Blankfein's Up From Nothing Path to Success

William Cohan Fortune April 22, 2011

In this book excerpt from MONEY AND POWER: How Goldman Sachs Came to Rule the World, author William D. Cohan examines Lloyd Blankfein's up-from-nothing story, and finds out why Hank Paulson would've rather had no one else as Goldman Sachs's CEO.

By William D. Cohan, contributor

Lloyd Blankfein

Lloyd Blankfein's path tothe pinnacle of ?nance nearly rivals for degree of dif?culty that of his legendary predecessor Sidney Weinberg, who was one of eleven children of a Brooklyn bootlegger and started working at Goldman Sachs as a gofer shining spittoons, in 1907, a few years removed from elementary school. Blankfein moved with his family from the South Bronx—where he was born—to 295 Cozine Avenue, in the East New York section of Brooklyn, "in search of a better life," he explained. He was three years old.

The family lived in the Linden Houses, a complex of nineteen buildings completed in 1957 that contained 1,590 apartments and was— at the time— a predominantly white, Jewish, public housing project. After losing his job driving a bakery truck, Blankfein's father, Seymour, took a job sorting mail at night at the post of?ce — "which in our neck of the woods was considered to be a very good job, because you couldn't lose it," Blankfein said. The late shift paid 10 percent more than the day shift. "For the last few years of his life I'm sure he was doing something that a machine would have done better and more ef?ciently," he said. Blankfein's mother worked as a receptionist at a burglar-alarm company—"one of the few growth industries in my neighborhood." Blankfein shared a bedroom with his grandmother; his divorced older sister and her son were in the next bedroom.

Richard Kalb, who grew up with Blankfein and has remained friendly with him, said his father worked at the post of?ce, too. "But Lloyd always teased me that my dad was a manager and his was a worker," he said. Kalb and Blankfein went together to the local public school and to Hebrew school at B'nai Israel, near the Linden Houses. They were both part of a program in junior high school that allowed them to complete three years of school in two years by skipping eighth grade. In junior high school Blankfein was "voted most likely to succeed," Kalb said. They were both bar mitzvahed the same year. Blankfein celebrated his at the Astorian Manor—"the ?nest in catering," it boasted in neon lettering on its façade—in Queens, with a band, dancing, and a smorgasbord. "He was brilliant as a twelve-year- old boy," Rabbi Abner German said about Blankfein. "He was a great planner." To earn some spending money while attending Thomas Jefferson High School in his Brooklyn neighborhood, Blankfein worked as a lifeguard and got himself into better shape, after years of struggling with his weight. He would also regularly hawk hot dogs and soda at Yankee Stadium, in the Bronx. Blankfein would ask Kalb to go work with him, but Kalb would always decline. "And of course I work for the government now"—at the Department of Homeland Security—"and he's the CEO of Goldman Sachs (GS)," he said.

While Kalb and Blankfein were in high school, in the early 1970s, the neighborhood started to deteriorate economically. Two gangs, the Black Panthers—not the better-known political organization of the same name— and the Young Lords, seemed to hold sway at the school. Blankfein would take the bus there in the morning but "if there was a big fuss in front of the building or there was a lot going on or there were policemen, you stayed on the bus and you took it around again and just went home," he said. He adapted to his surroundings and learned to be "careful" but was not isolated. "Even in the projects, there were kids around all the time," he said, and pickup games were easy to come by. "[T]he problem with trying to play football is you ended up with sixteen people on each side," he said. He was a diligent student and, according to Kalb, the teachers loved him. "He was very personable, very witty, and very smart," he said. "So he could interact with them on their level much better than I think most of the rest of us could."

For his part, Blankfein said he did well in school not because he was "some roaring genius" but because he wanted to succeed, whereas most of his classmates couldn't have cared less. "It was easy to distinguish yourself but the motivation to distinguish yourself was a lot harder to come by," he said. He could have graduated at ?fteen but stayed for another year. He was the school's valedictorian, class of 1971. "You survive at either one of two things," Robert Steel, one of Blankfein's former partners at Goldman, remembered Blankfein told him about Jefferson High; "you were either a great athlete or funny and entertaining, and I decided to go with funny and entertaining." Harvard recruited at Thomas Jefferson High School, spotted Blankfein, accepted him, and offered up a combination of ?nancial aid and scholarships to make it possible for him to attend. The ?rst time he had ever seen someone wear a tie and jacket— without matching suit pants— was when he went to the Harvard Club, in Manhattan, for his Harvard interview.

At Harvard, he found himself surrounded by a bouillabaisse of legacy students, rich kids, and prepsters, many of whom seemed to know which ?nal clubs to join and how to make the connections that might last a lifetime. Not Blankfein. He was a scholarship student, had to work in the cafeteria, and was shunned by the social clubs. "I was as provincial as you could be, albeit from Brooklyn, the province of Brooklyn," he said. He remembered that when he read TheCatcher in the Rye,he didn't realize Holden Caul?eld was in high school because he kept referring to his "prep" school. "I always thought that a prep school was what some people went to afterhigh school to prepare themselves for college," he said.

Blankfein was young and knew it. He settled into a group of friends who shared his modest upbringing (To this day, many of Blankfein's closest friends come from his youth.) He seemed oblivious to the social jockeying swirling around him. "I wasn't defensiveabout thefact that I was working," he said. "I always felt that it was the legacy kids that had to justify themselves." David Drizzle, the son of a brick-factory worker in Atlanta, was Blankfein's roommate in Winthrop House, at Harvard. He is now chief counsel at the Federal Aviation Administration. "We were completely unprepared for the world that we entered into," he said of the two of them. "It wasn't the money, because at that time in our society, the ï¬?aunting of wealth was pretty much looked down on. But there was a worldliness that most of the students had that he and I were just completely lacking. And so we were socially at sea when we arrived there, and I think that's one of the things that drew us together." Added another friend from Harvard, Roy Geronemus, a dermatologist and the director of the Laser & Skin Surgery Center of New York, "Many of the people who now would beg for an audience with him would have nothing to do with him [then]."

Since Blankfein had been on his high-school swim team, he thought he'd give Harvard's a try. He said he had no idea the top prospects had been in contact with the coach— who had been the coach of the 1972 Olympic swim team— for years. "There were Olympic swimmers and Olympic medalists on the Harvard team," he said. "These guys all looked like a different species." In his tryout, he swam a long-distance event. "I'm not built for speed, if you haven't noticed, but I'm built for endurance," he said. The guy he started swimming with in the race was out of the pool and dressed before Blankfein ?nished. "I got out of the pool, I toweled myself off, I put my jeans right on over the thing, and I walked to the boathouse," he said. He thought he'd give crew a try, only to meet another crop of perfect physical specimens. But he made a go of it, and he and Drizzle were on freshman crew together.

He may have been equally clueless about his schoolwork. He was a government major but did not do a thesis, as did many others. "To the extent I bloomed, I'm a late bloomer," Blankfein said. Drizzle said that he and Blankfein used to procrastinate by watching Star Trek every night and having long dinners before tackling the books. "As exam period approached," Drizzle remembered, "a terror would set in that would focus our attention, and we would basically work all night continuously for several nights and swear that we would do a better job the next semester and then would repeat the same experiential procrastination." What classmates seemed to recall most often about Blankfein were his sense of humor and his memory. "He's able to spot irony in ways that I don't know anyone else who can do it," Drizzle said. He also could sing, from memory, nearly every sitcom theme song known to man in the 1970s.

Blankfein remembered how— when he was in grade school— someone once referred to him as being a "Philadelphia lawyer" and "it kind of always stuck with me," he said, and just naturally gravitated to thinking he was going to be a lawyer. He applied to Harvard Law School and was accepted, although he chalked it up to a predilection for accepting students at the law school from Harvard undergrad. "I don't know that if they had taken half as many that I would have been in there," he said. Drizzle said that at Harvard Law, Blankfein buckled down academically, and he "became more studious," but not in a way that would land him on the law review or result in any other scholastic honor. Blankfein conceded that while at Harvard, "at some point, I can't say that I had a disadvantaged background. After a while, I kind of evolved into having an advantaged background."

In 1978, Blankfein graduated from Harvard Law School and took a job as an associate at Donovan, Leisure, a small "old- line" law ?rm founded in 1929, by William J. "Wild Bill" Donovan, who later formed the Of?ce of Strategic Services during World War II and was known as the father of the CIA. (He was the fellow who authorized Sidney Weinberg's espionage work in the Soviet Union during World War II.) Donovan, Leisure was so traditional that "tea ladies" served tea and cookies every afternoon on pushcarts. During his four- year stint at Donovan, Leisure, he represented the ?lm industry in a tax dispute with the IRS and spent his time shuttling between Los Angeles and New York. But he was not particularly devoted to the law. In 1980, as part of his Harvard reunion, Blankfein wrote that in his "spare time," he worked "as a tax lawyer, the only career for a real man of action." In 2000, he described his responsibilities at Donovan, Leisure as being "to keep certain large corporations from paying their fair share of taxes."

He also developed some pretty bad personal habits. Once upon a time, he smoked two to three packs of cigarettes a day. His parents both smoked, and he had started when he was a teenager. But the habit got out of control during law school. "If you have the kind of obsessive personality that I have, you put out a cigarette and you light another cigarette," he said. He was overweight. He said his weight "had gone way, way higher, steadily, ten pounds a year for ?ve or ten" years after getting out of college. He had a beard to compensate for the hair disappearing from the top of his head. "My beard turned white and I looked at myself and I thought I was my grandfather," he said. He often dressed ridiculously or ostentatiously.

He also developed a love for recreational gambling in Las Vegas. While working as a lawyer in Hollywood, he and a fellow associate, Greg Ho, sometimes jumped in a rental car on Friday nights and headed to the beach or the mountains or Sin City for a weekend of blackjack or craps.

On one such gambling outing, they left behind a memo for their bosses: "If we don't show up Monday, it's because we hit the jackpot," it read. By 1981, Blankfein was on partner track at Donovan but then had what he called a "prelife crisis" and decided to "abandon law" and make the switch, if he could, to investment banking, which seemed more "interesting" than the law. He applied for jobs at Morgan Stanley, Dean Witter, and Goldman Sachs. He got no offers. "It wasn't a nutty thing," he said, "because here I was a lawyer but I wasn't even doing ?nance. I was doing kind of tax and tax litigation on the big corporate level." Soon thereafter, a headhunter called and asked him if he would be interested in working at an obscure commodities trading ?rm, J. Aron & Company, which Goldman had purchased in November 1981. "I didn't know what it was," Blankfein said. "There was no reason for them to hire me." When Blankfein told his then ?ancée, Laura Jacobs, that he was leaving law to go to J. Aron, she cried, thinking the comfortable life she was counting on would now be jeopardized. (In an ironic twist, Donovan, Leisure closed its doors a decade ago.) At the end of 1982, Blankfein went to work on the gold bullion sales desk at J. Aron "to trade commodities," he once wrote.

At that time, J. Aron was a serious stepchild at Goldman. For years, J. Aron had made healthy pro?ts, but in the ?rst year of Goldman's stewardship, the ?rm had lost money. The J. Aron employees were forced to ride in a separate elevator in Goldman's 85 Broad Street headquarters. At one point, Blankfein joined a group of J. Aron employees in wearing red suspenders to make fun of their white-shoe brethren. "We were street ?ghters," Dennis Suskind, a former J. Aron partner, told Fortune in 2008. "We didn't wear suspenders." Blankfein was basically clueless about what J. Aron actually did and what he was supposed to do there. "I had trouble with the language, with the speed and the pacing," he said. "I remember an early review where somebody wanted to know why I never spoke— which if you know me it's not my biggest problem today— I think I was sort of in shell shock, just because it was a trading ï¬?oor environment. I'd come from a law ?rm, [with] secretaries outside [the of?ces]. It was a bit of a different culture."

But soon enough, both Blankfein and Goldman started getting serious about J. Aron, especially after Goldman put Mark Winkelman in charge. He ?red underperformers and, at the direction of Robert Rubin, then co-head of Goldman's ?xed- income division, set ambitious new revenue and pro?tability targets for J. Aron. At ?rst, Winkelman was incredulous that J. Aron could earn even $10 million per year, but that modest target was quickly surpassed; in a few years, the business was producing more than $1 billion in pro?t per year, a meaningful chunk of Goldman's overall bottom line. Winkelman took note of Blankfein's raw intelligence. "He was clearly bright and energetic, even dynamic and passionate," Winkelman told Charles Ellis.

As a salesman, Lloyd Blankfein was a major part of J. Aron's success. Early on, he reportedly designed a lucrative $100 million trade— then the largest of its kind Goldman had ever handled— for an Islamic client to get around the religion's rules against receiving interest payments. He became ?ercely defensive of Goldman's mantra of always putting its clients' interests before its own. Winkelman once recalled how he was impressed watching Blankfein grab a phone out of the hands of a fellow trader when that trader was about to berate a client in the aftermath of a money-losing trade. Blankfein ?gured that irritating the client was not part of Goldman's other mantra to be "long-term greedy." In 1984, Winkelman put Blankfein in charge of six foreign exchange salesmen and then in charge of foreign exchange trading. Rubin advised Winkelman against making that move. "That's probably not the right thing to do," Rubin told him. "We've never seen it work to put salespeople in charge of trading in other areas of the ?rm. Are you pretty sure of your analysis?" Winkelman did it anyway. Blankfein said he looked up to Winkelman. "He was very supportive of me and I was very appreciative of him," he said.

Blankfein's career took off as a manager of traders. He seemed to have a sixth sense about when to push them to take more risk and when to take their collective feet off the accelerator. "It's not about hanging onto a predisposition," Blankfein told Fortune. "The best traders are not right more than they are wrong. They are quick adjusters. They are better at getting right when they are wrong." Blankfein, too, was becoming a quick adjuster, not only to the ways of J. Aron but also in his savvy about what it takes to get to the top of a complex ?rm such as Goldman Sachs. Even though he was not a trader per se— he said he ?nds it amusing that people often think he was— he did manage a small trading account with results that could be monitored, "in order to gain credibility with traders," recalled Jacob Gold?eld, a former partner of Blankfein's. "It's not like he turned on a button and magically was a brilliant trader, and then got credibility," he said. "He was taking a risk that he could lose credibility, although maybe he realized that even if he lost money he would get credibility because the credibility of being right isn't so important. The credibility of knowing what a trader experiences when they lose might even be more valuable, so maybe he ?gured out that either way it was good to show that he was learning."

In 1988, along with Bob Steel and some other future Goldman leaders— former co-presidents John Thornton and John Thain, billionaire investor J. Christopher Flowers, hedge-fund manager Frank Brosens, and Gary Gensler, now head of the Commodity Futures Trading Commission— Blankfein was one of thirty-six men (not a single woman) named general partners. His elbows could sometimes be very sharp. "[He had] plenty of energy for the turf battles, and yet he was very good substantively," recalled Gold?eld. "One imagines that usually if you're not good substantively, you've got a lot of energy for turf battles but he was both, which is interesting." He said Blankfein would sometimes send his loyal soldiers to ?ght his turf battles rather than ?ght them himself, and this could be especially unpleasant and was seen as cowardly.

Gold?eld also recalled that Blankfein was endowed with an unusual combination of humility and self-awareness, two traits not normally associated with hugely successful Wall Street executives. He remembered speaking once with Blankfein about whether other women ever tempted him. "He said, 'I'm tempted, I understand [the temptation], and I wouldn't want to blow this up' "—his marriage—" 'so it's a tradeoff.' " When they spoke about the possibility of Blankfein dying young, as his parents had, Blankfein "lamented this possibility because he would fail to see the outcome of the experiment that raising his children is," he recalled.

Blankfein decided to get to work on both his body and his career. He lost weight on the Atkins diet, started using an elliptical exercise machine, started playing "low quality" squash and golf, and made sure to go swimming whenever he got the chance. "One day I just decided that I'm just losing control," he said. "I'm just losing it here and so then I got [my weight] down." He started dressing more like a banker and less like a renegade. At his wife's continuous urging, he also stopped smoking. "That would have been very, very bad if I hadn't stopped, and the person who got me to stop was Laura," he said.

In 1994, in the wake of Winkelman's departure from Goldman after being passed over for the top job in favor of Corzine, Blankfein was selected to run J. Aron. In 1995, he chided his fellow partners for being too risk averse. He left a conference room where they were meeting to discuss placing a multimillion-dollar bet with the ?rm's money that the dollar would rise against the yen. His stunt worked. Blankfein's bet paid off and he impressed his partners as a prudent risk taker. In 1997, Goldman appointed Blankfein co-head of a merged business unit of J. Aron and the ?rm's existing ?xed-income business, together known as FICC. He ran the division from London in 1998 and 1999. Goldman went public in 1999, which caused enough internal combustion that a number of potential rivals to Blankfein left the ?rm. Simply put, at the right moment, he was in charge of Goldman's pro?t engine and propelled the ?rm to greater and greater heights and himself to the top job.

Curiously, he cannot pinpoint the moment when his career path switched to a higher trajectory, or when, as he said, he had his "Rosebud moment from the time they took the sled away from me in the snow." He said the key to his success at Goldman simply was his ability to adapt to new situations, new circumstances, and new people but not in a Zelig-typeinvisible way but rather in a forceful, quasi-diplomatic way. "I always had a lot of con?dence in my ability to gauge a situation and people and try to understand them and what they were saying and what their context was," he said. "I never was really burdened by too much conviction about what I as thinking....I can shed my own prejudices very quickly and be open- minded....I assume that if something worked some way for a generation, I don't think it just randomly got that way and stuck. I think there's a basis for it. Now the context may have shifted and they may be wrong now and you may have to change it, but I don't assume everybody's a dope."

He also had a talent for making money—"commerciality" was the word he coined— and in as Darwinian and pro?t-driven an environment as Wall Street, and at Goldman in particular, this quality did not go unnoticed at the top levels of the ?rm. Blankfein preferred not to dwell, though, on his ability to make money, although a number of his former partners believe he was obsessed about his own compensation and making as much money as he possibly could— partly haunted by the memory of his parents' ?nancial struggles.

He certainly lived well. In 2008, he paid $26 million in cash for a duplex apartment, facing Central Park, in Robert A. M. Stern's tony building at 15 Central Park West, which is partially owned by a Goldman Sachs investment fund. "Wall Street's new power address," the Times called the Stern building. He bought the new apartment before selling his old ?ve-bedroom duplex at 941 Park Avenue, which eventually he did for $12.15 million in August 2010, according to public records. He also agreed to spend $41 million in 2007 on Old Trees, a thirteen-bedroom "cottage" in Southampton, New York, on the Atlantic Ocean. But after word of the deal was leaked to the press, Blankfein backed out— it was too much of a public display of conspicuous consumption. He and his family decided to keep their existing home in Sagaponack, which he had listed for sale in 2007 at just under $14 million. The Blankfeins received some unwanted publicity in the summer of 2009, when the day after Blankfein left a voice mail message for Goldman's employees urging them "to avoid making big- ticket, high- pro?le purchases," his wife and the wife of another senior Goldman executive were described in the New York Post as being disruptive and "causing a huge scene" at a big-ticket charity shopping event in the Hamptons.

By then, Blankfein had impressed Goldman's board of directors, and especially Paulson, with his tenacity, his ambition, and his hands-on management of the business. "Hank became increasingly concerned about whether Thornton or Thain"—the co- presidents of Goldman before Blankfein—"would assume responsibility for the business units and show they could run things," said one former Goldman partner. "Lloyd showed a willingness to assume responsibility." Paulson and Blankfein became an effective team, with Paulson globe-trotting and hobnobbing with clients and Blankfein assuming more and more operational control of the ?rm. Year after year, the ?rm was making billions in pro?ts. "Lloyd made everything run," said this former partner.

In an interview in his heavily book- ?lled of?ce at the Johns Hopkins School of Advanced International Studies, in Washington, where he worked after his stint as treasury secretary, Paulson discussed the reasons he chose Blankfein to succeed him. "What I'd come to see in him— which I admired greatly— was he ate, slept, drank the business and the markets," the former treasury secretary said. "He loved them. He was innately quick and very intelligent. But that can be overestimated because there are plenty of really, really bright guys that aren't good guys or get you in trouble or don't have good judgment. The thing that hit me about him was sort of a positive insecurity. There was no sense of entitlement. There was no arrogance to Lloyd. He was always conscious of his weaknesses and wanted to get better. So you look at certain people when they've been around for ?fteen or twenty years and get to a level of seniority, their weaknesses become exaggerated either because they become ingrained or because they're just more exposed at a more senior level, and so people need to compensate for their weaknesses. Good leaders need the self-awareness to recognize their weaknesses and the ability to grow. And I watched Lloyd just get better and better."

He recalled once again how after the Goldman IPO— and when Paulson was the ?rm's undisputed leader— the hypothetical question that former senior partner Steve Friedman asked him about the future leadership of the ?rm. "He said, 'If you owned Goldman Sachs lock, stock, and barrel, if it wasn't a public company, you just owned it, who would you have running it if you had all your money in it?' and I said, 'Well, this is not the only test, Steve, if you had all your money in it.' He said, 'Yeah, but if you did?' " At this particular moment in the ?rm's history Thornton and Thain were the ?rm's two co-presidents and heirs apparent. Blankfein was below them in the hierarchy and not well known outside the ?rm. Once Paulson understood fully Friedman's question, he replied, "I wouldn't even think about it— it would be Lloyd Blankfein."

--From the book MONEY AND POWER: How Goldman Sachs Came to Rule the World by William D. Cohan. Copyright (c) 2011 by William D. Cohan. Just published by Doubleday, an imprint of the Knopf Doubleday Group, a division of Random House, Inc.

Blankfein's Up From Nothing Path to Success

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