Too Big to Fail [28]
As president and chief operating officer respectively, Paulson and Corzine worked tirelessly in the fall of 1994 to address Goldman’s problems, traveling around the world to meet with clients and employees. Paulson was given the unenviable task of cutting expenses by 25 percent. Their efforts paid off: Goldman Sachs turned around in 1995 and had strong profits in both 1996 and 1997. Yet the crisis convinced Corzine and some others at Goldman that the firm needed to be able to tap the public capital markets so that it could withstand shocks in the future. The solution, they believed, was an initial public offering.
But Corzine did not have a strong enough hold on the firm when, in 1996, he first made the case to its partners for why Goldman should go public. Resistance to the idea of an IPO was strong, as the bankers worried it would upend the firm’s partnership and culture.
But with a big assist from Paulson, who became co-chief executive in June 1998, Corzine ultimately won the day: Goldman’s initial public offering was announced for September of that year. But that summer the Russian ruble crisis erupted and Long-Term Capital Management was teetering on the brink of collapse. Goldman suffered hundreds of millions of dollars in trading losses and had to contribute $300 million as part of a Wall Street bailout of Long-Term Capital that was orchestrated by the Federal Reserve Bank of New York. A rattled Goldman withdrew its offering at the last minute.
What was known only to a small circle of Paulson’s closest friends was that he was actually considering quitting the firm, tired of Corzine, New York, and all the internal politics. However, the dynamic at Goldman shifted dramatically in December 1998: Roy Zuckerberg, a big Corzine supporter, retired from Goldman’s powerful executive committee, leaving it with five powerful members: Corzine, Paulson, John Thain, John Thornton, and Robert Hurst. At the same time, Goldman’s board had become increasingly frustrated with Corzine, who had engaged in merger talks with Mellon Bank behind their backs.
A series of secret meetings in various apartments quickly followed and resulted in a coup worthy of imperial Rome or the Kremlin. Persuaded to stay and run the firm, Paulson and the three other committee members agreed to force Corzine’s resignation. Corzine had tears in his eyes when he was told of their decision.
Paulson became sole chief executive, with Thain and Thornton as co-presidents, co-chief operating officers, and heirs presumptive. And in May 1999, shares of Goldman made their trading debut in a $3.66 billion offering.
By the spring of 2006, Paulson had stayed longer in the CEO spot than he had expected and had risen to the very top of his profession. He was awarded an $18.7 million cash bonus for the first half of the year; in 2005 he was the highest paid CEO on Wall Street, pulling in $38.3 million in total compensation. Within Goldman he had no challengers, and his handpicked successor, Lloyd Blankfein, was patiently waiting in the wings. The bank itself was the preferred choice as adviser on the biggest mergers and acquisitions, and was a leading trader of commodities and bonds. It was paid handsomely by hedge funds using its services, and it was emerging as a power in its own right in private equity.
Goldman had become the money machine that every other firm on Wall Street wanted to emulate.
After thirty-two years at Goldman, Paulson had a tough time adjusting to life in government. For one, he had to make many more phone calls because he could no longer blast out long voice-mail messages to staffers, as was his custom at Goldman; Treasury’s voice-mail system, he was repeatedly informed, did not yet have that capacity. He was encouraged to use e-mail, but he could never get comfortable with the medium; he resorted