Thinking It Through

An Interview with Asher Edelman

After a meteoric career on Wall Street culminating in his status as a top-level corporate raider in the 1980s, Asher Edelman reinvented himself as a museum curator and art financier. Here, he discusses the reactivity that unfortunately characterizes investing today and why he thinks the global economy is headed for a 2008-style “big bang.” European banks play a key causal role in his doomsday scenario — one given all the more credence by their troubled performance in recent months.

Mario Draghi's ECB is helping fuel a possible "big bang" in the E.U. banking sector, says Asher Edelman.

Flickr. Mario Draghi's ECB is helping fuel a possible implosion by propping up the E.U. banking sector, says Asher Edelman.

Octavian Report: How did you get your start in finance?

Asher Edelman: I worked as a “runner” in high school. We used to deliver the actual certificates on Wall Street. I worked for the firm that Bernard Baruch dealt through, Sartorius and Company. He was a friend of my grandfather who got me the job.

I became a research assistant during the summers, while still in high school. After college I was offered a job with an old-line arbitrage firm called Halley and Stieglitz, and I took it, with a lot of amusing intervals in between. At 24, I opened an office for them on Madison Avenue and 67th Street, where we specialized in option hedging and trading but with clients’ money and doing conversions and various forms of creating high rates of interest at no risk for the firm. Then, I joined a firm called Carter, Berlind, and Weill, which eventually became Shearson Lehman. I worked for them for a short time in the States, and then in Europe, in late 1965, and started what eventually became the investment banking offices and trading business of Lehman Brothers abroad.

After four years, when I was 29, I came back and started my own firm, Mack, Bushnell, and Edelman. We became sort of a much smaller Donaldson, Lufkin, and Jenrette in a way, except we did more principal trading than they did. We developed a series of derivatives, mainly focused on convertible bonds and options, and for a while had the largest hedging business on the CBOE. Ultimately, I trimmed that business down because the 1970’s were an odd time in the world, as you may recall — sort of like what’s going to happen next year. We trimmed the business down to a trading arbitrage house, along with what eventually became what they then called corporate raiding (what we now call whatever we call it).

I trimmed that to completely my own firm or firms, which led to the deals that you read about in the late 1970s and 1980s. Then in 1988, I left Wall Street and moved to Switzerland and ran an art museum over there. We opened in 1990, and I closed it in 1995. I didn’t want to be an administrator any more. I returned to New York in 2002 and began to develop the art and art finance business.

OR: Did Wall Street change dramatically over that period of time?

Edelman: People were still thinking up through the mid-1980s, and then they became reactive and have stayed reactive ever since. For example, we’re in an interesting liquidity crisis now. Actually, we’ve been in an interesting liquidity crisis for a very long time, but now it’s emphatic. Very little thinking goes on anymore, either on Wall Street or in the general world of economics. I think most developments are reactive, and the reactions have to do much more with popular culture than working through the real details and facts.

There was a time when your investment bankers and your lawyers were really working for you. I think that as the 1980s emerged, the investment banks and lawyers began working more and more for themselves, and you could see that in the quality of the work that they gave their clients, and the protection that they offered declined.

OR: When you look back over your career, does the current moment remind you of another particular time?

Edelman: I think there are two things that may play out. We could go gradually into recession, and like in the 1970s the war drums will beat and you’ll get a tremendous impact from the war machine. The war machine imbalances the economy so that you’ll have certain sectors of the economy that are lively and basically inflationary, because war machines are inflationary by nature. The rest of the economy will head for the doghouse.

OR: That would be driven by a Republican presidential victory in 2016?

Edelman: Not necessarily. It could be driven by a Clinton victory or by a Republican victory, because all of them work closely with, let’s say, the warriors or the warrior-producers, and believe that America should be in a certain position in terms of arms sales and controlling the world. They understand very well, I believe, that there’s a certain economy that supports them politically when the war machine is turning. We’ve seen that pretty often, and you almost always see it in very difficult economic times. It’s an American tradition.

I also think you can have another bang, as in 2008. We look at that through the perspective of markets, because that’s where we have been brought up. I think it is really a matter of economics. The markets follow, or they don’t. Maybe they precede. But I think that isn’t really the important issue. I think the important issue is: what happens next economically? It could be one of two things, and nothing else. It will either be slipping into serious, long-term recession. I don’t think we’ve ever slipped out of recession, by the way, because the GDP can grow, but the GDP’s growth does not fuel consumption on any levels other than the top, at this point.

You have half of the nation, or maybe 80 percent, struggling as though we were in a recession, and maybe a half to 20 percent not in a recession. That’s still a recession, as we judge recessions, and will probably come either gradually — meaning in the next few months — or soon. If it’s very soon, I think you’ll probably see various markets back below their 2011 numbers.

How will it happen? People would tell you that it’s oil, and that is a factor, but it has positives, too. People will tell you that it’s emerging markets. Certainly, emerging markets are problematic today, because China and other sources of demand have dried up, and emerging markets have an effect on the rest of the world. But they were in the same doldrums for 50 years. It’s only for the last 10 or 15 that they’ve been changing, and we’ve managed both before and after.
If we’re going to have another economic crash, it’s probably going to come from left field. The reasons are probably never the evident reasons, because the evident reasons get absorbed in the day-to-day lives and in the day-to-day views of people, and they get used to it. We’re now used to 50 people being killed in Nigeria every day or ISIS raiding even Saudi Arabia or Egypt in total economic chaos. These events don’t really have much of an effect on the so-called civilized world’s economics.