Money and Power (83 page)

In 1988, along with Bob Steel and some other future Goldman leaders—former co-presidents
John Thornton and
John Thain, billionaire investor
J. Christopher Flowers, hedge-fund manager
Frank Brosens, and
Gary Gensler, now head of the Commodity Futures Trading
Commission—Blankfein was one of thirty-six men (not a single woman) named general partners. His elbows could sometimes be very sharp. “[He had] plenty of energy for the turf battles, and yet he was very good substantively,” recalled Goldfield. “One imagines that usually if you’re not good substantively, you’ve got a lot of energy for turf battles but he was both, which is interesting.” He said Blankfein would sometimes send his loyal soldiers to fight his turf battles rather than fight them himself, and this could be especially unpleasant and was seen as cowardly.

Goldfield also recalled that Blankfein was endowed with an unusual combination of humility and self-awareness, two traits not normally associated with hugely successful Wall Street executives. He remembered speaking once with Blankfein about whether other women ever tempted him. “He said, ‘I’m tempted, I understand [the temptation], and I wouldn’t want to blow this up’ ”—his marriage—“ ‘so it’s a tradeoff.’ ” When they spoke about the possibility of Blankfein dying young, as his parents had, Blankfein “lamented this possibility because he would fail to see the outcome of the experiment that raising his children is,” he recalled.

Blankfein decided to get to work on both his body and his career. He lost weight on the Atkins diet, started using an elliptical exercise machine, started playing “low quality” squash and golf, and made sure to go swimming whenever he got the chance. “One day I just decided that I’m just losing control,” he said. “I’m just losing it here and so then I got [my weight] down.” He started dressing more like a banker and less like a renegade. At his wife’s continuous urging, he also stopped smoking. “That would have been very, very bad if I hadn’t stopped, and the person who got me to stop was Laura,” he said.

In 1994, in the wake of Winkelman’s departure from Goldman after being passed over for the top job in favor of Corzine, Blankfein was selected to run J. Aron. In 1995, he chided his fellow partners for being too risk averse. He left a conference room where they were meeting to discuss placing a multimillion-dollar bet with the firm’s money that the dollar would rise against the yen. His stunt worked. Blankfein’s bet paid off and he impressed his partners as a prudent risk taker. In 1997, Goldman appointed Blankfein co-head of a merged business unit of J. Aron and the firm’s existing fixed-income business, together known as FICC. He ran the division from London in 1998 and 1999. Goldman went public in 1999, which caused enough internal combustion that a number of potential rivals to Blankfein left the firm. Simply put, at the right moment, he was in charge of Goldman’s profit engine and propelled the firm to greater and greater heights and himself to the top job.

Curiously, he cannot pinpoint the moment when his career path
switched to a higher trajectory, or when, as he said, he had his “Rosebud moment from the time they took the sled away from me in the snow.” He said the key to his success at Goldman simply was his ability to adapt to new situations, new circumstances, and new people but not in a Zelig-type invisible way but rather in a forceful, quasi-diplomatic way. “I always had a lot of confidence in my ability to gauge a situation and people and try to understand them and what they were saying and what their context was,” he said. “I never was really burdened by too much conviction about what I was thinking.… I can shed my own prejudices very quickly and be open-minded.… I assume that if something worked some way for a generation, I don’t think it just randomly got that way and stuck. I think there’s a basis for it. Now the context may have shifted and they may be wrong now and you may have to change it, but I don’t assume everybody’s a dope.”

He also had a talent for making money—“commerciality” was the word he coined—and in as Darwinian and profit-driven an environment as Wall Street, and at Goldman in particular, this quality did not go unnoticed at the top levels of the firm. Blankfein preferred not to dwell, though, on his ability to make money, although a number of his former partners believe he was obsessed about his own compensation and making as much money as he possibly could—partly haunted by the memory of his parents’ financial struggles.

He certainly lived well. In 2008, he paid $26 million in cash for a duplex apartment, facing Central Park, in
Robert A. M. Stern’s tony building at 15 Central Park West, which is partially owned by a Goldman Sachs investment fund. “Wall Street’s new power address,” the
Times
called the Stern building. He bought the new apartment before selling his old five-bedroom duplex at 941 Park Avenue, which eventually he did for $12.15 million in August 2010, according to public records. He also agreed to spend $41 million in 2007 on Old Trees, a thirteen-bedroom “cottage” in Southampton, New York, on the Atlantic Ocean. But after word of the deal was leaked to the press, Blankfein backed out—it was too much of a public display of conspicuous consumption. He and his family decided to keep their existing home in Sagaponack, which he had listed for sale in 2007 at just under $14 million. The Blankfeins received some unwanted publicity in the summer of 2009, when the day after Blankfein left a voice mail message for Goldman’s employees urging them “to avoid making big-ticket, high-profile purchases,” his wife and the wife of another senior Goldman executive were described in the
New York Post
as being disruptive and “causing a huge scene” at a big-ticket charity shopping event in the Hamptons.

By then, Blankfein had impressed Goldman’s board of directors,
and especially Paulson, with his tenacity, his ambition, and his hands-on management of the business. “Hank became increasingly concerned about whether Thornton or Thain”—the co-presidents of Goldman before Blankfein—“would assume responsibility for the business units and show they could run things,” said one former Goldman partner. “Lloyd showed a willingness to assume responsibility.” Paulson and Blankfein became an effective team, with Paulson globe-trotting and hobnobbing with clients and Blankfein assuming more and more operational control of the firm. Year after year, the firm was making billions in profits. “Lloyd made everything run,” said this former partner.

In an interview in his heavily book-filled office at the
Johns Hopkins School of Advanced International Studies, in Washington, where he worked after his stint as treasury secretary, Paulson discussed the reasons he chose Blankfein to succeed him. “What I’d come to see in him—which I admired greatly—was he ate, slept, drank the business and the markets,” the former treasury secretary said. “He loved them. He was innately quick and very intelligent. But that can be overestimated because there are plenty of really, really bright guys that aren’t good guys or get you in trouble or don’t have good judgment. The thing that hit me about him was sort of a positive insecurity. There was no sense of entitlement. There was no arrogance to Lloyd. He was always conscious of his weaknesses and wanted to get better. So you look at certain people when they’ve been around for fifteen or twenty years and get to a level of seniority, their weaknesses become exaggerated either because they become ingrained or because they’re just more exposed at a more senior level, and so people need to compensate for their weaknesses. Good leaders need the self-awareness to recognize their weaknesses and the ability to grow. And I watched Lloyd just get better and better.”

He recalled once again how after the Goldman IPO—and when Paulson was the firm’s undisputed leader—the hypothetical question that former senior partner
Steve Friedman asked him about the future leadership of the firm. “He said, ‘If you owned Goldman Sachs lock, stock, and barrel, if it wasn’t a public company, you just owned it, who would you have running it if you had all your money in it?’ and I said, ‘Well, this is not the only test, Steve, if you had all your money in it.’ He said, ‘Yeah, but if you did?’ ” At this particular moment in the firm’s history Thornton and Thain were the firm’s two co-presidents and heirs apparent. Blankfein was below them in the hierarchy and not well known outside the firm. Once Paulson understood fully Friedman’s question, he replied, “I wouldn’t even think about it—it would be Lloyd Blankfein.”

I
t is exceedingly difficult to get a job at Goldman Sachs. The interviewing process can be a brutal endurance test, often spanning many months and as many as thirty individual interviews. Part of the challenge for the best and the brightest the world over who aspire to work at the firm is to withstand the lengthy, seemingly random process in the first place, while keeping their ambitions and ego in check. Goldman likes team players,
literally—with many of those offered jobs having played competitive sports in high school and college—or people who are perceived to be able to subordinate their individual ambitions for the betterment of the firm as a whole. It is no place for prima donnas, or so they would have one believe. But it is a firm stuffed to the gills with high-achieving alpha males, or “aleph males,” as one former Goldman professional described them, a reference to the
firm’s Jewish heritage. “It was—of course—a very, very intense place,” he said, comparing it to other Wall Street firms he had worked at previously. “You got the feeling that every high-school valedictorian was there. In whatever role, you had someone who had been the star elsewhere. They were trying their very hardest to prove how well they could perform, whether they were a lower-level person or an upper-level person. There was a real sort
of humming feeling of people striving. Then, there’s also an incredible stress put on doing everything with group consensus. And it takes a good deal of getting used to because one of the reasons I think that Goldman is so good is because it’s like this giant hive mind where you have all these smart people and they’re also all talking to each other. Everyone is very quickly focusing on the same issue and getting the best result they can think of all together and
then they go on to the next issue and the next issue. So it’s the advantages of having a lot of smart people focus on something without the usual disadvantage of it getting bogged down. In order to function well there, you have to put a lot of attention on posting people on what’s going on and getting people to sign off. And
it’s just a very different style of working. It was very, very different. And so it’s very, very
intense.”

Unlike at most other Wall Street firms, pedigree seems to be of little moment at Goldman Sachs. While it is certainly true that the firm has its pick—year after year—of the smartest graduates of the nation’s best colleges and universities as well as of its top graduate schools, the firm’s hiring process seems to revolve largely around merit. Whereas other firms—such as Lazard or
Morgan Stanley—prized the
hiring of scions of the rich and famous politicians or CEOs and sought them out, Goldman seems to be swayed less by what your last name is and more by how bright you are. Goldman’s obsession with finding the smartest people in any room became such that even Bill Gates noticed. He once remarked that Microsoft’s biggest competitor was not another software company but rather Goldman Sachs. “
It’s all about IQ,” Gates said.
“You win with IQ. Our only competition for IQ is the top investment banks.”

Fortunately for Goldman, the firm hired, nurtured, and promoted
Josh Birnbaum, whose insights and business acumen played a huge role in Goldman’s astonishing Houdini act during the cataclysmic market collapse that began in 2007. Raised for a time in Paris with his two sisters, he eventually moved with his family to Oakland, California, where his father wrote software for a computer company. Birnbaum attended the Head-Royce School, a private
day school in Oakland, from which he graduated in 1990. His interest in finance was encouraged by an uncle—whom he greatly admired—and who one day showed his nephew the
Wall Street Journal
’s options table. His fascination with options and how much money potentially could be made from them grew out of that moment. He was twelve years old. He had his own trading account at
Charles Schwab, and although he said he
does not know “what the audited returns” in it were, he was “very focused on finance from a young age.”

To further pursue that interest after high school, Birnbaum headed to the University of Pennsylvania’s Wharton School, where he majored in finance, as did most of his classmates, and dreamed of getting a job on Wall Street. After his sophomore year at Wharton, he wanted to get an internship in finance but knew that since he was only in his second year, his appeal to Wall Street would be limited because it would be two years before he was able to start working
full-time. But Birnbaum was crafty; he had sufficient credits under his belt to claim to be a junior. So he headed to the school’s placement office and started scanning into a computer the piles of business cards that Wall Street executives had left there during the job interview process. He then sent out hundreds of letters
trying to convey the idea each time that he had always wanted to work at that particular firm.

He received many responses, but the two that were the most intriguing were from J.P. Morgan and Goldman Sachs. The Goldman letter came from the mortgage department, which at the time was run by Mike Mortara, the transfer from Salomon Brothers. Mortara had worked with the legendary
Lew Ranieri—the godfather of the securitization business on Wall Street, where mortgages and other cash-flow streams, such as
credit-card
receivables and
auto-loan receivables, are packaged up into securities and sold off to investors. Birnbaum’s first interview at Goldman was with
Gary Gensler, who was then a partner and a trader in the mortgage department, trading collateralized mortgage obligations, which were known around Wall Street as
CMOs. According to an internal Goldman “mortgage primer” document, CMOs “are created by
pooling” various kinds of home or commercial mortgages “and splitting their cashflows into a number of tranches.”