A few months ago, a Wall Street Journal story quoted an unnamed London-based investment banker who said "he'd bet a bunch of people at Davos a few million pounds that Lloyd Blankfein would be out as CEO of Goldman Sachs within two years", says Bess Levin on Dealbreaker.com. Goldman condemned the story as "effluent". But as the furore around the fraud charges from the Securities & Exchange Commission (SEC) builds, the odds on the bet coming good must have shortened.
For Blankfein, the case marks the climax of a baffling year. Instead of winning plaudits for its post-crisis recovery, Goldman's reputation has become as toxic as the credit default swaps it once traded. Blankfein, who prides himself on his unpretentious style (there are no $5,000 wastepaper bins in his office), seems perplexed. "With us, bizarrely, the view seems to be: what's good is bad and what's bad is good," he told Fortune.
A Rolling Stone story, dubbing the bank the "Great Vampire Squid", particularly troubled him. "I saw it as over-the-top writing that some people might find fun to read." He was "shocked" others took it seriously, and even more surprised when a joke about "doing God's work" was taken as evidence of an unrepentant world view.
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Given Blankfein's upbringing in the mean streets of the Bronx and Brooklyn, few would expect him to do anything but come out fighting. He learned to adapt to tough circumstances at an early age, says Time. His father was a postal worker; his mother, a receptionist at a burglar alarm firm: "one of the few growth industries in my neighbourhood". At 16, he won a scholarship to Harvard, graduating in the same class as Ben Bernanke in 1975. "I can't say that I had a disadvantaged background", he says, because "after a while, I kind of evolved into having an advantaged background".
Even so, having trained as a lawyer, he was "summarily rejected" by Goldman when he applied for a job in 1981.
He joined Aron, a small gold trader, says Forbes. But when the firm was bought by Goldman, Blankfein made his presence felt. He was seen "as more Woody Allen than Gordon Gekko a genial, funny, regular guy whose self-deprecating style masked a sharp intensity and a knack for nasty infighting when necessary". He excelled on the trading floor, seeming to have "a sixth sense about when to push traders to take more risk and when to take their collective feet off the accelerator", says Time.
What caught the eye of then-CEO Hank Paulson was Blankfein's "ambition and hands-on management style". He seemed dedicated to making Goldman the most powerful money-making machine on Wall Street (see below). The pair became "an effective team". When Paulson became US Treasury Secretary in 2006, "Blankfein's journey to the pinnacle of American capitalism was complete". The battle is to avoid being toppled.
Is Blankfein to blame for Goldman's woes?
"Long-term greedy" was how Sidney Weinberg, Goldman Sachs's legendary mid-20th-century managing partner, saw the firm's strategy, says Harry Wilson in The Daily Telegraph. Not much has changed, except the scope of ambition. "In the 1980s, Salomon Brothers was the bank to beat... The 2000s undoubtedly belonged to Goldman Sachs."
If anyone shoulders the "blame" for the past decade's golden performance, it's Blankfein, agrees Time. He accelerated Goldman's transformation from a firm dependent on its clients for investment banking revenues, to one dominated by a resurgent trading and risk-taking business. He was both the firm's "chief advocate for taking risks" and its "chief risk watchdog".
"Being in the flow" was the mantra that enabled Goldman to pull away from rivals, says the FT. And its status as "the best-connected trader" became self-perpetuating. "People trade with Goldman not because they want to, but because they have to," noted one fund manager. In this respect, Goldman is less "vampire squid" than "financial amoeba", constantly absorbing information that it uses to its own and its clients' advantage.
Long before the crisis, many believed Goldman was "too clever by half", not least because of its habit "of stacking the odds in its favour by backing both sides of any financial gamble", says Alex Brummer in the Daily Mail. But what really exercised opponents was the friends in high places. When Blankfein's mentor, Hank Paulson, took the usual Goldman senior alumni route into government, "critics feasted on the connection", says Time. All the more so when Paulson was found to have put no fewer than 24 calls through to Blankfein when deciding whether to pump $85bn into the rescue of AIG: a bail-out that ensured Goldman got $12.9bn out of the firm. Goldman may be facing charges for fraud, but it is the underlying belief that its "alpha dogs rule the world" that may do it the worst damage.
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