Authors: William D. Cohan
One lawsuit, involving comedian and movie star
Eddie Cantor, rattled the firm’s partners especially, not only because Cantor asked for a huge sum in damages—$100 million—but also because Cantor made the firm a punch line in his stand-up routines, not unlike the way
Saturday Night Live
made fun of Goldman in November 2009 for being given doses of the swine flu vaccine before those perceived to be more in need. Or the way
Jon Stewart did in January 2011 when he wondered in the wake of Goldman’s investment in
Facebook, which some claimed helped Facebook bend SEC rules that require companies to be public if they
have more than five hundred shareholders, “Oh Goldman, is there any regulation’s intent you can’t subvert?” In one of Cantor’s bits, he would be onstage with a stooge who tried to squeeze juice from a dry lemon.
“Who are you?” Cantor would ask the fellow.
Without missing a beat, the stooge would reply, “
The margin clerk for Goldman Sachs.”
W
ith Catchings gone, the Trading Corporation heading to the dustbin of history, and the Depression in full swing, Goldman Sachs began what
Walter Sachs described as the firm’s “
great rehabilitation.” In the aftermath of the Trading Corporation debacle, the firm was somehow able to retain all of its clients except for
Warner Bros. and the
Pet Milk Company of St. Louis. “
Don’t imagine for a moment that other banking houses weren’t shooting at our relationships …,” Sachs wrote. “[Y]ou may be sure that these relationships with National Dairy and General Foods and Sears and all these companies were great crumbs for other banking houses.” These were difficult times for the Goldman Sachs partnership. Indeed, according to
Fortune,
“
In the ’29 crash the name Goldman, Sachs emerged as a sort of symbol of everything that was bad and ill-fated about Wall Street.”
One way the firm pulled through was by marking down the value of the securities it owned, selling them into a depressed market, and raising cash—the very strategy Blankfein, Viniar, et al. used starting in December 2006 to begin to reduce the firm’s exposure to the mortgage markets that would tear asunder so much of Wall Street in the following years. “
We faced the music,” Sachs said. “We got ourselves as rapidly as we could, not only at the cost of profits but even of taking losses, into a solid position. We had to take losses to get the firm into a strong cash position.” The firm had also fortunately, Sachs said, taken the position of not providing margin loans on the Trading Corporation shares, which cost it some profits in the boom years but probably saved the firm from even bigger losses when the market crashed.
In the middle of the years of financial struggle—March 1935—Sam Sachs died. “
His mind began to fail with age,” his son observed. “He thought he knew what was going on, but he always said to me, ‘So long as the name isn’t hurt.’ But poor man, he didn’t know—thank fortune, he
didn’t realize—that in 1932, 1933, along in there, the name had been hurt.”
To survive, the firm appealed to its bankers—at
National City Bank, at
Guaranty Bank, and at
Bankers Trust Company—to keep providing short-term loans, so that Goldman could keep doing business, in an era before the U.S. government would play the role of lender of last resort for Wall Street. “
I was perfectly frank with them,” Sachs said. “I showed them the situation, showed them what the picture was, and they knew I was telling the truth. They knew what the reputation of the firm was. They knew what our standing was. And that pulled us through.” There were five very bleak years—until 1935—when the firm’s capital continued to be reduced by losses and a dearth of business. “We lost money for several years,” he continued. “Still, we knew what we had in the way of clientage, and we knew that when the turn came, we’d come back. There were lots of other people in the same position. That’s what we mean by the [G]reat Depression.”
The key to Goldman keeping the bulk of its clients rested squarely on two facts. First, “
that people began to realize that we may have made errors in judgment, but that we had stood our guns, and we had not sold out on people,” Sachs wrote. The second reason—and by far the more important—was because of a gnome of a man named Sidney Weinberg, who joined the firm as an office clerk in 1907, rising mightily through the ranks to become a redwood, a giant among Wall Street men.
——
T
HE LEGENDARY
New Yorker
writer E. J. Kahn Jr. compared Sidney Weinberg to a “
kewpie doll” who “at five feet four inches tall, with legs only twenty-six inches long” seemed “in constant danger of being swallowed whole by executive-size chairs.” In a gargantuan two-part
New Yorker
profile of the Goldman partner that appeared in September 1956, Kahn also described the nearsighted Weinberg as “irrepressibly antic and unabashedly outspoken, he affects a brassy impudence that many of his staid associates appear to find refreshing.” Kahn compared Weinberg to
Bernard Baruch, the legendary Wall Street financier and statesman. “Though largely unknown to the man in any street but Wall,” Weinberg was “among the nation’s most influential citizens. In his role as a power behind the throne, he probably comes as close as Bernard Baruch to embodying the popular conception of Bernard Baruch.”
Sidney James Weinberg, born on October 12, 1891, “
hustled his way to eminence from slum beginnings” in the Red Hook section of Brooklyn, New York, according to the
Times
. He was the third of eleven children of the Polish-born Pincus Weinberg, a wholesale liquor dealer
and bootlegger who later became a small-time stockbroker. He once noted that his grandfather lived to be ninety years old and drank “
half a pint of whisky a day.” The family’s economic prospects were at first so dismal that the children “used to sleep three to a bed,” and Sidney was “obliged to fend for himself as soon as he graduated from grammar school.” Before he was ten, Weinberg sold the evening papers at the Hamilton Avenue terminal for the Manhattan-Brooklyn ferry. (From this, he apparently earned scars on his back from knife fights.) He also shucked oysters for a local fish vendor. Weinberg was a fan both of
Horatio Alger—of whose books he was an avid reader—and of
Abraham Lincoln.
In the summer of 1905, he got himself a job as a runner for one brokerage firm—
John H. Jacqueline—and “
finding this no strain” also got hired to do the same job at
Charles M. Schott & Co. and then
De Coppet & Doremus. Everything was fine until a bank clerk recognized his various, conflicting associations, a violation—understandably—of stock exchange rules. “
Then he lost all three jobs when a bank teller caught on to his duplicity, or triplicity,” E. J. Kahn observed. (This failure of judgment was airbrushed out of all the later profiles of Weinberg.)
Weinberg’s formal education more or less ended after he completed the eighth grade at Public School 13, in June 1906. His last teacher,
Jennie C. Cooke, wrote a brief and succinct letter of recommendation for Weinberg—“
To whom it may concern”—as he set off into the world to seek his own version of Algeresque success. “It gives me great pleasure to testify to the business ability of the bearer, Sidney Weinberg,” she wrote. “He is happy when he is busy and being always ready and willing to oblige, we believe he will give satisfaction to anyone who may need his services.” Years later—in an October 1953
Fortune
profile—after Weinberg’s numerous accomplishments over thirty years had reached legendary proportion, the writer
Robert Sheehan observed that Cooke’s inchoate “profile” of Weinberg would be difficult to embellish “
for accuracy, succinctness, and prophetic understanding.” The same could be said—in many ways—for the firm that he resurrected from the ashes of the Great Depression and remade in his image, a firm where the underdog ambitious overachiever felt at home and was always “ready and willing to oblige” not only the needs of clients but its partners’ and employees’ seemingly insatiable appetite to get richer and richer.
Despite his renown, Weinberg remained devoted to his Brooklyn school and would occasionally remind people, “I’m just a dumb guy from P.S. 13.” Once Paul Cabot, then head of
State Street Bank and the treasurer of Harvard—he and Weinberg became friends after his prescient
warning about
investment trusts in
The Atlantic
—invited Weinberg to join him for dinner. Weinberg—who liked to pronounce his name “Wein-
boig
”—told Cabot that he “already had an engagement for an academic evening” because he had agreed to go back to P.S. 13 to see a fellow classmate whom no one had seen in twenty-five years. When Cabot inquired where the fellow had been, Weinberg replied, “
In Sing Sing,” referring to the upstate New York prison. “He shot our teacher for giving him a lousy mark.” Such was Weinberg’s reverence for his grade school that in 1954, a group of Weinberg’s high-powered friends—including the executives from the companies where he was a director and a World War II general—arranged for the principal of P.S. 13 to give him an honorary postgraduate degree, the only one the school ever bestowed, at a surprise party held in his honor at the ‘21’ Club, on West Fifty-second Street, for years a favorite Goldman haunt. “
Sometimes you don’t know whether you’re talking to a street urchin, a comedian or a banker,” explained one of Weinberg’s “blue-blooded” Wall Street competitors.
In 1907, Weinberg got a job—for two dollars a week—as a “
feather horse,” which he explained once was “a kid who delivered millinery,” or women’s hats. To make his way to work delivering the hats, Weinberg used to cadge a ride with a friend on the back of a horse-drawn freight wagon, in exchange for watching the horse and the wagon’s contents while the driver made his early morning deliveries. One day, in 1907, when his friend—who was a runner at the brokerage firm
J. S. Bache & Co.—told Weinberg there was a panic on Wall Street, he wondered, “
What’s a panic?” His friend’s explanation didn’t mean much to him, but one thought did stick in his head: that people were scared and wanted their money out of their banks. He figured he could make a little money of his own—said to be five dollars a pop (and later embellished to ten dollars a pop)—by standing in the long lines that were forming at the entrance of the
Trust Company of America bank, putting in the hours needed to make it to the front, and then selling his coveted space in line to a panicked depositor in a hurry. On his first day in this endeavor—around October 23, as the panic was at its peak—he sold his space in line twice. The next day, he sold it once. By his third day, the panic had subsided, but by then, he “
had given his heart to Wall Street forever,” or so the myth surrounding him goes. That day, instead of showing up at Trust Company and standing in line, he decided to take the elevator to the top floor of 43 Exchange Place, in the heart of the financial district and then Manhattan’s tallest building at twenty-five stories, and knock on the doors of one small office after another to see if anyone needed help. “
Do you need a boy?” he wanted to know.
When he made his way down to the building’s third floor—to the offices of Goldman, Sachs & Co.—he asked his question. “No,” came the reply, “but we need someone to help Jarvis, the colored porter.” “I’ll take it,” Weinberg said immediately and thus began his three-dollar-a-week job as the assistant to Jarvis, Goldman’s janitor. (References to Jarvis’s race are often removed from Weinberg profiles.) The first task assigned to him at the firm was to polish a brass spittoon, which he later kept in his office as a memento of that assignment. In addition to cleaning the partners’ cuspidors, he also brushed their silk hats and polished their galoshes. “
Weinberg remained an inconsequential cog in this rapidly accelerating machine,” Kahn wrote, noting that he not only placed tacks on the chairs of the firm’s clerks but once also inserted an ad into a local newspaper advertising—falsely—that
Samuel Sachs was looking for chorus girls to hire for a Broadway show. Candidates were to report to 43 Exchange Place to be interviewed, the ad said, and that is exactly what happened during the subsequent week.
Weinberg’s big break so to speak came two years later, when partner
Paul Sachs—before he left for Harvard—asked the diminutive Weinberg to lug a flagpole up to Sachs’s house on 138th Street, in Manhattan. “
Ever try to carry a flagpole on a trolley car?” he asked rhetorically years later. “It’s one hell of a job.” But lug it he did and went further by then assembling the flagpole in its designated place at Sachs’s home and raising the American flag up it. The two men—the partner and the clerk—got to chatting while Weinberg was toiling away and Sachs told him he had a bright future at the firm and so should think about beefing up his education, at night. By then, Weinberg had been taking—for fifty dollars—an accounting class at Browne Business College, in Brooklyn. (One version of the same story has Weinberg taking a stenography class.) But at Sachs’s urging—and based on his willingness to foot the twenty-five-dollar bill—Weinberg began a course of study at night at New York University. Sachs hadn’t told the boy what to study. “
One course they offered was investment banking,” Weinberg recalled later. “I knew Goldman, Sachs was in the investment banking business, so I took that course.” He also took some classes—briefly—in foreign exchange at Columbia. “
Paul Sachs was the first partner who ever really gave me a second glance,” he told Kahn. “Until he took me in hand, I was an awful kid—tough and raw.” Such was what passed for progress in those days that Weinberg made twenty-eight dollars a week trolling for new commercial paper accounts at Goldman Sachs.
During
World War I, Weinberg enlisted in the navy and convinced the recruiter to make him an assistant cook, even though he couldn’t see
or cook particularly well. He served in this capacity aboard the boat owned by Henry Goldman Jr., which had been converted into a submarine chaser for the war. He grew thin from malnutrition. Desperate for a change of venue, he tried to become an officer and took the officer’s exam, which had been designed for college graduates. He got a zero. But he could organize things and seemed to have a penchant for “
knowing everybody,” a combination that finally caught the attention of his military superiors, who decided to transfer him to the
Office of Naval Intelligence in Norfolk, Virginia. His job there was to inspect the cargo of all ships using the port. “
He has since become almost as proud of having been an enlisted man as of having gone to P.S. 13,” Kahn observed.