Radiohead has invited fans to create animated videos for any of the songs on the band's groundbreaking In Rainbowsalbum, and you don't even need to be an animation expert to enter. Possible submission formats range from storyboards of "basic sketches with words" to concept videos. If you have a great idea but lack the skills to make it real, animation sharing site Aniboomcan connect you to another entrant with whom to collaborate. The deadline for entry is April 27.Ten semifinalists selected by Aniboom, TBD Records and Adult Swim will receive $1,000 each to produce one-minute videos. Anyone will be able to vote on Aniboom and MySpace, but Radiohead band members will ultimately choose the winner, who will receive $10,000 for the creation of a full-length music video. The Cartoon Network's Adult Swimmay or may not premiere the video (apparently, that's yet to be determined).The announcement comes one business day after Trent Reznor of Nine Inch Nails announced a somewhat similar fan-generated video projectfor the latest Nine Inch Nails album, Ghosts I-IV. Radiohead's In Rainbowshas been a resounding success in just about every way, from the initial digital releaseto the standard CD, released in January by TBD Records and ATO Records, when it debuted at the top of the U.S. album chart. It succeeds musically as well, for me anyway, with Radiohead's meticulous craftsmanship focused on a warmer sound and, of course, some excellent songs.With a month and a half to put the initial concepts together and the prospect of major exposure for the winner -- not to mention the lure of compensation -- we expect to see some quality videos emerge from the contest.Related LinksHow Much Did Radiohead Make on Downloads in October?Music Mag Apes Radiohead's Pricing SchemeDaily Brew: Top Ten Inspirational '80s Songs, Cutting Edge Tech Gadgets You Can Only Get Overseas...

  Of the dozens of literary awards bestowed each year, the Pulitzer Prize for fiction, handed out this month, is one of the most coveted. The award translates into better placement at bookstores, fatter advances, expedited editions of a paperback, and as an added bonus, a $10,000 check. But when it comes to improving book sales, does the Pulitzer reign supreme?Not always. The most recognized English-language literary awards can be counted on one hand: the Pulitzer, the National Book Award, the PEN/Faulkner, and Britain's Man Booker. But looking at the three most recent years for which comparable sales data is available, the book that won the Pulitzer had the biggest sales boost just once. That was in 2002, when the award was given to Richard Russo's Empire Falls.In the following month, the sales jump was impressive: 6,500 percent, to 99,000 copies, which dwarfed the competition.No such luck since then. In 2006, the winner of the Pulitzer was March,by Geraldine Brooks. For the month following the award, its U.S. sales jumped 86 percent, according to Nielsen BookScan. The rise placed Marchthird, well behind the lift given by the Booker Prize. Its winner, The Inheritance of Loss,by Kiran Desai, registered a U.S. sales rise of 625 percent. In 2003, the results were similar: The Pulitzer winner placed second, with a 200 percent jump, lagging behind the Booker winner, D.B.C. Pierre's Vernon God Little,which got a 677 percent boost. (In contrast, see how celebrities can boost book sales.)Of course, because Booker winners are authors who are less well-known in the U.S., it's a relative snap for them to post big U.S. sales jumps. It puts Vernon God Little's boost in perspective when you consider that in the month before it won the Booker, it had sold only 1,000 copies in the U.S.Regardless of sales data, few American authors would trade their Pulitzers for anything. Jane Smiley won hers in 1992 for A Thousand Acres.It enabled her to quit teaching and move from Iowa to Hollywood. Plus, says Smiley, "it got me on the Huffington Post, since Arianna, when I met her, had never heard of me. But she had heard of the Pulitzer."Related LinksSexism in the WorkplaceRecession Roll CallEat Sheet: Chilies

  In the world of top-tier opera, talent is pretty much a given. But French soprano Natalie Dessay has something more unusual: box office cred. Or at least that's the hope of Peter Gelb, the general manager of New York's Metropolitan Opera, who lately has been relying on the 42-year-old Dessay to help recast the Met's stodgy image—and pump up its ticket sales. So far, Dessay has done well for him: All 12 performances of her Lucia di Lammermoorsold out in the 2007–2008 season, in part because Gelb plastered dramatic images of the singer all over New York buses and billboards. (The slogan for the $500,000 campaign advertising the Metropolitan's fall 2007 lineup read "You'd be mad to miss it.")Dessay is back this month in the comic opera La Fille du Régiment—a production that was already standing-room-only back in February. Ticket buyers' enthusiasm for Dessay's performance places La Fille du Régimentwell ahead of the Metropolitan's other productions this season; about half of the opera's 113 fall performances sold out, with the house selling at 88 percent capacity on average. The story of an orphan (Dessay) who is adopted by an army regiment, Fillebegan its current incarnation at London's Royal Opera House last winter, where director Laurent Pelly's staging received raves. But it was Dessay the critics homed in on, praising the intensity of her acting. That quality has catapulted Dessay—who was born Nathalie but dropped the hin homage to actress Natalie Wood—into the ranks of the Met's highest-paid performers. She now makes $15,000 a performance, just like her co-divas Renée Fleming and Anna Netrebko. (Read more about Fleming, Netrebko, and other opera singers who command thousands.) One difference is that those singers already have endorsement deals with companies such as Rolex and jewelrymaker Chopard. Although Dessay has yet to sign a similar contract, her hopes are up. "Oh yes, I want to do Rolex," she says. "But what I'd really like to do is a commercial with George Clooney!" Related LinksThe $15,000 Club Big Swinging Ticks: Reviews of New WatchesThe Maverick and the Maestro

  Drew BarrymoreSkinny Legs and All by Tom RobbinsIn January, one edition of Skinny Legssold 1,000 copies in the U.S. That’s about the same number it sold the week after Barrymore was photographed with the novel in February.Paris HiltonThe Power of Now by Eckhart Tolle The week after the photos of Hilton holding this guide first appeared, one edition sold 3,000 copies—a 50 percent increase over the previous week.  Jennifer GarnerThe Elf on the Shelf: A Christmas Traditionby Carol Aebersold and Chanda Bell Sales spiked 300 percent, to 4,000 copies, in the month after Garner was photographed carrying this children’s book. Related LinksJonah Goldberg Needs to Watch More PornHas Paris Hilton Been Disinherited?Taxing Paris Hilton

  Looking back now, friends say that it was clear last summer that something was bothering Larry Salander. He had stopped returning their phone calls, and many hadn’t spoken to him or seen him in months. Those who had run into him on the street or seen him briefly at Salander-O’Reilly, his gallery on Manhattan’s Upper East Side, were struck by how haggard he looked. He seemed distracted and tense, "totally wired," one artist and longtime friend recalls.By late June, many who knew Salander were aware that he was under some financial pressure, though they did not know all the details. In May, he’d been sued by two clients—the tennis star John McEnroe and Earl Davis, the son of the noted American painter Stuart Davis—who claimed that Salander owed them money and, in Davis’ case, paintings by his father that had been stored at Salander’s gallery and were now missing. (See a slideshow of some of the players and victims.)Together, McEnroe and Davis were demanding more than $3 million from Salander, but more remarkable than the amount of money involved was the fact that the suits had been filed by two of the art dealer’s closest friends. Disputes between clients and dealers are not uncommon in the art world, and many thought that if Salander was experiencing any financial strain, it was a short-term problem that he would soon resolve.At 58, Larry Salanderwas one of New York’s most respected and powerful art dealers. During his 35 years in the business, he had developed a sterling reputation, not only for his integrity, his eye for quality, and his brilliant shows, but also for his business acumen. In 2003, an art-industry report had named Salander-O’Reilly the best gallery in the world, and although not everyone shared that view, by 2007 many believed that Salander was well on his way to achieving that distinction. Some were surprised when, about six years ago, Salander—who had long specialized in American Modernists—suddenly began to expand into Gothic, Baroque, and Renaissance art. But others applauded it as a sign of his originality and boldness, as they did the opening, in the fall of 2005, after a renovation rumored to have cost more than $2 million, of Salander’s new gallery on East 71st Street in a magnificent 25,000-square-foot, seven-story Italianate mansion, whose sweeping marble staircases and velvet-lined rooms were reminiscent of the grandest old European galleries.  It was in this space, on October 17, that Salander was scheduled to open perhaps his most impressive show. Titled “Masterpieces of Art: Five Centuries of Painting and Sculpture,” the exhibition was to feature a breathtaking array of old-master works, including pictures by Rubens, El Greco, Titian, Botticelli, and, most eagerly anticipated in the art press, an astounding four works by Caravaggio. If Salander was having financial problems, the upcoming show should have eased his worries; as he let it be known, he was anticipating sales of close to $500 million from the exhibition. Indeed, the centerpiece of the show—Apollo the Lute Player,recently reattributed to Caravaggio—was to go on sale for $100 million.Yet as the date approached, Salander seemed to grow only more tense. Sometime in August, after trying for months to find out what had happened to 18 of his paintings that had been lent to a gallery in Rome, the artist Paul Resika spoke to Salander on the phone and was shocked when the dealer lashed out, accusing Resika of having betrayed him and their 20-year friendship because Resika had spoken to Robert De Niro about several paintings by the actor’s father that, like Resika’s works, also had not been returned after an exhibition at the Italian gallery. Not until the third week of October would Resika, De Niro, and other friends finally discover what had been bothering Salander. People had already begun to line up outside for the opening of “Masterpieces of Art” late on the afternoon of October 17 when it was announced that the show had been canceled. Two days later, the art world was shocked when the Salander-O’Reilly gallery was closed and its doors padlocked as a result of an order by a New York State Supreme Court judge, ruling in two of what would soon turn out to be more than 40 lawsuits filed by wealthy art collectors, Wall Street financiers, artists’ estates, and galleries in Europe and the United States accusing Larry Salander of a stunning array of misdeeds, including theft, fraud, and forgery. Among those who sued was Roy Lennox, the senior managing director of the $11 billion hedge fund Caxton Associates, who alleged that Salander owed him $3.8 million for a series of art investments that Lennox would call “nothing more than an illegal Ponzi scheme.” Saundra Lane, a Massachusetts art collector, claimed that Salander had not made $3.4 million in payments for a Charles Sheeler painting he had purchased from her and that some of the collateral he had given her in return—two Albert Pinkham Ryders and two James McNeill Whistlers—werepossibly fakes. Earl Davis amended his suit against Salander, claiming after an investigation that the dealer owed him more than $30 million for 96 works by his father that Salander had either lost or sold without Davis’ permission. Myron Kunin, the billionaire founder of the hair-care conglomerate Regis and a noted collector of works by American Modernists, sued, claiming that Salander owed $3.8 million in unpaid loans and $3.5 million for a Georgia O’Keeffe painting that Salander had not fully paid for. The contractor who had renovated Salander’s East Side townhouse sued, as did the landlord of his old gallery on East 79th Street, the landlord for his new gallery, as well as Bank of America and Sotheby’s. The most damaging suit, however—the one that resulted in the shuttering of Salander’s gallery—was filed by Donald Schupak, the chairman of Triumph Apparel, who alleged that Salander had “swindled” about $42 million worth of Baroque and Renaissance art from Renaissance Art Investors, a partnership the two men had formed in the spring of 2006. In early November, telling the court that Schupak’s allegations in particular were “false” and that he believed he had “extremely valuable personal assets and holdings that, if sold in the proper manner, should be sufficient to satisfy all legitimate claims,” Salander and his wife, Julie, filed for personal bankruptcy. The gallery followed suit—at which point yet more claims surfaced, most notably from Salander’s lead creditor, the San Francisco-based First Republic Bank, whose lawyers would tell the bankruptcy court that Salander was in default on more than $40 million in loans. If the allegations are true, the collapse of Salander-O’Reilly would be among the most massive art frauds in history. All told, more than $100 million in art, bank loans, and client investments appears to have vanished into thin air. The scandal has shaken the art world, raising troubling questions about the darker side of this secretive, totally unregulated market into which investors have poured billions of dollars in the past decade. Today, as a federal bankruptcy judge sorts through the tangled web of claims against Salander, and an investigation, begun in late October by the Manhattan district attorney, raises the possibility that Salander will face a criminal indictment, the question that mystifies is not just how Salander got himself into so much trouble, but why? What caused a man who had achieved so much to risk everything he had worked so hard to create, “to destroy,” as one of his artists says, “everything that he loved?”That Larry Salander could have gotten into so much trouble over money is something that many of his closest friends would never have imagined, because money never seemed to be what drove him. His great passion, almost to the point of obsession, was not the business of art but art itself. A painter of some note, whose 1992 work Crucifixionis part of the Smithsonian’s collection, Salander had an almost childlike exuberance about art—“a tremendous enthusiasm,” says the New York dealer David Tunick—that people could sense just on meeting him. A big man, often dressed in his trademark T-shirts and baggy suits, Salander could be charming and gracious, like so many New York dealers, but he had an intensity and a bluntness, an unvarnished quality that set him apart. A man of strong emotions, he would speak about creativity and art in transcendent terms; the great masterpieces, he sometimes said, were the clearest proof that God existed. Salander loved art for its intrinsic beauty, its “aesthetic,” saysResika, as opposed to its place in art history or its price. This, many say, was reflected in the eclectic range of his gallery’s exhibitions. He would show contemporary American work one month, followed by an exhibition of Constable paintings and then Houdon sculptures.What Salander would never allow in his gallery, however, was the art that is in so much demand today—the Pop art, conceptual work, avant-garde pieces, and celebrity productions whose prices have been driven to dizzying heights in the past several years by an army of new collectors. Damien Hirst, Jeff Koons, Jean-Michel Basquiat, Richard Prince—these were among the artists whose work Salander openly disdained. A classicist at heart, he regarded much of the new art as gimmicky and slick, as art created only for money. Such works, Salander felt, were “no longer about art,” says the sculptor Michael Steiner, “but about the people who buy art.” In the past 20 years, since art-market prices first began to spike in the late 1980s, the kind of people who buy art has slowly evolved. While there have always been investors with extremely sophisticated taste who take the time to educate themselves about the art they buy, an increasingly large segment of investors has not bothered with connoisseurship and has simply bought art that was in vogue and likely to turn a profit. In the past six years, as the art market has exploded, this trend has become even more pronounced. With torrents of money flowing in from newly rich American hedge fund managers, Russian and Asian oligarchs, and investors from the Middle East, auction prices for art started to go through the roof. The Impressionists, Post-Impressionists and Moderns were the first to go. And then, partly because of the growing scarcity of paintings from those periods and partly because of the tastes of the wave of new buyers, demand turned to contemporary works. While many in the art world lament the current state of the market, for Salander it was almost a moral offense that masterpieces by artists like Corot or Courbet were selling for less than a million dollars, while a shark in formaldehyde by Damien Hirst was fetching $12 million, a Balloon Dog sculpture by Jeff Koons could command $19 million, and Basquiat’s stick-figure paintings could go for nearly $15 million. “He was outraged,” Steiner says.It was partly this outrage, people say, that led Salander to make his first foray into the market for Baroque and Renaissance art sometime around 2001. “Here were all these rich Americans buying the stupidest things around,” says one friend, “and with old masters, you could have real paintings for a fraction of the price. He was a great salesman, and he thought he could convince them. But it was a gamble.” With the exception of the rare sale of a work by a top artist—a Tintoretto, for example, a Canaletto, or, rarer still, a Caravaggio—the business in old masters had become relatively lackluster.Selling old masters also had its perils—most notably what the dealer David Tunick calls “the shifting sands of attribution.” The provenance of most works has grown very murky over the centuries, and it requires experience and scholarship on the part of dealers to distinguish a real masterpiece from a work by an artist’s followers or an outright fake. But none of this seemed to daunt Salander. He set about hiring some of the top scholars in the field and, in 2002, stunned the art world with his first major purchase. At Sotheby’s London old-master auction that July, his gallery paid $3.2 million for a terra-cotta figure attributed to Bernini, the sale price of which had been estimated at $250,000.What Salander had set out to do, people say, was to create, in effect, an entirely new market for old masters. And he was utterly convinced that he would be able to make it happen. But his motive, some say, was not just his passion for art. He’d seen the effect that the cascade of new money was having on the market, how the power was shifting to contemporary dealers like Larry Gagosian, who worked the moneymen so well. And Salander was tempted, some say. It wasn’t the money but his ambition that drove him, friends say. There was no question that art was his great love, but his other passion, and perhaps the stronger of the two, was his desire “to be the greatest, the most important, dealer in the world,” says one prominent artist. “Larry talked about it openly, and you could also feel that was his idea. It just radiated off him.” Raised in Long Beach, New York, Salander came from a family of dealers. His grandfather and uncle owned a small shop on Madison Avenue that sold antiques, and his father ran an antique-furniture dealership on Long Island, where Salander worked throughout his youth. It was not an easy business in which to earn a living, and though the Salander family lived well, they were far from prosperous. Salander was 20 in 1969 when his father died and he was forced to drop out of the University of Miami to help his family make ends meet. For several years, Salander ran his father’s store, until 1972, when he opened his own furniture and antiques shop in Wilton, Connecticut. The following year, he opened a second antiques store in Manhattan, where he also began to sell works of art.  In 1974, Salander teamed up with William O’Reilly to form the Salander-O’Reilly Galleries, which quickly established itself as a dealer of some distinction, focusing on 19th-century European art, American Modernism, and contemporary works. While O’Reilly was charming and highly knowledgeable about art, people say that of the two men, Salander was the “income earner.” He was driven, focused, and, like many of the best dealers, had a “razor-sharp memory,” as a former employee puts it. Information about collectors, rumors about which artworks might be coming to market, sale prices, details of deals—he kept it all in his head, rarely needing to put anything in writing. He was also a consummate salesman, patient and subtle, with an acute, almost intuitive understanding of his clients’ emotional needs and desires.Salander’s ambitions eventually began to eclipse those of his partner, and in 1991, he agreed to buy O’Reilly out. By then, Salander had moved the gallery to elegant new quarters at 20 East 79th Street, renting three floors for $58,333 a month in a huge mansion owned by Elaine Rosenberg, the daughter-in-law of the renowned French art dealer Paul Rosenberg. After the buyout, the widespread impression in the art world was that Larry Salander was making it on his own. What virtually no one knew, however, was that in February 1995, Salander took on a new partner, Curtis Galleries, in a deal that would remain secret for nearly 12 years. The owner of Curtis Galleries was Myron Kunin, perhaps the most important private collector of American Modernist art, and the deal effectively gave him 50 percent of Salander-O’Reilly. The agreement attested to Salander’s prowess as a negotiator: Though Kunin got half of the gallery’s profits, Salander in return got financing; the right to run the gallery’s business with virtually no interference, involvement, or oversight from Kunin; and an annual salary of $500,000. It was a remarkable arrangement, one that stunned those who worked with Salander when they learned of it last summer. Salander’s reasons for “selling half of himself,” as one friend puts it, may have stemmed in part from personal pressures. His first marriage had collapsed; there was alimony and support for three children to pay. A year after the deal with Kunin was signed, Salander married his second wife, Julie, a director at the relief agency CARE who was 15 years younger than he was and with whom he would have four more children. By 2002, Salander had begun his move into old masters; his staff was expanding and would soon reach an impressive count of 50 employees. By all indications, Salander was doing well financially. He and Julie maintained an estate in the wealthy upstate New York enclave of Millbrook. He was traveling frequently to auctions and meetings in Europe, and one of his artists recalls, it was around this time that he began hiring private jets for his business trips. In July, he would buy the $3.2 million Bernini.Larry Salander first met the hedge fund manager Roy Lennox around the beginning of 2002. A year later, according to Lennox, Salander offered the financier the first of what would be 11 “business propositions.” He told Lennox that he had a buyer willing to pay $1.2 million for a painting by Corot that Salander did not yet own but said he could buy for $800,000. Salander offered Lennox a 50 percent share in the painting. If Lennox gave him $400,000, Salander promised that within a year he would repay Lennox $625,000, a profit of more than 50 percent. Lennox agreed to the offer, and in January 2004, Salander paid Lennox as promised.  During the next three years, the two men would do 10 more deals, totaling more than $5 million, for works including a sculpture by Santi Buglioni, a stucco relief by Desiderio, and paintings by Marsden Hartley, Stuart Davis, Arthur Dove, and Francisco de Goya. These deals all had the same structure: Salander would promise Lennox a share in the profits from the sale of an artwork that was yet to be purchased. Lennox never took title to the works, never saw them, and apparently never asked who the buyers were. For Lennox, the deals appear to have been done solely for the potential profit. But the returns Salander promised were huge—in the case of Sun and Moon,by Dove, a remarkable 40 percent in just under four months.Agreements such as these are not uncommon in the art world. Dealers will sometimes turn to collectors or to one or two trusted investors in order to help them buy art. What was unusual about the Lennox deals was the expected profits, the frequency of the investments, and, ultimately, the fact that Lennox kept investing in deal after deal despite the fact that Salander soon stopped paying him the money promised. Skyrocketing art prices may have made anything seem possible. Or Lennox may have trusted Salander because they’d become friends. In the fall of 2004, Salander threw a 40th birthday party for his wife at the Frick museum. Friends were surprised when they arrived for what they thought would be a small dinner and found that Salander had rented the entire place for a lavish affair with about 400 guests. The impression at the time was that the party was thrown, in part, to impress the wealthy Wall Street financiers and collectors that Salander was trying to woo as clients for his burgeoning old-masters business. Soon after the Frick affair, Salander signed the lease on what would be his new gallery, on East 71st Street. Still paying rent of $58,333 a month for his space on 79th Street, he now owed an additional $154,166 a month in rent for his second place. On top of that, he hired the architect Andrew Bartle to renovate the 71st Street mansion. That summer, Salander had also bought himself a $4.75 million townhouse on East 82nd Street, something that few of his friends knew, and he was paying nearly $3 million to have that renovated as well. When one close friend learned about the townhouse, he was surprised by the extravagance. “Something changed in Larry’s life that year,” he says, “and it wasn’t just about the art.”At exactly what point Larry Salander may have crossed the line and begun to deceive his clients, as they allege, is hard to say for certain, but by the end of 2004, there were signs of trouble. According to court records, he had stopped making payments on the $3.1 million he owed to the Canadian press baron Kenneth Thomson for a Charles Russell painting, claiming that the buyer of the work was refusing to pay—although Thomson’s estate would later allege that Salander already had the buyer’s money. He was also involved in a dispute with Dougall Arts, a London dealer, over payments he was refusing to make on a 16th-century sculpture of Saint Jerome, which he had bought from the dealer and, according to Dougall’s assertions, had already resold. And sometime in 2005, Earl Davis began to suspect that Salander was selling Stuart Davis paintings and pocketing the proceeds without telling Earl—a betrayal that friends say, if it indeed happened, is particularly shocking, because Earl had known Salander from childhood and, says one, “trusted him like an uncle.”  Salander’s new gallery on 71st Street opened in September 2005 to much public and press acclaim. By then, although few people knew it, Salander was in serious financial trouble. Unable to pay Elaine Rosenberg the full rent on his 79th Street gallery, he’d made a deal to effectively reduce it by $43,750 a month, but he was still in arrears. He was also borrowing money from the contractor working on his townhouse. And in July, without offering any explanation, he’d stopped making payments on his buyout arrangement with his former partner, O’Reilly, who sued Salander for $148,000 the week after the gallery’s opening. Salander’s facade, though, was that of a very prosperous man. In 2005 alone, he bought five vehicles, including a Cadillac Escalade, a Lexus 330 S.U.V., and a Denali truck. Still, among art financiers and dealers, the opulence of the new gallery raised questions. “To go and put money out in inventory or real estate in speculation that there will be a market one day requires a tremendous amount of financial muscle,” says Richard Feigen, a prominent New York dealer. “If you go and occupy an enormous place, then the assumption is that you have a tremendous amount of backing, and if people think that you don’t, then people are going to say you are overreaching or in trouble.” Apparently intended to impress the new-money collectors, the 71st Street gallery was sumptuous, almost on the scale of the palazzo-like gallery in Paris owned by the Wildenstein family. But the Wildensteins, with a collection believed to be worth $5 billion, are the richest art dealers in the world and have been amassing works for more than 100 years. Feigen, for one, was baffled because he felt that at that point there wasn’t enough high-quality inventory available in the market for Salander to fill his vast new space. An art collector who was taken aback by the lavishness of the new gallery remembers asking one of Salander’s top employees, “What the hell is going on there?” He was told that no one really knew but that Salander hadn’t been paying his top staff the commissions that he owed them. In April 2006, unaware of the rumors in the market and the lawsuits against Salander that had begun to trickle into the courts, Donald Schupak invested $15 million in Salander-O’Reilly. Somehow, Salander had managed to convince the financier that big money could be made by selling Renaissance and Baroque art to hedge fund managers and other newly wealthy collectors. As part of their agreement, the two men formed Renaissance Art Investors, an investment partnership whose goal was to develop that market. With Salander at the helm, the partnership would acquire undervalued old masters, find wealthy buyers, and resell the art at a massive profit, which would be split between Schupak and Salander. In addition to Schupak’s $15 million, Renaissance Art Investors was also financed by a loan of about $15 million from First Republic Bank. Salander’s contribution to the initial capitalization of the partnership was the title to approximately 300 works of art. With his investment, Schupak believed he had become the owner of Salander’s entire portfolio of Renaissance and Baroque art, which, through swapping, trading, and purchases over the next year, would grow in number to more than 600 works, according to Schupak’s lawyer, Barry Slotnick.  The question of how to prove ownership would eventually become a problem, however. In the art market, which functions on trust and handshakes, without any regulation or institutional oversight, the only proof of ownership is the title to the work. But even that offers no guarantee. Unlike the real estate market, for example, there is no title insurance and no legal title registry for artworks, and titles can be forged or copied and given to multiple buyers. To protect their ownership in works of art, banks, dealers, and some sophisticated investors will register pieces they have claimed as collateral with a public document called a Uniform Commercial Code filing, or U.C.C. The dealer Richard Feigen notes, however, that for many in the art world, filing a U.C.C. “would be highly awkward, really almost an insult.” And even U.C.C.’s have their limits, as Schupak would later discover, when, according to his lawsuit, he found that many of the works purchased by R.A.I., though noted in extensive U.C.C. filings, were either not Salander’s to sell in the first place or were sold by the dealer behind Schupak’s back. Saturn Abducting Philyra,by Parmigianino, is alleged to be one such work. At the time that Schupak “bought” it from Salander, the painting was actually owned by the NewYork dealer Stanley Moss. Salander had arranged to buy it from Moss for $1.5 million but had not paid for it when, in April 2006, he included it as part of his contribution to R.A.I. with a stated value of $1.75 million. That February, according to Moss, while Salander was still negotiating the R.A.I. deal with Schupak, he asked Moss to withdraw his U.C.C. filing on the work. When Schupak checked the public record, there was no way he could tell that the Parmigianino was, in fact, still owned by Moss. In May, after R.A.I. had taken title to the work, Salander told Moss that he could refile the U.C.C.It was, if Moss’ account is correct, a clever maneuver. Schupak, however, was not a man to trifle with. He was a tough dealmaker who did not shy away from a fight, as his Porsche dealer discovered in 1986 when Schupak hired someone to picket the shop every day for a month in a dispute over a repair bill. It was Schupak who would bring Salander down, demonstrating that in a confrontation between art and money, the money would win. By the end of 2006, according to bank documents, Salander was “in multiple default” on nearly $50 million in loans from First Republic. These included the $15 million loan to R.A.I., a $14 million mortgage on his townhouse, and a $26 million line of credit to the gallery. How and why First Republic had gotten itself in so deep with Salander was something that baffled other bankers. “You have dealers with $1 million, $5 million, maybe $10 million bank lines, but $50 million is off the charts,” says one lender. People now speculate that First Republic, which catered to high-net-worth individuals, was trying to expand its business and got in over its head in the art market, in which it had little expertise. Indeed, in its 2005 annual report, the bank, which was acquired by Merrill Lynch for $1.8 billion in September, touted Salander as one of its best clients. But by the end of 2006, the Salander-O’Reilly Galleries had a new C.F.O., Antonette Favuzza, who many people believe was installed by the bank to monitor what had become a seriously troubled credit. This move, along with other events that suggested First Republic was aware of Salander’s problems, later raised questions among creditors about the bank’s culpability. It was a point that Earl Davis’ lawyer raised in court in November, when he told the bankruptcy judge that creditors might have “possible claims against the bank for aiding and abetting a fraud.” By the spring of 2007, Salander was bouncing checks for hundreds of thousands of dollars on his First Republic accounts. In April, Myron Kunin notified Salander that he would terminate their partnership that fall because he had not received any financial statements for months and because Salander had not paid him in full for the O’Keeffe painting Shelton Hotel.It is not clear whether First Republic even knew about Salander’s partnership with Kunin. Artists and one employee say that Salander was secretive about his business dealings. But the bank should have known about Salander’s ongoing problems with Saundra Lane, the collector who claimed that he still owed her $3.4 million for a Charles Sheeler painting; in April, ruling on Lane’s behalf, a Massachusetts judge issued an injunction against Salander essentially forbidding him from spending any gallery money without Lane’s approval. And yet throughout 2007, First Republic continued to lend Salander money, as did Sotheby’s, that summer, although the auction house was aware that Salander was in serious financial trouble. Sotheby’s made three loans to Salander, for a total of $863,650, against a group of artworks he had consigned for auction. Such loan advances, along with large sale-price guarantees, have become increasingly customary among the auction houses in the superheated art market. What was different about the deals with Salander, however, was that he never got the money. As part of an agreement between First Republic and Sotheby’s—which was eager to keep the works for sale at auction—the money was paid to the bank instead. When asked about its relationship with Salander, its role in selecting Antonette Favuzza, and whether it was aware of the gallery’s problems with Saundra Lane and Salander’s partnership with Kunin, First Republic declined to comment, as it did when asked whether its executives considered warning other creditors of Salander-O’Reilly’s financial condition and about the suggestions by creditors that it might face claims for aiding and abetting a fraud.Donald Schupak was leafing through Sotheby’s catalog for its old-masters sale last June when he came across a number of works that belonged to Renaissance Art Investors. Stunned because Salander had not told him he was putting the works up for sale, Schupak said nothing to the dealer but sent an associate to the auction. The pieces sold, but Salander never mentioned the sale to Schupak. On July 19, Salander was summoned to Schupak’s office, where he was confronted by Adam Deutsch, a private investigator Schupak had hired, who, according to an affidavit, interrogated the dealer about “inconsistencies uncovered by R.A.I. in the prices Salander represented he had paid for certain works of art that he sold to R.A.I.” and evidence that he had sold R.A.I. works and not paid the art investment partnership. In late July and again in early August, Schupak’s investigator came to the gallery to interview employees and later alleged that in the week between those meetings, computer records relating to R.A.I.’s artworks were deleted. In August, the deluge began. On August 7, Myron Kunin sued Salander through his holding company, Curtis Squire, alleging that Curtis Squire had been the victim of “Salander’s shell game” and “gross mismanagement.” On August 29, Roy Lennox sued Salander. On September 24, R.A.I. filed its suit. More complaints would flood the courts in the coming month.  And things would get worse. In early October, Schupak paid a visit to Alexander Acevedo, a New York gallery owner from whom Salander claimed he had bought works for R.A.I. But when Schupak showed Acevedo the invoices from these deals, Acevedo said they were forgeries. Two days later, Schupak had Salander served with a temporary restraining order, forbidding him from selling, transferring, or consigning any artworks. Desperate, Salander tried to settle with both Schupak and Lennox, offering them art, money, jewelry—and, in Lennox’s case, a portion of Salander-O’Reilly’s art library—if they would withdraw their lawsuits. According to Schupak, on the afternoon of Salander’s offer to settle with R.A.I., a truck showed up at the gallery to deliver a Matisse painting and was then loaded with several works owned by R.A.I., which, Schupak alleges, Salander had traded for the Matisse. Where the art was taken is still not clear. In the end, it was Schupak’s attorney who, in an impassioned courtroom plea, persuaded the judge to issue the order that resulted in the shuttering of Salander’s gallery on October 19. Denying that he cheated anyone, insisting, “I’ve always paid my bills,” Salander blamed his fall on Schupak and almost everyone else he’d done business with. In a court filing, Salander claimed that he was the victim of Schupak’s “personal vendetta.” He also lashed out verbally at “people I thought were my friends” and “people who I made a lot of money for”—all of whom had “betrayed” him, “lining up” to take advantage of him when he was weak. “It would have been easy for me to get angry over your taking legal action,” Salander wrote to John McEnroe, who had interned at the gallery in 1993 and is the godfather of one of Salander’s children. “I only feel sad.... You chose to let some asshole liar take advantage of what all people who buy art are terrified of: being taken advantage of,” Salander continued. “You have listened to rumors and innuendo.... You listened to everyone but me.” Today, Larry Salander’s battle with his creditors has grown even more bitter. As the bankruptcy proceedings grind on, as the art is being cataloged, its snarled ownership sorted out by a court-approved specialist, Salander has drawn the ire of his leading creditors through his repeated attempts to remain involved in the gallery’s affairs. Calling his efforts to be hired to help in the gallery’s liquidation “offensive,” “outrageous,” and even “extortionate,” Salander’s creditors, in an angry torrent of legal filings, say he is withholding information about what happened to their art and their money, while he tries to secure a salary. So far, the judge has allowed Salander to keep the 66-acre estate in Millbrook, but the court has forced him to sell the New York townhouse, which went on the market for $25 million.According to his lawyer, John Moscow, Salander claims that as best he knew from the gallery’s financial statements, Salander-O’Reilly was showing a profit as late as October 2006. Whether or not this turns out to be supported by the gallery’s records, which are now in the hands of the district attorney, those close to Salander say that he appears to have genuinely believed right up to the end that the “Masterpieces of Art” exhibition was going to make everything all right. He would be able to pay off all his debts with profits from the show, particularly from the Caravaggio that would be offered for $100 million. “The level of denial was amazing,” says one friend. In fact, the Caravaggio might have sold for only a fraction of that price, if at all, because its attribution was in dispute. Last sold by Sotheby’s in 2001 for $110,000, it was painted, many experts believe, not by Caravaggio but by an artist who was in the master’s circle. As with a so-called Donatello that Salander gave Lennox at one point in an attempt to settle his debt and the purportedly fake Ryders and Whistlers he gave to Saundra Lane, friends are almost certain that Salander did not knowingly trade in fakes or intentionally misattribute masterpieces. He believed that these works were genuine, says Michael Steiner, “because he needed to believe.”  Most people who know Salander well doubt that he set out to cheat anyone. The portrait they paint is of a man who did much good for art and for artists—tirelessly promoting them, giving up his commission on sales of their work when they needed money, lending emotional support—but who was overpowered by ambition and hubris. When he first slipped no one is sure; perhaps it was in early 2004, when he saw how easy it was to delay payments for the Charles Russell he bought from Kenneth Thomson, the press baron. Maybe he was taken in by the justification that the money would go to building a business of great value, expanding the market for the world’s most extraordinary works of art. Then one thing led to another, the debts piled up, and the bills came due, and as he sold paintings he didn’t own and sold others to more than one buyer, he told himself he was just buying time. He would pay everyone off with the proceeds from his October exhibit, a show so magnificent that it would be a testament to the correctness of his vision. Then everyone would understand that something bigger than their art or their money was at stake. In early June, although Resika and Steiner did not yet know it, Salander had signed an agreement giving their work, worth some $2.4 million, to the Benucci gallery in Rome, to settle a debt and to get a Matisse painting that he coveted. Yet in August, Resika recalls, Salander sent him a letter: “I will get all your pictures from Rome,” the dealer wrote. “But God forbid, if I can’t get them back, is it worth our friendship?” In October, unwilling to sue their old friend, Resika and Steiner instead sued the Benucci gallery for the return of their art.It is possible, says the dealer Richard Feigen, that one day Salander may be proved right—that hedge fund managers and the wave of new collectors will indeed start pumping their money into Renaissance art—but that day is probably a long way off. Salander’s mistake, says Feigen, was to invest so heavily in a market that did not yet exist. But many people were seduced by Salander’s business plan, and even sophisticated investors like Schupak did not see its flaws. That may have been in part because Salander was so compelling, so fluent in the languages of art and business, so passionate, and so easy to like despite the damage he has done to so many people. Even among the clients who say they were defrauded, the artists whose work went missing, and the dealers who say that his actions may have hurt their business by heightening distrust of dealers generally, there is a tremendous feeling of “sadness,” as one colleague put it. Salander was, after all, a man who tried, someone who put everything he had on the line for his business and for art. That he discovered his dark side in the process is probably something that many people can relate to. And regret. “I would have given him my art to help him, if he’d only asked,” says Steiner. “He was very good to me; he was my friend, my Icarus.”Related LinksOpening Up the CitadelThe Art of Investing in ArtA Second Look at Bacon's Triptych

  1. Deborah Voigt, 47An American dramatic soprano, Voigt lost 135 pounds after gastric bypass surgery in 2004. She is now singing major Wagner roles. Voigt has no endorsements. 2. Anna Netrebko, 36 The charismatic Russian-born soprano currently helps promote the jewelry company Chopard and BMW's Clean Energy program. Chopard compensates Netrebko both in money and in jewels, some of which she is allowed to keep. The rest are loaned to her for the length of her contract. In the past, she has also lent her name to Vöslauer bottled water and O2, a telecommunications company. 3. Rolando Villazón, 36 Last year, the heartthrob Mexican tenor canceled six months of performances for health reasons, but he was back at work in Vienna in early January. Villazón's standard promotion deal with Rolex nets him a watch, some free publicity, and a nominal fee.4. Renée Fleming, 49 The reigning American lyric soprano, Fleming is one of the few names that can sell out the Met's 3,800 seats. She has a deal with Rolex, for which she received a free watch (as do all Rolex endorsers). She is also paid for her endorsement, though "not a lot," says her manager.Related LinksBig Swinging Ticks: Reviews of New WatchesGoldman Says Gucci Watches Going DownWatch and Learn

  Blame it on a lousy exchange rate.When Trevor Nunn signed on to direct a musical version of Gone With the Windin 2003, the director's hometown of London seemed a logical venue. It would be easier for him to mount the Civil War tale there, since local audiences would be less attached than Americans to the movie version, and it would cost between $4 million and $7 million—about half the Broadway rate. Working with American producer Aldo Scrofani, Nunn projected that he'd need £4.75 million, about two-thirds of which Scrofani planned to raise in U.S. dollars, for a total of $5 million. But as the production entered the planning stages, the pound's value against the dollar began to climb. The exchange rate, which had been hovering since the early 1990s at $1.60 to the pound, rose to $2.11 in November, then settled at around $1.97. With G.W.T.W.set to open on April 22, Scrofani was still scrambling in February to hit his revised funding goal of $6.2 million. "It's like a silly game," says the producer. "If the exchange rate went to $1.94, I would be completely capitalized. At $2, I'm still short."Other developments have also plagued Gone With the Wind.An invasion of expensive American musicals in the past few years has raised audience expectations when it comes to production values. And exchange rate aside, the cost of staging a show in London has skyrocketed since 2003. Today, a production in the West End is just 5 to 10 percent cheaper than on Broadway. "The budget is a work of art," says Scrofani. "It's probably on its 20th draft."His latest revenue-boosting move was to recruit Darius Danesh, the British equivalent of American Idolrunner-up Clay Aiken, for the role of Rhett Butler. While casting Aiken in Spamaloton Broadway last fall hasn't helped that show's weekly grosses, Scrofani hopes that pop singer Danesh will generate media interest and spark ticket sales. "Guess what it will have cost us," Scrofani says. "Nothing." Related LinksGiselle Was RightDollar SpillWhen Volatility Strikes

  Reclaiming ConservatismBy Mickey Edwards(Oxford University Press, 230 pages, $22)Though George W. Bush has yet to leave the White House, conservative partisans are already in a lather over how their movement has fallen from grace. Most of the recent spate of articles and books, such as David Frum's Comeback,focus on how the Republicans can regain the initiative at the polls. Mickey Edwards, a former Oklahoma congressman, takes a different and hugely welcome tack. In Reclaiming Conservatism: How a Great American Political Movement Got Lost—And How It Can Find Its Way Back,Edwards diagnoses the movement's spiritual, as distinct from its political, malaise. In fact, he argues that the urge to win at all costs turned modern conservatism inside out and betrayed its principles.Edwards is not the first to make this charge; Alan Greenspan also remarked in his recent memoir that Republicans had traded "principle for power." But Edwards, a co-founder of the Heritage Foundation who is now at the Woodrow Wilson School at Princeton, delves deeper into what those principles are. Although it has often been observed that the Bush administration departed from conservatism by running up big deficits, Edwards argues that its betrayal was far more comprehensive.At its root, he contends, conservatism is not about mere budget numbers; it is a philosophy espousing prudent and limited government. Its lineage can be traced to the liberal tradition of John Locke, to whom individual liberty was the paramount value and a too-powerful state was a constant threat. Thus, the U.S. Constitution (a profoundly liberal document for its time) established a government whose powers are both limited and divided. The Bush administration, Edwards contends, violated this idea in virtually every area. It abrogated Congress's responsibility for conducting war and other foreign policies. It ran roughshod over individual liberties, notably by approving unauthorized wiretaps and suspending habeas corpus for accused terrorists. It undermined the legislative function with its excessive secrecy, which prevented Congress from giving "informed consent." Bush also attached hundreds of signing statements that limit the scope of duly enacted laws. Equally abhorrent to the Lockean credo is the effort by Bush-era conservatives to impose lifestyle and religious conformity on the rest of the country. Moral intolerance on the right has a lengthy pedigree; indeed, it dates back to the Inquisition. But to Edwards, the Christian right has tainted the small-government, live-and-let-live ideal. He offers Barry Goldwater as modern conservatism's standard-bearer, albeit one who was highly flawed. Unforgivably, Goldwater voted against the Civil Rights Act of 1964. But unlike today's Republicans, he firmly opposed intrusions by the state into people's lives. And through the early '70s, Edwards reminds us, the Republican platform was silent on so-called family values, treating morality as a matter of individual choice. Republicans then were hardly sympathetic to the counterculture, but they didn't attempt to legislate it out of existence, as contemporary conservatives have with antigay amendments and the like. Today, conservative jurists such as Robert Bork inveigh against "unelected" judges for protecting abortion rights. Edwards says tirades of this kind are profoundly mistaken because the Constitution's framers intended judges to be a bulwark against the potential tyranny of majorities. For Edwards, the early Reagan years were the high-water mark of conservative achievement. The test of principle came when he and other Republican legislators refused to toe the line when they disagreed with Reagan, as was the case with taxes and aid to the Nicaraguan contras. (When a staffer suggested that Edwards condemn congressional Democrats for "interfering" in foreign policy, Edwards promised to do so if the aide "would first enlarge a copy of the Constitution … and highlight the sections that state that the president is in charge of foreign policy." There are none.)But during the Reagan era, Republican hard-liners began to denigrate the powers of Congress and advance a more elevated role for the White House. In the '90s, Newt Gingrich imposed a system of strict discipline on House Republicans, and scoring political points trumped matters of conscience. Gingrich was eventually toppled, but the scorched-earth partisanship persisted. Today, the party votes for whatever the president wants, and Republicans on Capitol Hill have utterly forgotten that Congress is a co-equal branch. Edwards is just as scathing in his condemnation of Bush, whom he derisively labels a mini-monarch. When, finally, in 2007, a group of congressional Republicans voiced their concerns about Iraq to the president and had the temerity to discuss this with the press, it was reported that a White House staffer—a staffer!—"rebuked" one of the congressmen, as if he were not a member of an independent branch.Edwards views the neocons who promoted the war in Iraq as similar to the Christian right—a faction that "infiltrated" the conservative movement without absorbing its ideals. The neocons, he argues, trampled on the premise of modest government by launching an ill-conceived war. Edwards ruefully observes that such overreaching would be a lesser sin among liberals, who espouse an activist government. But, he laments, "those who call themselves conservatives have managed to forget whose side they're on."To his further credit, Edwards rejects the rhetoric of conservative extremists who say that "government is the enemy." Edwards rejoins that the U.S. government, with its splendid constitutional protections, should be celebrated instead of demeaned. His eloquence in the service of a forgotten cause is such that liberals and conservatives alike will read this volume with nostalgia and regret. Related LinksWill the Next World Bank President Be Another Bush Crony?Democrats: Don't Blow This OpportunityThe Next President, Revealed

  They haven't won a world series in 100 years, have had only nine winning seasons since 1980, and seem maddeningly prone to bad luck. But the Chicago Cubs are one of the most beloved teams in baseball, and ever since Sam Zell, whose Tribune Co. owns the team, said he'd sell it, boardrooms and locker rooms have buzzed with two questions: Who will buy the team? And for how much? Zell wants to sell the Cubs and Wrigley Field separately and hopes to get $1 billion total from the transactions. However, because the Tribune Co. doesn't break out the team's results in its financial statements, it's hard to know just how much the Cubs are worth. We asked a number of experts, including analysts in the Chicago office of Anderson Economic Group, a financial consultancy, to help us arrive at a figure.Never Mind ProfitsSeveral factors make sticking to the top line the best approach for valuing a baseball team. Because Major League Baseball requires teams to share part of their net local revenue to help make poorer teams more competitive, most teams drum up expenses where they can. A.E.G. estimates the Cubs' 2007 revenues at $200 million, which would include ticket sales, concessions, and advertising. Sports teams generally sell for two to three times their annual revenue. A.E.G. suggests using a multiple of 2.5 for the Cubs, yielding a starting value of $500 million. Base value:$500 millionCould They Be a Contender?How much does a team's win-loss record matter? Analyzing sales of European soccer teams, A.E.G. researcher Ilhan Geckil found that the market value of a team may not be overly affected by any particular year's results. But the value is clearly influenced by whether the team is consistently in the running for championships. In recent years, the Cubs "have changed from being a mascot and a nostalgia trip to being an actual contender," says A.E.G. principal Patrick Anderson. Four of their paltry nine winning seasons since 1980 have come since 2000; last year, they won their division (but were then swept by the Arizona Diamondbacks in the playoffs). The team's recent success is widely attributed to some aggressive moves, including bringing in Lou Piniella as manager, as well as signing outfielder Alfonso Soriano to an eight-year, $136 million contract and pitcher Carlos Zambrano to a five-year, $91.5 million deal. A.E.G. research suggests a team's value can rise by 20 to 30 percent if it's a bona fide contender. Anderson gives the Cubs a 20 percent premium, adding another $100 million to the value.Subtotal:$500 million + $100 million = $600 millionDon't Forget Bill MurrayThe Cubs are an iconic franchise, one that sports banker Sal Galatioto likens to "beachfront property." Peter Keating, a contributing editor at ESPN the Magazine,says, "Owning a sports franchise is like owning the Mona Lisa." No one is ruling out the possibility of a bidding war for the team. Among those thought to be potential buyers are Dallas Mavericks owner Mark Cuban, private equity bigwig John Canning Jr., Phoenix Suns owner Jerry Colangelo, and possibly even actor Bill Murray. University of Michigan professor Rodney Fort thinks the intangibles that come with owning a team, like boosting an owner's personal celebrity, can add anywhere from 17 to 35 percent to the price tag. A.E.G. is more cautious, though, throwing in an extra $6 million for intangibles. Subtotal:$600 million + $6 million = $606 millionThe Bottom Line A rational buyer should offer $606 million. But sports fans—and sports owners—aren't always rational. Bids could approach the $660 million record set in 2002 for the Boston Red Sox.Possible sale price:$650 million or more Related LinksChicago Cubs Sale Process Moving at Slow PaceTribune Company Could Keep Chicago Cubs in 2008Tribune Company Mulls Selling Cubs Package in Parts

  The couple strolling arm in arm into Coach's flagship Madison Avenue store on a winter evening has Lew Frankfort perplexed. He cocks his balding head, like a dog confused by a high-pitched noise. Theirs is just the sort of out-of-kilter pairing that stumps him: It strains the boundaries of his obsessive research into customer behavior and messes with his gut, which he considers pretty damned golden when it comes to knowing who will make a purchase and who will walk out empty-handed. But these are turbulent times in the land of retail, and even Frankfort, 62, the C.E.O. who transformed New York-based Coach from a stolid purveyor of leather goods into one of the hottest companies and highest-earning brands of the past decade, is aware that the rules are changing—and not entirely in his favor. Frankfort has spent 25 years building Coach, but in the past four months, he's watched the stock lose nearly half its value. That's why he's here on a chilly December evening, deep in the retail trenches, trying to peer into his customers' blessedly acquisitive souls, which right now means gauging what might happen with the couple that just walked in. (View slideshow.)The man is tall and Midwestern-beefy, about 45, with scraggly hair beneath a navy baseball cap and no jacket over his polo shirt, despite the December winds. The woman is blond and leggy, her hair a bit too "done" for New York, her coat a Marc Jacobs from a few seasons ago. "Atlanta, maybe?" Frankfort says, struggling to nail their demographic.He tracks them stealthily as they meander through both levels of the airy 10,000-square-foot boutique—the highest-grossing of the company's 277 U.S. locations—examining a $400 green leather hobo bag, a pair of ballet flats made of Coach logo fabric, a scarf in a jaunty pastel plaid. "They'll do it," Frankfort says. But his voice, a Bronx growl, is less confident than usual.Five minutes later, the couple leaves empty-handed. Frankfort is deep in conversation with the store manager, inquiring about the day's receipts, but his eyes dart after them. "They didn't do it," he says to no one in particular as he watches the heavy doors close behind them. "Why didn't they do it?"To be fair, Frankfort isn't the only person asking this $64,000 question; these are truly unhappy days for high-end retailers. With the subprime-mortgage crisis spreading into the general credit markets and consumer confidence foundering, investors are running terrified. Luxury retail and apparel stocks have been among the hardest hit, and forecasts for the rest of the year remain glum. "I doubt we've seen the bottom yet," says Dana Telsey, a onetime top-ranked analyst at Bear Stearnswho now runs her own retail-consulting firm.  Coach may be particularly vulnerable. The company, which spent 15 years as a sluggish subsidiary of Sara Leeuntil it was spun off in 2000, is largely credited with creating the "accessible luxury" category of retail and currently has sales of about $3 billion a year. Since its initial public offering, it has increased its share in the highly fragmented U.S. market for handbags and leather accessories from a tiny sliver to a dominating 22 percent of total sales. (The next closest brand, LVMH's Louis Vuitton, has about half that.) Because of such rapid growth, Coach has come to epitomize many of the operational assumptions about retail that have emerged in the past decade: that the concept of luxury is elastic, that labels can succeed without a diva designer, that brands must control distribution at all costs and stick to narrow markets where they can dominate. But some analysts and investors worry that the very strategies that made Coach's ascent so spectacular may compound its challenges in a declining market. The consensus is that elite brands like Vuitton, Hermès, and Gucci are less susceptible to a recession because their customers will still splurge, regardless of the economy's ebb and flow. European brands are more diversified, producing ready-to-wear clothing that can offset a decline in handbags and accessories. Coach, meanwhile, sells mostly handbags and accessories (and it doesn't do business in Europe, where it would be unlikely to gain traction on a continent that is home to so many high-end fashion houses, so even the strong euro won't help).But it would be foolish to expect Coach—or Frankfort—to go gently into that good night. The brand has spent the past eight years becoming an increasing threat to its centuries-old competition, and its C.E.O. intends to push even deeper into the market, despite the uncooperative economic climate. This intention may go down in the books as a study in hubris, but it may also wind up as a primer on how to run a growth company in a bear market. Considering Coach's short but spectacular life as a publicly held company, it could be argued that if Frankfort can't navigate the current environment, few C.E.O.'s can. "When everything is going your way, you can tell yourself you're a genius," he says over a cocktail in early January. "But you're a fool if you believe it. I have every confidence that we'll continue to be as relevant and strong as ever, that our strategy will win out. But the truth is that for many years the wind was at our back. Now it's in our face."C.E.O.'s aren’t known for acknowledging vulnerability, but one of Frankfort's favorite topics of conversation is his nightmares. A tall, trim man who signs his emails "Peace" and wears closely cut three-piece suits with open-collar shirts, he offers extravagant details of the recurring visions of failure that jolt him awake several nights a week. He even brings the dreams up during meetings with his sales staff (he sees the discussions as motivational). In one nightmare that he's had for years, Frankfort wanders the northern New Jersey house where he and his wife raised their children, confused and frightened by opposing views from two windows: bucolic countryside in one, and the Bronx housing project where he grew up appearing in the other. In a second dream, which he initially had during a New Year's vacation with his family in St. Bart's, he is walking down Madison Avenue on his way to an important meeting when he realizes that he has nothing on his feet but fuzzy blue socks. He bangs on the glass door of Cole Haan—a rising competitor in the handbag arena—begging for shoes, but no one is there. Panic mounts; the feeling of his feet against the pavement is unbearable. He wakes in a sweat. "My shrink says that I'm afraid I'm not prepared," he says. "I guess it isn't hard to figure out why." Until recently, Frankfort's failure dreams were likely regarded by employees as a reminder not to take success for granted. Coach, which is virtually debt-free, had seen 24 consecutive quarters of high-double-digit earnings growth. Since 2004, it has opened 94 new locations, along with dozens of discount outlet stores, all of which sent revenue soaring. The stock, which made its debut in 2000 at a split-adjusted $2 a share, increased 2,000 percent in just over six years. At the 2006 annual meeting, investors rose to their feet and applauded as Frankfort entered the room. That year, his compensation, closely tied to the stock price, was $44.4 million, in the same league as Wall Street giants like Lloyd Blankfeinof Goldman Sachs and John Mackof Morgan Stanley.This year, Frankfort is not likely to receive much of an ovation. Sales in stores at least a year old—considered the most important metric in retail—fell 1.1 percent last quarter, compared with an increase last year of 21 percent. Revenue and earnings growth both slowed, and foot traffic was off. Not long before the fourth-quarter numbers were announced, Goldman Sachs lowered its recommendation from "buy" to "neutral," sending the stock down further, and Wall Street Strategies, an influential independent newsletter, advisedinvestors to limit their exposure. In July, when the company's fiscal year ends, Frankfort's compensation will return from the stratosphere, shrinking to about $3 million. "I'm not a Teflon C.E.O.," he says over breakfast in his office, which is kept at an attention-focusing 55 degrees, even in winter. His shirtsleeves are rolled up, and a pair of reading glasses hangs from a long chain around his neck. "I'm not the sort of person who will cover up his fears by pontificating about things he knows nothing about or who'll act as though nothing bothers him. I don't think my vulnerabilities make me weak. I think, as our results have proven over the years, they make me smarter."Frankfort joined the company in the late 1970s, as head of business development. His career path had been unusual; he earned a degree in political science from Hunter College, an M.B.A. from Columbia, and spent an unfulfilling year at an investment bank. He worked for the next 10 years in Mayor Ed Koch's administration, learning to measure results and streamline bureaucracies by running programs like Head Start. After being passed over for a promotion, Frankfort left and was introduced to Lillian and Miles Cahn, the Greenwich Village couple who founded Coach in 1941 as a manufacturer of men's wallets. Using baseball-glove leather to make sturdy bags, the Cahns, with the help of designer Bonnie Cashin, created a mainstream alternative to the psychedelic styles in vogue during the 1960s.By the time Frankfort arrived in 1979, Cashin had long since departed, and the brand needed to be revived. In 1982, he opened Coach's first retail store, at Madison Avenue and 57th Street. By 1985, revenue had climbed from $6 million to $19 million, and Frankfort had been named president. Later that year, he engineered a sale to Sara Lee, which he chose because it was known for letting its far-flung divisions manage themselves. The Cahns retired and moved to upstate New York, where they ran Coach Farms, a maker of goat cheese that they recently sold.Frankfort's financial rigor—inspired, he says, by practices he learned from Sara Lee—kept Coach growing into the early 1990s, and he was named C.E.O. in 1995. But by the end of the decade, its workmanlike products had been eclipsed by new styles from European designers like Miuccia Prada and Gucci's Tom Ford. The company's annual revenue, which had hit $540 million by 1995, started to drop. "They were changing women's relationships to their handbags," says Frankfort. "I realized that Coach had to be radically transformed to respond." He saw a massive gap in the market between cheap, trend-conscious department-store brands and European designer models that cost upwards of $600. In 1996, Frankfort hired creative director Reed Krakoff, who had established himself at Tommy Hilfiger, to create bags that offered consumers a third choice—handbags that would be sold in beautiful boutiques by well-trained staff at prices of between $250 and $300. The result was not only a new incarnation for Coach but also the birth of the accessible luxury category in the $8 billion high-margin leather-goods industry.Frankfort likes to say that Coach is a blend of "logic and magic," referring to the balance between commercial necessities and creative impulses. But logic usually wins out. Intense quantitative scrutiny has always distinguished the company from its more exclusive competitors, many of which get carried away by a designer’s inspiration and end up with beautiful, impractical products that languish on the shelves. At Coach, every aspect of every product is tested with methods that make traditional focus groups seem quaint. The company conducts nearly 70,000 in-depth interviews a year, often in simulated retail environments—sometimes in stores that are temporarily closed and filled with prototype products, and other times on storelike sets, where the entire shopping experience, beginning with the greeting at the door, is rated. As a result, each step in the retail process is codified, from the dress code of the floor staff to the merchandise displays, which are identical in all stores. When research revealed that customers would visit the stores more frequently if items were introduced faster than the seasonal schedule typical in the fashion business, Frankfort and Krakoff decided they should bring out a significant new group of products every month, despite the added work. As a result, the average Coach customer started visiting every month instead of three times a year. "We leave nothing to chance," Frankfort says. "By the time we release a product, we usually have a good idea how well it will do."From the beginning, Frankfort and Krakoff also dismissed the idea of developing an "it" bag, like the Prada mini-backpack, the Fendi Baguette, or the Balenciaga motorcycle carryall. "In a way, that iconic status is a negative," says Krakoff. "The bags get copied and they're all over the place, and then no one will touch them." Instead, the company concentrates on having four or five product lines at any given time, phasing silhouettes in and out over the course of a few years, with accessories and new colors added to the most successful lines. "Reed has a very commercial sensibility," Frankfort says, "and that's my highest compliment."But as both men admit, it is precisely that sensibility that makes Coach controversial within the fashion industry. European rivals don't bother masking their contempt. Frankfort says that one such rival recently referred to the company as the "McDonald'sof luxury." That attitude may be a response to how Coach has stolen massive market share in North America as well as in Japan—where it overtook Gucci and is now second only to Vuitton—but it is also a visceral reaction to the brand's very DNA. Coach is, in a word, American—not merely in its address but in its intent, with all the allusions the term encompasses. François-Henri Pinault, the C.E.O. of PPR, which owns the Gucci Group, may occasionally peek into the Paris boutiques of his top brands, but it's hard to imagine him blithely buttonholing customers as Frankfort does in his stores on a regular basis, shaking their hands and asking them where they're from and who they're shopping for. Frankfort likes to say that his products are a "good value," words that have probably never passed the lips of his European rivals. He insists that the quality is comparable, that Coach uses leather from the same sources and hardware that is just as sturdy. Krakoff claims that his designs often start trends for which the other brands are later lauded in the fashion press. In Krakoff's mind, only one thing separates Coach from the European luxury brands: Their bags are stitched by artisans in places like Florence, Italy, while Coach assembles its products in low-cost venues like China. To his competitors, that's the point. The essence of Bottega Veneta, whose handbag prices start at $1,500, "is the people in the workshops," Tomas Maier, who designs the line for the Gucci Group, recently said. "They are artists. You can't get that kind of perfection in a place where people are paid $3 a day."Fashion executives also snipe that while Coach may have mastered the semiotics of luxury—from elegant boutiques and attentive salespeople to the brand's chocolate-brown gift boxes and logo of a horse-drawn carriage, suggesting a venerable heritage—the ubiquity of the line renders it a pale imitation. With no apparel on the runway and therefore no cohesive image into which the accessories fit, the brand's detractors say it merely exploits the handbag lust carefully created by the European lines.To such critics, luxury cannot exist without exclusivity. Gucci, for example, has 45 U.S. stores, in places like Beverly Hills; Palm Beach, Florida; and New York's Westchester County. Many of its bags cost more than $1,000, and the least expensive goes for $525. Coach has stores in those upscale sites as well, but in November, when it opened its 270th location, it was in Allentown, Pennsylvania, where the average bag sells for less than $300 and entry-level shoppers can find a key chain for $17.Frankfort is fine with the contrast. "When I dreamed about what Coach might become," he says, "I dreamed it might be the egalitarian Louis Vuitton. Where they were exclusive, we would be accessible. Where they were pricey, we would be affordable. Where they were snooty, we would be friendly. To people on Park Avenue, having a Coach bag may not be an event, but for many people in America, it is something very special that makes them feel they've really accomplished something." Such distinctions among brands are sometimes more a matter of marketing spin than reality. For example, Louis Vuitton racks up the majority of its sales from its least expensive bag (in basic canvas) but tends to soft-pedal that fact, emphasizing instead the label's pricier, more cutting-edge designs. Coach, conversely, has tried to burnish its image by producing a tiny number of expensive items in recent years—such as a $2,300 embroidered hobo bag and an $8,000 purple lizard shopping tote—and showcasing them in only a handful of stores in premium locations. While Coach may have expanded rapidly during the past decade by targeting the aspirational middle class, that growth will prove difficult to sustain in a slowing economy. The company now sees sales rising at its factory outlets and falling at its full-price stores, while sales slumped over Christmas as shoppers traded down to low-end items. The company's current expansion—it plans to have a total of 500 locations in North America by 2013—could prove dicey if economic woes continue. With existing stores in the nation's top 200 markets, Coach is now headed for outlying regions with shakier economies, like Limerick, Pennsylvania, and Witchita, Kansas. Still, Frankfort has not closed any stores and has not scaled back growth plans.Which means Coach must begin a more serious courtship of the truly fashion forward—the girls who wear shoes by Christian Louboutin or Jimmy Choo and wrap themselves in a Balenciaga cardigan or a Dior bolero. These are the young celebrities and socialites who can make or break a brand by slinging a tote at a movie premiere, and in the past decade they have transformed the European luxury brands into cash machines. The influence these celebrities wield can be far more significant than the money they spend, which is a sliver of a company's sales. Their imprimatur can attract the shoppers just below them on the fashion ladder: the army of upper-middle-class suburban women who balk at dropping $2,700 for an Alexander McQueen python clutch but might spend $500 or $600 on a soft leather melon-colored hobo bag to impress the girls at tennis and make the cleaning lady swoon. In taking this approach, of course, Coach will be battling even more fiercely with its higher-priced rivals—along with competitors like Cole Haan and Juicy Couture that now want a piece of the accessible-luxury market. Krakoff, who lives in a $17 million townhouse and collects outré French contemporary furniture, already courts the glamour girls around town and the fashion press. (Coach's huge ad budget, about $47 million in 2007, also helps.) And he's likely to step up his efforts. Krakoff recently collaborated with celebrity stylists Estee Stanley and Cristina Ehrlich—who design their own line, Miss Davenporte, and outfit Penélope Cruz and Eva Mendes—to create a limited edition of 100 Coach bags priced from $498 to $1,200, to be sold only at Ron Herman's boutiques in Los Angeles. The line made its debut in January and soon sold out. In April 2007, Coach announced that it would discontinue bulk sales to corporations that used the products as company gifts, a move that sent the stock down 5 percent overnight but is considered a strong step toward shoring up the brand’s prestige. Frankfort also says that more focus will be placed on the company's boutique on Bleecker Street in Manhattan's West Village, intended as a laboratory for the brand's highest-priced items. Members of the fashion media will likely receive a flurry of press releases about new offerings there, like the $2,100 ostrich version of the Hamptons bag, but shouldn't expect any email alerts about most of the other 40 locations that are scheduled to open, primarily in malls, this year. "They don't need to know we have a store in Peoria," says a top executive. And like all his rivals, Frankfort is looking to the East. The company's next targets are China—Coach opened its 15th store in the country last year—and Russia, where a location debuts this month in Moscow. It already has boutiques in Saudi Arabia, Canada, and Australia, along with more than a dozen other countries, and it hopes to generate 35 percent of its sales outside the U.S. by 2010. But it's worth noting that Coach lags behind its competitors in infiltrating developing markets. For now, at least, those countries contribute little to the company's overall sales. LVMH, by comparison, already gets a quarter of its revenue from outside the mature economies of North America, Europe, and Japan.As he waits for these international efforts to pay off, Frankfort must keep his current investors happy. He has been buying back stock with the large amount of cash the company has on hand and may even institute a dividend—an unusual move for a retailer but one that his more strategic big investors have been lobbying for. "I was meeting with some very smart people who hold big stakes, and they asked me if I would consider a dividend," he says. "When it's come up in the past, we've dismissed it, but this time I asked them how I would do it within the financial structure. They had interesting things to say, so we're looking at it."Frankfort and his management team have also cut costs—generally not a technique used by luxury companies. The company's holiday party for employees' children was held one morning in mid-December, in an empty room in the nondescript loft building the company has occupied since the 1960s. The entertainment was Frankfort's Labradoodle, Benvolio, and a slightly bedraggled Santa. Four boxes of cereal, a stack of plastic bowls, and a carton of milk were set up on a table in the corner. "You could feel the love, right?" Frankfort asked a few days later. "That's what Coach is all about." In his early days at the company, as a 31-year-old with a résumé heavy on public service, Frankfort used to drive by the legendary apartment towers that line Central Park West on his way to work. In September, he moved from his suburban New Jersey home to one of the four fabled bell-tower flats in the Beresford, a 1927 Emery Roth landmark along that route. Frankfort and Bobbie, his wife of 32 years, had purchased the 6,500-square-foot, five-story penthouse, which was listed for $14.5 million, in 2004 and spent more than three years on a radical renovation. The apartment has unobstructed views of the entire island of Manhattan from wraparound terraces and a fully outfitted private gym tucked into the renovated belfry. Not surprisingly, Frankfort oversaw the project himself. He seems simultaneously awed, proud, and slightly embarrassed by it all, not fully comfortable with the trappings of corporate success. He and his wife are active in philanthropy—mostly educational causes—but they don't collect art or make the rounds on the black-tie C.E.O. circuit. He dismisses the mere idea of hobnobbing with other Masters of the Universe. "You've got to remember that this came to me very late," he says. "Not like someone who inherited a company or those guys who make millions on Wall Street before they're 30." We're standing on Broadway, a few blocks from his apartment. He has no coat, but the wind doesn't seem to bother him. "When I was 50, my net worth was $2 million. I figured, Wow, if I can leave my kids an estate worth $10 million someday, that would be fantastic. I didn't spend my life thinking I needed all this. That's not what my goal was."The parallels between Coach's rise and his own are hard to miss. Both had plain, sturdy beginnings and reached unexpected heights against competitors with better pedigrees. And in a slowing economy, both face tests that will prove whether those achievements were mostly a matter of good timing. Frankfort's nightmares of failure may persist—he expects them to—but so will his waking dreams. As the winds howl past us down Broadway, he talks of potential alliances. He's never mentioned it publicly before, but the words tumble out. "We could do a huge strategic acquisition," he says. "People have come to us to look at things like Bally, but that doesn't interest me—too small. Maybe Tiffany or Armani." His dream deal: a merger with Ralph Lauren."The coming together of two quintessentially American superbrands, both up from nothing," he says rhapsodically. "Now wouldn't that be something to say you had been part of?"The suggestion that a recession could put those dreams on hold has not crossed his mind, he insists. "We haven't reached our peak. This is going to be a growth company for the next several years. It may not be as easy now, but we've built an amazing machine."Luxe LessonsHow three upper-tier retailers are dealing with the economy.Cole HaanThe leather-goods brand, owned by Nike,is going upmarket, offering new accessories in exotic skins like python and handbags that cost as much as $2,950. TumiThe luggage company brought in Nautica founder David Chu as creative director. He designed Tumi's first line of handbags, priced as high as $900, and a jewelry line may be in the works. Tiffany & Co.Conversely, Tiffany is opening smaller stores that sell lower-priced items—including jewelry starting at $100 and no engagement rings or expensive stones. —Megan Angelo Related LinksHis FaultWall Street RequiemFashion Breakfast