Why I Left Goldman Sachs: A Wall Street Story (2 page)

My first idea was to be premed, but as happens with so many would-be doctors, I literally could not do Organic Chemistry. Still, in my first quarter, I took Economics 1 with a great professor, John Taylor, and loved the course. Taylor was an icon. He’d formulated the “Taylor rule,” which prescribes how central banks should set interest rates; he’d written the book that became the standard Econ 101 text across all the universities in America; and at Stanford, he was legendary for a certain yearly lecture he gave.

The talk was on an economic concept called comparative advantage—the case in point was why California was better than Wisconsin at producing wine—and every year, when Taylor gave the lecture, in a huge hall that sat something like seven hundred people, he would teach the class dressed as a giant California grape. “I Heard It through the Grapevine” would be blasting over the sound system as you came into the hall. Then Taylor would begin the lecture. Comparative advantage, he explained, meant that, in contrast to Wisconsin, California had the weather conditions, it had the space, and perhaps it had the propensity to want to make wine. Comparative advantage showed that, all else being equal, not everyone was going to be able to succeed at the same thing, because success depended on climate and circumstances. Meanwhile, as he explained all this, you couldn’t take your eyes off him in his grape costume.

I took in these concepts quickly, and they interested me. We weren’t talking about, say, two molecules bonding, the way we were in Chemistry. Instead, we were talking about things such as “General Motors sells cars; Toyota sells cars. Why is there a discrepancy in how many cars they each sell, and who is being more efficient?”

On top of that, I aced the course; it came easy to me. It was my first quarter at Stanford, and this was a big confidence booster. Out of seven hundred students taking the class, I finished in something like the top five. It was a great feeling, but it was also the pinnacle of my academic career: I never again finished even near that high in a class. As you become more specialized, the kids around you become sharper and smarter, whereas this was an entry-level course; maybe that was the reason. In any case, I liked economics, and wound up majoring in it.

Eager to take my book learning for a road test, I tried to get a summer internship in finance as a sophomore, something that is seldom done. For these prized positions, banks typically want juniors, who are more mature and potentially hirable a year later. But I managed to land an internship by cold-calling some thirty or forty people at banks and brokerage houses. (“Hi, this is Greg Smith. I’m a sophomore at Stanford, and I’m looking to get some experience. Are you guys offering internships this summer?”) When I finally reached Paine Webber, I told them I’d work for minimum wage—which did the trick. I worked in the Chicago office, in Private Wealth Management, under two brokers who managed the wealth of executives who worked at a major home-appliance company based in the Midwest. I thought highly of these two guys: they had long-term (three- to five-year) profit horizons for their clients. Theirs was a slow and steady business: they weren’t frequently trading their customer accounts just to rack up fees. They were constantly in touch with their clients, offering advice; they would go visit them. They knew everything about them; they even knew their kids’ and grandchildren’s names. Even more important, they also knew their own business. They knew the stocks. This was the Old World model of “I’ve known you for fifteen years; you can trust me.” And it was the classic fiduciary model: incentives were aligned. They did well if they did well for their clients. They were obligated to give clients the advice they thought was right for them.

The two brokers gave me some research projects that taught me how to value stocks and determine if something was a good investment. They’d say, “Here are twenty stocks; put together a presentation where you give us your one-page recommendation on each. What’s the market cap? What are the catalysts coming up? What do you like about the company?” I loved the work. I’d be sitting there in my sharkskin
Miami Vice
suit, researching stocks, happy as Don Johnson. (I probably wouldn’t have been sitting there at all if I hadn’t cut off the shoulder-length ponytail I’d grown during sophomore year.) At the end of the summer, the brokers said I’d done a great job and they wanted me to come back after my junior year. With regret but also with anticipation, I decided to shoot for bigger game.

The selection process for any type of job at Goldman Sachs is extremely rigorous. On average, only one in forty-five people (2.2 percent) who apply for a summer internship, or a full-time job, get an offer. The firm asked you to send in a résumé, but so many people sent them that it was easy for yours to get lost in the shuffle. There was a way around the logjam, though: There was a little-known fact that two interview spots were open for the first people to apply online, beginning on a certain date. So I went to the Stanford computer center at midnight on that day in the spring of 2000, logged on to the website, and kept hitting the Refresh key, over and over, until the magic button appeared. I clicked it immediately, and got an interview. It would take place at the career center on campus.

The interview went very well, for two reasons. For one thing, I felt an immediate rapport with the woman who interviewed me. At that point in my life, I didn’t know a lot about finance, but this was almost completely a personality interview; the interviewer wasn’t grilling me; and she and I hit it off personally. The other thing was, I had prepared very carefully. I’d read
The Culture of Success
, a history of the firm by Lisa Endlich, a former Goldman VP; I’d also spoken to a few friends who’d interned at the firm the previous summer.

So I was very ready when the interviewer asked me the big question: Why did I want to work at Goldman Sachs? “Because it’s the best, most prestigious firm in the world, and I have high goals for myself, and I love finance. I love the markets,” I said. I told her about my internship at Paine Webber in Chicago, but said that I wanted a real experience working on Wall Street: if I was going to do that, Goldman Sachs was the best place to do it. Everything I was telling her was 100 percent genuine. Even so, I wasn’t sure if I was going to make the next cut, because, of the fifteen people Goldman interviewed, only a few would be chosen to continue.

It turned out I was one of them. The next day I got a voice mail saying, “You made it through to the next round; you’re going to have a Super Day in San Francisco”—meaning not that I was going to knock back a half-dozen Anchor Steams looking out from Fisherman’s Wharf, but that I would next undergo a day of half a dozen back-to-back interviews, thirty minutes each, at Goldman Sachs’s office there. “Super Day,” as it happens, is what they call this trial by fire on Wall Street.

At the time, I didn’t have a car, but I was an RA, or resident adviser, with sixty freshmen under my charge, and I had five co-RAs. We had all become extremely close, and one of them would often lend me his car, a beaten-up fifteen-year-old red Mazda with a stick shift, when I needed it.

Driving up to the city that day was a bit of a challenge. For one thing, in those pre-GPS days, I was using a road map, which kept blowing around in the breeze from the open windows (no AC). For another, I hadn’t driven that much in my life, and I was a bit nervous—maybe more than a bit. I was in a navy suit, and I was sweating. It was March 10, 2000—the day the NASDAQ hit its all-time high of 5408.62, at the height of the Internet bubble.

Despite my nerves, I made it on time and in one piece to the Goldman Sachs offices at 555 California Street in downtown San Francisco. The building is the second tallest in the city, and Goldman’s offices there, with floor-to-ceiling windows around the entire perimeter of the forty-fifth floor, have views of San Francisco and the Bay that are truly breathtaking; the place is simultaneously intimidating and impressive.

The first person I met with was thoroughly impressive but not intimidating: a terrific woman, a senior associate who was a Stanford alum; it turned out that her dad, a former Goldman Sachs partner, was on the board of trustees of my university. We had a friendly, easy conversation. She had just gone to South Africa on her honeymoon, and we spoke about that. I was really struck by how genuine and nice everybody I met with that day seemed. I’d interviewed with other banks—Deutsche Bank, Salomon Smith Barney—where the people seemed slick, much more concerned with trying to catch you out on tough finance questions than getting to know you. The Goldman Sachs people weren’t like that at all.

The next person I met with was at his desk on the trading floor, and he was too busy trading to leave, so he said, “Take a seat on the stool next to me.” Now, this was a tricky situation. First, a little stool is a demeaning perch. You’re practically crouching next to the guy, all but asking, “May I please listen to your very important phone call?” Second, I wanted the guy’s undivided attention, so he could make a fair judgment about me. But this guy’s attention was very divided: he was eating a sandwich and trading at the same time, and his phone lines were ringing off the hook.

“All right,” he said. “Pitch me a stock.”

Luckily, I’d anticipated exactly such a request, and had even formulated a thesis. So I started pitching him NewsCorp; there was something going on with Rupert Murdoch at the time. (There’s always something going on with Murdoch.)

Then the guy’s phone rang again. He held up a just-a-moment finger and took the call. He schmoozed the client for a minute—basketball scores were discussed—then executed a trade. Finally he hung up.

“Sorry,” he said. “Go on.”

This happened several more times in the course of my pitch. I might have gotten flustered or annoyed, but I didn’t. I knew the trader wasn’t screwing around with me. This was just what the job was about. If I were lucky, someday I’d get to do it, too.

Four other Stanford people besides me made it through the multiple Super Days and into the internship program. Since Stanford was on the quarter rather than the semester system, we all arrived in New York one week late. Most of the non-Stanford interns stayed in NYU housing for the summer, but because I was arriving when I was, I wasn’t able to get a dorm room. Instead, I rented (online, sight unseen) a room from a family I’d never met, on the third floor of a brownstone on Ninety-Sixth between Columbus and Amsterdam. The rent was $1,000 a month, meals not included. My pay for the summer after tax was $5,000—a very nice salary for an internship, but as I was quickly to learn, money evaporates fast in New York City. A thousand dollars a month in rent seemed a little steep in 2000, but it was the best thing I could find given the time crunch. I wasn’t sure about the idea of living with a family I had never met before. But, I thought,
How bad could this be?

My flight from San Francisco was delayed—very delayed. I was supposed to land at JFK at 10:00
P.M.
, but I ended up getting in at 1:30 in the morning. And I was to start my internship the next day at 7:00
A.M.
sharp. On top of that, it was hot. Summer had definitely begun in New York: it was ninety degrees and humid, even that late at night. I took a cab into Manhattan, got to the apartment, and rang the bell—no answer. Called the family on the phone—no answer. Rang the bell again—nothing. Not knowing what to do, I waited outside for half an hour. Finally—it was now close to 3:00
A.M.
—I rang again, and the husband answered the intercom.

When he came down to let me in, he was wearing a robe and was kind of groggy—and he was a little bit annoyed that I’d arrived so late. We walked up to the apartment, he opened the door, and we went down the hall. It was very quiet. And hot. He opened a door and said, “This will be your room.”

It was a tiny room, almost entirely filled by a green couch. I said, “Where’s the bed?” He said, “The couch turns into a bed.” When I started pulling out the folded mattress, the couch hit the back wall before the bed could fully extend. The husband and I had to angle it so it fit the room when opened. When he finally went off to sleep, I turned on the air conditioner. It looked like an antique, and it worked like one, too. It was so noisy that, finally, I decided to turn it off and just open the window.

The family had some strange rules. I had to log all my phone calls. They also said, “If you ever use the fridge, you need to note down if you have a glass of orange juice.” I told them, “Don’t worry. I’m not going to take any orange juice. In fact, you probably won’t be seeing much of me this summer. I’m going to be working very hard.”

The Goldman Sachs Equities trading floor, on the fiftieth floor of One New York Plaza, was a huge, open, football field–size space with towering, panoramic views of Lower Manhattan. Through floor-to-ceiling windows you could see New York Harbor, the Statue of Liberty, the twin towers of the World Trade Center, and the Hudson River. But the distant and spectacular views were upstaged by the urgent hum of activity in the giant room, which contained five to six hundred traders standing and shouting, wildly gesticulating, sitting tensely on the phone, running, walking, grinning, frowning, jumping up and making strange hand signals. Here everything was being traded, from the latest initial public offering of a red-hot Internet company to old-economy stocks such as General Motors and Citigroup. And these trades were not for individuals but for the biggest asset managers, pension funds, governments, and hedge funds in the world. When the traders weren’t in motion, they were focused intently on their computer screens: in the summer of 2000, everybody on the floor had three or four screens plus a separate Bloomberg terminal for market data. (Today, “Bloomberg Market Data” is installed as software rather than hardware, and appears in a window on traders’ screens.)

I stepped onto the floor for the first time with all of three hours’ sleep under my belt. My eyes had felt as if they were lined with sandpaper as I walked from the subway to One New York Plaza, at the corner of Water and Broad streets, on the southern tip of Manhattan, just half a mile from the World Trade Center. Clutching my extra-large coffee, I had looked up at the formidable tower that housed Goldman Sachs’s Equities trading headquarters.
Holy shit
, I thought.
I’ve made it to Wall Street, and it doesn’t get any bigger or better than this.