'A great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money'
Number 85 Broad Street, a dull, rust-coloured office block in lower Manhattan, doesn't look like a place to stop and stare, and that's just the way the people who work there like it. The men and women who arrive in the watery dawn sunshine, dressed in Wall Street black, clutching black briefcases and BlackBerrys, are very, very private. There's no name plate on the building, no sign on the front desk and the armed policeman stationed outside isn't saying who works there.
There's a good reason for the secrecy. Number 85 Broad Street, New York, is where the money is. All of it.
It's the site of the best cash-making machine that global capitalism has ever produced, and, some say, a political force more powerful than governments. The people who work behind the brass-trim glass doors make more money than some countries do. They are the biggest swinging dicks in the financial jungle. Their assets total $1-trillion, their annual revenues run into the tens of billions, and their profits are in the billions, which they distribute among themselves.
Average pay this recessionary year for the 30000 staff is expected to be a record $700000. Top earners will get tens of millions, several hundred thousand times more than a cleaner at the firm.
When they have finished getting "filthy rich by 40", as the company saying goes, these alpha dogs don't put their feet up. They parachute into some of the most senior political posts in the US and beyond, prompting accusations that they "rule the world".
Number 85 Broad Street is the home of Goldman Sachs.
The world's most successful investment bank likes to hide behind the tidal wave of money it generates and sends crashing over Manhattan and most of the world's other financial capitals. But now the dark knights of banking are being forced, blinking, into the cold light of day. The public, politicians and the press blame bankers' reckless trading for the credit crunch and, as the most successful bank still standing, Goldman is their prime target.
Politicians and commentators compete to denounce Goldman, contrasting the bank's recent record results - profits of $3.2-billion in the last quarter alone - and its planned bumper bonus payments with what has happened to ordinary people's jobs and incomes in 2009.
Rolling Stone magazine ran a story that described Goldman as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money".
Goldman's reputation is suddenly as toxic as the exotic financial instruments it used to buy with glee. That's bad for the one thing it values more than anything else: business.
So it has, reluctantly, decided that the time has come to speak out, to fight its corner. That's how, on a bright autumnal New York morning, I find myself walking past the security guard and into the building with no name.
"Aha! You catch us plotting in real time," says Lloyd Blankfein, breaking away from a cabal of senior executives discussing his trip to Washington the previous day. Blankfein, 55, Goldman's chairman and chief executive, is wearing a grey suit with a jaunty Hermès tie with little red bicycles on it. He's in a remarkably jolly mood for a man everyone seems to hate.
"It's like a safari here," he jokes. "You've come in to look at the animals."
Blankfein may be Wall Street's Sun God, but, with the economic outlook stormy, he doesn't want to advertise it, so the merest hint of a status symbol is airbrushed out of his life, publicly, at least. Take his office on the 30th floor. The chairs are the same ones that were there when he became CEO three years ago. There's no sign of irrational exuberance. Only coffee, which arrives cold. It sets just the right tone for the job in hand.
The grand wizard of Wall Street is steeling himself for the hardest sell of his life: he's here to argue for good ol' capitalism, for investment banks and for Goldman Sachs.
He starts with a little humility. He understands that "people are pissed off, mad, and bent out of shape" at bankers' actions. Goldman played its part in the meltdown that almost destroyed the global financial system. It, like most other banks, lent too much money, made its first quarterly loss for more than a decade last year and ended up taking bail-out cash from Washington. "I know I could slit my wrists and people would cheer," he says. But then, he slowly begins to argue the case for modern banking. "We're very important," he says .
"We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It's a virtuous cycle." To drive home his point, he makes a remarkably bold claim: "We have a social purpose."
A blue-collar guy
Social purpose? Those who have lost their jobs or seen their pay slashed thanks to bankers who flogged dodgy mortgages would gladly tell him where to stick his social purpose. But the problem is, Blankfein is a good advertisement for wealth creation. His own. Born in a tough neighbourhood in the Bronx, the son of a postal worker and a receptionist, he was the first in his family to go to college and used financial aid to go to Harvard University.
Even though he proudly pays himself more in a year than most of us could ever dream of - $68-million in 2007 alone, a record for any Wall Street CEO, to add to the more than $500-million of Goldman stock he owns - he insists he's still "a blue-collar guy".
But what about the charge sheet? Bankers brought the world to the brink of bankruptcy, and, instead of doing the decent thing and jumping out of the nearest window, they turned up cap in hand to governments to vacuum up taxpayers' money.
Now, just one year on, they are carrying on as if nothing has happened, gambling, and winning, handsomely, with our cash.
Goldman is coining it again for two reasons. First, global markets are booming - up 50% from the credit-crunch lows, as new money, much of it from governments, has gushed into the financial system. Second, with Lehman Brothers and Bear Stearns off the street, Merrill Lynch a crippled shadow of its former self, and neither Citigroup nor UBS the forces of old, Goldman has a bigger slice of a growing pie.
"We didn't f*** up like the other guys. So, now we've got a bigger and richer pot to piss in," is how one Goldman banker puts it. Small wonder the bank is on course to set aside over $20-billion for salaries and bonuses.
'You should be happy'
So far, so lucrative. But isn't it simply unfair? Isn't Goldman acting as the modern equivalent of a war-time profiteer? Even the veteran financier George Soros says the big profits made by Wall Street banks are "hidden gifts" from the state.
Blankfein dismisses any suggestion that Goldman needed to be bailed out, and, by extension, rejects any notion that the firm is now profiting from public support. Sure, he took $10-billion from Washington's Troubled Asset Relief Program. But the bank has since repaid the cash, with healthy interest - 23%. Goldman also benefited from the federal bail-out of the huge US insurance firm AIG and, at the height of the crisis, the Federal Reserve broke with an 80-year-old tradition and let Goldman turn itself from a pure investment bank into a bank holding company. This meant it could borrow funds at the same cheap rate as commercial banks for as long as it wanted. Blankfein says Goldman changed status not for the money, but because it had become clear, following the collapse of Bear Stearns and Lehman, that the market had lost faith in the ability of the US Securities and Exchange Commission to regulate investment banks. Being regulated by the central bank, the Federal Reserve, would help to restore confidence in the financial system as a whole.
Whatever the truth behind the bail-out, not even the smartest Goldmanite can deny that it is only thanks to government aid that the bank still has a financial system to work with.
Does Blankfein not acknowledge that it is maddening for most of us to watch Goldman gobble up so much cash while we struggle? Quite the opposite. He insists we should be celebrating his bank's success, not condemning it. "Everybody should be, frankly, happy," he says. Can he be serious? Deadly. Goldman's performance, he argues, is the firmest indication of a nascent economic recovery that will benefit not just him and his firm but all of us. "The financial system led us into the crisis and it will lead us out."
Blankfein goes on to say something equally audacious. We should welcome the return of titanic paydays at Goldman. Goldman is exempt from President Barack Obama's cap on bonuses because it has paid back bail-out cash.
"You will see a complete correlation throughout our history of having remuneration match performance over the long term. Others made no money and still paid large bonuses. Some are not around any more. I wonder why."
Okay, forget bail-outs, forget bonuses, forget all the money stuff, if you can. Surely Blankfein cannot dodge the playwright David Hare? Through his latest work, The Power of Yes, which tackles the issue of the credit crunch, Hare argues that it is "blackmail" to say that there cannot be a recovery unless we let bankers get on with what they have always done and pay themselves squillions.
The special sauce
Blankfein has no time for such soft talk. "I've got news for you," he shoots back, eyes narrowing. "If the financial system goes down, our business is going down and, trust me, yours and everyone else's is going down, too."
Like a patient who has survived a near-death experience, for Blankfein the credit crunch has rekindled his passion for moneymaking. Talking to him is like talking to a man who has greenbacks, not blood, running through his veins. He believes he's good at what he does and what he does is good.
Like it or loathe it, one thing is unarguable: "Tenacious G" does seem to draw the winning hand in good times and in bad. It begs one simple question. How? What's in the special sauce? To try to find the answer, you have to leave Blankfein's office and take the lift to the 17th floor. On the way, you hear investment bankers, traders, "strats" - strategists - and "quants", the mathematical lizard brains who dream up whizzy trading formulas, discussing "interest rate swaps", "no credit defaults", "exotic and vanilla options", "bid-ask spreads", "bunds", "bobls" and goodness knows what else. You can't see the cash whizzing around 85 Broad Street as you walk through the place, but you can feel it being shuffled 24 hours a day between central, commercial and investment banks, vast companies, Russian oligarchs, Middle Eastern movers and sheikhers, Texas oilmen and secretive billionaires in Bermuda and the Cayman Islands.
In an office with an ink stain on the carpet sits Liz Beshel. She's the first ingredient of Goldman's witches' brew. The firm only hires the very, very brightest and they don't come much sparkier than Beshel. The 40-year-old single mother talks so fast, and with such insight into financial markets, you practically need a degree from Harvard Business School to keep up. She was snapped up by Goldman straight from college and rose quickly though investment banking to become the firm's youngest-ever global treasurer, the keeper of the cash. Today, every pound the firm invests, every yen it borrows, every dollar that flows on and off its balance sheet is under her watchful eye, all $1-trillion a day of it. How much cash does the bank have right now? I ask. "$164.2-billion in cash or cash equivalents," she replies without pausing for thought.
It is thanks to rat-tat-tat intellects like Beshel that Goldman Sachs not only has so much money, but tends to be good at hanging onto it. Staff rigorously price the bank's assets every day, down to the last cent, and forensically examine daily profit and loss. This helps the bank to see market trends clearly and early and, it believes, to manage risk better than most other banks.
"We think we make better decisions," says Beshel. There's evidence to support the claim. Take the sub-prime mortgage sector, the ticking toxic debt bomb that detonated the economic crisis. One year before bad home loans brought down Lehman and Bear Stearns et al, Goldman's daily valuations revealed it had suffered modest losses in its mortgage holdings for just over a week. At most banks, the losses might have gone unnoticed or been dismissed as a rounding error, but Goldman convened a meeting of senior bankers to try to find out what was going on. The bank did not like what it saw and began reducing its exposure. When the credit crunch hit, its losses in the mortgage sector were only $1.7-billion, lower than any other big investment bank.
Being smarter than the average bear is one thing, but to be a Goldmanite you have to work harder than the average bear too. Ask Sarah Smith, 50, a former convent schoolgirl who left Britain to become Goldman's chief accountant. "It's a 24/7 culture," she says. "When you're needed, you're here. And if you're needed and you're not answering your phone, you won't be needed very long."
'A clever gang of thugs'
Smith, whose office is a BlackBerry throw away from the Embassy Suites hotel, where Goldman staff go for an hour or two's sleep when they have been up so long that they start sleepwalking, only had a few days' holiday last year. How many weeks off does she get in a year?
"I don't know. No one really knows how much holiday you get because nobody ever takes it all." The big brains and brutal work ethic help to give Goldman the edge when it comes to snagging the richest clients.
One veteran Goldman banker explains: "You are programmed at an early stage to go out more than the other guy, to see more people - clients, hedge funds or private equity guys."
Goldman staffers are also trained to "brain-pick" contacts and clients harder than the other guy. Other banks do not get such good information, and what information individual bankers do get, they tend not to share because they regard it as power they can use to benefit individually.
"Goldman is not like that," the veteran banker says. "It's a team effort." Or, as one rival banker puts it, "They're a clever gang - of thugs."
Dane Holmes, 39, Goldman's head of investor relations, is a former college basketball player. He looks like he could run straight through opponents if he wanted to. But, he says: "That's not the way Goldman works. You can have a great career in banking as an individual, but it won't be here. The system weeds out those who can't play nicely with others."
When Goldman gets behind something, everyone in the giant hive wants a piece of the action. Take this article. Once the bank had agreed to talk, it was hard to get senior executives to shut up. One, Michael Sherwood, 44, co-boss of Europe, flew back to the firm's London headquarters from the International Monetary Fund's meeting in Istanbul for a 40-minute interview before jetting off again straight away to see clients in the Gulf.
The idea of teamwork goes right to the top. Goldman may not be a private partnership any more - it went public a decade ago - but the bosses work hard to foster a family-style approach. Others say it feels more like a cult, but they mean it as a compliment.
Weeding out the jerks
Some of its practices make perfect sense. Bonuses, for example, are not based on personal performance, as they are at many banks, but on the performance of the firm as a whole, and partners receive a sizable chunk of their remuneration in stock that they cannot sell until they leave the firm. It weeds out what Dina Powell, 36, the firecracker Egyptian-American boss of Goldman's philanthropic arm, calls "egomaniac jerks", who might be tempted to bet the farm on red in the hope of skewering a bigger bonus.
Other practices are distinctly creepy. Goldmanites are forced to check their secure voice mail morning, noon and night for the latest bon mots of Blankfein and Eileen Dillon, 48, who is officially head of operations for the executive office but unofficially camp counsellor. Goldman is the biggest user of voice mail in the world. The "mind bullets" consist of anything from the latest profit and loss figures, to reports of what the chief executives of key clients have told him over lunch, to instructions to "switch off on holiday, for goodness sake".
No calls to meet in the basement to club baby seals first thing in the morning to get in the mood for a hard day's banking? "God, no," one staffer says wryly. "We don't club baby seals. We club babies."
'It's an addiction'
What makes people who are bright enough to do anything they want put up with the days-into-nights-into-days working and the dorkish corporate groupthink? There's the money, of course. Goldman Sachs isn't nicknamed "Goldmine Sachs" for nothing. There's so much of the stuff sloshing around that in an average year a good investment banking partner will make $3.5-million, a good trading partner $7-million to $10-million and a management committee member $15-million to $25-million. About 950 employees got bonuses of at least $1-million in 2008. One former Goldman banker describes the culture as "completely money-obsessed. I was like a donkey, driven forward by the biggest, juiciest carrot I could imagine. Money is the way you define your success. There's always room - need - for more. If you are not getting a bigger house or a bigger boat, you're falling behind. It's an addiction."
But there's another powerful motivator: doubt. There may be arrogance at 85 Broad Street - behind closed doors, Blankfein likes to joke (but not really) that he has "attained perfection" - but behind the bravado, Goldmanites, curiously, question their ability. "There is a deep and constant paranoia about everything we do," says Sherwood. It applies to an individual's performance and the prospects for the firm.
Insecurity is hard-wired into the system. Most applicants are interviewed at least 20 times before they are made an offer, and some more than 30 times. Once hired, each staff member is constantly and confidentially reviewed by those they work with. At Goldman, people are money. It's up, or out. "We say goodbye to the bottom 3% to 5% every year (about 1500 people)," says Richard Gnodde, 49, co-boss of the European operation, based in London.
Taking type-A people, making them feel like type-B people and moulding them into kick-ass teams that work every hour God - sorry, Goldman - sends, is important, no doubt. But it's not Goldman's killer skill. That is its extraordinary networking ability. The firm is the greatest talent network in the world. Unlike at other banks, top performers are encouraged to get on, make all the money they will ever need in their thirties, then get out to "do good". The average tenure of a partner is eight years. "You don't join for the retirement programme," says one staffer. "You have your phase of the moon to make money and then f*** off."
But doing good does not mean running an HIV clinic in Kinshasa, it means getting top jobs in treasuries, central banks and stock exchanges around the world. The list of former Goldman executives who have held key posts in New York and Washington alone is mind-boggling, from the treasury secretary under President Bill Clinton (Robert Rubin) to the economic adviser to the secretary of state, Hillary Clinton, (Robert Hormats). Small wonder that another of Goldman's nicknames is "Government Sachs".
Critics say having friends in high places gives the firm the vital edge. Key government officials, they argue, discuss policy - privately - with Goldman chiefs more than executives from other banks.
But Goldman vigorously denies that having so many former staffers in top political posts means it receives special treatment.
Blowing bubbles
The more time you spend in 85 Broad Street, the more you get the feeling that Goldman is the overachieving child of globalisation. It has the best, brightest and hardest-working in global finance and government in its pocket. Even the critics agree.
But they add that the well-greased machine does other things that ensure its success, things that the bank is less keen to talk about. While the whizzo teams might manage risk well and get out of bull markets at just the right time, they play their part in inflating the bubbles in the first place - and pocket a fortune doing so. Goldman has benefited from the upside of all the recent booms - dot.com, commodities, housing - and, critics say, was involved in stoking them by handling share offerings for big clients and by trading securities and debt before pulling back.
Detractors also accuse the bank's trading and investment-banking arms of "playing both sides" of the market. Goldman trades securities for big firms and pension funds. It also acts as adviser to many of the companies whose securities it trades. This means the firm has a view on what everyone in the market is doing.
Casino capitalism
Say an investor approaches Goldman and says it wants to buy into the oil market. Goldman can offer an accurate view of what is likely to happen in that market because it knows what its own corporate energy clients are doing on its advice and what other big investors are trading. This also means the bank can do well on its own oil trades. Critics liken this to a huge casino, in which the house knows every hand at the table and uses that information to enrich itself at the expense of everyone else. Goldman dismisses charges of "casino capitalism". The more market information it has, it argues, the better it can advise companies and the better it can match buyers with sellers and get the best prices in the markets. It emphatically denies it misuses information or acts unethically. Strict "Chinese walls" between traders and advisers prevent any conflicts of interest. Regulations are so tight that if an investment banker so much as tries to enter a trading floor using their electronic office pass, not only will the pass not work, but he or she will be hauled in for questioning.
Whatever alchemy it uses, one thing is certain: Goldman has dodged the credit-crunch bullet and is emerging from the crisis stronger than ever. To the victor, the spoils. But the patient might find cheating death easier than pacifying the public. Many remain unconvinced that, while Goldman may be big and clever, it is a force for good.
'Long-term greedy'
World leaders and financial regulators are trying to draw up plans to limit what banks like Goldman can do and how they can pay their staff.
With his bulldog-like belief in the purity and efficiency of the free market, you would not imagine this would be a fight Blankfein would relish. But the funny thing is, he's up for it, because he thinks it will make banking safer and enable Goldman to make even more money in future.
"Those government pronouncements that have come out so far are on the right track," he says. Paying staff for performance, and paying in deferred stock awards as well as cash to ensure long-term success, is "desirable and something we already do". "Greedy, but long-term greedy," is how Goldmanites describe the bank's investment and payment policies.
Blankfein backs proposals to ensure banks are better capitalised. "If we didn't understand the limits of unfettered capitalism before, we sure do now. Anything that makes the system better, safer, is good for us."
Too much ambition
For Blankfein, in the end, it all comes down to one thing: finding the best, fastest, and safest way to make money with money, then make some more money, with money on top. He's not interested in a reality check, just a bumper pay cheque for his clients, for his firm, for his staff, for his shareholders and, eventually, he believes, for us. His almost religious devotion to the dogma of finance is thrown into stark relief just before I walk out of the building with no name and find myself back in the autumn sunshine. I ask him the question that, in these troubled times, you'd think anyone would pause before answering: Is it possible to make too much money?
"Is it possible to have too much ambition? Is it possible to be too successful?" Blankfein shoots back. "I don't want people in this firm to think that they have accomplished as much for themselves as they can and go on vacation. As the guardian of the interests of the shareholders and, by the way, for the purposes of society, I'd like them to continue to do what they are doing. I don't want to put a cap on their ambition. It's hard for me to argue for a cap on their compensation."
So, it's business as usual, then, regardless of whether it makes most people howl at the moon with rage? An impish grin spreads across Blankfein's face. Call him a fat cat who mocks the public. Call him wicked. Call him what you will. He is, he says, just a banker "doing God's work".
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