Lloyd Blankfein had long ago perfected an inscrutable demeanor. The Goldman Sachs chief was seldom in the news, and he rarely spoke to the media. He didn’t really need to. Goldman was at the top of the pile, not scrambling for credibility or attention. It was a gold chip firm in a gold chip industry. Likewise, Blankfein was friendly but opaque when it came to sharing his views. Although he was known to be quick witted, he mostly kept his humor and his analysis to his inner circle.
In many respects, Goldman’s reputation was impeccable; its success the envy of its peers. However, with the financial industry under the microscope, the media—egged on by a sometimes hysterical, conspiracy-theory-driven blogosphere—was intent on uncovering alleged special treatment afforded Goldman by the Feds. The implication was that there were old-boy ties between the 140-year-old firm and its alumni, many of whom went into government and public service. Some said that there was a revolving door between the halls of power at Goldman and the halls of power in Washington. An October 17, 2008, New York Times article, titled “The Guys From ‘Government Sachs,’” created some discomfort in the ranks.
Even a partial alumni list of the firm was striking. Robert Rubin and Hank Paulson were both chairmen of Goldman before becoming secretary of the Treasury, as was Jon Corzine, prior to serving in the U.S. Senate and as governor of New Jersey. Stephen Friedman was a Goldman chief before becoming chairman of the New York Fed—a position he was forced to resign over purchase of Goldman stock. Bob Steel was at Goldman when he was recruited by Paulson to the Treasury. Paulson also called on other Goldman alumni at important moments during the financial crisis. He put Neel Kashkari, a thirty-five-year-old up-and-comer at the firm, in charge of managing TARP, and he pulled in Goldman director Ed Liddy to replace Bob Willumstad at AIG. Paulson himself had been recommended for the Treasury by White House chief of staff and Goldman alumnus Josh Bolten.
The Obama administration continued the trend. Goldman Sachs alumni include Bob Hormats, Hillary Clinton’s economic adviser; Gary Gensler, head of the Commodities Futures Trading Commission; and Mark Patterson, Geithner’s deputy in charge of overseeing TARP. In addition, the head of the NYSE, Duncan Niederauer, and the head of the New York Federal Reserve, William Dudley, both came from Goldman.
Finding Goldman alumni was like playing a game of Six Degrees of Separation. The links were amazing, although many critics questioned whether they were proper. Should so many alumni of Goldman be making decisions about whom to save and whom to bail out at the height of the financial crisis? Much of the grumbling about Goldman centered on the bailout of AIG. Goldman was a major counterparty of AIG’s, and had the Feds not rushed to the rescue, Goldman would have taken a major hit. Instead, it would end up being paid 100 cents on the dollar for its AIG holdings.
The story of Goldman Sachs’ connections went beyond who was in its family tree. There was also a question of family values. Granted, powerful companies often take extra heat from the eternal critics who contend that power always corrupts. But speak to certain Goldmanites and you hear a lot of chutzpah—including Blankfein’s unfortunate comment to a reporter that he was just a banker “doing God’s work.” If so, God’s pay scale was among the highest on earth. Hundreds of Goldman executives and traders received bonuses topping $1 million during the height of the crisis in 2008, and working there made Blankfein one of the richest men in the world. He quipped to the Times of London in 2009, “I know I could slit my wrists and people would cheer.”
Yet in many ways Blankfein represented the very best of the American dream. Raised in New York City, the son of a postal clerk, he was a lower-middle-class kid whose hard work and ambition landed him at Harvard and then at Harvard Law School. He joined Goldman Sachs in 1981, rising steadily up the ranks. When Paulson left the firm to become Treasury secretary, Blankfein stepped into the position of chairman and CEO.
Blankfein was a devoted husband and father of three, who shunned the limelight and the New York party circuit. He was poorly cast as a capitalist villain, and people close to him reported that he was stunned and angry when the SEC filed civil fraud charges against the firm on April 16, 2010, alleging that Goldman misled investors on a particular deal. The incident in question occurred some time before the height of the financial crisis, back in early 2007, when there were just beginning to be signs of stress. Goldman allowed John Paulson’s firm—the hedge fund known for shorting the housing market—structure a deal called Abacus 2007-ACI, without notifying the primary investor that Paulson was involved in the selection. Would the buyer have invested in Abacus had it known the person on the other side of the trade actually selected the securities to bet against?
The last time Goldman Sachs made such a splash in the gossip columns was back in 1999, when Corzine, who had made Paulson his co-CEO, was dispatched in a bloodless coup spearheaded by Paulson and Chief Financial Officer John Thain. Paulson and Corzine had different styles and different visions for the white-shoe firm. In the decade to come, Goldman Sachs would reap phenomenal rewards and accumulate assets of more than $1 trillion. Now it was in the spotlight with an ugly word attached to its name—fraud. People may have envied Goldman, but truth be told, its reputation was solid, which helped it continue to thrive even during the financial crisis. The charges were coming against a firm that many people would say was the least likely to find itself in this position.
The news about Goldman Sachs came just as I was in the final stages of completing this book. Breaking
