Teddy Forstmann will be remembered for many things: He was a philanthropist, an entrepreneur and a great banker. He nearly invented the private-equity business 30 years ago, and was of course incredibly rich.
But for my money, what made Teddy special was that he was an unabashed capitalist. He saw the system’s shortcomings, for sure, and wasn’t afraid to point them out — from junk-bond financing of doomed corporate takeovers in the late 1980s, to the mindless Wall Street risk-taking that led to the housing bubble and the Great Recession.
At bottom, though, Teddy believed markets work when left alone to work; his life and accomplishments were testament to that. And in spreading that word, he feared no one — which often made him a pariah among Wall Street’s elite.
Teddy died Sunday night after a fight with brain cancer. It’s hard to say how long he had the tumors; he was misdiagnosed for months until a visit to the Mayo Clinic in the spring revealed a form of brain cancer similar to one that got Ted Kennedy.
Teddy just wasn’t wired to take it as a death sentence. He underwent surgery and immediate and radical treatment. “I’ll beat this,” he vowed.
Though he was frail and haggard, I didn’t doubt him; I knew how many times Teddy Forstmann had proved his doubters wrong in the past.
Many of those doubters came from the financial world.
A takeover artist through and through, Teddy loved the buyout game, and in the 1980s he was one of the best in the business. But he wouldn’t stoop to the lows of his competitors who financed their deals with junk bonds.
As Teddy once told me, “junk” wasn’t necessarily bad: Such financing gave many ultimately successful companies the access to capital they needed to flourish. But the buyout craze grew to bubble-land proportions because bankers figured out they could use junk to finance ever-riskier takeovers.
Teddy called it “funny money” because the Wall Street firms were essentially creating money out of thin air, making billions financing the most speculative takeovers Corporate America had ever seen. The excess might’ve been good for Wall Street, but he predicted it would end badly for almost everyone else — and it did, with waves of defaults, corporate layoffs and recession in the early ’90s.
The only thing Teddy hated more than the excesses of the financial system was the hand of big government in the markets. Even in the junk-fueled takeover craze, he saw how policymakers aided and abetted mindless risk-taking by printing money every time Wall Street screwed up, so as to soften the blow of its mistakes.
“They’re always there waiting to hand out free money,” he once told me. “They just throw money at the problem every time Wall Street gets in trouble. It starts out when they have a cold and it builds until the risk-taking leads to cancer” — meaning the 2008 financial crisis.
Sure, Wall Street’s speculative frenzy was largely to blame for the banking collapse, but Forstmann saw the bigger picture. Why did the big banks create all those speculative housing-related investments in the first place? Because the markets weren’t allowed to work.
For years, the government had subsidized speculation through various bailouts. There was little or no market consequence to Wall Street risk-taking — and with no consequences, speculators take ever-bigger chances, until it ultimately all blows up.
Forstmann got rich — worth over $1 billion — doing business the right way, and he did other things the right way, too.
You don’t see his name on buildings around town like so many other financiers’, but Teddy gave away hundreds of millions for scholarships, schools and other projects. If he ever bragged to me, it was over his early and strong support of school choice, and his love for the two children he adopted from Africa.
He had big plans for his latest venture, the sports-marketing firm IMG. In recent months he tried to assure investors he had the management team to lead the business forward with or without him. For once, I’m going to doubt Teddy Forstmann.
Charles Gasparino is a Fox Business Network senior correspondent.