Too Big to Fail [78]
Thain’s answer might have made plenty of sense to himself, but having heard him repeatedly say, “We have plenty of capital going forward,” investors took it as a not-so-subtle hint, and the damage was done. Within seventy-two hours, Merrill was being described “as the most vulnerable brokerage after Lehman.”
For a single day John Thain had the job that he had wanted for his entire career: to be the CEO of Goldman Sachs. That day, unfortunately, was September 11, 2001. As the company’s actual CEO—Hank Paulson—was on a plane headed to Hong Kong when the attacks took place, Thain, the firm’s co-president, was the most senior executive at 85 Broad Street, Goldman’s headquarters, and somebody had to take control. (His other co-president, John Thornton, was in Washington, D.C., for a meeting at the Brookings Institution.)
Thain had always been certain that his destiny was to run Goldman himself one day. Over the Christmas holiday of 1998, he had taken part—perhaps even instigated—the palace coup that forced Jon Corzine out and put Hank Paulson in charge of Goldman. At Robert Hurst’s Fifth Avenue apartment, Thain and Thornton had agreed to support Paulson. But they thought they had received an informal promise in exchange: Paulson said he planned to be the CEO for only two years as a transition until he could move back to Chicago, and then they expected the job to be bequeathed to them. With Corzine off skiing in Telluride, Colorado, they made their pact.
For Thain, a longtime lieutenant and friend of Corzine, it was a heart-wrenching decision, but backing Paulson—whom he genuinely believed would make a better leader than Corzine—enabled him to advance his own career. As the person closest to Corzine on the executive committee, Thain was the one to have to break the news to him, and he was forced to watch as his boss fought back tears. Goldman partners, many just back from vacation, received a terse e-mail from Paulson and Corzine on the morning of January 11, 1999: “Jon has decided to relinquish the CEO title.”
But after two years passed, Paulson showed no interest in stepping aside as he realized how much work he still had to accomplish and was unsure about whether his successors were up to the task. Thain, like any senior Goldman partner, had become outrageously wealthy, accumulating several hundred million dollars in stock from the IPO, but he realized that his boss wasn’t going anywhere soon, and his dream of running Goldman would remain just that. Thain and Paulson got along well, but there was now an underlying tension. Thain resented the fact that Paulson hadn’t stuck to what he thought was their agreement, while for his part, Paulson questioned whether Thain, whom he respected as a talented financier, had the sound judgment to be CEO. He was also bothered by Thain’s un-Goldman-like displays of wealth. Though Thain was in many ways under-stated—he never appeared in the society pages, for example—he bought a ten-acre property in Rye and owned five BMWs. Paulson was also irked by Thain’s vacation rituals: While normally a hard worker, Thain was always determined to take a two-week trip to Vail at Christmastime, a week over Easter, and then another two weeks in the summer. For a perpetual worker like Paulson, it was a tough pill to swallow. By 2003 it was clear to both Thain and Thornton that Paulson wasn’t going anywhere. Thornton, who by then had grown frustrated he had not been elevated, decided to leave. Soon after his departure, he took Thain out to dinner.
“You can’t rely on Hank’s previous words,” Thornton said. “If I were you, I’d be getting out of here.”
Only several months later, Paulson appointed a former commodities trader named Lloyd Blankfein to be co-president with Thain. The ascension of Blackfein, who was building his own power base at the firm, not just politically but through sheer profits, as he oversaw business that accounted for 80 percent of Goldman’s earnings, was a sure sign to Thain