How the 1% think about their wealth

By Felix Salmon
May 2, 2012

It’s worth reading Reuters’s blockbuster this morning, revealing that Chesapeake Energy CEO Aubrey McClendon was running a secret hedge fund for his own benefit within Chesapeake’s headquarters, in the light of Adam Davidson’s profile of rich-guy apologist extraordinaire Edward Conard.

McClendon, while Chesapeake CEO between 2004 and 2008, spent an enormous amount of time on his pet hedge fund, Heritage Management, which he invested in and co-owned. Chesapeake is an enormous player in the commodity markets, and of course McClendon would have had advance notice of actions Chesapeake was going to take that might well move the markets. He had every opportunity to front-run such actions at Heritage, and conversely of course he also had the ability to block Chesapeake from taking any actions which risked hurting Heritage’s positions.

Whether McClendon actually did any of that is pretty much beside the point: he could have done it, and, as Tulane University’s Elizabeth Nowicki says, “the failure to disclose that you are engaging in this kind of conduct can constitute a securities fraud problem”.

“A reasonable investor would want to know that the CEO could be in a situation where he’s betting against the interests of the company personally,” Nowicki said. “That, it seems to me, is a slam dunk.”

McClendon didn’t merely fail to disclose the existence of Heritage: he downright covered it up.

Today, McClendon leads the three-man team that oversees Chesapeake’s trading in oil and gas for the purposes of hedging, or offsetting the risk of unfavorable price swings. When Reuters asked McClendon last year whether he traded for himself in energy markets, McClendon said: “No, no, no. I’m part of Chesapeake’s hedging committee.”

That’s a classically Clintonian answer: it might be narrowly true, in that Heritage had closed by the time the question was asked, but it’s clearly not the whole truth. In fact, McClendon wasn’t just trading for himself, he was also making money off trading for others, too, charging his friends and associates 2-and-20 for the privilege of being able to invest alongside him.

McClendon, of course, was already a billionaire when he decided that setting up a secret private hedge fund was probably a really good idea. And as such, he was engaging in exactly the kind of behavior that Conard wants to encourage.

“It’s not like the current payoff is motivating everybody to take risks,” he said. “We need twice as many people. When I look around, I see a world of unrealized opportunities for improvements, an abundance of talented people able to take the risks necessary to make improvements but a shortage of people and investors willing to take those risks. That doesn’t indicate to me that risk takers, as a whole, are overpaid. Quite the opposite.” The wealth concentrated at the top should be twice as large, he said…

If a Wall Street trader or a corporate chief executive is filthy rich, Conard says that the merciless process of economic selection has assured that they have somehow benefited society.

Conard takes this reasoning to its logical conclusion: if accumulating obscene quantities of money is good for society, then giving it away must, in fact, be bad for society.

During one conversation, he expressed anger over the praise that Warren Buffett has received for pledging billions of his fortune to charity. It was no sacrifice, Conard argued; Buffett still has plenty left over to lead his normal quality of life. By taking billions out of productive investment, he was depriving the middle class of the potential of its 20-to-1 benefits. If anyone was sacrificing, it was those people. “Quit taking a victory lap,” he said, referring to Buffett. “That money was for the middle class.”

A lot of extremely rich people have persuaded themselves to think this way, even if they’re self-aware enough not to actually come out and shout it from the rooftops. So long as accumulating wealth is a normatively Good Thing, they can even go so far as to take pity on themselves for all the hardships they went through on the way to helping out society so much.

God didn’t create the universe so that talented people would be happy,” he said. “It’s not beautiful. It’s hard work. It’s responsibility and deadlines, working till 11 o’clock at night when you want to watch your baby and be with your wife. It’s not serenity and beauty.”

Does it ever occur to Conard, I wonder, that there are lots of people in America who work very hard until 11 o’clock or much later — just to be able to feed and house their family? Did he even think, as he was saying this, that he retired at the age of 51, an ultra-wealthy man, and can now spend as much time as he likes watching his children and being with his wife and living a life of serenity and beauty?

I suspect that McClendon doesn’t spend much time on introspection. But insofar as he did, he probably aligned himself pretty closely with Conard’s ideas. He was working hard, he was being successful — these are good things, not something to nitpick or criticize. Somewhere, he probably knew that the hedge fund wouldn’t look good if people found out about it, so he kept it secret. But more broadly, I think the rich really are different from you and me — or, at least, the self-made rich are.

We think of money as a means to an end: we don’t think of making money as being, in and of itself, a good thing. If Reuters were to double my salary tomorrow, that might make me happier, but it wouldn’t confer any obvious benefits on society as a whole. But once you reach the Conard/McClendon stratosphere, your thinking changes. And as Davidson says, there’s every indication that Mitt Romney’s thinking is much closer to Conard’s than it is to those of us in the 99%.


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The thing that gets me about Conard’s thinking is that he really seems to think that the reason that smart, college-educated people should benefit society by becoming investors, and that those who become art historians or lawyers do so because there isn’t enough reward in investing. This seems like an insane disconnect. Like, you’d take a law job at 500K a year instead of an investment job a $2M a year, but if only we cut capital gains taxes so that you could take home $3M a year, you’d do that?

Posted by jfruh | Report as abusive

“If a Wall Street trader or a corporate chief executive is filthy rich, Conard says that the merciless process of economic selection has assured that they have somehow benefited society.” (impossible to attribute)

The way you’ve done the quotes, FS, it’s unclear if this is McClendon or Conard speaking, or you interpreting one or both of them. Still – I like the concept of a “merciless process of selection”, but applied outside the economic sphere – like toward both of these clowns by a contemporary ‘Comité de salut public’.

Posted by MrRFox | Report as abusive

People like Conard are 100% driven by a desire for money and they cannot understand anyone who thinks differently. Not all 1%ers would agree, but enough of them do that they no longer feel empathy for the rest of the country, let alone the world. Everyone COULD be like me but they did not WORK as hard, so screw them. The notion that people who choose to prioritize other things (family, community, art) should be considered productive members of society TOO is beyond them. It is an extreme and ignorant take on social Darwinism. This ended badly for the Ancien Regime, badly for the Robber Barrons, and it’ll end badly for cretins like Conard too.

Posted by LadyGodiva | Report as abusive

He’s Mr. White Keys.

Posted by Eericsonjr | Report as abusive

I think it’s called Pathological Sociopathic Narcissistic Personality Disorder. Apparently you can catch it if you fly on too many private jets.

Posted by boson | Report as abusive


I rarely agree with what you say, but this time you get a great big “gold star” for yourself.

Although retired, I have spent a substantial portion of my life working for extremely wealthy people (mostly as a CPA in management for several multinational high-tech firms providing financial data to senior management) and you have it EXACTLY right.

The wealthy simply do not, as a rule, think like other people.

I couldn’t have explained it better myself.

The failure of the non-wealthy classes to understand this huge difference is a major problem because most people simply do not believe the wealthy are any different.

As a result, most people don’t understand the realities of the US economy, which reflects wealthy thinking.

Posted by PseudoTurtle | Report as abusive

Yeah moving money around and around is such terribly hard work. Back breaking in fact. Clicking the mouse so often can lead to stress and unimaginable fatigue. People who work that hard deserve every billion they make.

Posted by Chris08 | Report as abusive

You have to realize they don’t see trickle down as a policy but as a reality. There but for their grace and bounty all others would starve.

Posted by MyLord | Report as abusive

Would have loved a direct quote about Conard’s point that Buffett’s charitable actions take money from the middle class by removing it from potential investment. It’s t-shirt worthy.
And I guess that makes him even more of a selfish monster than Buffett since he has retired so no longer spends the long hours slaving away for the benefit of the middle class.

Posted by thispaceforsale | Report as abusive

I would love for someone to tell me exactly how many people worked for Apple in 1996 the day before they welcomed back Steve Jobs… someone who was worth a few hundred million at the time. I’d guess about 1/10th of the 60,000 or so they directly employ today.

It’s not worth debating what % of Apples success is due solely to Jobs or where the company would be today had he never returned… those are unknowable things. It is however, beyond debatable that Jobs was akin to the Edison of our age… the driving force behind an explosion of creatitivty, producitvity, and the creation of wealth and jobs.

Most comments on this post mock Conrad’s point that the uberrich .00001%ers have done more to better the plight of the human race than Mother Theresa ever could. Think it through though… how many people did that true saint lift out of poverty?

Genorisity and charity treat the symptoms of societies ills… the productive efforts of labor and investment cure them.

Posted by y2kurtus | Report as abusive

y2k, I’m not sure if I get your point entirely. Jobs didn’t put his wealth to work at Apple. Jobs didn’t get his wealth, before or after, by shuffling assets around. It’s not a question of the abilities of the wealthy individuals, I think, but more a comparison of their contribution to society versus how much wealth they have extracted from it.

Posted by KenG_CA | Report as abusive

“a comparison of their contribution to society versus how much wealth they have extracted from it”

I’m puzzled why anybody would believe the two are synonymous? But then, the wealthy have to justify themselves somehow. Quoting a wise man, “It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God.”

One can make an immense contribution to society without extracting immense wealth from it. Other permutations are also commonplace (though only the most brilliant can extract immense wealth without making SOME contribution).

Posted by TFF | Report as abusive

TFF, they’re not synonymous. Reading my comment, I can see I was too brief and not clear.

The point I wanted to make is that people shouldn’t be criticized for how much money they make, without considering what they have given back. If you have made a billion dolars, you owe a great debt to society. Very few have paid that debt off, especially those who acquire their wealth by trading assets without adding any value. While it’s hard to quantify a contribution to society, it’s easy to identify all the people who have benefited from the process that leads to one’s accumulation of wealth.

If Bill Gates ends up giving away 99% of the wealth he amassed, then the question is did that 1% he got to enjoy (say that’s $500 million) equal to or greater than the contribution he made to the world? I’d say unequivocally yes. How about a hedge fund billionaire? They create a handful of jobs, but no real value for anybody but themselves. The world did not benefit from their existence.

Posted by KenG_CA | Report as abusive

@boson is the one who hit the nail on the head. Too bad people think he was being funny…

Their grand illusions can so easily come to fruition being the SEC is ineffectual and the so many admire and feed their abilities to con with their self-importance, lack of empathy and compassion, and ambitious drive to the top as they step on anyone in their way.

They are the darlings of the financial world! Who doesn’t love a charmer who is rich, ruthless AND a winner? Isn’t there great value to that description alone? Does it really matter how they got there? They are THERE and entitled, remorse be damned! (and how dare you compare them to a common thief or call them banksters!)

And way to go @Y2K, a banker who sees the importance of those $$ signs! Keep reminding us that immoral capitalism is the new social contract and who are the heroes we should be worshiping! Hopefully they are all passing on their DNA as we speak!

Posted by youniquelikeme | Report as abusive

KenG, I chose to respond to your comment (and I know we fundamentally agree) rather than to one with which I disagree more strongly.

I’m not going to criticize people for the money they make. Money is neither good nor evil, it can be used for either. But I will roundly criticize those who make no effort to contribute, seeking only their personal gain.

You think Bill Gates contributed so little? Not my place to judge, but he has certainly played a big role in shaping our society today.

Posted by TFF | Report as abusive

I must not be so hasty with my words, TFF. No, I was saying Gates’ contribution to society was far greater than the net amount he will have extracted for personal use by the time he is gone. As he plans to give away most of his wealth, the amount that he will have consumed is much, much less than what he has added to society (and I’m not a fan of MS). Also, he has devoted his time now to carefully and efficiently distributing that wealth, and not just donating it to charities that put his name on a building (as many billionaires like to do).

I’m with you on not criticizing people for the money they make, but making money itself is not evidence of brilliance nor justification for being put on a pedestal. I think what people do with their wealth is far more important than the fact that they amassed it.

Posted by KenG_CA | Report as abusive

There’s another weird disconnect in his views.

Two actually.

There’s a very American view that workers aren’t businesses. This is intensely ingrained to the point where during a speech given by G. W. Bush on the North American Border Security Treaty with Canada, he took the time to make it clear that while the treaty would make *business* mobility easier – it was not intended to and would not make *worker* mobility easier… unlike Europe where worker mobility is as easy as business mobility.

In fact, of course, a worker sells a commodity (his or her time and skills) in exchange for money. They are businesses in any real sense.

Then there’s the small ‘businessman’ who then hires workers – most employment happens there.

According to the US Census Bureau (2008 numbers), 27.25M Americans run ‘non-employer’ businesses (ie – they’re the only employee). There are only 6M businesses that employ additional workers… and of them around 3.5M (more than 1/2) only employ one to four workers.

There are only about 1000 companies that employ more than 10,000 workers.

In truth, the vast majority of businesses are small – and if we count the owners (who in many cases are the only employee as well) as workers – they and the smaller hiring companies clearly represent the ‘job creators’.. not the Mitt Romneys and big businesses like Apple.

It also doesn’t discuss the *quality* of work. WalMart is one of the single largest employers in the world. But how many of us would want to work for them (as opposed to needing work and so taking what we can get)?

Sorry, using Apple as ‘evidence’ of how well the system works is really stretching things thin.

Posted by TheWerewolf | Report as abusive