Money and Power (23 page)

In April 1957, Levy succeeded Lewis as the president of the
Federation of Jewish Philanthropies, for a three-year term. The funny thing was that Levy was not the slightest bit religious. He was agnostic, and his wife, Janet, was an atheist. “
My mother never got me involved in anything religious, neither did my father,”
Peter Levy said. “My mother never believed in any kind of
celebration of anything. No Christmas. No Hanukkah, nothing. No Passover, nothing, no God. No bar mitzvahs, no nothing.”

Levy may not have been at all religious, but he was a prodigious fund-raiser, settling upon a technique of doing so through public peer pressure known as “calling the cards.” The idea had originated with Cy Lewis, who decided the best way to raise money from his fellow Jewish bankers was to have a dinner and by going seriatim—out loud—through all the names of the attendees and asking them to make a donation for the year of more than they had
made the year before. The problem was that Lewis did not like performing this public theater, so he got Levy to do it instead. “
Hey you, you,” Levy would stand up and say, with three-by-five note cards in hand, “You gave five thousand dollars last year. You’ve had a really good year this year, Joe. I know because I’ve talked to your partners and I know you’re doing just fantastic. So what can we count on you for this
year?” This went on hour after hour and was surprisingly effective both as entertainment and as fund-raising.

Even though Levy was a trader, not an investment banker, he was elected to numerous boards of directors, including for
Diebold, Inc., the bank vault manufacturer; the
Pacific Uranium Mine Company, in Beverly Hills, California;
Witco Chemical Corporation, Inc.; and the
New York Telephone Company. His board positions were in keeping with Goldman’s philosophy—pioneered by
Weinberg, of course—of seeking positions on the corporate boards as a way to give Goldman a better chance of winning banking and trading business.

In 1960, five of Goldman’s partners, including both Weinberg and Levy, penned articles for the
Christian Science Monitor
about different aspects of the firm’s business. The series, which amounted to free advertising, was highly unusual for both the fact that the newspaper ran the articles, uncritically, and that Goldman would choose to participate at all, thereby revealing a few kernels about its business.
“Marcus Goldman could not have imagined the size, diversity, and leadership his investment banking firm would achieve by 1960 when he came to New York from Philadelphia in 1869 to buy and sell merchants’ bills receivable,” Weinberg wrote in the first installment. He explained that Goldman had more than five hundred employees in 1960, in nine separate U.S. offices—including Albany and Buffalo, of all places—and that the firm had “bought and
sold”
commercial paper worth in excess of $2 billion in 1959, making Goldman the “leading dealer” in the country. He also boasted about the $350 million bond issue for Sears in 1958 and the $637 million IPO for Ford in 1956.

Levy’s article—about Goldman’s over-the-counter trading and arbitrage departments—was the most revealing of all, mostly because one gets the sense he actually wrote it himself. He clearly was proud of the new trading desks—then three years old—and the nearly two thousand private telephone lines that traders could use. But he positively crowed about the firm’s arbitrage department, “by far the most active of any in
the country.” After a quick description of what arbitrage entailed, he then shared two examples of recent profitable arbitrage opportunities, one involving the securities of
AT&T and the other involving the convertible preferred stock of the
Studebaker-Packard Company.

The
Studebaker trade was the more complicated one. In that situation, Levy wrote, Goldman and three other firms formed a syndicate to buy 30,165 shares of the Studebaker convertible preferred stock for $11 million and in the process obtained around 1 million rights to buy Studebaker’s “when issued” common stock at $11 per share. The Goldman syndicate then sold short 600,000 of the “when issued” shares
at $12.75 a share and sold short the balance of 400,000 shares at a higher price, thus locking in around a $2 per share profit, or $2 million. “The arbitrage will be completed in January 1961, when the syndicate will convert its preferred shares and deliver the common against its short position,” Levy wrote. While it would be hard to imagine the typical
Christian Science Monitor
reader comprehending Levy’s trade—let alone
wondering what it was doing in the paper at all—the fact that Goldman could make its share of $2 million in less than a year from that single trade showed why Levy was so important to the firm’s finances. Whereas Weinberg worked
for years on the Ford IPO to make the firm $1 million, Levy was able to make almost twice as much in far less time.

——

I
N THE EARLY
1960s, Levy vastly increased his civic responsibilities. In August 1961, the
B’nai B’rith Foundation named him the chairman of its 1961 fund-raising campaign. A few weeks later, New York governor
Nelson Rockefeller—a close friend of Levy’s—named him a member of a special investigating commission to study public welfare in the state. He was a member of the
board of visitors at
Tulane University and was the treasurer of
Lincoln Center for the Performing Arts, in New York.

In October 1961, the
American Stock Exchange named him chairman of a committee to study and investigate what changes the exchange needed to make following the expulsion of two members—a father and son—from both the exchange and from the securities business after having “willfully violated” securities laws, resulting in “millions of dollars of harm to unsuspecting investors.” Soon enough, the SEC found that
the American Stock Exchange had permitted “manifold and prolonged abuses” of trading rules by its members. As a result, the so-called Levy Committee, composed of a group of Wall Street executives led by Levy, took on added importance. During the five months ending in February 1962, Levy’s committee issued three separate reports about how the rules governing the American Stock Exchange needed to be changed, and the exchange enacted many of them in April 1962.

Also that month, having just completed his three-year term as president of the
Federation of Jewish Philanthropies, Levy was chosen to be the sixteenth president of
Mount Sinai Hospital. He remained involved in a leadership role at Mount Sinai for the rest of his life and oversaw the establishment of the Mount Sinai School of Medicine, the achievement of a university affiliation, the $154 million fund-raising effort for
the medical school building and endowment, and the planning and erection of the
Annenberg Building, which contains the Gustave L. and Janet W. Levy Library, on One Gustave L. Levy Place in New York City.

In May 1963, he was elected a member of the
New York Stock Exchange Board of Governors. (In 1950, Weinberg’s seat on the New York Stock Exchange had been transferred to Levy.) Two years later, Levy was elected vice chairman of the stock exchange, becoming the first nonfloor governor in twenty-five years to take a leadership post. His election stirred conjecture that he would soon become chairman of the “
33-man
group ranking as the most powerful policymaking body on Wall Street.” There was also some concern that the election of an office partner, working off the floor of the exchange as Levy did, would be the
beginning of a shift of power at the exchange away from those people who actually worked on the floor and who had run the exchange for years. But one floor trader told the
Times
about Levy’s appointment, “
To be
perfectly honest about it, the best managerial talent in this business is found not on the trading floors but in the offices. The office partners of the brokerage houses are the ones with the most organizational ability.”

In April 1967, Levy was nominated to become the chairman of the New York Stock Exchange. “He was a very ardent, hardworking businessman,” explained
Walter Frank, his predecessor at the NYSE. “[A] good leader, respected for his ability rather than his school tie or clubs.” Not only was he the first office partner to serve as chairman of the stock exchange in a generation, he was also the first Jewish chairman ever.
“
Gus was very proud” of becoming the first Jewish chairman of the exchange, his friend
Tubby Burnham told Ellis; he added that he did not think Levy was a very good leader. “[H]e couldn’t separate his thinking from what was in his firm’s own interests,” Burnham said. “He was always favoring Goldman Sachs.” In a 1973 interview, though, Levy objected to the suggestion that he had ever
put Goldman’s interest ahead of the NYSE’s interests. “
As long as I am a governor of the stock exchange, I’ve got to speak as a governor of the stock exchange,” he said. “I take the position that I cannot take any other point of view than that adopted by the board. But if I were to speak as a partner of Goldman, Sachs that would be a different matter.” Indeed, he said he found his views and the exchange’s
views to be in sync. “It happens that none of the stock exchange’s points of view so far support anything that would be harmful to Goldman, Sachs or the industry,” he said. “If they did, I guess I would have to resign.” In an oft-repeated pattern on Wall Street, someone in a position to benefit from a conflict of interest averred that being tempted by unethical behavior was impossible, since his own virtue was impeccable.

——

L
EVY WAS PERIPATETIC.
His day began—every day—at 5:30 a.m. with a fifteen-minute jog, and after getting cleaned up and dressed, “
I say my prayers,” he explained once to an interviewer. “I say prayers every day.” (This despite his son’s insistence he was an agnostic.) He never asked for anything in his prayers. “I just read a little book called the
Daily Word
.” His breakfast was usually fruit or a glass of juice, although sometimes he would eat leftovers. “I had crab meat for breakfast this morning,” he once said. After reading the
Times
and the
Wall Street Journal,
he “got downtown” to Goldman’s offices by 7:50 a.m. Once there, “I look over the trading sheets, transaction sheets, any mail that’s left over from
the
last day and finish reading what’s in my briefcase. Then I start making calls—at 8:30, or as soon as I can find somebody in.”

He explained that he had some “early-bird clients” that he often called at home. “They’re used to it by now,” he said. “And then the boys start dribbling in about quarter to nine.” Twice a week—on Tuesday and Thursday—his team came to his office for a meeting about “trends in the bond or the stock market,” he said. Every Monday morning, there was a
Management Committee
meeting. “
[T]hey were kept short, usually only fifteen minutes, and there was minimal discussion, no agenda, no minutes—and no chairs …,”
Charles Ellis wrote. “Levy often took phone calls during the meetings to show how little importance he really gave to the committee.” He also had a pocketful of coins and carried around worry beads, which he would rub constantly. The noise of the coins in
his pocket would give him away when he started walking around the trading floor, looking for answers. Traders braced themselves for the Levy verbal assault.

He also became manic if he thought the firm had missed an arbitrage opportunity or a block trade, which was a business that Lewis and Levy had pioneered, whereby Goldman or Bear Stearns would buy large blocks of stock—as principals—from the selling institutions, with the intention of breaking them up and selling them off to other investors in the market.
Block trading was a great service to Goldman’s clients, of course, because
they could make a large sale in one fell swoop, but it meant that Goldman began taking increasing amounts of principal risk, although they generally made increasing amounts of profit doing so. That—and Levy’s innate competitive spirit—made him nearly impossible to be around if he thought a block trade had been missed or that Goldman had lost a piece of business. “
Gus was always 100% committed,” explained
Bob Menschel, an equity trader at the firm, “and that commitment could unnerve people or it could bring out the best in each person. He was so intent on doing every trade that he could get catatonic if he felt we’d missed one. Gus would be storming around, bemoaning our failures: ‘We’re losing out! We’re not in the market anymore! We’ve lost it! We’re not competitive anymore!’ To build the business, we had to find ways to keep
Gus calm—or at least at bay.… [O]riginating a trade is a lot like fly-fishing: Both take patience and quiet persistence to land the really big ones.”

After Levy had lunch—usually at his desk—he spent the afternoon in “meetings, meetings, meetings” at his various philanthropic or civic organizations. “I normally get home at around 7:00,” he said. “I love three or four drinks in the evening but I never drink during the day, so I am not an alcoholic.” When he drank, though, his lisp and his southern accent
became more pronounced and he would get
silly. He had business meetings “practically every evening,” he said, “every evening, September through May, I have business of one kind or another. I’m either taking out a client—usually to [the] ‘21’ [Club, on West Fifty-second Street]—or going to one of those damn testimonial dinners, most of them philanthropic, where some guy’s being honored or one of the banks is giving a dinner for some prominent citizen. My wife is
very understanding.”

“
I can’t say I ever really got to know him,”
Betty Levy said of her father. “We didn’t spend that much time together. He tried to be a good father, but he didn’t know how.” She said he was either working or playing golf and didn’t have much time for his children. She and Peter used to wish they had more in common with their father. “But we didn’t have much
to talk about,” she said. “It was hard to talk to him.” Every year, he and Cy Lewis, as well as Levy’s friends
Ray Kravis, a highly sought after Tulsa, Oklahoma, oil and gas consultant, and
George Buchanan, another oil executive from Cody, Wyoming, would go off together for golf vacations in Scotland and other places around the world.

Levy expected Goldman’s employees to share his devotion to the firm. When asked about the fact that many at Goldman felt the pressure Levy put on them was too much, he replied, “
Well, we do demand a full day. But I think we’ve got as low a turnover as any place in the Street—certainly in key personnel. We think the secret of the business is not only to be bright but to be consistent. And the only way to be consistent is
to make your calls and do your job and be constantly on the doorstep of your current and prospective customers. But I think we are a pretty happy firm and I’ve never heard of anyone complain of overwork here.” How about Goldman’s high divorce rates? “I don’t know about that,” Levy replied. “But it is true that someone who works here is married to Goldman, Sachs as well as his wife. We have a real spirit. We love to do business. We get
a kick out of it and it’s fun. And while none of us wants to deprive a guy of a family life and a home, we want to make Goldman, Sachs a close second to his wife and family. A very close second.”