Turks and Caicos — I’m sitting on the patio of a rental house looking out over a turquoise inlet known as Silly Creek in this Caribbean island paradise. My wife and I are here to celebrate 30 wonderful years of marriage. Just at the moment, though, I’m thinking about greed.
Across the creek is Emerald Cay, a 2.3-acre island estate accessed by a remote-controlled swing bridge and a driveway paved with Turkish marble. According to a local real estate Web site, the 30,000-square-foot main house features 10 bedrooms and 10 baths, a three-story great room and equally grand library, along with a 6,000-bottle wine cellar. In addition to a caretaker’s lodge and a guest house, there is a lighted tennis court, two swimming pools, a beach volleyball court, two beaches, separate boat and personal watercraft docks and a fully equipped exercise pavilion with 360-degree views.
After circumnavigating Emerald Cay in a sea kayak the other day, I became rather curious about who would want to own such an over-the-top vacation property. It didn’t take much digging to discover the answer.
The story begins in 1999 with a high-flying hedge fund manager named Gary di Silvestri. Di Silvestri is a Staten Island boy who went to Georgetown and Columbia Business School and eventually became chief investment officer of something calling itself Deutsche Suisse Asset Management Ltd. Di Silvestri and his wife are best known today for having wheedled their way into the 2014 Winter Olympics in Sochi, Russia, by arranging to be designated as the cross-country ski team from the tropical island of Dominica. But back in 1999, their focus was on getting into the real estate development game in Turks & Caicos by ingratiating themselves with the island’s notoriously corrupt political leadership. Emerald Cay became their signature project.
Shortly after construction on the island began, financial and real-estate markets cratered, and the di Silvestris began negotiations to sell the still-incomplete project to Tim Blixseth. Blixseth was the founder and developer of the ultra-exclusive Yellowstone Club, the Montana enclave where several hundred owners of multimillion-dollar homes pay $75,000 a year in membership and maintenance fees to enjoy the exclusive use of a private, 10,000-foot ski mountain and championship golf course. Gary di Silvestri was an early Yellowstone member and a Blixseth friend.
With Yellowstone starting to take off, Blixseth decided to expand the concept with something he called Yellowstone World Club, a collection of opulent retreats that he offered on a time-share basis to 150 of the world’s most discriminating One Percenters willing to plunk down initiation fees of up to $10 million. The nine properties included two 150-foot yachts, a 14th-century chateau outside of Paris, a fly-fishing lake near Cody, Wyo., and a private golf club just down the road from St. Andrews in Scotland, in addition to Emerald Cay. To finance the purchase of the properties, Blixseth arranged a $375 million loan from Credit Suisse, the big Swiss bank, offering as collateral his stake in the Yellowstone Club and other personal assets, including his 300-acre home in Palm Springs, Calif., with its private, 19-hole golf course (the extra hole is in case of a tie).
The sale of Emerald Cay to Blixseth was completed around 2005 for a price of around $28 million.To avoid U.S. income taxes and the hefty property transfer tax in Turks and Caicos, di Silvestri and Blixseth arranged for the sale to be structured as a series of stock sales among several shell corporations, according to court documents here and in the United States valuing the property at the artificially low price of $10 million.
It wasn’t long, however, before Blixseth had more than taxes to worry about. The financial crisis that began in 2007 dried up interest in both the Yellowstone Club and Yellowstone World. Blixseth and his wife were in the middle of a messydivorce. And with the value of its collateral shrinking, Credit Suisse was looking to get its $375 million back. By 2010, Yellowstone Club was in bankruptcy and the bankruptcy trustee was looking to collect more than $200 million from Blixseth and his wife by seizing whatever assets they could get their hands on. Meanwhile, tax authorities here in Turks and Caicos, having uncovered the tax fraud at Emerald Cay, put an $8 million lien on the property.
The legal wrangling over all this continues to this day. Last month, Blixseth spent several days in jail for refusing to provide complete answers in one of the many court proceedings against him. Blixseth, meanwhile, has filed a series of countersuits accusing his wife, the bankruptcy trustee, Credit Suisse and the state of Montana of needlessly forcing the Yellowstone Club into bankruptcy as part of a conspiracy to steal his stake and his other assets. In the suit, Blixseth demands $24 billion in damages for himself and other Yellowstone property owners. In a separate action filed in federal district court in Miami, Blixseth accuses di Silvestri of being the real mastermind behind the tax fraud on Emerald Cay and seeks $28 million in damages.
Maybe it’s the rum punch, but it seems to me that what we have in this twisted tale is a parable of much that has gone wrong in American capitalism.
If nothing else, it certainly illustrates how the super-rich have hijacked the institutions of modern capitalism — a financial system that no longer channels investment capital to its highest and best use, a tax system that no longer requires all citizens to pay their fair share, a legal system that increasingly offers justice only to those who can afford to pay for it. Nothing, it seems — not even the Olympics — is immune from the corrupting influence of big money. And no matter how much they screw up, no matter how much loss and dislocation they may cause to others, the super-rich always seem to come out of it with their lifestyle, their self-assurance and their inflated sense of self-worth intact.
But this is also a parable about greed — and, in particular, the indulgence and sense entitlement that has become so endemic among those who, because of some combination of luck and skill, have risen to the top of the economic ladder. The ethic underlying Emerald Cay and the Yellowstone Club is that there is a small group of people so special, so productive, so worthy that it is entitled not to have to share a beach, or a ski slope or a tropical island with anyone else — that it should have the right to insulate itself from the stresses and frustrations and compromises of ordinary life, never forced to rely on common spaces or public services or having to rub shoulders with anyone with a net worth of less than $25 million.
One of the thought experiments I do with my economics class at George Mason is to ask the students to define greed. Invariably someone suggests that greed is wanting more than you need. Would that mean, I ask, that a person who buys a BMW rather than a Ford Focus is greedy? Unhappy with that distinction, someone else invariably suggests greed is wanting things that hurt other people. Would that mean, I ask, you are greedy if you decide to leave the employer who gave you your first job to take another where the pay was $2 an hour more?
The point of the exercise is to point out that in a free-market economy in which self-interest drives workers to be more productive, consumers to be more discriminating and investors to take more risk, it’s hard to draw the line between self-interest and greed. That conundrum has led some market purists to conclude that there can be no distinction, or that, as the fictional Gordon Gekko infamously argued, greed is good.
Most of us are reluctant to embrace such conclusions. However difficult it may be to define, greed offends moral instincts and intuitions that, for good reason, have become hard-wired into our nature. Actions strike us as greedy if the pleasure they bring to some are vastly outweighed by the misery they cause to others. People are greedy if their hunger for acquisition becomes such an all-consuming obsession that riches cannot be enjoyed. Greed is an invitation to wasteful consumption and a misallocation of scarce resources. Greed leads to a brutish indifference to the plight of others and can be a pretext for illegal behavior. Greed erodes civic virtue and undermines the faith, trust and confidence we have in each other and in fairness of the market system.
The dirty little secret about capitalism is that, while it has provided the highest standard of living for the greatest number, it involves a delicate balancing between self-interest and the common interest. It requires the incentive and the freedom to produce, invest and consume, but it also requires the self-restraint not to push things to the point where they are economically wasteful or harmful or erode our sense of mutual trust and mutual responsibility.
Or to put it another way, the best system is one in which people are free to build Emerald Cay or join the Yellowstone Club — but have the good sense not to.
This is Steven Pearlstein’s last column for a while. For the next three months, he’ll be focused on writing a book on the moral contradictions of capitalism, to be published next year by St. Martin’s Press.