All the Devils Are Here [98]
In fact, in the years after Paulson took over, the investment bankers who had risen to the top of the firm—and were jockeying to be Paulson’s heir apparent—were pushed aside. Thain, for instance, left to run the New York Stock Exchange. By 2003, it was clear that Paulson’s heir apparent was a trader: Lloyd Blankfein, who ran the fixed-income, currency, and commodities division. In June of that year, Blankfein, then forty-nine, became a Goldman board member; in December, he was named president and chief operating officer. (Paulson, however, always made a point of saying he wasn’t going anywhere. “There is no fear, and for those who want me to go, no hope,” he told Fortune in 2004.)
Blankfein had joined Goldman via its acquisition of J. Aron, the commodities trading firm. An up-by-his-bootstraps kid from the Bronx who put himself through Harvard and Harvard Law, Blankfein had joined J. Aron as a gold salesman in 1981, the same year Goldman bought the firm. The two organizations couldn’t have been more different. While Goldman was becoming a white-shoe firm, J. Aron was a tough, street-savvy, highly entrepreneurial trading shop—“street fighters,” in the words of Dennis Suskind, the former J. Aron executive who hired Blankfein. It had the classic traders’ rough-and-tumble culture. Blankfein himself later joked that at J. Aron “we didn’t have the word ‘client’ or ‘customer,’ we had counterparties—and that’s because we didn’t know how to spell the word ‘adversary.’” For years, J. Aron had its own separate elevator bank at Goldman’s headquarters at 85 Broad Street, preventing the staffs from intermingling. “It created a feeling inside J. Aron of ‘us against the world,’” says a former Goldman managing director.
As soon as Goldman acquired J. Aron, profits plummeted. Despite being new to the firm, Blankfein played a key role in rebuilding it. He proved that he had a sixth sense about making money and a rare ability to manage traders. His power began to grow. In 1997, he became co-head of Goldman’s entire fixed-income department. As he rose, he lost weight (about fifty pounds), quit smoking, and shaved his beard. He also repurposed his rapier-sharp wit into an engaging, self-deprecating sense of humor. Says a former Goldman trader: “Lloyd got really refined, but he used to be just a killer.” Blankfein had all the verbal dexterity Paulson lacked, and although he wasn’t physically prepossessing, tough-talking trader types were drawn to him. One partner described it as a bit of a “sun god phenomenon.”
As Blankfein rose, he pushed hard to complete the transformation that had begun under Rubin and had accelerated under Paulson. What this meant, broadly speaking, was that Goldman no longer sat on the sidelines dispensing advice. The new Goldman was at the center of the action. It had a proprietary trading operation and a large private equity business. It used its money to invest alongside clients, to get trades done—and, sometimes, to compete with clients or trade against them. In the trading business, Goldman wasn’t just hedging its risk, but actively seeking to profit for its own account. In other words, instead of trying to avoid conflicts of interest with clients, Goldman embraced them—and made money from them. It was an attitude that one competitor