John Catsimatidis: Americas Recovery

Billionaire John Catsimatidis, chairman of the Red Apple Group, explains how he made his fortune–and why he is different from Mike Bloomberg in a recent interview with Forbes Magazine. See the published text of his interview below.

Forbes: What is one misplaced assumption in the business world?

John Catsimatidis: A misplaced assumption? That everything goes up forever.

I think we went through a period of overexuberance … I looked at it and said, This cant be that high that soon. I also looked around and said, There are too many rich people around. Somebody has to work. A year ago, I looked around and thats what I actually said.

Dont rich people work?

Presumably, unless theyre sitting around thinking their hedge fund will earn them 15%. I think thats a wrong assumption. Life is not that easy. Youre not going to sit around and collect 15% on your money forever.

What is the greatest financial lesson youve ever learned?

That theres no free ride. You have to work at everything. Youve got to make it work.

How did you learn this?

Just from life in general. Things are not that easy, and you actually have to work at it. You try to teach it to your kids.

Hows that going?

Its hard to teach. Because my kids, who are 16 and 18, were born in a country–what is the expression in the movie The Way We Were?–a country made of ice cream. They never saw bad times.

Will that change?

I think it will be a lot tougher in the future than its been in the past. It will be tougher–the large salaries earned on Wall Street will not be there anymore to the extent they were in the past. As they used to say, were going to have to make money the old-fashioned way: work for it.

Who is the greatest financial mind working today?

There are several. I had dinner with Carl Icahn last Thursday; I think hes a bright guy. Very analytical. As far as Washington is concerned–well, if you would have asked us a year ago, we could have said Greenspan, but I dont think we can say that anymore. A lot of this stuff happened under his watch. All these bonuses that [were] taken back in 2005- to 2007 were based on projections and based on financial models. And Im not sure they ever deserved to make those bonuses.

What is your bold prediction for the future?

I think America will recover. America always recovers. Its going to be a lot more restrained than the over-jubilance we had … I think it will take at least two years for real estate values to work themselves out. The banks are getting mixed signals from the government: One signal says increase your capital positions, and the other says lend to the public.

Every time they lend to people and mark it to market, it reduces their capital position, which is a Catch-22, and youve got the bankers running scared. American business will not recover until the bankers stop running scared. So you have two aspects of the country recovering.

The federal government has to assure banks they have to put out the money and not reduce the value of the loan on their books the day after. And unless we fix that and the banks open up and start lending again, America cant recover, because the federal government is giving them money, but theyre scared to lend it back out again.

Also, people that want to buy homes have to realize you have to work hard, save money, and put up 20% to buy a home. Not that theres free ride to buy a home on 100% financing–it doesnt work.

The other way, the banks have to make money the old fashioned way. Collect deposits from the public to lend it back out again. Not to create all these elaborate financial instruments and become financial casinos, to actually be banks. If you borrow money, you pay depositors at 3% and lend at 7% and make 4% in between.

They have to pay for the cost of money and the borrower had to pay for the loan, and they make the spread in between. They make all these financial instruments; nobody knows what the balance sheet of the banks looks like. The balance sheets have no transparency–this is why nobody wants to invest with money-center banks.

You made a killing in real estate in 1977. Do you see a similar buying opportunity now?

I think there are key portions, key items you can buy in real estate. Youve got to buy quality and key areas. Location, location, location. If you buy on the ocean, or you buy on Manhattan on key avenues, yes. If you buy in Perth Amboy, N.J., Im not sure youre going to make a killing.

Do you have any property in Perth Amboy, N.J.?

I dont have any property there. Real estate goes up by peoples desire to own. Ocean-front property. Manhattan. Europeans, South Americans, Asians want to own it. It goes back to supply and demand. If a lot of people want to own it, prices will go up. If nobody cares about it, the price isnt going to go anyplace.

What are your plans for mayor now? It looks like Mayor Michael Bloomberg is staying put.

My plans for mayor are [that] we have our exploratory committee; we will wait and see what happens. The person who becomes mayor will become the last person standing. Now there are outstanding lawsuits against the mayor for trying to overturn the city council and for using the city council to overturn the referendum that the people of the city of New York voted for, for term limits. And they voted for it twice. To use the city council, a lower authority … I look at the people as a higher authority.

Would you run against him?

We would look at it. I dont have a desire to run against [him]. Lets see what the courts say. Today the state senate and state assembly progressed a bill to overturn the city councils extension of term limits.

Is it healthy to have two billionaires battling it out for mayor?

I dont know. I grew up on the poor side of New York at 135th Street. I do business in the Bronx, Manhattan and Brooklyn. Im a neighborhood kid. Maybe the value of my real estate is higher, but Im still the same neighborhood kid I was around 20 years ago. Im not the same type of billionaire as Mike Bloomberg. He came from Boston; I came from the city of Manhattan. I know these people. I know these people as well as anybody in this city. I used to play stickball on 135th street.

What was that neighborhood called?

It was the Upper West Side. A little above Morningside Heights.

I ask because about 100 years ago, the area on the West Side above 90th Street had been called Harlem. But now its not.

Columbia University cleaned that area out.

How much of your success was luck vs. skill and hard work?

While in my late teens and in my 20s, I worked seven days a week, 20 hours a day. I worked my tail off. But you need a little bit of luck too.

What was some luck you received?

That the city got better [after] the 1970s and early 1980s. I remember in the 70s the city was a tough place to live. It became better when Rudy Giuliani became mayor. There were safer streets. I talk to him.

Hows he doing?

Hes sitting around wondering what his next move will be … I went to [high school at] Brooklyn Tech. I remember DeKalb Avenue was one tough neighborhood. Its a lot better now.