Money and Power (82 page)

They were both bar mitzvahed the same year. Blankfein celebrated his at the Astorian Manor—“the finest in catering,” it boasted in neon lettering on its façade—in Queens, with a band, dancing, and a smorgasbord. “
He was brilliant as a twelve-year-old boy,” Rabbi Abner German said about Blankfein. “He was a great planner.” To earn some spending money while attending Thomas Jefferson High School in his Brooklyn neighborhood, Blankfein worked as a lifeguard and got himself into better shape, after years of struggling with his weight. He would also regularly hawk hot dogs and soda at Yankee Stadium, in the Bronx. Blankfein would ask Kalb to go work with him, but Kalb would always decline. “And of course I work for the government now”—at the Department of Homeland Security—“and he’s the CEO of Goldman Sachs,” he said.

While Kalb and Blankfein were in high school, in the early 1970s, the neighborhood started to deteriorate economically. Two gangs, the
Black Panthers—not the better-known political organization of the same name—and the
Young Lords, seemed to hold sway at the school. Blankfein would take the bus there in the morning but “if there was a big fuss in front of the building or there was a lot going on or there were policemen,
you stayed on the bus and you took it around again and just went home,” he said. He adapted to his surroundings and learned to be “careful” but was not isolated. “Even in the projects, there were kids around all the time,” he said, and pickup games were easy to come by. “[T]he problem with trying to play football is you ended up with sixteen people on each side,” he said. He was a diligent student and, according to Kalb, the teachers loved him. “
He was very personable, very witty, and very smart,” he said. “So he could interact with them on their level much better than I think most of the rest of us could.”

For his part, Blankfein said he did well in school not because he was “some roaring genius” but because he wanted to succeed, whereas most of his classmates couldn’t have cared less. “It was easy to distinguish yourself but the motivation to distinguish yourself was a lot harder to come by,” he said. He could have graduated at fifteen but stayed for another year. He was the school’s valedictorian, class of 1971. “
You survive at either one of two things,”
Robert Steel, one of Blankfein’s former partners at Goldman, remembered Blankfein told him about Jefferson High; “you were either a great athlete or funny and entertaining, and I decided to go with funny and entertaining.” Harvard recruited at Thomas Jefferson High School, spotted Blankfein, accepted him, and offered up a combination of financial aid and scholarships to make it possible for him to attend. The first time he had ever seen someone wear a tie and jacket—without matching suit pants—was when he went to the Harvard Club, in Manhattan, for his Harvard interview.

At Harvard, he found himself surrounded by a bouillabaisse of legacy students, rich kids, and prepsters, many of whom seemed to know which final clubs to join and how to make the connections that might last a lifetime. Not Blankfein. He was a scholarship student, had to work in the cafeteria, and was shunned by the social clubs. “I was as provincial as you could be, albeit from Brooklyn, the province of Brooklyn,” he said. He remembered that when he read
The Catcher in the Rye,
he didn’t realize Holden Caulfield was in high school because he kept referring to his “prep” school. “I always thought that a prep school was what some people went to
after
high school to prepare themselves for college,” he said.

Blankfein was young and knew it. He settled into a group of friends who shared his modest upbringing. (To this day, many of Blankfein’s closest friends come from his youth.) He seemed oblivious to the social jockeying swirling around him. “I wasn’t defensive about the fact that I was working,” he said. “I always felt that it was the legacy kids that had to justify themselves.”
David Drizzle, the son of a brick-factory worker in Atlanta, was Blankfein’s roommate in Winthrop House, at Harvard. He is now chief
counsel at the
Federal Aviation Administration. “
We were completely unprepared for the world that we entered into,” he said of the two of them. “It wasn’t the money, because at that time in our society, the flaunting of wealth was pretty much looked down on. But there was a worldliness that most of the students had that he and I were just completely lacking. And so we were socially at sea when we arrived there, and I think that’s one of the things that drew us together.” Added another friend from Harvard,
Roy Geronemus, a dermatologist and the director of the Laser & Skin Surgery Center of New York, “
Many of the people who now would beg for an audience with him would have nothing to do with him [then].”

Since Blankfein had been on his high-school swim team, he thought he’d give Harvard’s a try. He said he had no idea the top prospects had been in contact with the coach—who had been the coach of the 1972 Olympic swim team—for years. “There were Olympic swimmers and Olympic medalists on the Harvard team,” he said. “These guys all looked like a different species.” In his tryout, he swam a long-distance event. “I’m not built for speed, if you haven’t noticed, but I’m built for endurance,” he said. The guy he started swimming with in the race was out of the pool and dressed before Blankfein finished. “I got out of the pool, I toweled myself off, I put my jeans right on over the thing, and I walked to the boathouse,” he said. He thought he’d give crew a try, only to meet another crop of perfect physical specimens. But he made a go of it, and he and Drizzle were on freshman crew together.

He may have been equally clueless about his schoolwork. He was a government major but did not do a thesis, as did many others. “To the extent I bloomed, I’m a late bloomer,” Blankfein said. Drizzle said that he and Blankfein used to procrastinate by watching
Star Trek
every night and having long dinners before tackling the books. “
As exam period approached,” Drizzle remembered, “a terror would set in that would focus our attention, and we would basically work all night continuously for several nights and swear that we would do a better job the next semester and then would repeat the same experiential procrastination.” What classmates seemed to recall most often about Blankfein were his sense of humor and his memory. “He’s able to spot irony in ways that I don’t know anyone else who can do it,” Drizzle said. He also could sing, from memory, nearly every sitcom theme song known to man in the 1970s.

Blankfein remembered how—when he was in grade school—someone once referred to him as being a “Philadelphia lawyer” and “it kind of always stuck with me,” he said, and just naturally gravitated to thinking he was going to be a lawyer. He applied to Harvard Law School and was accepted, although he chalked it up to a predilection for accepting
students at the law school from Harvard undergrad. “I don’t know that if they had taken half as many that I would have been in there,” he said. Drizzle said that at Harvard Law, Blankfein buckled down academically, and he “
became more studious,” but not in a way that would land him on the law review or result in any other scholastic honor. Blankfein conceded that while at Harvard, “at some point, I can’t say that I had a disadvantaged background. After a while, I kind of evolved into having an advantaged background.”

In 1978, Blankfein graduated from Harvard Law School and took a job as an associate at
Donovan, Leisure, a small “old-line” law firm founded in 1929, by William J. “Wild Bill” Donovan, who later formed the Office of Strategic Services during
World War II and was known as the father of the CIA. (He was the fellow who authorized Sidney Weinberg’s espionage work in the Soviet Union during World War II.) Donovan, Leisure was so traditional that “tea ladies” served tea and cookies every afternoon on pushcarts. During his four-year stint at Donovan, Leisure, he represented the film industry in a tax dispute with the IRS and spent his time shuttling between Los Angeles and New York. But he was not particularly devoted to the law. In 1980, as part of his Harvard reunion, Blankfein wrote that in his “spare time,” he worked “as a tax lawyer, the only career for a real man of action.” In 2000, he described his responsibilities at Donovan, Leisure as being “
to keep certain large corporations from paying their fair share of taxes.”

He also developed some pretty bad personal habits. Once upon a time, he smoked two to three packs of cigarettes a day. His parents both smoked, and he had started when he was a teenager. But the habit got out of control during law school. “If you have the kind of obsessive personality that I have, you put out a cigarette and you light another cigarette,” he said. He was overweight. He said his weight “had gone way, way higher, steadily, ten pounds a year for five or ten” years after getting out of college. He had a beard to compensate for the hair disappearing from the top of his head. “My beard turned white and I looked at myself and I thought I was my grandfather,” he said. He often dressed ridiculously or ostentatiously.

He also developed a love for recreational gambling in Las Vegas. While working as a lawyer in Hollywood, he and a fellow associate,
Greg Ho, sometimes jumped in a rental car on Friday nights and headed to the beach or the mountains or Sin City for a weekend of blackjack or craps. On one such gambling outing, they left behind a memo for their bosses: “If we don’t show up Monday, it’s because we hit the jackpot,” it read.

By 1981, Blankfein was on partner track at Donovan but then had
what he called a “prelife crisis” and decided to “abandon law” and make the switch, if he could, to investment banking, which seemed more “interesting” than the law. He applied for jobs at
Morgan Stanley,
Dean Witter, and Goldman Sachs. He got no offers. “It wasn’t a nutty thing,” he said, “because here I was a lawyer but I wasn’t even doing finance. I was doing kind of tax and tax litigation on the big corporate level.” Soon thereafter, a headhunter called and asked him if he would be interested in working at an obscure commodities trading firm,
J. Aron & Company, which Goldman had purchased in November 1981. “I didn’t know what it was,” Blankfein said. “There was no reason for them to hire me.” When Blankfein told his then fiancée, Laura Jacobs, that he was leaving law to go to J. Aron, she cried, thinking the comfortable life she was counting on would now be jeopardized. (In an ironic twist, Donovan, Leisure closed its doors a decade ago.) At the end of 1982, Blankfein went to work on the gold bullion sales desk at J. Aron “to trade commodities,” he once wrote.

At that time, J. Aron was a serious stepchild at Goldman. For years, J. Aron had made healthy profits, but in the first year of Goldman’s stewardship, the firm had lost money. The J. Aron employees were forced to ride in a separate elevator in Goldman’s 85 Broad Street headquarters. At one point, Blankfein joined a group of J. Aron employees in wearing red suspenders to make fun of their white-shoe brethren. “
We were street fighters,”
Dennis Suskind, a former J. Aron partner, told
Fortune
in 2008. “We didn’t wear suspenders.” Blankfein was basically clueless about what J. Aron actually did and what he was supposed to do there. “I had trouble with the language, with the speed and the pacing,” he said. “I remember an early review where somebody wanted to know why I never spoke—which if you know me it’s not my biggest problem today—I think I was sort of in shell shock, just because it was a trading floor environment. I’d come from a law firm, [with] secretaries outside [the offices]. It was a bit of a different culture.”

But soon enough, both Blankfein and Goldman started getting serious about J. Aron, especially after Goldman put
Mark Winkelman in charge. He fired underperformers and, at the direction of Robert Rubin, then co-head of Goldman’s fixed-income division, set ambitious new revenue and profitability targets for J. Aron. At first, Winkelman was incredulous that J. Aron could earn even $10 million per year, but that modest target was quickly surpassed; in a few years, the business was producing more than $1 billion in profit per year, a meaningful chunk of Goldman’s overall bottom line. Winkelman took note of Blankfein’s raw intelligence. “
He was clearly bright and energetic, even dynamic and passionate,” Winkelman told Charles Ellis.

As a salesman,
Lloyd Blankfein was a major part of J. Aron’s success. Early on, he reportedly designed a lucrative $100 million trade—then the largest of its kind Goldman had ever handled—for an Islamic client to get around the religion’s rules against receiving interest payments. He became fiercely defensive of Goldman’s mantra of always putting its clients’ interests before its own. Winkelman once recalled how he was impressed watching Blankfein grab a phone out of the hands of a fellow trader when that trader was about to berate a client in the aftermath of a money-losing trade. Blankfein figured that irritating the client was not part of Goldman’s other mantra to be “long-term greedy.” In 1984, Winkelman put Blankfein in charge of six foreign exchange salesmen and then in charge of foreign exchange trading. Rubin advised Winkelman against making that move. “
That’s probably not the right thing to do,” Rubin told him. “We’ve never seen it work to put salespeople in charge of trading in other areas of the firm. Are you pretty sure of your analysis?” Winkelman did it anyway. Blankfein said he looked up to Winkelman. “He was very supportive of me and I was very appreciative of him,” he said.

Blankfein’s career took off as a manager of traders. He seemed to have a sixth sense about when to push them to take more risk and when to take their collective feet off the accelerator. “
It’s not about hanging onto a predisposition,” Blankfein told
Fortune
. “The best traders are not right more than they are wrong. They are quick adjusters. They are better at getting right when they are wrong.” Blankfein, too, was becoming a quick adjuster, not only to the ways of J. Aron but also in his savvy about what it takes to get to the top of a complex firm such as Goldman Sachs. Even though he was not a trader per se—he said he finds it amusing that people often think he was—he did manage a small trading account with results that could be monitored, “
in order to gain credibility with traders,” recalled Jacob Goldfield, a former partner of Blankfein’s. “It’s not like he turned on a button and magically was a brilliant trader, and then got credibility,” he said. “He was taking a risk that he could lose credibility, although maybe he realized that even if he lost money he would get credibility because the credibility of being right isn’t so important. The credibility of knowing what a trader experiences when they lose might even be more valuable, so maybe he figured out that either way it was good to show that he was learning.”