Money and Power

by William D. Cohan

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  BUT THE FACT that neither Whitehead nor Weinberg was a trader, or had trading experience, evoked considerable concern from Goldman’s increasingly influential traders. Levy’s death was “a tremendous shock,” Rubin said, “because … I think a lot of us—I’ll include myself in this—felt some degree of insecurity with respect, insecurity might be the wrong word, but uncertainty with respect to the question of would they”—Whitehead and Weinberg—“have the fortitude to live with what would inevitably be periodic downslides. But it turned out they were terrific.”

  In many ways, Whitehead was right out of Goldman’s central casting department: although he was from a modest background, he was also bright, hardworking, tenacious, and ambitious. These, of course, were the very same qualities that made Sidney Weinberg and Gus Levy so successful. But unlike Weinberg and Levy, Whitehead was Episcopalian, not Jewish, and thus would be the first leader of Goldman—not counting the ill-fated tenure of Waddill Catchings—who was not cut from the firm’s principal religious cloth. Not that any of Goldman’s previous leaders were particularly religious—far from it—nor, by 1976, were Wall Street firms as strictly delineated by their religious orientation as had been the case earlier in the twentieth century, but it was still a momentous change. “To many people, Goldman Sachs was thought to be predominantly Jewish,” Whitehead observed, “but I never sensed that anyone ever minded my being an Episcopalian.” But he was not oblivious to the anomaly. Much was made around Wall Street of the news that Morgan Stanley had hired Lewis Bernard in 1963, the first Jew to work at the firm. In 1973, Bernard became the first Jewish partner at Morgan Stanley. At one point before Bernard became a partner, Morgan Stanley’s senior partner, Perry Hall, called Weinberg and told him about Bernard being Jewish and his increasingly important role at Morgan Stanley. “Oh, Perry,” Weinberg responded, “that’s nothing. We’ve had them here for years.” When Bernard became a partner at Morgan Stanley, Goldman tried to hire him away. But a senior executive at Morgan Stanley admonished the Goldman partners to leave him alone: “We finally make a Jewish partner and you guys want to hire him away! Forget it.”

  Whitehead was born April 2, 1922, in Evanston, Illinois, at four in the morning, he recalled with precision, “because my mother used to joke that she held me back for four hours so I’d avoid the embarrassment of being born on April Fools’ Day.” Whitehead’s father, Eugene Cunningham Whitehead—born, bred, and reared in rural Georgia—had moved his family north so that he could learn how to climb telephone poles as a lineman for Western Electric. “Our stay in Evanston was brief,” Whitehead explained, and the family soon moved to a second-floor apartment in Montclair, New Jersey, so that Eugene could take a job—and a promotion—as a junior manager at a Western Electric manufacturing plant in Kearny, near the Meadowlands. He would leave for work in his gray Dodge every morning at seven and returned home every night at six o’clock. Eventually the Whiteheads left the apartment for a small house near the center of Montclair, with a “little backyard” and a separate garage.

  When the market crashed in October 1929, the Whiteheads were vacationing on the eastern edge of Nantucket. “It was remote enough that the city papers took several days to get there, so my father would listen to the radio every day to keep up with the news, and that’s how he found out about the stock market collapse,” Whitehead explained. Most of the family’s savings were “carefully” invested in the stock market, with AT&T—the parent company of Western Electric—being his largest holding. Whitehead estimated his father had invested about $50,000 in the market—“perhaps the equivalent of $500,000 today”—and the loss of much of the family’s savings hurt. They cut short the Nantucket vacation and returned home so that his father could “see to his investments.” Compounding the stock market losses was the news that Western Electric had fired Eugene, who nevertheless still went off in his Dodge every day as if nothing had changed. Eugene never told his son that he had lost his job at Western Electric, and before long he landed a new job selling porch furniture on commission, door to door. Since there were monthly quotas to meet, the Whiteheads ended up with more than their fair share of the furniture. “I always thought that ours was the best-furnished porch in Montclair,” Whitehead quipped.

  During the Depression, the Whiteheads survived on macaroni and cheese and codfish cakes, recycled clothing, Amos ’n’ Andy, Jack Armstrong, The All-American Boy, and Roosevelt’s fireside chats. The family was able to spring for a new 1934 Model A Ford—cost: five hundred dollars. Like so many of his generation, living through the Depression seared in Whitehead an aversion to risk and borrowing money. “I don’t even like credit cards!” he proclaimed. But he did not think of his family as poor “probably because we were no worse off than anyone else I knew.”

  Whitehead seemed to have a fairly normal childhood, collecting acorns, Indian-head pennies, and stamps. He weeded the lawn for pocket change, sang in the choir, and played the violin. But Whitehead also had a mischievous streak. At first, this meant launching paper airplanes in the choir loft while the reverend was delivering his lengthy sermons and drawing in crayon all over his aunt’s wallpaper when he was supposed to be napping. Then he evolved to petty larceny by stealing freshly baked cookies from the window of Marker’s Bakery, across the street from church where he sang in the choir on Sundays. The cops scared him straight, as did the lashing—with a switch taken from the backyard “switch bush”—he got from his father. “I tried hard not to cry,” he said.

  But it was the message that his mother delivered to him a few days later that once and for all set Whitehead on a very different path from the one he was on. After school, she went up to his bedroom, sat on his bed, took his hand, and told him the story of how a year after his parents were married, she had given birth to twin boys, who both died during childbirth. Worse, his mother’s father was the doctor who delivered the twins. All of this was news to Whitehead. He never knew any of it, nor had he known that his grandfather had delivered him, too. “About two years later, you were born, a very healthy, normal little boy,” his mother told him. “We were so grateful. Now, John, your father and I hope and pray every day that you will grow up to be a fine person and help us make up for our terrible loss.” Holding back tears, Whitehead told her he would try.

  In Whitehead’s telling, there may never have been a more zealous convert. He became a devoted Boy Scout who “[n]ot satisfied with the twenty-one merit badges required by the Eagle rank, I kept going and earned fifteen more.”

  Then there was his apparently selfless effort, in 1939, to help his father defray the nine-hundred-dollar tuition for Whitehead to attend the prestigious Haverford College, outside of Philadelphia. He figured—but did not know for sure—that his father was earning about four thousand dollars a year then “and I didn’t feel right about presenting him with such a large bill” but had no idea how he could ever earn enough in one summer to pay the tuition. He had made two hundred dollars as the assistant director of Camp Glen Gray and another two hundred dollars leading a canoe trip down the Delaware River. That left him needing five hundred dollars, with time running out before the start of school. Then he saw an ad in the Sunday New York Times offering jobs at the 1939 World’s Fair, in Flushing Meadows, Queens (near today’s LaGuardia Airport) and the opportunity to make at least a hundred dollars a week. He took the train there the next morning, from Montclair, to see if he could get hired. There was a “fairly seedy” Coney Island–style spread of concessions, carnival acts, and arcade games known as the “Great White Way.” That’s where Whitehead looked for a job. “To a boy like me from Montclair, it offered all the forbidden allure of the big city,” he observed.

  He ended up getting a job guessing people’s weights. The way the game worked was that customers would pay twenty-five cents for “the privilege of having me guess his weight.” If Whitehead could guess correctly within two pounds either way, he kept the quarter. If he guessed wrong, he still kept the quarter but
had to fork over a stuffed animal—at a cost to Whitehead of twenty cents—to the fortunate customer. His obvious incentive was to lure as many people as possible to his arcade and guess their weight correctly. And the math was clear: correctly guessing the weight of two thousand customers would yield the five hundred dollars he needed. Although inherently shy—at that time—and without any previous experience hawking or guessing people’s weights, Whitehead took quickly to the task at hand. “The trick is to ignore people’s faces and concentrate on their waistlines, since that’s where the pounds are,” he allowed.

  For the next six weeks, the seventeen-year-old Whitehead dedicated himself to the task. Twelve hours a day. Six days a week. “I scarcely returned home, and every night but Saturday I bedded down at a cheap motel nearby and, to cut expenses, just about lived on twenty-cent hot dogs and nickel Cokes.” By the end of the summer, he had cleared the five hundred dollars he needed.

  Whitehead’s four years at Haverford were, apparently, similarly charmed. After a rocky first semester—he averaged a 79 and found he couldn’t keep up with the “prep-schoolers”—he settled down and excelled at nearly everything, graduating Phi Beta Kappa, with a degree in economics. “I’d always been fascinated by money,” he said. He played JV baseball and basketball, was the best high jumper on the track team, and was the director of intramural athletics. He also ran the International Relations Club and was president of student council.

  To earn the money needed for tuition, Whitehead was part of the work scholarship program and had any number of odd jobs, from filling acid bottles in the chemistry labs, to updating encyclopedia entries for one professor, to grading economics exams for another. But, as he had working on the midway at the World’s Fair, the way he made the bulk of the money he needed was by being entrepreneurial. At college, he and a friend started a company that controlled the business of setting up the pins at bowling alleys in and around Haverford. Whitehead called it a “near monopoly” and observed that by his senior year “the money flooded in” and he and his partner “scarcely had to lift a finger.”

  At graduation, in January 1943—the school had created a summer session to accelerate the class because of the war—Whitehead’s ninety-nine fellow seniors voted him the most admired student in the class. He received a large carved ebony spoon and became known as the “Spoon Man,” a title that Whitehead explained did not “reflect its great significance.” The dean of admissions also offered him the position of assistant director of admissions at the college, with the idea that after five years Whitehead would succeed him. First, though, Whitehead was obligated to serve in the navy, something he had been keen on doing ever since the bombing of Pearl Harbor thirteen months before.

  In June 1943, while awaiting the start of a ninety-day course in naval accounting being taught at Harvard Business School, the navy assigned him to be the commanding officer of the Brooklyn Navy Yard’s Twentieth Street Pier. “Who knows why,” he later wrote. “It was the first of many occasions—both in the Navy and out—when I would find myself in way over my head.” As awkward as it was for a greenhorn college kid, without the slightest idea how to run a naval yard and with a Republican bent, to be in charge of the operation and its gruff, unionized workforce, Whitehead made the best of it. He befriended “Larry,” a former longshoreman who ran the yard before Whitehead showed up, and slowly learned the ropes. He made suggestions to the navy brass about improving the efficiency of the operation, which were summarily ignored. But when he left after three months to head up to Harvard, his pier won an award for the most efficient pier in South Brooklyn. “I framed the certificate and hung it on the wall over Larry’s desk.”

  After three months more in Cambridge, “spent learning how to fill out navy forms,” a crashing bore, Whitehead eventually shipped out to Oran, Algeria, aboard the USS Thomas Jefferson. He was the ship’s disbursement officer and assistant supply officer. The ship, a former luxury liner, was now responsible for transporting up to two thousand marines and army troops to combat situations in Europe. For the next two years, the “T.J.,” as it was known, would be Whitehead’s home.

  Understandably, Whitehead’s defining experience in World War II was his role in D-Day, the June 1944 invasion of Normandy. On the eve of the invasion, the T.J.’s captain, who Whitehead had never met or spoken to during his previous eight months on board, summoned him to his cabin. It seemed that one of the officers whose job it was to captain a landing craft known as an LCVP—“landing craft, vehicle, personnel”—had become ill and would have to leave the ship. The captain, having somehow noticed that Whitehead had a facility driving the LCVPs on occasion, ordered Whitehead into service as the captain of one of the LCVPs to be used to make the Normandy invasion.

  In his memoir, Whitehead recounted the dramatic events of the invasion from his perspective—he ended up leading the five boats in his squadron—but his proudest moment appeared to be when he called an audible on the way to the beach at 6:00 a.m. on the crucial morning. One hundred yards from the beach, his boats confronted a string of heavy metal bars, or “Element C’s,” that were “angled menacingly” up at their boats. They had been warned to be alert for the Element C’s but no one landing before Whitehead’s squadron had encountered them. His orders were to plow straight ahead. But Whitehead decided to ignore his orders and send the LCVPs a hundred yards farther down the coast, where the boats could hit the beach without the danger of getting hung up on the metal obstructions. “This brought us well to the south of where we were supposed to be, but there was nothing to do about it,” he said. “Actually, it proved to be a lucky break, for German mortar shells soon blasted the shoreline at the spot where we were supposed to have landed.”

  The T.J. had a string of other missions in the months that followed, in the south of France and then on to the Pacific theater, where it weathered fierce kamikaze attacks by the Japanese. Eventually Whitehead—now a lieutenant—was released to shore duty for the remainder of his service. His final year of military service, ironically, was spent teaching a new group of navy supply officers at Harvard Business School how to fill out the same dreaded military forms he had loathed.

  Instead of taking up his post at Haverford, Whitehead decided to apply to Harvard Business School, where he was accepted. He found the curriculum more rigorous than he expected but ended up graduating with distinction, in the top 10 percent of the class. During business school, he met and married Helene “Sandy” Shannon, a Wellesley graduate who took a job as a dividend clerk at the John Hancock insurance company.

  The remaining piece of Whitehead’s puzzle was to figure out where he would work after Harvard. His plan was to end up at a big corporation, such as GE or DuPont, which would, he hoped, provide both security and a good outlet for the organizational skills he had perfected in the navy. Unsure he could land such a position directly from graduate school, he decided to go to Wall Street to learn additional skills that might enable him to go to a big corporation. Goldman was the only Wall Street firm interviewing at Harvard Business School that year and was interested in hiring only one graduate. He figured his chances were low—one out of twenty, in fact, since that is how many students signed up for interviews—but he decided it was worth a try. To his surprise, he was invited back to Goldman’s office in New York for a further round of interviews. “Was it my grades?” he wondered. “My Navy career? Such were the secretive ways of Goldman Sachs that no one ever told me.”

  In New York, Whitehead met with the firm’s “top brass” who “peppered” him with questions that often left him “tongue-tied.” But, somehow, he was the one selected by Goldman and offered a job as an associate in Goldman’s investment banking division. No doubt, Whitehead’s self-deprecating manner appealed to the Goldman partners. He was the firm’s only new hire that year.

  Whitehead started at Goldman in October 1947, at an annual salary of $3,600. He and his wife left the Boston area, moved to Great Notch, New Jersey, near Montclair, and rented a house fo
r $135 a month, more than half his monthly take-home pay from Goldman. At that time, Goldman was still leasing eight floors of 30 Pine Street, the top four and the bottom four. The twentieth floor was for the investment banking staff, all six of them. The floor had once been a squash court—“one of those luxuries which went by the boards” after the Crash, Whitehead said—and now six desks were squished into a space that was as high as it was wide, with only a tiny window high up on one side. A long pole was used to open and close the small window. Whitehead was the seventh member of the group. Much to the chagrin of his new colleagues, his desk was squeezed into the already cramped cube. “Without any heating vents (that we could find anyway) and certainly no air conditioning, the place had its Dickensian aspects,” Whitehead recalled, “nippy in the winter and broiling in the summer.” The associates were expected to keep their wool suit jackets on at their desks, all year round, even in the summer. “That was the Goldman Sachs way,” according to Whitehead.

  What was not the Goldman Sachs way was wearing a cotton seersucker suit in the hot and humid New York summer. One day, Whitehead bought himself such a suit and decided to wear it to the office. He got in the elevator in the morning and Walter Sachs followed him in. “Short, stocky, with a distinguished white beard, he inspired a certain awe, if not dread,” Whitehead remarked.

  He began to get nervous as Sachs eyeballed his suit.

  “Young man, do you work at Goldman Sachs?” Sachs demanded.

  “Yes sir, I do,” Whitehead responded.

  “In that case, I would suggest that you go home right now and change out of your pajamas,” Sachs insisted.

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  WHITEHEAD STARTED AT Goldman trying to get the firm’s clients to issue corporate debt that Goldman would then underwrite, for a fee, and sell to investors. The biggest issuers of corporate debt in those days were utility companies, busy building more plants and buying equipment to meet the postwar demand of a growing economy. Whitehead spent his time analyzing what the yield, or interest rate, should be on a particular bond being contemplated for issue and making recommendations about that yield to Goldman’s senior executives, who would inform Walter Sachs, who, in turn, would be Goldman’s representative at these syndicate meetings where the bond prices would be set and bids made to the issuing companies, which would then choose a syndicate to lead the offering. By his own admission, Whitehead was a “long way from the action” and his responsibilities amounted to “very dull work.”