Wall Street juggernaut
T. R. RAJAN
THE PARTNERSHIP — A History of Goldman Sachs: Charles D. Ellis; Allen Lane, Penguin Books India Pvt. Ltd., 11, Community Centre, Panchsheel Enclave, New Delhi-110017. Rs.995.
Among the major investment banks in the U.S., Goldman Sachs (GS) is one of the only two survivors of what future economic historians may call the “Big Crash of 2008” or the “Death of Titans 2008”. Thus the launch of this book could not have been timed better. The firm was established in New York around 1870 by Marcus Goldman, a small-time Bavarian Jewish immigrant and a rank outsider among the then decidedly WASP Wall Street establishment. With the induction of Marcus’s son-in-law Samuel Sachs, it renamed itself as Goldman Sachs in 1888. The name remains unchanged even though there is no Goldman in the firm and no Sachs has any substantial holding in it. No one then would have imagined that from such beginnings, Goldman Sachs would one day emerge as the gold standard for investment banks.
Meteoric rise
GS almost went under in the late 1920’s during the last year of Waddill Catching’s watch as chief executive officer (CEO). He was responsible for its meteoric rise, but had almost stopped consulting other partners when major deals were consummated. Successes led him to believe that he could never go wrong. But the market crash of October 1929 saw the shares of GS’s trust company, a Catching creation, plummeting from a high of $326 to just $1.75 ( À la Bear Stearns’ collapse last year). It took the genius and tenacious boldness of Sidney Weinberg, supported by “the stamina and persistence (of the Sachs family) over twenty long years of staying with the firm,” to bring it out of the woods. The Sachs family also ungrudgingly and wisely gave the reins of the firm to the more competent Weinberg, though he was neither a member nor a relation of either founding family. After Weinberg came Gus Levy, followed by John Weinberg and John Whitehead, Robert Rubin and Stephen Friedman as co-senior partners, Jon Corzine, Henry Paulson, and currently Lloyd Blankfein. Each left his distinct mark on the firm and Ellis has many interesting tales to tell about them. The partners have always been encouraged to accept senior appointments in government. This specific aspect of American corporate life, which the GS shares with other major corporates, has helped it to have friends in high places. I would like to recommend the chapter “Principles” to readers, especially to those from service firms. It enunciates in great detail the principles which guide the firm in its practice. One might quarrel with this degree of elaboration. But such elucidation helps in communicating an organisation’s philosophy and principles to a big internal audience. It is not as if the GS had only a big string of successes in its long history after the 1929 crash. From time to time, it has been hit by its share of “Black Swans” such as the “Wreck of Penn Central”, Robert Maxwell (described vividly as ‘the Client from Hell’), the Long Term Capital Management fiasco and most recently the fallout from the sub-prime crisis. Each time it managed to survive partly due to luck. Today, that it has received $ 5 billion backing from none other than Warren Buffett can only help. On the other hand, it is a moot point whether becoming a traditional bank holding company, as GS did recently, would cramp its style.
Ringside view
The author has been working with Goldman Sachs (through his consulting firm Greenwich Associates) for almost three decades. This has afforded him a ringside seat from where to watch and vicariously participate in many happenings in the firm, besides developing friendship with many of its partners. The book has been in the making for about a decade and Ellis has had innumerable conversations within the bank and those closely linked to it. This has its pluses and minuses — lending credibility and realism to reconstructed conversations on the one hand, while being almost panegyric and glossing over its shortcomings on the other.
The book is far too long. The reading pleasure could have been greatly enhanced with taut editing.
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