grew from a modest, privately owned investment banking firm focused on the United States—with fewer than a thousand employees, and less than $100 million in pretax profits—to the most prestigious publicly traded investment bank in the world. The firm boasted offices all over the globe, more than twenty-five thousand employees, almost $10 billion in pretax profits, a stock price of almost $200 per share, and an equity market valuation of close to $100 billion.
I had left Goldman in 2004 after a twelve-year career, a few months after my Goldman IPO stock grant had passed the five-year required vesting period. I had moved on to become a trading and investment banking client of Goldman’s. I went to John L.’s memorial service out of respect for a man I had known and admired—a Wall Street legend, although one would never have guessed that from his demeanor. I also wanted to support John S., whom I considered (and still consider) a mentor and a friend. (See appendix F for an annotated list of key Goldman partners over the years.)
I first met John L. in 1992, when I was a Goldman financial analyst six months out of college. The legend of Sidney and John L. Weinberg was one of the things that had attracted me to Goldman, and I was excited at the prospect of meeting him. I identified with John L. because we were both sons of parents who came from humble beginnings. I figured if John L.’s father could start by emptying spittoons and end up running Goldman, then anything was possible for me, the son of Greek immigrants. My father had started as a busboy at the Drake Hotel in Chicago, and my mother worked at a Zenith TV assembly factory.
I met John L. early in my time at Goldman, as a financial analyst in the M&A department, when I interviewed him as part of a work assignment. I was asked to make a video on the history of the M&A department to be shown at an off-site department outing. Goldman was enthusiastic about documenting and respecting its history and holding off-site outings to promote bonding among the employees. In the interview John L. could not have been more jovial and humble. At the time, Goldman had less than $1.5 billion in pretax profits, and fewer than three thousand employees. Steve Friedman and Bob Rubin, co-senior partners, had embarked on an aggressive growth plan—growing proprietary trading and principal investing, expanding internationally, and spreading into new businesses.
John L. told me that his father had once fired him in the 1950s for what seemed a minor offense—without the proper approvals, he had committed a small amount of the firm’s capital to help get a deal done for a client—and how, lesson learned, he had groveled to get his job back. He told me about sharing a squash court as an office with John Whitehead—the second of the two Johns—because there was no other space for them. He talked about integrity and business principles and explained how his military experiences had helped him at Goldman and in life. He told me how proud he was of his family, including his young grandchildren. He took a strong interest in my own family, and I was struck by his asking me to share my father’s stories about his Greek military experiences. John L. asked why I volunteered for Guardian Angels safety patrols and also wanted to know how I had managed to play two varsity sports at the University of Chicago while simultaneously performing community service. He revealed that his two children also played college tennis. Sharing that he liked Chicago, where I was born, he advised me to work with the head of the Chicago office, Hank Paulson, because I would learn a lot from him and it would allow me to fly from New York to see more of my family, something he emphasized was important.
I didn’t see John L. again until 1994, after Goldman had lost hundreds of millions of dollars betting the wrong way on interest rates as the Fed unexpectedly raised them. There were rumors that partners’ capital accounts in the firm, representing their decades of hard work, were down over 50 percent in a matter of months. And to make matters worse, because Goldman was structured as a partnership, the partners’ liability was not limited to their capital in the firm; their entire net worth was on the line. With the firm reeling from the losses, Steve Friedman, now sole senior partner because Rubin had left to serve in the Clinton administration, abruptly resigned. Friedman cited serious heart palpitations as the reason for his unexpected retirement. John L. viewed Friedman as a “yellowbellied coward” and his departure as tantamount to “abandoning his post and troops in combat,” regardless of Friedman’s stated reason for leaving.1
Despite John L.’s best efforts to persuade them to stay, almost one-third of the partners retired within months. Their retirements would give their capital in the firm preferential treatment over that of the general partners who stayed—and would allow the retirees to begin withdrawing their capital. Many loyal employees were being laid off to cut expenses.
When John L. walked onto the M&A department’s twenty-third floor at 85 Broad Street that day in 1994 to calm the troops, the atmosphere was tense. The firm seemed in jeopardy. Before he spoke, I genuinely was worried that Goldman might fold. Drexel Burnham Lambert had filed for bankruptcy a few years earlier—why not Goldman? John L.’s encouraging words meant a great deal to my colleagues and me, as did the fact that he delivered them in person. The amazing thing is that he remembered me from my video project and, in a grandfatherly way, patted me on the shoulder as he said hello.
Later, I spent time with John L. socially. We belonged to the same club in the Bahamas, and I often saw him there. Although many of the members own large, impressive vacation homes, John L. did not. He rented a cottage. He told me once how many cots he had managed to fit into a bedroom when his kids were younger—proud of how much money he saved by not having to rent larger quarters. He read voraciously, and I always remembered how much he loved to eat coleslaw with his lunch. We exchanged books, and once he even wrote a letter of recommendation for me.
One night when he was in his seventies, I had the pleasure of having dinner with him, his wife, John S., and a few others at La Grenouille, one of New York’s best restaurants. John L. was in failing health, so he didn’t go out often. The place was filled with prominent CEOs and other VIPs, and, as they were leaving, each stopped at our table to say hello to John L., although many had not seen him in years. He greeted each of them by name and asked about their families, deflecting any praise about himself or Goldman.
In 2004, after twelve years, I left Goldman to help start an asset management firm. But when I saw John S. after the funeral service, he offered to help me in any way he could, just as his father had done, and showed an interest in how my family was doing, even at a difficult time for him and his own family.
Yet something struck me at the service. It caused me to stop and reflect on the cultural and organizational changes I’d witnessed, first as an employee and later as a client. The service brought them into sharp focus.
It felt strange, almost surreal, to be reflecting on change. In that fall of 2006, Goldman was near the height of its earning power and prestige. But I felt that, in some weird way, I was mourning not only the loss of the man who had embodied Goldman’s values and business principles, but also the change of the firm’s culture, which had been built on those values.2
Chapter 1
What Happened
GOLDMAN IS GOING STRONG” DECLARED THE TITLE OF A Fortune article in February 2007. “On Wall Street, there’s good and then there’s Goldman,” wrote author Yuval Rosenberg. “Widely considered the best of the bulge-bracket investment firms, Goldman Sachs was the sole member of the securities industry to make [Fortune’s] 2006 list of America’s Most Admired Companies (it placed 18th).”1 Rosenberg argued that what distinguished the firm was the quality of its people and the incentives it offered. “The bank has long had a reputation for attracting the best and the brightest,” he wrote, “and no wonder: Goldman made headlines in December for doling out an extraordinary $16.5 billion in compensation last year. That works out to an average of nearly $622,000 for each employee.” And as if that weren’t enough, “[i]n the months since our list came out, Goldman’s glittering reputation has only gotten brighter.”
But only two years later, Goldman was being widely excoriated in the press, the subject of accusations, investigations, congressional hearings, and litigation (not to mention late-night jokes) alleging insensitive, unethical, immoral, and even criminal behavior. Matt Taibbi of Rolling Stone famously wrote, “The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly