Goldman Sachs StoryThe Bank Job Vanity Fair Dec 09.docx

Goldman Sachs StoryThe Bank Job Vanity Fair Dec 09.docx

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GoldmanSachsStoryTheBankJobVanityFairDec09

January2010

GoldmanSachsC.E.O.LloydBlankfeinandC.O.O.GaryCohn,intheboardroomofGoldman’sheadquarters,inNewYorkCity.Cohn“wasalwaysLloyd’sguy.Imean,always,”saysaformerGoldmantrader.PhotographbyAnnieLeibovitz.

TheBankJob

OneofthebiggestdisconnectsonWallStreettodayisbetweenthewayGoldmanSachsseesitself（they’rethesmartest）andthewayeveryoneelseseesGoldman（they’rethesmartest,greediest,andmostdangerous）.QuestioningC.E.O.LloydBlankfein,C.O.O.GaryCohn,andC.F.O.DavidViniar,amongothers,theauthorexploreshowtheirfirmnavigatedthecollapseofSeptember2008,whyithasalreadysetaside$16.7billionforcompensationthisyear,andwhichlinesit’saccusedofcrossing.

ByBethanyMcLean

January2010

LloydBlankfein—whowasbornpoorintheSouthBronx,puthimselfthroughHarvard,andbecametheC.E.O.ofGoldmanSachsin2006,after24yearsatthefirm—isahistorybuff,alawyer,awordsmith,andsomethingofanarmchairphilosopher.OnaThursdayinOctober—theverydaywhenthefirmannouncedithadmade$8.4billioninprofitssofarthisyear—hespeculateswhetherGoldmanwouldhavesurvivedthefinancialconflagrationinthefallof2008entirelyonitsown,withoutanykindofhelp,implicitorexplicit,fromthegovernment.“Ithoughtwewould,butitwasahellofahigherriskthanIwashappywith,”hesays,sittinginhis30th-floorofficeinGoldman’soldheadquarters,at85BroadStreet,inLowerManhattan.“Asaresultofactionstaken[bythegovernment],wewerebetteroffthanweotherwisewouldhavebeen.Wasitdispositive?

Idon’tknow.Idon’tthinkso…butIdon’tknow.”

Headds,“Ifyouask,inmyheartofhearts,doIthinkwewouldhavefailed…”Hepauses,thenpullsouthistrumpcard:

attheheightofthecrisis,WarrenBuffettagreedtoinvest$5billioninGoldmanSachs.

Buffett,theveneratedNebraskainvestor,isfamouslyreluctanttoputmoneyintoWallStreetfirms.ButhehasalonghistorywithGoldman.Asa10-year-oldhewenttoNewYorkwithhisfather,abrokerinOmaha,andtheystoppedbyGoldmanSachstovisitSidneyWeinberg.AsGoldman’sleaderfrom1930to1969,Weinberghelpedbuildthefirmintothepowerhouseitbecame.“For45minutes,WeinbergtalkedtomeasifIwereagrown-up,”Buffettlikestorecall.“Andonthewayoutheaskedme,‘Whatstockdoyoulike,Warren?

’”InlateryearsBuffettlikedtociteByronTrott,whountilrecentlyworkedinGoldman’sChicagooffice,asoneofthefewinvestmentbankersworthhissalt.

Howdidtheeconomygetintothismess?

Visitourarchive“ChartingtheRoadtoRuin.”PhotographbyFrancesRoberts/TheNewYorkTimes/Redux.

Andso,whenTrottaskedBuffettifhewouldbeinterestedininvestinginGoldmanduringthefreneticdaysafterLehmanBrothers’bankruptcy,Buffettthoughtaboutit,andonTuesday,September23,heandTrotthammeredoutadeal.Inaverybrief—andveryBuffett—callthatafternoonwithBlankfein,Trott,andthenco-presidentJonWinkelried,Buffettsaidhewouldinvest$5billioninexchangeforahefty10percentdividendandrightstobuyadditionalstockoverthenextfiveyearsatapriceof$115ashare.“I’mtakingmygrandkidsouttoDairyQueen,”hetoldtheGoldmanmen.“Callmeandletmeknowwhatyouwanttodo.”

GoldmanacceptedBuffett’stoughterms,andthankstotheinvestmentwasabletoraiseanother$5.75billion,bysellingstocktootherinvestors.Blankfeinsaysthefirmcouldhaveraisedmultiplesofthatbutdidn’tneedmoremoney.AndBuffetthassaidthatwhilenoonecouldeverunderstandthebalancesheetofanyWallStreetfirm,hehasconfidencethatBlankfeinisbothverysmartandveryconservative.Buttherewasanotherreasonheinvested:

“IfIdidn’tthinkthegovernmentwasgoingtoact,Iwouldnotbedoinganythingthisweek,”heexplainedtoCNBC’sBeckyQuick.“Imightbetryingtoundothingsthisweek.”

Blankfeinreferstothisperiodas“thefogofwar,”andyetat85BroadStreetaclearstorylinehasemergedfromalmosteverylevelofthefirm:

itwasGoldman’smuch-celebratedcultureanditssuperiorabilitytomanagerisk,notthehelpinghandofthegovernment,thatgotitthroughtheeventsoffall2008.WhenIaskGaryCohn,Goldman’schiefoperatingofficer,andDavidViniar,thefirm’schieffinancialofficer,if,barringafinancialArmageddon,Goldmanwouldhavesurvivedwithoutallthevariousformsofgovernmentintervention,Viniarsays,“Yes!

”almostbeforeIcanfinishthequestion.“Ithinkwewouldnothavefailed,”saysCohn.“Wehadcash.”

It’shardtofindanyoneoutsidethefirmwhodoesn’tseethisasrevisionisthistory.CombinethatwithfurtherproofofGoldman’sworldview—namely,thehugeamountofmoneyitspeoplewillearnthisyear（$16.7billionhasalreadybeensetasideforcompensation,whichcouldtranslateintoanaverageof$700,000perGoldmanemployee）—andyougetrage.Widespreadrage.“Completecrap,”saysaseniorfinancier,aboutGoldmannotneedingthegovernment’shelp.“Itisabunchofbullshit,”saysaformerGoldmanSachsmanagingdirector.EvenNeelKashkari,aformerGoldmanbanker,whobecameanassistantsecretaryoftheTreasurylastsummer,toldTheNewYorkTimesthat“everysingleWallStreetfirm,despitetheirprotesttoday,everysingleonebenefitedfromouractions.Andwhentheygetupthereandsay,‘Well,wedidn’tneedit,’that’sbull.”

FactorinGoldman’spoliticalconnections—twoofthefirm’spastfourleadershaveservedasTreasurysecretaries,whileanothersourcetellsmeaboutaG-7meetingwherehecounted24to28outof32financeofficialsinattendanceasex-Goldmanmen—andyougetconspiracytheoriesonsteroids.“thisfirmispureevil”isatypicalcommentwheneverastoryaboutGoldmanispostedontheInternet,whichisalmosteverydaynow.

Goldmangetsthatithasaproblem;peopletherearedeeplybotheredbytheoutcry.“Thereisanembattledfeelingaroundtheplace,”sayssomeonewhoknowsthefirmwell.Thisismagnified,perhaps,becausetherehasalwaysbeenawhiffofsanctimonyaboutthefirm.Itnotonlywantstomakemoney;itwantstobeseenasaforceforgood.Blankfein’snowinfamouscommenttoareporterattheLondonSundayTimesthathewasdoing“God’swork”wasmeantasajoke,buttherewasaringofunintentionaltruthtoit.

Goldmanexecutivesbelievetheyhaveapublic-relationsproblem,notasubstantiveone.Whenthefirmhadtarpmoney,therewasabanonusingthecorporateboxatYankeeStadium,andlastfallBlankfeinwentonacharmoffensivethatshowcasedhishumblerootstothepress.

WhatGoldmandoesn’tgetisthatallthemurkaboutthewaysithasbenefitedfrompublicmoneytapsintoadeepfearthathaslongexistedamongthosewhothinktheyknowGoldmanalltoowell.It’safearthat,asonepersonputsit,Goldman’s“skillset”is“walkingbetweentheraindropsoverandoveragainandgettingawaywithit.”ItisafearthatGoldmanhasthegamerigged,evenifnoonecaneverprovehow,notjustbecauseofitspoliticalconnectionsbutalsobecauseofitsimmensesizeandpower.Anditisabeliefthatdespiteallthehappytalkaboutclientsandculture（and,boy,istherealotofthat）theGoldmanoftodaycaresaboutonethingandonethingonly:

makingmoneyforitself.Saysonehigh-levelWallStreetexecutive,“Whydoyouhaveabusiness?

Becauseyouhaveacustomer.Youhavetomakeanappropriateprofit.ButisitpossiblethatGoldmanhaschangedfromafirmthathadcustomerstoacompanythatisjustsmartasshitandmakesashitloadofmoney?

”

AStoriedFirm

Foundedin1869,GoldmanSachs,intheearlydays,wasascrappy,Jewishfirminaworldofwhite-shoeinvestmentbanks（suchasJ.P.Morgan）,whichcontrolledallthevaluablecorporateclients.In1929,Goldmanwasalmostbroughtdownbyacharmingmanager-partnernamedWaddillCatchings,whocreatedwhatwasknownastheGoldmanSachsTradingCorporation—astorytoldindetailinThePartnership,byCharlesEllis.Itwasessentiallyatrustwhichuseddebttobuyothercompanies,whichusedmoredebttobuystillmorecompanies—inotherwords,atickingtimebombofdebt,inmuchthesamewaythatmoderntrustsdesignedtobuymortgagesbecametickingtimebombsofdebt.Whentheinevitablecollapsecame,theresulttarnishedGoldmanfordecades.

Thefirm’srecoverywasinlargepartduetoSidneyWeinberg,whofamouslyjoinedGoldmanasajanitorin1907.WhileWeinbergbuiltthefirm’sbankingbusiness,GusLevy,aTulaneUniversitydropout,developedaformidablesidelinetradingstocksandbonds.In1969hetookoverWeinberg’sjobattheheadofGoldman.Whenhedied,fromastrokein1976,Weinberg’ssonJohnandJohnWhitehead,anIllinois-born,Harvard-educatedWorldWarIIveteran,continuedtotransformGoldmanintoamajorplayerininvestmentbanking.FormuchofGoldman’shistory,thetwoworlds—thegenteel,plush-carpetedoneofbankingandtherough-and-tumbleoneoftrading—existedinakindofbalance.

SeniorpartnerSidneyWeinbergin1957.FromTheNewYorkTimes/Redux.

Asthefirmgrew,itdevelopedauniqueculture,characterizedbyimpossiblyhardwork,loyalty,secrecy,andalackofflashiness.Seniorexecutivesthere—unlikethoseatotherfirms—donothavepalatialofficeswithprivatebathrooms.Inthelate1970s,WhiteheadputwhatarestillGoldman’s14BusinessPrinciplesonpaper.Thefirst:

“Ourclients’interestsalwayscomefirst.”

Atonetime,outsiderscouldseethisprincipleinaction.Intheeraofhostiletakeovers,Goldmanwouldn’tdothem,andthefirmwasthelastonWa