Goldman Sachs Chief Executive Blankfein Chip Somodevilla/Getty Images
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The bankers at Goldman Sachs (GS), by traditional measures, ought to be on top of the world. Eighteen months removed from the depths of the financial crisis, Goldman posted a $13.4 billion profit in 2009, a Wall Street record. When Chief Executive Officer Lloyd Blankfein went on a recruiting trip to Stanford, he was greeted by an overflow crowd. Goldman cast off its Troubled Asset Relief Program yoke and proceeded to pay its employees more than $16 billion. The firm is moving into a new $2.1 billion headquarters on the Hudson River.
Goldman's reputation with its clients—who must have at least $10 million to open an account—has never been better. Among the general public, however, the perception is that Goldman is the toxic epicenter of everything wrong with Wall Street. The firm's 32,000 employees are seen as an army of Gordon Gekkos, greedy manipulators who pumped up the housing bubble, then bet opportunistically on its implosion as American International Group (AIG), its trading partner, buckled under massive debts. It is widely alleged—though unproven—that Goldman called on its close friends in government to arrange for an AIG bailout, effectively pocketing billions of taxpayer dollars. "Every game has a sucker," says William K. Black, a professor of law and economics at the University of Missouri at Kansas City who was deputy director of the Federal Savings & Loan Insurance Corp., "and in this case, the sucker was not so much AIG as it was the U.S. government and taxpayer."
Heads Goldman wins, tails you lose, America.
All this public opprobrium has cut into the sublime contentedness that once came with making partner at Goldman Sachs. Executives warn that the firm's position as the whipping boy for a public enraged by financial industry bailouts will crimp future profits. It now has few friends in Washington. Even the market is discounting Goldman, though the company commands the highest return on equity of any major bank—nearly four times JPMorgan Chase's (JPM). Today the market values Goldman Sachs shares at just less than half the book multiple at which they sold when Goldman went public 11 years ago. Changes have been made to compensation practices. The firm announced in December that its top 30 executives would, for one year, receive bonuses entirely in long-term stock. More than that, Goldman's leaders say the vilification is unjustified. "This," says Chief Financial Officer David A. Viniar, "has been one of the most frustrating experiences of my 30 years with the firm."
The real story of what Goldman did is so much simpler than the conspiracy theories, says Viniar. Faced with a crisis they didn't foresee, Goldman bankers merely did their jobs, no more and no less. The firm had no subprime agenda, no motives that were at odds with those of their clients. If they were half as smart and devious as the public believes, Goldman would have done far better than it did in 2008.
For the past year, as its name was sullied, Goldman maintained a bunker strategy, largely fending off media inquiries. (The one major exception proved to be a disaster. After Blankfein sat for an interview with the London Times in November 2009, he famously quipped, when he thought he was off the record, that he was just a banker "doing God's work.") That fleeting attempt at humor created a weeks-long media storm, after which Goldman stopped trying to defend itself.
Now, Goldman has shifted tactics. On Apr. 7 it will release its 2009 annual report with a letter to shareholders that will, for the first time, explicitly defend its conduct during the mortgage bubble and subsequent collapse. In advance of that, the firm made available to Bloomberg BusinessWeek several top officials, including Viniar; Harvey M. Schwartz, who is co-head of the global securities division, which includes the derivatives and mortgage trading desk; and Craig W. Broderick, the firm's top risk manager.
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