Why I Left Goldman Sachs: A Wall Street Story (23 page)

“Are you fucking kidding me? A one-dollar ChapStick? How much money did you make last year?” yelled our boss.

“Fair point. Fair point. Fair point…” was all the managing director could mutter in his defense.

The new gym was a different story. As was the case with the old cafeteria, the old Goldman gym, at 10 Hanover Street, had been merely functional: a windowless basement that nobody really loved for itself. The new gym, grandly titled the GS Wellness Exchange, was simply spectacular, with amazing vistas of New York Harbor and the rivers from the treadmills and weight rooms. In fact, it was such a great gym that from the moment we moved in, people started hitting it as early in the day as possible, often right after the markets closed. Junior people couldn’t really get away with this (though some tried), but for VPs, MDs, and partners, late afternoon was workout time. Mr. Cleanse was there between 4:00 and 5:00
P.M.
most days.

Therein lies a tale. One day, the whole Derivatives team received an e-mail (and apparently everybody on the fourth floor got a similar message) reading, “No one should be in the gym with a 4 handle.” A bit of translation is called for here. People in finance often like to couch everyday conversation in trading terminology. “Handle” is a term for where a particular index or asset class is trading: for example, if Google stock is at 634, someone might say, “GOOG is trading with a 6 handle.” So what the e-mail was saying was that nobody should be in the gym between 4:00 and 5:00
P.M.

The word on the floor was that Mr. Cleanse was the reason for the prohibition.

The rumor mill had it (and this was never confirmed) that Harvey Schwartz, Mr. Cleanse’s boss’s boss, was always in the gym between 4:00 and 5:00
P.M.
, and he was sick of seeing Mr. Cleanse there at the same time every day. So the time slot then got banned for everyone. Sometimes Wall Street can be a little like high school.

My total compensation for 2009, including bonus, came to more than $500,000. The year had been a tough one, and I was proud and felt lucky to be earning this kind of a living. I was fortunate to have a job, given how brutal the layoffs had been throughout the crisis.

Half a million dollars is a significant amount of money. But it should be noted that partner compensation is in a different stratosphere completely. From the $16 billion in compensation that Goldman paid out in 2009, 47 percent above the previous year’s total, a disproportionately large share went to the 1 percent that sat right at the top of the heap: the partners. The thing about being a partner is that, by virtue of being a partner, you’re guaranteed a minimum amount no matter what you do—usually in the millions of dollars. The risk is that if your bosses eventually figure out you’re doing nothing, they’ll get rid of you. But for at least a year or two before they figure this out, it’s a very nice ride.

My thirtieth birthday, the previous December, had been an intense time in my life. Nadine and I held a big joint birthday party—her thirtieth was two weeks after mine—at Freemans, a place with a vintage speakeasy vibe that sits at the end of an alley on the Lower East Side. We rented the private room and invited about thirty of our friends: half hers, half mine.

Toward the end of the meal, Nadine surprised me with a cake. When they brought it in, people started calling for a speech. So I stood up and gave one. I’d had a few drinks, so I waxed a bit philosophical. I said something like “I know life seems tough for many of you right now, when the world is in turmoil. But let’s take a few moments to put things into perspective and just enjoy each other’s company, and not let the tumult of the world affect us too much. Let’s try to get some rest over December, and let’s toast to a better 2009—let’s be rejuvenated and go into the New Year with a more positive outlook.”

At the end of the night, I decided to pay for everyone. The bill came to over $3,000, but I was happy to do it—I like treating people; it was a milestone for both Nadine and me, and we were with our closest friends. I wouldn’t have had it any other way.

Flash-forward a year, to my thirty-first birthday. Nadine and I had broken up; the world had turned—a lot. The year 2009 had been more complicated than I ever would have imagined. Exactly one of the thirty people from the previous year’s party, a friend from my freshman year at Stanford, flew in from Detroit to help me celebrate this nonmonumental occasion. I was lonely after the breakup, but I now felt in a better place: healthier, stronger. Work was going well; the markets were still headed upward. My friend and I went out for a quiet evening; we met a couple of girls, one of whom I quite liked…

The office was open but quiet between Christmas and the New Year. Almost all the partners had left for vacation; the most junior partner drew the short straw and stuck around. On the desks, the hierarchy worked the same way: the senior VPs leave, one junior VP stays; the senior associates leave, one junior associate stays. I’d reached a point in my career where I’d paid my dues for a number of years: I was now comfortable taking the week off.

I flew to Cape Town to meet my mother and brother. It was beautiful there, and summer had just begun. The city was full of excitement about the coming soccer World Cup; the big new stadium built for the event, on the water in Green Point, had just opened. My mother, brother, and I went to the wine country in Stellenbosch. It was nice to spend some time with them in the hot sun, and think about the girl I’d just met. So much of life is about anticipation. And though I had no reason to think the world had gotten any less complex, I couldn’t help but feel that 2010 was going to be a very good year.

On April 16, 2010, I went to the South African consulate in Midtown Manhattan to renew my passport; in a few days I would travel across the Pacific to visit a number of clients in Asia. After some haggling to expedite my application, I walked outside into one of those crisp early spring days that make you love living in New York. I took my time finding a cab to get back to the office, enjoying a few minutes of sunshine, and started thinking ahead to my trip. It seemed that slowly, though excruciatingly so, the world was healing.

I was looking forward to visiting some of my clients whom I had not seen in a number of months. We would discuss the latest developments in the markets, but we would also go out for dinner and drinks and have some fun. A big part of this business is face-to-face interaction; there is a human element to it. That was probably the thing I always liked most about being in sales. Some people in investment banking find traveling ten thousand miles around the world to have a few meetings to be a chore. But it never got old for me. Business-class flights with wine and sashimi at thirty thousand feet. Ritz Carlton or the Four Seasons? Three-star dinners with a $150 per-person budget when dining with clients. If I had time: a stop at a tailor in Asia to get some quality suits hand-tailored (for less than you would pay for one at Brooks Brothers). Also, a short ferry ride to the Wynn Hotel in Macao (a crazy sight—an almost identical replica of the one in Vegas, but smaller). What part of this is a chore? These are things I always tried to savor and appreciate.

A quick glance at my BlackBerry put an end to my Asian daydream.

My eyebrows rose. The markets were not rallying. In fact, Goldman Sachs’s stock was down more than 10 percent, and volume was ten times what was normal. Something was wrong. Badly wrong. I started scanning my e-mails. The same word showed up in every subject line of every e-mail on the screen: SEC, SEC, SEC. The Securities and Exchange Commission. The federal agency responsible for enforcing the securities laws and regulating the financial industry.

I jumped in a cab and hustled back to the office at 200 West Street.

Riding back downtown, I started reading the e-mails. I couldn’t believe it. It was the worst possible thing you could read.

I read further…

My immediate reaction: this must be a witch hunt.
The SEC has been asleep at the wheel for the last two years and now it needs to show the public that it’s doing something? Why isn’t it going after the bad guys, the ones who caused this mess, the ones who took the irresponsible risk, blew up their companies, and brought the entire global economy to its knees?

My immediate feeling: anger.

The cab finally pulled up in front of Goldman Sachs. I paid the driver, walked into the lobby, scanned my ID, and took the elevator to the fourth floor. When I walked out onto the trading floor, I found the familiar hum of activity in the vast and sparkling space muted. Every face I saw was pale with shock. People were staring open-mouthed at their screens. I could instantly see on the tape running across the bottom of a nearby monitor that Goldman Sachs stock was down close to 13 percent. (It was by far the largest and most precipitous percentage decline in our stock since the dark days of late 2008 and early 2009.) A drop of 13 percent in this calmer climate could mean only two things: panic and disaster.

I quickly went to my desk and pulled up my Bloomberg screen. Whenever Bloomberg News reports a vitally important story, the news scrolls up on the screen from bottom to top in red. It is not a frequent occurrence. My entire screen was red.

What kind of misrepresentations was the SEC alleging? I started talking to my colleagues; everyone was trying to piece it together. The chatter on the floor was about one of our products built on CDOs (collateralized debt obligations, basically a sausage stuffed with subprime mortgages).
Why now? Why us?
Everyone, including me, was on the defensive. Ever since the federal government had bailed out the banks thanks to TARP, there had been murmurings in the world at large that someone needed to be held accountable for the crisis; for months there had been the sense of a gathering lynch mob. A series of big articles—in
Rolling
Stone
,
New York
magazine, and
Time
, among others—castigated Wall Street in general, and Goldman Sachs in particular, for surviving and thriving on the backs of U.S. taxpayers, for using bailout money to make big bets, then using the winnings to award executives obscenely big bonuses. When I heard the term
vampire squid
, popularized by Matt Taibbi in
Rolling Stone
, I was repulsed by it.
Propaganda
, I thought. It angered me.
Why don’t they ever write about 10,000 Women or 10,000 Small Businesses, and the way the firm is helping to nurture the next generation of entrepreneurs, or any of the other philanthropic endeavors we fund and lend our expertise to?

Everybody on the trading floor, myself included, had the same reaction to whatever it was that the SEC was cooking up:
What the hell are these guys doing? Why aren’t they going after Dick Fuld for cratering Lehman, or Stan O’Neal of Merrill Lynch, or Jimmy Cayne of Bear Stearns, who all ran their firms into the ground—some of them, while they were on the golf course or at the card table? They just want to get us because we’re the only ones doing okay…

Clients began to call, wanting to know what was going on.

Management had been very quick to anticipate this. Don’t say anything substantive, we were told; don’t be defensive. Just say, “We’re not sure; we’re looking into this.” We’ll have a list of talking points for you later in the day.

Within an hour or two we got an internal e-mail that gave us some very general talking points and a slightly better understanding of what had been alleged. The SEC was charging Goldman with materially misstating and omitting facts in disclosure documents for a synthetic CDO product that we’d originated. The product was called Abacus 2007-AC1.

Abacus 2007-AC1. I had never heard of it. Nor had anyone sitting around me. Nor had any of my clients. It sounded like something from another planet. These CDO deals and other customized products in the derivatives space were always given enigmatic, important-sounding designations. It was marketing. It turned out that Abacus was an entire class of CDOs that Goldman had been marketing since 2004—a product that had come back to haunt us. The number referred to the date of issue.

Goldman Sachs responded quickly, and in no uncertain terms:

“The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.”

The firm hired a prominent lawyer, Greg Craig, President Obama’s former White House counsel, to spearhead its defense.
Good
, I thought, not knowing anything about Abacus or what the facts of the charges were.
Let’s fight back. Hard
.

Amid the chaos and the flurry of client phone calls and internal e-mails, Mr. Cleanse was marching up and down our row. “We want to hear what clients are saying,” he said emphatically. You didn’t have to do much reading between the lines to see that senior management was freaked out that clients were going to start panicking and pulling their money.

At that point I was in the process of booking my trip to Asia. “Should I still go?” I asked Cleanse. “Absolutely,” he said. “Now is a very important time to make this trip. We need for clients to see us, and we need to be in front of them. We need to defend ourselves in exactly the right way.”

I decided to go to Asia and stand up for Goldman Sachs.

The SEC’s complaint was rough. It said that a Goldman VP named Fabrice Tourre, working out of the New York headquarters in 2007, had put together Abacus 2007-AC1 in collusion with John Paulson (not to be confused with Hank Paulson), the hedge fund manager who since early 2006 had been raking in huge sums by shorting the mortgage market. According to the SEC suit (which was lodged against both Goldman Sachs and Tourre), Paulson had personally selected the mortgage securities that went into the product, using a single criterion: which were most likely to fail. The fall of Abacus netted Paulson a cool $1 billion.

The complaint painted Tourre in a terrible light, and a number of his more callous e-mails were made public. The fact that he was French seemed to delight the London and New York tabloids. In January 2007 he wrote in an e-mail to his girlfriend about the imminent downfall of Abacus: “The whole building is about to collapse anytime now…Only potential survivor, the fabulous Fab…standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all the implications of those monstruosities [
sic
]!!!”

There, in a nutshell, was a valid description of much of the complex structured-product market, one often not fully understood by its creators or its customers: “monstruosities.”

The funny thing was, when I saw the name Fabrice Tourre, I vaguely remembered meeting the guy about a decade earlier. It was at a Goldman team-building dinner for Stanford graduates, when I was either a first-year analyst or a summer intern. The idea was for some of the more senior alumni to meet and possibly mentor their junior counterparts. Tourre was sitting a couple of seats away from me that night. He worked with a friend of mine who was in Fixed Income, so I chatted with him for about thirty seconds.

I didn’t know or remember him from college, because he hadn’t been an undergrad at Stanford, and we generally didn’t speak to grad students, who were considered huge nerds. Fab had done his undergraduate work in France and gotten a one-year master’s degree at Stanford, in management science and engineering—something thoroughly quantitative.

Tourre struck me, in the very brief time I spent with him, as being a classic quant: slightly goofy, socially awkward. He clearly hadn’t been hired on the strength of his charisma. I realize this is an unfair thing to say. Quants, by definition, are not meeters and greeters. Cliff Asness hadn’t conquered the world with his charm. The quant’s job is to come up with complicated mathematical models, the black boxes that, clients can be made to believe, turn old rags into crisp new hundred-dollar bills.

In an ideal world, the quant would be objective, would work on behalf of the client as well as on behalf of the firm. But quants usually work for the traders, who live for quick hits and big revenues, instead of for the salespeople, who have to maintain client relationships. So the quants tend to focus on developing ways of advancing the firm’s agenda that seem sexy to the client but wind up benefiting only one party: the firm. The Fabulous Fab was a perfect example of this, and he had found a perfect ally in John Paulson, and perfect clients in ABN AMRO and IKB, the two big European banks that lost the $1 billion Paulson gained.

In the days after the SEC filed its charges, the world piled on Goldman Sachs. One commentator in the
New York Times
, Michael Greenberger, a professor and former regulator, said that if the fall of Lehman Brothers in September 2008 was like Pearl Harbor, the SEC’s enforcement action against Goldman was like the Battle of Midway, when the U.S. Navy redeemed itself by neutralizing the Japanese fleet. Harsh stuff. Accountability had arrived at last, the writer said. U.S. taxpayers were finally going to get answers to some of the questions they’d been asking all along.

And they would get them soon. As I was flying to Asia, Lloyd Blankfein, David Viniar, and Fabrice Tourre, among other representatives of Goldman Sachs, were headed to Washington to appear before the Senate Permanent Subcommittee on Investigations to “vigorously contest [the SEC’s accusations] and defend the firm and its reputation.”

It was a strange time to be distancing myself from the main office, especially by ten thousand miles.

The Asian capital was sweltering when I arrived. I’d purposely come a day prior to my meeting to try to acclimate, however slightly, to the time difference and the heat. It had to have been a hundred degrees; the air felt like a microwaved sponge. Even the short walks between air-conditioned oases were punishing. As luck would have it, one of my clients, Taku—who was a native but worked in the fund’s New York office now—was back home, here in Asia, partly working and partly on vacation visiting his family. We’d already made dinner plans for that evening, by e-mail. I gave him a ring, and was happy to hear a friendly voice.

I liked Taku. We’d both come from overseas to go to college in America, and we’d both fallen in love with our adopted country. He was someone I could talk to. We chatted for a couple of minutes about the SEC-Goldman tempest, both of us expressing great interest in seeing how the Senate would treat Lloyd and the boys, and what kind of defense Goldman would mount. C-SPAN was going to broadcast the hearings live, beginning that night, local time, in the Asian capital. Suddenly the same idea hit both of us: why not cancel our dinner plans and watch the hearings instead?

“Why don’t you come over to my mom’s house?” Taku said. “We’ll have some snacks while we watch.”

I got settled in my hotel, took a nap and a shower, then headed over to Taku’s mother’s place. I knew they were quite a wealthy family, but I wasn’t sure what to expect. It turned out they owned an eight-story apartment building in a beautiful part of town, and various members of the family lived on different levels of the building. It was a stylish, solidly built structure—not crazy-opulent, New York style, but elegant and understated. It had a lot of space, wide open rooms, and the ceilings were high. Taku welcomed me inside his mom’s place. I was surprised to see two servants, a man and a woman, standing by, silent but watchful. Taku smiled. “Come—sit down,” he said.