Why I Left Goldman Sachs: A Wall Street Story (14 page)

Bill-Jo looked at me with the intent focus of someone trying hard to marshal his faculties. He was two or three drinks ahead of me. “Come with me,” he said. “I’ll show you what it’s like.”

We walked up to a table that had a vacant chair; he took a $500 chip out of his pocket, put it on the table, and the dealer dealt him in. Bill-Jo showed me his down card: a Jack of diamonds. The dealer dealt him a four of spades.

“Hit me,” Bill-Jo said.

He drew a seven of clubs. The dealer pushed back Bill-Jo’s $500 chip with another one sitting on top. Bill-Jo took both chips and put them into my hand. “
That’s
what it’s like,” he said. “Enjoy the weekend.”

Fast-forward to the next afternoon. There we were, seven brave men of Goldman savagely hungover and bobbing along with Ms. Silicone in the bubbling Mandalay Bay hot tub, under a sweltering Vegas sun.

Sipping an ice-cold Red Stripe took the edge off, but my brain was buzzing anyway, with social/corporate/ethical discomfort. It had nothing to do with the topless girl: that part I was loving. What was making me queasy (besides the hangover) was the awkwardness of being in this situation with people who pretty much controlled my destiny. There was my boss Connors in his tattered TrendWatch cap; and there, astonishingly, was the pre-IPO partner Dave Heller, who as one of the heads of trading, was two levels above Bill-Jo, three levels above Connors and the other two VPs in the tub, and in relation to me, somewhere to the left of Alpha Centauri.

Heller was, quite simply, a rock star at Goldman Sachs. He had credibility with traders because he was so damn good. People used to say that even though he was managing thousands of people around the world, he could sit down in any trader’s seat, figure out the trader’s risk by himself within seconds, and probably do that trader’s job better than he or she could. That type of skill garners a lot of street cred.

He was aware of his status, yet carried himself with an air of quiet confidence and humor, never arrogance. In the early 1990s, as a young derivatives trader in Tokyo, he had done something that has become an urban legend within Goldman Sachs: he made tons of money in the aftermath of the rogue derivatives trades by Nick Leeson that brought down Barings Bank. Remember: for every loser on a trade, there are ultimately winners as well. No one ever confirmed this to me, but Heller’s brilliance was said to have made the firm millions, and in gratitude and recognition of his skills, Goldman made him a partner at age twenty-eight, one of the youngest in the firm’s history.

I had encountered Dave Heller a number of times before. When I was a young futures sales trader back in 2003, he would sometimes come by the desk or (more often) call Corey and me and ask us to execute trades for his proprietary account, or to hedge the firm’s risk. The thing I noticed about Heller was he was always right. If he sold futures, the market would go down the next day. If he bought futures, the market would rise. However, my most recent encounter with Dave had had nothing to do with business, and had been semi-awkward: the morning after Daffey’s farewell party bacchanal at Soho House, Heller had pulled up at the urinal next to mine in the fiftieth-floor men’s room, glanced at me, and spoken these immortal words: “Good time last night.”

Heller had just been making washroom chitchat then. But now, less than a year later, here was that same underling, and we were at a bachelor party together.

Heller had come because he liked Vegas, because Connors was a cool guy and it was fun to be friends with him, but most directly because Connors’s twenty-six-year-old fiancée had befriended Heller’s young wife. The friendship may have been completely natural, but as a political move, however unintentional, it didn’t hurt Connors’s prospects at Goldman a bit.

Here was I, however, a guy Heller knew to say hi to, but still a foot soldier and an underling—and one who would retain the memory of him sitting in a Vegas hot tub with a topless twenty-three-year-old. How would that affect
my
prospects at Goldman?

To add to my worries, there was the little matter of the $1,000 in chips a very drunk Bill-Jo had slapped into my hand the night before. Should I have handed the chips back to him at once, with a “Bill, I really can’t accept this”? Probably. But I hadn’t. Should I say something to him now?

I didn’t. While my colleagues made small talk with the big-breasted girl, I sipped my beer and kept my mouth shut and wondered (also wondering if the other guys were wondering, too),
Will what happens in Vegas really stay in Vegas?

When I got back to the office on Monday, I phoned Phil to ask his sage advice on the Bill-Jo situation. Did he think it was unethical of me not to have immediately given the chips back, or at least tried hard to? It felt too late now. Should I just assume that a thousand dollars was a mere rounding error for a managing director, that it simply didn’t matter? Or (the paranoid view) could this be some kind of trap? If I didn’t say anything, would Bill-Jo somehow pass judgment on me?

Phil said I should mention the thousand dollars later, in some casual way—maybe buy Bill-Jo a dozen golf balls or something at a later point—but for now say, “Thanks for treating me.” I did exactly that: he seemed to have only the vaguest idea what I was talking about.

And oh yes, a day or two after I returned, Dave Heller once again pulled up to the urinal next to mine in the company washroom. He gave me a quick, sphinxlike smile. “That was a fun time this weekend,” he said. The king of understatement.

The year 2006 was a big one for Goldman Sachs. The markets kept booming, and Derivatives Sales continued to rack up revenues. Clients were confident: they were trading; they were taking risk. I was executing well for them, which led to more business, because they knew I was looking after them. My clients included some of the biggest asset managers, quantitative hedge funds, and sovereign wealth funds in the world. The commission business—flat, transparent fees on agency orders in things such as futures, exchange-traded funds, and options—was flourishing. The cash register was ringing.

But change was in the air. At the end of May, our CEO, Hank Paulson, was appointed U.S. secretary of the treasury, and Lloyd Blankfein became CEO and chairman of Goldman Sachs. Many at the firm were shocked that Paulson had left when things were going so well. Remember: times were good. Hank could have stayed at Goldman and collected a few more years of multimillion-dollar pay packages. He was liked and well respected by both bankers and traders. But he accepted President George W. Bush’s call, in the tradition of a long line of former Goldman leaders who went into government service at the top of their careers. I admired his decision.

In retrospect, I recognized that this was also the trade of the century for Hank Paulson. To avoid conflict of interest while at the government, he was obligated to sell all his Goldman stock ($500 million worth) at the top of the market, before the crash. Also, due to a tax loophole, for accepting government service he avoided paying capital gains tax.

But as hard as it might be to believe, I think Paulson’s going to Treasury when he did would end up being an even better trade for the American people.

However, there was a group of people at the firm who thought that Paulson left because the writing was on the wall for him at Goldman. Paulson was a banker; Blankfein was a trader. Blankfein’s trading divisions (FICC and Equities) were bringing in massive revenues: two to three times any other division and sometimes more than half the revenue of the firm. This was a big transition from the late 1990s and early 2000s, when investment banking (things such as mergers and acquisitions and corporate finance) had been an equal or greater part of Goldman’s profit engine. On Wall Street, often the power goes to the person bringing in the most profit.

Lloyd had become the golden boy of Goldman Sachs. Within the firm, he had developed an aura of being a prescient genius who just couldn’t put a foot wrong. People admired him, feared him, respected him. He was equal parts intimidating and self-deprecating, but he came across as a regular guy with a good, sharp sense of humor. When you met him you were won over by him.

Hank, on the other hand, was an old-school banker: a little gruff, straightforward, and conservative, even abrupt at times. (Rudy once played Hank in a prank video for the Goldman holiday party; they resembled each other very closely in height and appearance. Ironically, they were not completely dissimilar in personality, either.) You wouldn’t catch Hank getting loose at a company party; he was a teetotaler—and a bird-watcher, ardent environmentalist, and exercise fanatic. I had worked out next to him in the company gym, watched him put up some pretty impressive weight on the incline chest-press machine. (My one other experience with a Goldman CEO in the gym was the time I saw Lloyd “air-drying,” that is, walking around the changing room au naturel to dry off from his shower. But this was not uncommon among a generation slightly older than mine. I don’t think it was a show of power.)

Hank had gotten in some hot water during the firm’s rough period in 2003, when at a Salomon Smith Barney investor conference, he cited the so-called 80-20 rule—that in any business, 20 percent of the people produce 80 percent of the profits. His remark, which was seen as very antagonistic to Goldman’s teamwork culture, triggered a large and immediate backlash within the firm. To his credit, Paulson then sent out a mass voice mail saying he was sorry and making no excuses. He said, “It was a glib, uncalled-for remark, and I apologize,” and people forgave him.

But now the wheel had turned. The banking world had become a trading world, and that was Lloyd Blankfein’s world. And Goldman was in the process of merging FICC and Equities, the latter now under the leadership of Lloyd’s fellow trader (and fellow pre-IPO partner) Gary Cohn. It was a move that would have a huge impact on the firm and on the entire financial world.

Lloyd and Gary went way back. They’d first met in 1990, when Gary moved over from trading metals in the pits of the New York Mercantile Exchange to join J. Aron, Goldman Sachs’s commodities division. Lloyd was a rising star, a gold salesman. Every good salesman needs a go-to trader, and Gary became Lloyd’s guy.

Gary was a brilliant trader—legend had it that he’d single-handedly cornered the aluminum market—with an interesting background. Severely dyslexic, he’d been continually told as a child that certain doors would be closed to him, but he made it his business to open them all. At six foot three and 220 pounds, he looked imposing and determined. At American University, he found he liked financial markets a lot more than he enjoyed studying; he literally talked his way into his first job on the commodities exchange by sharing a cab to the airport with a commodities trader and persuading the trader to hire him. He succeeded there on cunning, instinct, and emotional intelligence. Trading is a human business. When you’re in the pit, you see the fear in people’s eyes. (This was what Gary had seen when he started buying up aluminum.) The guys who get to the top are the ones who are book-smart enough, but who have an instinct about what motivates other people. Gary Cohn was a genius in that regard.

Cohn took a pay cut to go work for Goldman Sachs, but with his human intelligence and gut instinct for commodities, he quickly rose through the ranks, almost in parallel with Blankfein, but always a notch or two below. Lloyd looked out for Gary. They became close friends and took family vacations together.

The skills that had made Gary a great trader also helped him succeed as a manager. When Lloyd (who’s five or six years older than Gary) became Goldman’s number two under Hank Paulson, he appointed Gary cohead of the Securities division, with a particular focus on equities. Many saw this as a strange move: Gary was a commodities guy. But Lloyd said, “You know what? If he can figure out aluminum, he can figure out stocks.” There was a lot of this at Goldman Sachs: great managers and gifted traders were considered nimble enough to transfer their skills to any region, asset class, or job function.

I first encountered Gary while I was still on the Futures desk, just after Corey Stevens was transferred out to work under Michael Daffey and the merger with FICC was happening. A guy who came over to the Equities floor in the merger had once been Gary Cohn’s broker in the commodities pit, and Gary, who was still new to the division and didn’t know anyone else on the Equities floor, used to come over to talk with him.

Gary had a very distinctive signature move, one he had become famous for within the firm; I must have seen it ten or fifteen times in action. It didn’t matter if the person he was talking to was male or female; he would walk up to the salesman or saleswoman, hike up one leg, plant his foot on the person’s desk, his thigh close to the employee’s face, and ask how markets were doing. Gary was physically commanding, and the move could have been interpreted as a very primal, alpha-male gesture. I think he just thought it was comfortable. And what came out of Gary’s mouth was not what you’d expect.

He was friendly. He was low-key. He’d say, “How are you doing? How is your day going?” All in very soft tones. What I began to notice as he stopped by the desk was that he almost never talked about business. Instead, it was chitchat of the “How ’bout those Yankees?” variety. In later years, when I heard Gary speak about leadership at Pine Street, Goldman Sachs’s leadership-development program, he would always emphasize the importance of walking the floors, letting your people know who you were. He also talked about consistency of mood, needing your people to know you were even-tempered—you weren’t going to flip out every two minutes—and predictable.

To his credit, this was how I always saw Gary—and Lloyd, for that matter: always upbeat, never negative or intimidating. They were (and are) very skilled at human interaction. They understood how to win people over, how not to scare people, how to put on the pressure when they needed to. It made them great leaders. Now that Hank had gone to Treasury, Lloyd and Gary were the future.