Money and Power

by William D. Cohan

  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.”

  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, tw
o 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.”

  CHAPTER 18

  ALCHEMY

  It 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-a
chieving 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.”