank you for coming on. I want to thank Jessamyn Molly at Seaplane Armada for producing. I want to thank all of our listeners for being loyal, being lovely, and emailing us on slatemoney at slate.com.

57:05And with that, we will see you next week with even more Slate Money.

57:35Felix Salmon: news in Washington right now. Host Mike Townsend, Charles Schwab's Managing Director for Legislative and Regulatory Affairs, takes a nonpartisan look at the stories that matter most to investors, including policy initiatives for retirement savings, taxes and trade, inflation concerns, the Federal Reserve, and how regulatory developments can affect companies, sectors, and even the entire market. Mike and his guests offer their perspective on how policy changes could affect what you do with your portfolio. Download the latest episode and follow at schwab.com slash Washington Wise or wherever you listen.

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