Money and Power (50 page)

According to Steve Friedman, the 1987 stock market crash—when the
Dow Jones Industrial Average lost 22.6 percent of its value in one day—did not threaten the firm’s survival, but it once again pointed out the flaws in Goldman’s plumbing and communication systems. “
On the day of the crash, I was walking around the fixed-income floor,” Friedman recalled, “and someone came up to me and said, ‘Do you realize that the firm sent a rather large check’ to the such and such [commodity] exchange in Chicago?” as part of a settlement payment Goldman owed the firm. The idea was that most of the monies paid would come back to Goldman in the next few days—as long as the firm in question did not itself go bankrupt in the interim. Friedman said he hadn’t been aware the payment had been made “because it wasn’t my world”—the payments
part of the business was considered routine—but he determined in the wake of the crash “to make it his world.” “We weren’t threatened,” he said about Goldman’s post-crash future. “But if the Chicago exchange had gone down, everyone would have had a hell of a problem.”

The stock market plunge also tagged Goldman with an after-tax loss of between $17 million and $20 million as a result of having just launched a large underwriting of the shares of
British Petroleum. Following through on an underwriting in the middle of a seismic financial calamity is every investment bank’s worst nightmare, since it undoubtedly means that it will have to make good on its commitment to a client to buy stock at a certain price, even though the underlying market for the shares has collapsed. The BP underwriting was just that disaster, writ large. The four U.S. underwriters on the deal—which amounted to the last of the privatization of the British government shares in the company—were Goldman,
Morgan Stanley, Salomon Brothers, and
Shearson Lehman Brothers, with Goldman being one of two firms selected as global coordinator of the offering. After years of investment in London, BP’s selection of Goldman—over its traditional banker, Morgan Stanley—was a coup for sure.

The market crash, though, was making the coup very expensive indeed. The four American firms were staring down a loss of $330 million on the offering, or $82.5 million each, the largest underwriting loss ever. “By a malign coincidence,” observed
Nigel Lawson, the chancellor of the exchequer, “the world’s largest-ever share sale collided with the world’s most dramatic stock-market crash.” Some at the various underwriting firms, including Goldman, believed that the crash had been an act of God and could provide a much-needed legal escape hatch. But Weinberg would have none of that thinking. As painful as it would be to absorb the loss, he knew Goldman had worked too hard for too long to try to get out of the underwriting using a claim of force majeure. He decided this was the moment to take the pain and prove to the world that Goldman was a firm of honor, a firm that would stand by its commitments. “
We bought it and we own it,” he told his partners. “If we cut and run away on BP, we won’t underwrite a doghouse in London.” Traders in the London office gathered around the internal squawk box to listen as Bob Mnuchin, the head of equity, blew out Goldman’s position in BP. “
It was over very quickly,” explained
David Schwartz, then a Eurobond trader, in London. “It was painful but over very, very quickly. We traded in and out of the security on the secondary market.” And that was that.

On November 20, 1987, a month after the crash, and while the firm was still grappling with the fallout from Freeman’s arrest, Weinberg
named Rubin and Friedman vice chairmen of Goldman, effectively anointing them as his successors, although Weinberg still refused to say so. “
They’re both capable guys,” Weinberg said, “but I’ve made no commitment to anybody. I haven’t named my heir apparent and I never will until I’m ready.” He then added, “I’m going to work till I’m ninety-nine.” In the internal memo distributed throughout the firm, Weinberg reiterated his intention “to remain with the firm as chairman, senior partner and chief executive officer for many years” and wrote that his health was “fine.” Despite the loss from the BP underwriting, Weinberg said 1987 would be “one of the best years” in the firm’s history.

In fact, 1987 did turn out to be the firm’s second-best year in its history. “
Think about it,” David Schwartz said. “The partners can sit around the table. Forty partners sit around a table, and slap high-fives for having come through one of the biggest financial crises the firm had faced. They shut down the trading floor because everything was being processed by paper! They were just completely flooded. They locked the doors. People stayed overnight to process every trade. The firm emerged unscathed and had the second-best year in its history!” As in the more severe crises of 2007 and 2008, Goldman managed to thrive while others on Wall Street went under—and the general public suffered. At the end of 1987, Goldman had 7,500 employees—one-third of whom had MBA degrees—in eighteen offices around the world, six of which were overseas. The firm’s capital stood at $2.3 billion, the sixth largest on Wall Street.

The October crash and Freeman’s troubles weren’t the only issue the firm faced at that time. Within weeks of Freeman’s decision to plead guilty to a single charge of mail fraud, Weinberg found himself having to explain to Goldman’s employees and to the press the bizarre “psychosexual drama” involving partner
Lewis M. Eisenberg, Freeman’s Dartmouth classmate and close friend of
Henry Kravis. Eisenberg was then the head of Goldman’s institutional equity sales division—the block-trading business—and a stone’s throw from being on the
Management Committee.

The golden future evaporated for Eisenberg, then forty-seven and the married father of three children, in August 1989, when two uniformed policemen entered 85 Broad Street and headed to the twenty-ninth floor, looking for him. (What was it about law enforcement officials and Goldman’s twenty-ninth floor?) When they found Eisenberg, they served him with a criminal-harassment complaint filed by his longtime assistant
Kathy Abraham, thirty-seven, with whom Eisenberg was having a seven-year consensual affair that had turned nasty—and very public. It
quickly became another embarrassing situation for Weinberg, Rubin, and Friedman.

Both Abraham and Eisenberg were placed on administrative leave. By Halloween, though, Goldman had fired Abraham. Then, a few days before Thanksgiving, Weinberg sent around a memo to Goldman’s employees saying that Eisenberg had resigned.

The tale was nothing if not sordid, and journalist
Dorothy Rabinowitz recounted it in fine detail in a long article in
New York
magazine. According to Rabinowitz, Abraham was a divorced mother with a young daughter. Her family had left Hungary in the 1950s. She attended a yeshiva in Queens, graduated from Queens College, and settled down with her with new husband in Kew Gardens Hills, a neighborhood with a large Orthodox community. She started working at Goldman Sachs in 1976. Her marriage ended five years later. By that time, she was working for Eisenberg. He was from Chicago, where his family owned a seed-processing company. He had graduated from Dartmouth in 1964 and then received his MBA from Cornell, joining Goldman soon thereafter and moving to Rumson, New Jersey. He became a partner in 1978.

After Abraham’s divorce, Eisenberg “became an increasingly important source of comfort” to her, according to
New York
. Their affair began one evening after work, when Eisenberg asked Abraham to join him and a few work colleagues for a drink. That same night, they had dinner together and Eisenberg drove her home to Queens. Soon thereafter, Eisenberg reportedly announced to Abraham that he wanted her to be his mistress. “Just like that, ‘I want you to be my mistress,’ ” she told Rabinowitz. Tuesday was their meeting night. He arranged to have a suite for them at the Vista International Hotel, in lower Manhattan. “For a while at the beginning, I really didn’t mind too much,” she said. “I mean this was an important person to me. I had feelings for him—
of course
I had feelings for him, at first.”

But Abraham quickly grew tired of the Tuesday routine (to say nothing of the stress of then having to work for Eisenberg the rest of the week). “If I said I didn’t want to meet him, he would become
enraged,
” she said. “And life at the office that day would become intolerable.” She was rapidly losing her self-esteem and her dignity. “I felt humiliated,” she said, “and I
was
humiliated. Going to that hotel, always the
hotel
. And there I would be leaving the office carrying this bag with my overnight things. He would leave for the hotel a half-hour before me. When I got there, I would have to call my mother—this was the night my child stayed with her father—so that my mother wouldn’t call and not find me home. So much
lying
.” She kept kosher and, not surprisingly, the Vista
International did not have the most robust menu selection for her. She usually would order a bagel with lox and eat it as slowly as possible to delay the inevitable.

After dinner, where Eisenberg would talk about himself, they would head upstairs to watch X-rated videos. “I was so bored I would fall asleep,” she said, “and then he would become upset.” According to Abraham, Eisenberg preferred to watch as she masturbated. “That’s why I stopped using birth-control pills,” she said. “Why risk your health when there was no reason for them?” The dismal plot thickened when Eisenberg would often articulate his desire for Abraham to have sex with some of his Goldman partners. Apparently, this was more than just a fantasy. “And he began to nag me about it at work,” she said. “One day when he was doing this, I ran out of his office crying, and then he stopped.” In April 1989, Eisenberg moved with his family to the Upper East Side and demanded to see her more often, including at her house in Queens. “I know there are women that would have been stronger than me,” she said. “But I didn’t have the strength. He understood that very well. Those times I would try to tell him that I didn’t want to meet him—when he would be in a rage at me at the office—I was the one who always ended up having to apologize to him.” She said she wanted to end the affair. “But he wouldn’t,” she said. “He had an obsession, and I was it.”

A more complex and debilitating situation would be hard to fathom, but when, in early 1986, Abraham met Gary Moskowitz at the synagogue in Kew Gardens Hills—and fell in love with him at first sight—things got completely out of control. Like Abraham, Moskowitz was an Orthodox Jew. He was also a New York City police officer, one of the very few religious Jewish officers on the force. After Abraham met Moskowitz, she told Eisenberg the affair was over. Her determination held for two months, until Eisenberg demanded she meet him after a Goldman party at the Plaza Hotel, where he had rented a room. She refused and instead went out with Moskowitz that night. “He was furious,” she said.

At the office the next day, Eisenberg told her he had sat in a parked car in front of her house so that he could see who she was coming home with. “That’s when the grilling really started,” she said. “Then he found out Gary’s name and who he was. Lew would call me up on the weekends and ask, ‘Are you seeing Gary?’ I actually used to make up the names of friends I was supposed to be seeing.” On the weekends, Eisenberg would sometimes track her movements. One Monday morning, he asked her how her weekend had been and she lied and said she had visited her mother. “No, you didn’t,” he said to her. “I saw your car parked in front of Gary’s house. The two of you walked out of his apartment at 1:40 in the
afternoon.” Eisenberg was right; they had come out of Moskowitz’s apartment at that time.

During the summer of 1989, Moskowitz figured out who Eisenberg was, called his home, and left a message with his wife. “The call alarmed Eisenberg,” Rabinowitz wrote. He arranged to meet with Moskowitz on June 28 at a diner in Flushing. He drove up in a limousine. “In that neighborhood in Queens, we don’t see too many stretch limos,” Moskowitz said. The conversation did not go well. “He was worried about his family, his job,” said Rabinowitz, “but he also kept telling me, ‘Kathy and I have a beautiful relationship.’ Then he tells me, ‘You’re just a peon cop—what do you know about anything?’ Do you hear that?
A peon cop
.” After this meeting, the situation deteriorated further, with much personal acrimony, implied threats, traps set, and promises made and broken. It was very ugly.

In mid-August 1989, Abraham filed her criminal-harassment complaint against Eisenberg. She charged Eisenberg with threatening “to fire her if she did not submit to his sexual advances” and that he tried to “annoy and alarm” her by “staring at her, walking around her desk, [and] going into her garbage for the past three years.” Moskowitz also filed a complaint against Eisenberg, claiming he had harassed him, too. “If you go to the authorities, I will have to protect myself by making charges against you …,” Moskowitz claimed Eisenberg told him. “I’m going to have you taken care of … even cops have accidents.” But Manhattan district attorney
Robert Morgenthau declined to prosecute the cases against Eisenberg.

After filing her complaint, though, Abraham went to see Rubin, and according to Rabinowitz, “told him everything.” Then, shortly thereafter, Eisenberg went to see Rubin and confessed to him the relationship he was having with Abraham. A day or so later, according to Abraham, Rubin told her Goldman was prepared to offer her a generous settlement. But she said she told Rubin she didn’t want the settlement; she wanted the job she had been angling for as a trader-in-training at Goldman that Eisenberg had arranged for her to have.

But just as she was to start her training as a trader, the
Wall Street Letter,
an industry newsletter, got a tip about the police visit to see Eisenberg at Goldman and wrote a story. The next day, the
New York Post
’s Page Six gossip column picked up the
Wall Street Letter
story. “Cops have come calling at the grand old Wall Street investment house of Goldman Sachs,” Page Six reported. “Office workers at the firm—which saw one of its partners arrested for insider trading in 1987—swiveled their heads recently when uniformed police notified partner Lewis Eisenberg
that his former assistant was charging him with sexual harassment.” Moskowitz told the paper, “This guy is a sick man. He has an obsession for this girl. I just want him to stay away from Kathy. I don’t want him to show up at either of our houses any more or I’m going to have him locked up. He did horrible things. I want him off the streets so he can’t hurt anyone else.” As to Eisenberg filing a report with the internal affairs department, Moskowitz said, “He’s run a vicious campaign to ruin me. He has a lot of money to do what he wants. I’m not going to stand for it. Just because I’m a cop, I’m not a second-class citizen.”