Why I Left Goldman Sachs: A Wall Street Story (11 page)

The tickets piled up throughout the trading day. At the end of every day, after you’d stamped all your tickets—when you got the price for the trade, you’d write that on the ticket as well—you pulled out the middle copy of each ticket to keep as a record, and sent the original and the back copy to the Compliance department, where they were kept in a vault for five years in case there was ever a client dispute or a regulatory investigation.

Then, very early the next morning, another trading day would begin. It was controlled chaos. The phones rang all day with client calls; meanwhile, my fellow derivatives salespeople on the fiftieth floor would stand and yell out orders to Corey and me, instinctively using the appropriate hand signal for “buy” or “sell.” And not just traders: Michael Daffey—loving the theater of getting in the trenches with the rest of the troops (and gaining the respect of junior employees who saw that the boss was not above doing the actual work, and knew exactly how to do it)—might shout, “Greg Smith, buy me two thousand June S&P futures!” An order of two thousand contracts may not seem especially big, but it represents approximately half a billion dollars in equity market exposure, which shows how risky and leveraged futures can be. And everyone knew that if Daffey was doing the order himself, it must be for Tudor Jones, Druckenmiller, Soros, Novogratz, Bacon, or some other hedge fund icon. Daffey loved the showmanship of it all and yelled louder than everyone else.

When there was an order, I’d pick up the phone, call Patrick Hannigan or Bob Johnson in the Mercantile pit, and stay on the line with him. I’d say, “All right, where are the June S&P futures trading? I have two thousand, total, to buy, but I need to work these carefully.” Then I would rely on Patrick or Bob’s description of how the crowd in the pit was. Were they getting aggressive? Should we slow down or should we speed up? I’d give him instructions accordingly: “Buy me a hundred. Buy me another hundred with a nine-fifty top. Hold off.” You wouldn’t want to buy all two thousand at once, or else you’d reveal your hand to the crowd too quickly—an order of that magnitude could scare the market, create panic, or cause all the traders in the pit to start trading against you. Meanwhile, two other phone lines were ringing…

The protocol when you were on the phone with a client and another, more important client called on the other line was to give a hand signal to whoever had picked up the call. Say Fidelity was on the line and you wanted them to hold while you quickly finished up the call you were on: the correct signal was to hold up an index finger, as in “Just a moment.” If you couldn’t get off and wanted to call them back, the signal was to twirl the finger. One day early on, when I was on two lines at once and feeling a little overwhelmed, a third call came in and I gave the callback signal—except that I twirled my whole arm instead of just the one finger. To a couple of the more senior people who found this hilarious, particularly the Mullet, my exaggerated hand move became known as “the helicopter.”

Then, one morning, I made a real mistake.

It was 6:30
A.M.
, I was busy drinking my coffee, but effectively still half asleep, when a pension fund client called with a tiny order: “Please buy seven front-month DAX futures,” the client said. But, by mistake, I
sold
seven futures. It’s a very easy error to make: you just click the Sell button instead of the Buy button. I knew right away what I had done, and I moved fast. A big thing that analysts are taught is that the quickest way you can blow yourself up is by not knowing when to ask for help. You need to be able to swallow your pride and say, “Look, I’m in trouble. I need help quickly.”

So I turned to Corey, who was on the phone next to me, and signaled calmly but firmly that I needed him right away. He hung up. “I’ve sold these instead of bought them,” I said. “What do I do now?”

Corey was as calm as he always was. One of the first things Corey and I had learned about each other was that, despite the big differences in our backgrounds, we shared an ability to be serene in high-stress situations. He got out of his chair, stood behind me, and put his arm on my shoulder. Then he pointed to the screen and said, very coolly, “All right, let’s get out of this. Let’s buy these back.” We did it together. We triple-checked everything. We covered the error, traded out of it, and put the correct trade on. In all that time—it seemed like ten minutes but was probably one—the market had moved only one tick.

The error had cost Goldman Sachs $80.

Had the market moved one percent, it could’ve been $8,000. A few more percent, $80,000. But an error was an error. I apologized. I wanted Corey to be proud of me, and my apology was sincere. He was kind but firm. “It’s all right,” he said. “Everything is going to be fine. We’ve learned a lesson from this. Now you need to write the error memo.”

“Do I need to tell Daffey?” I asked.

Corey nodded. “Go to his desk and tell him.”

I did. Daffey listened carefully as I recounted, seriously and apologetically, the story of the eighty-dollar error. “Thanks for telling me, dude,” he finally said. “Just don’t do it again.”

As I thanked him, I saw that he was barely suppressing a smile. “Don’t worry about it,” he said.

But I wasn’t smiling. I was determined never to make the same mistake again.

There were analysts who had to have that conversation with Daffey under much less pleasant circumstances. I remember a specific situation where the error was $1 million. Much worse than $80.

It happened in a way that’s any derivatives salesperson’s worst nightmare: when you realize your error only the next day. Let’s say a client—for example, a pension fund manager based in Kansas—tells you, “Overnight, when the French market opens, I want you to buy ten CAC futures.” You execute the order, then you get in the next day and realize that instead of buying ten, you bought a thousand. On Wall Street this is known as a “fat finger.” Instead of hitting the zero once, you hit it three times.

The analyst in question comes in the day after fat-fingering the buy by a factor of a hundred to find that, overnight, the European Central Bank raised interest rates and the market moved 5 percent. The client’s position is now out $1 million. The client is never going to accept this, obviously, so Goldman Sachs has to write the client a check for $1 million. Because it wasn’t the client’s fault. It was Goldman’s fault.

Now, the analyst to whom such a thing happened was not fired for making that mistake. In fact, almost every analyst makes some major error at some point in his first few months. If he does it two or three more times, it’s a different story.

My eighty-dollar error turned out to be the last one I made—in my career.

I’ve always been finicky about detail; Corey taught me to be paranoid. “It’s better to get something right, and take ten seconds longer, than to be quick,” he told me. “If the client starts getting annoyed that you’re taking too long, just tell them you’re taking the time to get it right. Always triple-check—check it once, check it twice, get it right.”

Corey taught me to think and act like a trader: quickly but carefully. It was critical, for example, to understand the multipliers that were used to calculate the notional value (total financial exposure) of a futures contract. Corey drilled it into my head:
always triple-check multipliers with clients
. Did they understand that what they were trying to buy or sell was worth $1 billion? Or had they multiplied their contract incorrectly? It had been known to happen.

Corey introduced me to all the brokers we used in the different futures pits—besides the Merc, there was the Chicago Board of Trade, the Chicago Board Options Exchange, the American Stock Exchange (AMEX), the Pacific Exchange on the West Coast—and to the various people I’d be interacting with on the Derivatives desk and across our own trading floor at One New York Plaza. It was a lot to learn.

After I’d been on the job a few weeks, the perimeter of one of my computer screens was almost completely covered with green Post-it notes listing all these facts and names—anything I would need to remember: the closing times for each market in Europe and in Asia; the multipliers for each futures and options contract; the phone number of our broker in the foreign exchange pit. Details were exceptionally important, and I needed to have them at my fingertips in order to do well at this job.

Soon my terminal was so covered with Post-its that I could barely see the screen anymore: I told myself I had to come up with some system to remember all these details. But ultimately there was no system; I learned by hearing and observing and remembering, day in, day out. One by one, the Post-its came off.

With the memory of the eighty-dollar error fresh in my mind, I began to pride myself on my reliability and accuracy. Corey, who had a reputation for not making mistakes, began to refer to me as his “franchise pick”—a football term I didn’t understand at the time but grew to appreciate. The two of us became known around the floor as the guys who, if you needed to put the ball in someone’s hands in the final stretch of the game, were not going to screw it up under pressure.

The athletic comparisons are apt. Corey had been a point guard on his college basketball team. He and I had so much volume coming in at all times that it was like constantly having a hundred balls in the air. You had to prioritize continuously. What was most important: to execute this trade, to give the client the price, or to reply to the e-mail from the Operations department to book the trade? The phone kept ringing, and it was just the two of us, stamping tickets all day long. By the end of each day, we’d have a stack a foot high.

The use of futures and options tickets was almost laughably archaic, like something you might’ve seen on Wall Street before World War I, but the equities industry demanded them for compliance purposes. We became masters at handling them. Some people struggled to tear out the middle copy; we prided ourselves on being able to rip it out flawlessly every time without even thinking about it. Some people made a mess of jamming the triplicate forms into the very thin slot of the time stamp; now and then, when things slowed down a little, Corey and I would try to top each other at the Zen of time-stamping, the goal being to insert a ticket then pull it out—zip!—in one swift and seamless motion.

Someone always has to rain on your parade, though. Lloyd Blankfein, who in early 2003 was a vice chairman who oversaw the FICC (Fixed Income, Currency and Commodities) and Equities divisions, used to like to cruise by Derivatives Sales to say hello to Daffey and hear the latest buzz about his pals Jones, Bacon, and Druckenmiller. Lloyd wanted to know, “What’s the smart money doing?”

One day he stopped at my desk and raised an eyebrow. “What is it with these tickets you guys are using?” he asked. “In the FICC world we don’t use tickets anymore.”

It was true—Lloyd Blankfein’s side of the world had gone electronic a few years before. Corey and I told him that was just the way it went in the old-fashioned world of Equities.

After I’d been on the desk for about a month and a half, Corey looked me in the eye and said, “You’re doing very well—time to throw you in the fire.”

What he meant was that he’d decided to take a day off and let me handle the whole trading book without him. He had taught me a lot, but he knew I would learn quickest by facing the chaos alone. I had passed that threshold where, even though things could still go horribly wrong, he thought I was ready. Going it alone would test my stamina and concentration and, if I made it through unscathed, give me a big shot of confidence.

I was both nervous and excited about this opportunity. Between the two of us, Corey and I had been executing about 150 trades a day. His taking a day off wasn’t going to diminish the flow. But the competitor in me was ready for the challenge.

I really had no idea what I was in for.

I got in at 5:30 that morning, an hour early, to deal with orders from our Asian offices, where it was the end of the trading day. There were at least twenty e-mails in my in-box from my counterparts in Tokyo, Hong Kong, and Sydney, many with messages such as “For the Sydney Teachers Retirement Fund, I need you to buy 250 NASDAQ futures on the close.”

I shook my head. Which close? The U.S. close? The Asian? The futures? The cash market? Corey and I had tried to train these guys to be very specific about what they meant, but they didn’t always stick to the script. And he had taught me that if they could hold an error against you, they would, because they wanted to offload all their risk on you. I would wake these guys in the middle of the night if necessary to get them to clarify their instructions. Better to get it right than to be sorry later.

At 7:00
A.M.
, everyone in our whole section of the floor had a conference call to discuss the business for the day. What were the catalysts? What were the things we needed to focus on? What ideas could we be calling clients about? Each person took a quick turn, giving a little spiel on what he or she thought.

Then, when the bond market opened at 8:20
A.M.
, it was all hands on deck—except that I was the only hand on deck.

Within seconds, three phone lines were ringing at once. They didn’t stop ringing all day. Between 8:20
A.M.
and 4:30
P.M.
on that day at the end of January 2003, I ate nothing; I drank nothing. I never had time for a bathroom break.

I barely noticed. I was operating at hyper-speed, all my senses engaged, 100 percent focused. It was what I imagined a Zen state might feel like: three phone lines ringing at the same time, and someone on the floor yelling at me, “I need to buy $200 million of Treasury Bond futures!” and another client waiting for his price back, and Patrick Hannigan calling me to try to give me the price…

Don’t make a mistake, don’t make a mistake, don’t screw anything up.

I had to keep concentrating, making sure that I was writing everything down, that I wasn’t forgetting anything. The worst thing you could do was to forget to execute an order. That could cause a million-dollar error as quickly as any fat finger.