?Just 10 days ago, Goldman Sachs chief executive Lloyd Blankfein
made the stunning announcement -- during this season of
jaw-dropping developments on Wall Street -- that the renowned
investment-banking firm would morph into a traditional bank holding
company, accepting onerous regulation in exchange for much-needed
access to cash reserves. How could this happen to the country's
most powerful investment bank? Charles D. Ellis's engaging history
of the company, ""The Partnership,"" provides some clues -- about
Goldman Sachs and about Wall Street writ large.
""The Partnership"" follows the firm from its beginnings as a
commercial- paper dealer in 1869 (essentially recruiting investors
to extend lines of credit to companies) to its emergence as the
world's pre-eminent financial- services firm. A much-debated
decision to sell Goldman shares to the public in 1999 was a
watershed event, perhaps encouraging riskier behavior than would
have been tolerated by partners with their own capi
?The book is rich with insider lore as well as the closed-door
dramas of partnership clashes. [Ellis?s] experience graced him with
a sure hand in writing about the world of traders, analysts and
deal makers.?
?"New York Times Book Review"
?At a time of economic uncertainty, Charles Ellis's banking history
"The Partnership" may offer a kind of cathartic glance
backward.?
?"The New York Sun"
?Lively and engaging?Ellis sheds light on events through dialogue
and descriptions of people's thoughts and feelings?
?"Publishers Weekly "
?Ellis, the author of 14 books and managing partner of Greenwich
Associates, a strategy-consulting firm, here provides a history of
Goldman Sachs, which is arguably the most profitable and powerful
investment bank in the world today?Ellis has done a thorough job of
researching the prestigious organization, providing a look at the
many personalities that have made the famous name what it is
today.?
?"Booklist"
?illumi
aThe book is rich with insider lore as well as the closed-door
dramas of partnership clashes. [Ellisas] experience graced him with
a sure hand in writing about the world of traders, analysts and
deal makers.a
a"New York Times Book Review"
aAt a time of economic uncertainty, Charles Ellis's banking history
"The Partnership" may offer a kind of cathartic glance
backward.a
a"The New York Sun"
aLively and engaginga]Ellis sheds light on events through dialogue
and descriptions of peopleas thoughts and feelingsa
a"Publishers Weekly"
aEllis, the author of 14 books and managing partner of Greenwich
Associates, a strategy-consulting firm, here provides a history of
Goldman Sachs, which is arguably the most profitable and powerful
investment bank in the world todaya]Ellis has done a thorough job
of researching the prestigious organization, providing a look at
the many personalities that have made the famous name what it is
today.a
a"Booklist"
ailluminatinga][Ellis] explicates with clarity and vervea]He
provides intriguing, specific descriptions of notable eventsa]He
offers astute character sketches of the principal playersa]Mapping
the firmas tangled loyalties and fiefdoms, Ellis paints a Darwinian
portrait of fierce competitors who played people along with the
markets.a a"Kirkus Reviews"
aIn tracing its more than 100 years of history, Ellis follows a
constant roller- coaster ride from life- threatening disasters to
glorious triumphs and back again, showing all the while how an
ever- growing penchant for risk propelled the firm into the new
world of complex derivativesa]At this moment, "The Partnership" is
a must-read.a
a"Barronas"
aJust 10 days ago, Goldman Sachs chief executive Lloyd Blankfein
made the stunning announcement -- during this season of
jaw-dropping developments on Wall Street -- that the renowned
investment-banking firm would morph into a traditional bank holding
company, accepting onerous regulation in exchange for much-needed
access to cash reserves. How could this happen to the country's
most powerful investment bank? Charles D. Ellis's engaging history
of the company, ""The Partnership,"" provides some clues -- about
Goldman Sachs and about Wall Street writ large.
""The Partnership"" follows the firm from its beginnings as a
commercial- paper dealer in 1869 (essentially recruiting investors
to extend lines of credit to companies) to its emergence as the
world's pre-eminent financial- services firm. A much-debated
decision to sell Goldman shares to the public in 1999 was a
watershed event, perhaps encouraging riskier behavior than would
have been tolerated by partners with their own capital at stake.
Similarly, the explosion in proprietary trading profits in recent
years -- from trades using the bank's own money -- propelled
overconfident Goldman bankers to up their bets.
Obviously, Mr. Ellis, a longtime consultant at Goldman, finished
his chronicle before the big storm hit Wall Street. Still, his
reporting suggests a company that, through well more than a century
of investing and trading, has repeatedly found ways of reinventing
itself, by exploiting the weakness of its rivals and by mastering
new financial specialities -- e.g., block trading, corporate
underwriting, commodities trading and arbitrage. Though recently
transformed, Goldman is unlikely to slink away.
Goldman's longascent to Wall Street's first ranks began a century
ago when Henry Goldman undertook to raise money for industrial
enterprises, many of which were regarded as "Jewish" companies and
shunned by the established Wall Street firms. Struggling to find
investors for companies light on assets, Goldman hit on a novel
concept for determining market value: earning power. In partnership
with the well-capitalized Lehman Brothers, Goldman floated
financing for companies that included United Cigar, Worthington
Pump and Sears, Roebuck & Co.
In an eerie forerunner of today's disasters, Waddill Catchings,
Henry Goldman's successor, would very nearly destroy the firm in
the 1920s by placing much of the partners' capital behind Goldman
Sachs Trading Corp. This "investment trust" was an excessively
leveraged and complex structure that collapsed when one of the
subsidiary organizations was suddenly unable to pay a dividend. As
Mr. Ellis writes: "Goldman Sachs Trading . . . became one of the
largest, swiftest, and most complete investment disasters of the
twentieth century."
Out of the rubble emerged Sidney Weinberg, a street-smart kid from
Brooklyn, who rebuilt Goldman's reputation and kept the company
afloat through the largely unprofitable years from 1929 to the end
of World War II. Taking advantage of Weinberg's dozens of powerful
corporate directorships, Goldman became an underwriting
powerhouse.
From 1930 to 1969, Weinberg ruled the roost; his aversion to
publicity became part of Goldman orthodoxy. He also had a healthy
disdain for arrogance. As related by John Whitehead -- who worked
at Goldman for more than three decades and eventually became
co-chairman in the 1970s -- Weinberg boughtup Phi Beta Kappa keys
from pawnshops all over Brooklyn. "If he had a stuffed shirt going
on and on for too long about something," Weinberg "would pull the
wire full of PBK keys out of his drawer and say admiringly, 'Gee,
you're so awfully smart, you should have one of these.' "
Weinberg was followed by Gus Levy, a "shirtsleeves, no-frills guy"
who pushed Goldman into the block trading of large groups of stocks
or bonds. His strong work ethic and his belief in teamwork became a
signature of Goldman's much- vaunted culture. During Levy's
leadership, Goldman was nearly driven out of business a second
time, when the Penn Central railroad went bankrupt in 1970. Because
it was Penn Central's commercial-paper dealer, Goldman was sued not
only for losing investors' money but also for not informing clients
that its privileged information had caused the firm itself to dump
Penn Central's paper. Goldman was censured by the Securities and
Exchange Commission and lost tens of millions of dollars in the
aftermath.
The firm had righted itself by the mid-1970s and for the next
decade flourished under Mr. Whitehead and his co-chairman, John
Weinberg (Sidney's son). Lloyd Blankfein, Goldman's current chief
executive, rose at the firm because of his sponsorship of principal
"risk-embracing" investing -- in other words, putting the firm
itself in the position of directly buying and selling securities.
The last chapter of "The Partnership" is titled "Lloyd Blankfein:
Risk Manager." Whether Mr. Blankfein has appropriately responded to
the unprecedented challenges in today's markets a or indeed whether
he precipitated some of the problems through his enthusiasm for
principal trading a is an openquestion.
It might be just as well that ""The Partnership"" ends before
Goldman's recent convulsions -- Mr. Ellis is not the ideal
candidate to dig up the story of what went wrong. In his afterword,
he says that his consultancy, Greenwich Associates, has worked with
Goldman for more than three decades. His many friendships brought
him unparalleled access to the notoriously publicity-shy firm, but
his closeness also results in a book that at times sounds like an
authorized corporate history. Statements such as "philanthropy and
public service are more important to Goldman Sachs people . . .
than to any other comparable group" will have rivals grinding their
teeth. He also tends to tread carefully when discussing the firm's
past problems -- an irksome quality, yes, but a tolerable one,
given the attractions of an inside view of what was once a Wall
Street titan and -- who knows? -- may be again.a
aLiz Peek, "The Wall Street Journal"
aAs Goldman Sachs faces its greatest challenge, an important new
history shows that the American investment bank is no stranger to
adversity.
When Marcus Goldman, a Jewish immigrant from Bavaria, founded a
small commercial-paper dealer in New York in 1869, he hardly could
have imagined it would one day become the worldas most envied and
profitable investment bank. Equally shocking to him would have been
the hurricane that has descended on markets this year, wrecking the
investment-bank business model, which relies on fickle short-term
funding, and laying low entire institutions. Three of Americaas
five independent investment banks have been swallowed by rivals or
the abyss. The two that remain, Goldman Sachs and Morgan Stanley,
have opted under intense pressure from market forces to become bank
holding companies, a move that will subject them to tougher capital
requirements and supervision.
A year that has seen the emasculation of Americaas brokerages may
not seem the ideal time to reflect on what made the erstwhile
industry leader great. But, amid the torrent of negative news,
Charles Ellisas exhaustively researched history of Goldman Sachs
paints a convincing picture of an institution that has got most of
the important things right. It is an organisation America can be
proud of, even as it is forced to reinvent itself to survive.
Mr Ellis, a consultant who has worked with the bank for more than
30 years, sees strengths aplenty. Goldman attracts the best and,
with a recruitment process that redefines rigorous, hires the very
best. The accent has always been on regeneration: partners are
encouraged to move on to allow fresh blood to come through; many go
on to public service. Hank Paulson, Americaas treasury secretary
and the architect of the restructuring of the banking system, and
Bob Zoellick, head of the World Bank, are two examples.
The dedication of employees is legendary. Lloyd Blankfein, the
chief executive, describes the culture as a blend of confidence and
aan inbred insecurity that drives people to keep working and
producing long after they need to. We cringe at the prospect of not
being liked by a client.a Even before the crisis, when Goldman was
earning profits to make Croesus blush (it is still profitable), Mr
Blankfein seemed more anxious than arrogant. Yet loyalty sometimes
spills over into inexcusable behaviour, as when a female job
candidate was asked if she would have an abortion rather than lose
the chance to work on a big deal.
Much of the success comes from daring to think big. When Goldman
said it wanted to break Deutsche Bankas stranglehold on Germanyas
biggest corporations, local staff laughed. But after years of
persistence it managed to do just that, prompting Deutscheas then
boss, Hilmar Kopper, to declare: aNobody irritates me like Goldman
Sachs. You get mandates we have not expected you to be even
considered for!a
But in fighting for business, Goldman never reached the lows of
brazenness of, say, Salomon Brothers in the 1980s. Indeed, its
bankers were once dubbed abillionaire boy scoutsa, due to their
talent for making lots of money while keeping their noses clean. It
is, as one partner put it, along-term greedya. Better to forgo
profit today than take it and alienate a client that might produce
a lot more business over the long haul. Goldman refused to advise
on hostile takeovers until the late 1990s.
It has also trodden gingerly when it comes to grand strategic
moves, avoiding the headline-grabbing mergers embraced by so many
of its rivals. When he ran the firm, Mr. Paulson nearly tied the
knot with JPMorgan (now JPMorgan Chase) but balked at the last
moment, fearing the deal would dilute Goldmanas close-knit culture.
One of the firmas 14 guiding aPrinciplesa is that it should be big
enough to serve any client, but small enough to maintain its esprit
de corps.
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