Lloyd Blankfein, the 54-year-old chairman and CEO of Goldman Sachs, is powerfully perplexed. In the past six months, his investment-banking and securities-trading firm has roared ahead in profitability by taking risks that other firms would not for itself and its clients in an edgy market. It has paid back the billions of dollars, and then some, of taxpayer money the government forced it to take last October; raised billions of dollars in capital from private investors, including $5 billion from Warren Buffett; and urged its cadre of well-paid and high-performing executives to show some restraint on the conspicuous-consumption front.
For this, the level of resentment and ire directed at Goldman from Congress, from competitors, from the media, from the public has never been higher. Blankfein, only the 11th leader of the 140-year-old firm, is having a tough time understanding why. A recent story in Rolling Stone, of all places, in which the author described Goldman as a “great vampire squid wrapped around the face of humanity,” has been particularly troubling to him. “Oddly enough, the Rolling Stone article tapped into something,” he says in an interview. “I saw it as gonzo, over-the-top writing that some people might find fun to read. I was shocked that others saw it as being supporting evidence that Goldman Sachs had burned down the Reichstag, shot the Archduke Ferdinand and fired on Fort Sumter.” Suddenly a firm that few Americans know or understand has become part of the zeitgeist, the symbol of irresponsible Wall Street excess, the recovery from which has pushed the nation’s treasury to the brink. It’s an odd contradiction: an excelling company being reviled in a country that embraces the profit motive. And without question, Goldman Sachs under Blankfein has recalibrated, in very large numbers, its place as Wall Street’s most astute, most opaque and most influential firm. In the first and second quarters of 2009, the company earned $5.3 billion in net income, the most profitable six-month stretch in Goldman’s history. Goldman’s stock has more than tripled since its low last November, to more than $160 per share. The U.S. unemployment rate has risen too, nearing 10%. In stark contrast, Goldman Sachs has set aside some $11.36 billion so far in 2009 in total compensation and benefits for its 29,400 employees. That’s about on pace with the record payout the firm made in 2007, at the height of the bubble. Thanks to Andrew Cuomo, the New York State attorney general, we know that in 2008, while Goldman earned $2.3 billion for the year, it paid out $4.82 billion in bonuses, giving 953 employees at least $1 million each and 78 executives $5 million or more . Goldman’s riches have deflected the spotlight from what should be great story fodder: Blankfein’s personal journey from one of New York City’s poorest neighborhoods to its most Ã©lite investment bank and his astounding rise within Goldman. Instead, he has to explain Goldman’s performance and connections in the face of the nation’s epic financial calamity. Friends in High PlacesNot least of those explanations has to do with Blankfein’s appearance in the call logs of Henry Paulson, his predecessor as Goldman CEO, who was Treasury Secretary while the financial crisis started to unfold in early 2007 up until January 2009. For instance, in the week after Paulson allowed Lehman Brothers to collapse into bankruptcy last Sept. 15 and while the Secretary was playing a major role in deciding whether to pump $85 billion into the rescue of insurance behemoth AIG Paulson and Blankfein spoke 24 times. On one level it makes sense: a Treasury official discussing a financial crisis with a trusted expert and industry leader. A mention in a call log is not the same as an actual conversation, Blankfein correctly points out. He recalls only a handful of actual conversations with Paulson or Timothy Geithner, then the president of the New York Fed. “Now, that was AIG week,” he says, “but it was also breaking the buck on [money-market firm] First Reserve week, and it was the week when Lehman’s bankruptcy caused huge problems in the prime brokerage system in London. There were a million things that I would have been talking to Geithner or [Paulson] about.” See pictures of the global financial crisis.
Read “Too Much Profit at Goldman and Morgan”