Crisis leaves rare flaws in Goldman's reputation
finance.yahoo.com
NEW YORK (AP) -- For years, you were golden if you were hired by Goldman Sachs.
Alumni of the Wall Street firm have advised presidents from both parties, taken high-profile Cabinet posts, run big businesses and been involved in multimillion-dollar philanthropies.
But recent missteps have challenged the notion that Goldman only breeds winners.
Henry Paulson, who was criticized for mishandling the first incarnation of the bank bailout, is a Goldman alum. So is John Thain, who rushed billions of dollars in bonuses to Merrill Lynch employees before the investment bank had to be sold.
Also a Goldman vet: Robert Rubin, the Clinton treasury secretary who resigned from his senior advisory role at Citigroup last month after being criticized for missing the warning signs of the financial crisis.
Those names have lent a rare tarnish to a firm sometimes called the New York Yankees of Wall Street.
"When you become a partner at Goldman, you are supposed to be the master of the universe," said Ed Yardeni, who runs his own investment consulting firm and is a well-known Wall Street economist -- and himself was turned down years ago for a Goldman job.
"That meant you could run the greatest investment bank on earth, but it turns out that skill set doesn't always translate to the White House, Treasury or other Wall Street firms."
Goldman draws its talent from the top students from the best universities and business schools. Those given a chance to embark on Goldman's recruiting gantlet encounter job interviews in which they are asked not just complex questions about finance but simply why they deserve to be at Goldman.
And just like the Yankees, Goldman employees are well-paid. Its 30,000 employees last year made more than $355,000 on average, including salaries, bonuses and benefits. The average at rival Morgan Stanley was about $250,000.
Those given the coveted title of managing director -- who are considered partners -- can pull in seven figures. But flashing wealth runs against the Goldman culture, and employees, dubbed "billionaire Boy Scouts," are expected to give to charity or perform public service.
"Does the firm create exceptional talent, or does exceptional talent create a truly great firm? I think the vast majority of ex-Goldman employees want to believe it's a little bit of both," said Janet Hanson, a 14-year Goldman veteran who went on to found a money management firm and the global women's networking group 85 Broads.
Teamwork, integrity, accountability and collegiality are other prominent parts of the Goldman ethos, said Charles Ellis, author of "The Partnership: The Making of Goldman Sachs." That breeds loyalty not seen at other Wall Street firms.
For instance, the firm uses an evaluation system in which each employee is graded by everyone he or she works with. So low-level workers get to weigh in on their bosses.
Goldman survived the financial meltdown last fall, but not without help. It took $10 billion from the government's Troubled Asset Relief Program, or TARP. It also received a $5 billion investment from Warren Buffett's Berkshire Hathaway that came with a strong endorsement from Buffett.
That helped to stabilize Goldman but couldn't stop the bleeding. From September through November, it lost $2.3 billion -- the first quarterly loss since Goldman went public in 1999. CEO Lloyd Blankfein is forgoing a bonus for 2008.
Still, Goldman made it out alive. That's more than can be said for three of its former fellow investment banks -- Lehman Brothers, Bear Stearns and Merrill Lynch -- none of which survived the meltdown as an independent firm.
And now that fingers are pointing at top bank executives, Goldman veterans aren't immune.
When Lehman imploded in September, it was Thain, a former Goldman president and chief operating officer, who engineered a deal to sell Merrill Lynch to Bank of America. At the time, he looked like one of the smartest guys around.
But Thain became a poster child for Wall Street greed when news surfaced that he had rushed out billions of dollars in bonuses to Merrill employees just before the Bank of America deal closed.
Then came embarrassing reports that he had spent more than $1 million to redecorate his office at Merrill. Thain later repaid the money. A spokesman declined comment.
"It's not likely that he sat there and came up with ways to squeeze more for himself or the employees of Merrill Lynch. But he should have known better," said Sydney Finkelstein, a management professor at the Tuck School of Business at Dartmouth and author of the new book "Think Again: Why Good Leaders Make Bad Decisions."
Rubin spent most of his early career at Goldman. He joined the firm in 1966, as an associate in trading and arbitrage, became partner in 1971 and was co-senior partner -- CEO, in Goldman-speak -- from 1990 to 1992.
In 1993, Rubin left to work in the Clinton White House, and became treasury secretary in 1995. He followed a path into the public sector paved by many past Goldman leaders.
Among them was Sydney Weinberg, the firm's senior partner from 1930 to 1969, who advised five U.S. presidents. John Whitehead worked in the State Department in the Reagan administration and as chairman of the Federal Reserve Board of New York after he left Goldman, where he was senior partner from 1976 to 1984. And former Goldman head Jon Corzine is governor of New Jersey.
"Goldman Sachs has a long history of people who have chosen to go into public service and we are proud of our alumni who have taken this path," said Goldman spokesman Ed Canaday.
When Rubin joined Citigroup in 1999 as a senior adviser, it was considered a coup for the bank.
While he never had an operational role at Citi, the company still took on massive risks that resulted in losses of $18.7 billion in 2008. In early January, Rubin resigned and said he wouldn't stand for re-election to the board.
"My great regret is that I and so many of us who have been involved in this industry for so long did not recognize the serious possibility of the extreme circumstances that the financial system faces today," Rubin said in a letter to Citi's CEO announcing his departure.
Paulson, too, was drawn to a role in government after leaving Goldman's helm in 2006, after more than 30 years at the firm. He became treasury secretary in the Bush administration.
His arrival in the public sector came during a booming economy, but what soon emerged was a devastating recession matched with a financial crisis of historic proportion.
Paulson never seemed to get his hands around it, even with the help of some former Goldman executives he brought to the Treasury Department. Among them was Neel Kashkari, who was appointed to oversee TARP and formerly worked as an executive in Goldman's San Francisco office.
None of this seriously threatens Goldman's status on Wall Street, of course. It's still the place to be -- perhaps now more than ever, given the carnage in investment banking.
"The people they recruit have never lost anything," Ellis said. "They have always won. That is the kind of person Goldman wants to hire." |
