For a memoir by an 83-year-old pillar of the establishment (chairman of the Council on Foreign Relations for 22 years, co-founder and chairman emeritus of the Blackstone Group, former chairman of the Federal Reserve Bank of New York), Peter G. Peterson's new book, "The Education of an American Dreamer," (Twelve, 375 pages, $34.99) has the confessional, let-it-all-hang-out tone of a work by someone from another, younger, generation.
He writes of his sister's death as a one-year-old and of his mother's subsequent nervous breakdown, and of his Greek immigrant father's "extreme and bullying discipline" that included slapping young Peterson "if I came home even five minutes late at night." He tells of how he was expelled from MIT for plagiarizing a term paper that had been written by Roy Cohn. He tells of two divorces resulting from his workaholism. He writes of his institutionalized, developmentally disabled son. He acknowledges that his relationship with his own parents was difficult enough that he did not invite them to his second wedding. He writes of his 36-year-old daughter-in-law's death from breast cancer. He tells of how twice-a-week double sessions of psychotherapy, as well as "psychopharmacology," helped him overcome clinical depression.
It may all sound less like an American dream than an American nightmare, except for the fact that Mr. Peterson rose from humble origins — his dad, born Georgios Petropoulos, owned and operated a diner in Kearney, Nebraska, and Mr. Peterson himself worked as a waiter in college — to a moment on June 18, 2007, the day of Blackstone's initial public offering, when a transfer for $1.85 billion hit his personal bank account.
Mr. Peterson is reflective, confessional, and thoughtful about his personal life, but when it comes to public policy and economics, he can be maddeningly obtuse or even self-contradictory. Representing the American government at trade negotiations in the Soviet Union during a 13-month stint as secretary of commerce in the Nixon administration, Mr. Peterson observed Soviet farm equipment laying idle in the field. He spoke to a farm official who, after a few vodkas, "confirmed what I already believed – state planning was no match for a competitive, dynamic, fast-moving, innovative, globalized, and market-based economy." Makes sense. But a few pages later, Mr. Peterson writes of the "serious shortages" of maintenance technicians, air traffic controllers, and welders in America. "Obviously, we need a national skills strategy," he writes. It's not as obvious as he wishes — after all, a "national skills strategy" may be just as inept at centrally deploying skills training as the Society Union was at centrally deploying farm equipment.
On health care, Mr. Peterson writes that in America, "In some cases there is a total lack of cost incentives or cost consciousness" and complains "we have over ten times as many MRI units per capita as some other developed countries." On the other hand, earlier in the book, he reports that upon being diagnosed with a brain tumor, he told his friends, including Henry Kissinger and Averell Harriman, "Get me the best neurologist in the world." He didn't tell Mr. Kissinger, 'Get me the most cost-efficient neurologist in the world." Mr. Peterson writes that he now takes an MRI annually to make sure the tumor has not grown back. It's all those MRI units per capita in America that allow Mr. Peterson to get his annual scan, and to do so without a long wait.
In a section about Milton Friedman, a teacher of Mr. Peterson's at the University of Chicago, Mr. Peterson writes that, having "observed the devastation unfettered capital markets have inflicted on all of us," he has concluded that "today's real economies may be more complicated" than Friedman thought. There seems to be no recognition of the possibility that the financial crisis is not the result of "unfettered capital markets" but of missteps by government regulators who destroyed confidence by moving precipitously and arbitrarily to seize the private property of shareholders and bondholders.
Later in the book, Mr. Paulson condemns the "very tough and greedy culture" of Lehman Brothers, where for ten years he was the chief executive. "When I see a thirty-something hedge funder loudly revving up his red Ferrari convertible in the Hamptons, I feel much more contempt than envy," he writes elsewhere in the book. He does acknowledge that, after the Blackstone IPO, he sprang for a Fifth Avenue apartment. (The apartment reportedly cost $37.8 million, a figure that is omitted from the book, but a sum for which one could buy quite a fleet of Ferraris and have funds left over to build a garage in which to store them.)
Though Mr. Peterson opposes proposals to tax private equity and hedge fund carried interest at higher rates than real estate or oil and gas partnerships, he also calls for "increasing marginal taxes on us fat cats." He complains that the top one tenth of one percent of Americans makes as much money as the bottom fifty percent, and quotes Alan Greenspan as saying, "You can't have the capitalist system if an increasing number of people think it is unjust." That's a big "if," and a lot of Americans who are a lot poorer than Mr. Peterson are probably less ambivalent than Mr. Peterson seems about the benefits of a system that allows for fortunes such as Mr. Peterson's to be amassed.
Mr. Peterson writes that there is a strong case for private pension accounts as an add-on to the existing Social Security system. But he's silent about the possibility of private, defined contribution accounts for state and local workers to replace the big defined-benefit pension funds that helped make the Peterson fortune by investing in Blackstone funds.
In fact, the most illuminating disclosures in Mr. Peterson's book are not the ones about his family life or his mental health, but glimpses into what one might call state-pension-fund capitalism or the government-financial complex. These aren't intended as confessions, and Mr. Peterson is not as reflective about them as he is about his personal life. But they tell an interesting story nonetheless.
One of Blackstone's biggest early advisory clients was Sony; Mr. Peterson had a "long and close relationship" with the CEO "going back to my days in Washington." A Blackstone private equity fund raised $80 million from the government of Singapore, which is not a free country. Blackstone's initial real estate fund was 50 percent funded by money from the South Dakota state retirement fund. The fund made money in real estate in part by buying underpriced properties from the Resolution Trust Fund set up by the federal government after the Savings and Loan crisis. "Having been in government and observed the backgrounds and talents of many federal officials, I doubted that many of them had the savvy to price the Resolution Trust Fund properties aggressively or even accurately," Mr. Peterson writes. Given those "backgrounds and talents," then, should government pension officials be empowered to invest retiree funds with firms such as Blackstone? Mr. Peterson doesn't go anywhere near that question, let alone attempt an answer.
With the federal government controlling big shares of General Motors and AIG, the mixture of private business and government ownership is a hot topic. But in a much more subtle way, Mr. Peterson pioneered it at Blackstone, with investors such as the South Dakota pension fund or the government of Singapore. One won't read much in this book about the costs of such partnerships, but one certainly comes away with the sense that they have been lucrative for Mr. Peterson. He can only hope that his readers respond to him with emotions more tender than the contempt he holds for that Ferrari-driving hedge funder in the Hamptons.