By Ronni Berke and Christine Romans
Goldman Sachs: some say it's the most revered – and feared – bank on Wall Street. But after more than a century of avoiding the media spotlight, the investment bank finds itself front and center – the focus of growing public scrutiny and scorn for its role in a mortgage meltdown.
Demonstrations are held outside its headquarters; newspapers and magazines criticize what they call a change in the "Goldman Ethos," or culture, of serving the client above all else. Rolling Stone's Matt Taibbi has ridiculed it as "a great vampire squid wrapped around the face of humanity."
Critics blame Goldman for selling toxic assets, like mortgage-backed securities, that contributed to the financial collapse. Like other banks, it got government bailout money, although it paid back the $10 billion with 23% interest. While the country is still reeling with skyrocketing foreclosures and 10-percent unemployment, Goldman ended 2009 with soaring stock prices and profits.
That leaves many competitors and critics wondering – are they gaming the system, or are they just the best at what they do?
"Goldman always brings to the table the attitude we're smarter than everybody else and we're better than everybody else, and that's why we make money," said former New York Governor Eliot Spitzer, who investigated Goldman's business practices while attorney general.
"To a certain extent, they're the New York Yankees of the investment banks," said Spitzer. "They have all the money, they keep winning, they have an arrogance, but people underneath it say 'boy, they're good.' And so you love them, you hate them, you resent them, you fear them, you feel the game is fixed, and sometimes it's probably all of the above."
But many Goldman advocates say the firm's "secret sauce" is based on the 141-year-old bank's tradition of grooming the best and the brightest.
"When I got to Goldman Sachs, I said this was the equivalent of getting to work at NASA," said Janet Hanson, who spent fourteen years at Goldman starting in the 70's. She was the first woman to manage the the money market sales desk. For her, Goldman's allure was simple. "The excitement of working with really smart people, I think, is really what attracted these very talented young people, particularly young people."
To begin with, the firm relentlessly recruits top students from the best graduate schools, says Charles Ellis, author of "The Partnership," a history of Goldman. "If you've got the very best people in large numbers and you discipline them and train them well and give them tremendous motivation to do great things and teach them to play as teams you get a very formidable organization," says Ellis.
They also pay well. Although final figures won't be announced until next week, Goldman's 2009 compensation pool is approaching $21 billion. In a company of nearly 32,000, that averages about $700,000 a piece.
Chris Whelan, a banking analyst at Institutional Risk Investors, says Goldman bankers are more nimble than their competitors. "Goldman bankers just work very hard, they try and get information before everyone else does and they try to act on it first."
They also rely more on complicated, high-tech trading over traditional investment banking to make money. In the third quarter, they pulled in more than 49-million in profit a day.
That allows for bonuses that Goldman CEO Lloyd Blanfein claims are justified. In October, he told Fortune's Andy Serwer, "I can't do too much that subordinates the interests of our shareholders in having a great franchise of Goldman Sachs and maintaining our people and being able to recruit other people." Yet, in December, after public outrage, the firm backed off and decided to offer thirty top executives bonuses in deferred stock instead of cash.