Streetwise: Lloyd Blankfein pulls no punches in his autobiography

STREETWISE: Getting To and Through Goldman Sachs

by Lloyd Blankfein

Published by Hachette India

364 pages ₹799

 

Lloyd Blankfein is admired by many for the way he handled Goldman Sachs during the financial crisis of 2008, an event that would spell the death of many storied investment banks in Wall Street and roil the global economy, almost causing a global recession. Equally he is considered a villain by many — Goldman Sachs not only survived the meltdown that saw others fall by the wayside, it actually thrived. It gave some of the biggest bonuses to its partners and the total bonus pool ran to billions. There are those who hold that Goldman benefited from the fact that its alumni headed the United States Treasury Department during the crisis. And also insist that Goldman, under Mr Blankfein, misled many investors by selling them risky mortgages without giving them the full picture. In 2009, journalist Matt Taibbi described Goldman Sachs as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

 

Streetwise,  Mr Blankfein’s autobiography, gives the author’s view of not just his life but also a blow-by-blow account of what triggered the crisis, how policymakers reacted, and, in turn, why he, and his firm, acted as they did and why the firm was unfairly painted as the epitome of greed.

 

The book itself is a delightful read. The writing is sharp, witty, and pulls no punches. Mr Blankfein’s life is the classic rags-to-riches tale. He grew up in one of the poorer neighbourhoods of East New York. His father was a postal clerk while his mother worked in a department store helping shoppers. He was always conscious that he needed to get out of the poorer part of the city and managed to get accepted in Harvard University, where he felt quite out of place. Apart from his graduate degree, he would also study law at Harvard. As he writes, Yale rejected him for both while Harvard accepted him.

 

He would get a job with a law firm in their tax law department before joining a commodity trading firm called J Aron. He had been rejected by Goldman Sachs but ended up there anyway because Goldman bought J Aron, and all the latter’s employees became Goldman Sachs employees.

 

Mr Blankfein is not pompous about his very significant achievements, which includes rising to the top of the biggest investment firm in the United States. He narrates his rise in a matter-of-fact manner, giving due credit to regulatory changes and brilliant colleagues. His sense of humour shines through in the narration. He points out that he joined on the sales side of J Aron and not the trading side. The trading side looked down on the sales side, though it was the latter that got the customers. One of the traders gave Mr Blankfein a special name — “Overhead”. Mr Blankfein took it in his stride. As an employee of J Aron in the sales side, he was pretty far down the totem pole. The true-blue Goldman Sachs people, with their investment banking background and Ivy League degrees, looked down on the sharp-elbowed commodity traders of J Aron. And within J Aron, the traders looked down at the sales people.

 

Eventually though, as Mr Blankfein writes with some relish, there was a degree of J Aronisation of Goldman, primarily because some of the exceptional J Aron employees rose to great heights in the investment firm, and because of the innovations they introduced. Mr Blankfein’s insights and observations in the book are great lessons for ambitious corporate and finance industry leaders. He points out that he was not a great student and Harvard did not equip him with any exceptional knowledge either. But his years in Harvard would open doors throughout his life — because there was always a Harvard (or other Ivy League alumnus) in important positions where he needed an introduction and a foot in the door.

 

Equally, Mr Blankfein writes that he and many of his partners put together exceptional teams by hiring bright, ambitious people who were rejected by many investment banking firms because they did not go to Ivy League colleges or came from modest backgrounds. It was often these people rejected by other investment firms who would introduce the biggest innovations and generate enormous profits for the firm.

 

Mr Blankfein and one of his colleagues were one of the first people on Wall Street to hire an actual rocket scientist. The person they hired would use mathematics to create a better risk management model than Goldman, or for that matter, any investment bank at that time.

 

A lot of the book offers exceptional lessons in the creation of hedges, of trading baskets, currency markets and other financial areas. Goldman was a pioneer in introducing many of these and profited enormously from them. Of course, there were also big losses from time to time as economic conditions changed.

 

The book gives an intimate glimpse of how the US changed, both as a society as well as in its economic regulations. Some parts of the book — especially when discussing currency trading, hedging, commodity trading and investment research — explain difficult concepts in securities investments and trading in a manner that finance professors could well use in class.

 

A highly enjoyable book for those interested in the world of investment banks. And for the lessons it holds for countries, policymakers and managers.

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The reviewer is former editor of Businessworld and Business Today magazines, and author of Will India Get Rich Before It Turns 100? A Reality Check