An American Obituary For Wall Street

[Mrs. Sharon B. Hodge]

Goldman Sachs’s headquarters in New York The company, a golden child of the financial sector, faces a very different future and mission amid seismic changes wrought by the credit crisis


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Wall Street, RIP: The End of an Era, Even at Goldman
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New York Times
By JULIE CRESWELL and BEN WHITE
Published: September 27, 2008

WALL STREET.
Two simple words that — like Hollywood and Washington — conjure a world

A world of big egos. A world where people love to roll the dice with borrowed money.
A world of tightwire trading, propelled by computers

In search of ever-higher returns — and larger yachts, faster cars and pricier art collections for their top executives — Wall Street firms bulked up their trading desks and hired pointy-headed quantum physicists to develop foolproof programs

Hedge funds placed markers on red (the Danish krone goes up) or black (the G.D.P. of Thailand falls).
And private equity firms amassed giant funds and went on a shopping spree, snapping up companies as if they were second wives buying Jimmy Choo shoes on sale

That world is largely coming to an end

The huge bailout package being debated in Congress may succeed in stabilizing the financial markets. But it is too late to help firms like Bear Stearns and Lehman Brothers, which have already disappeared. Merrill Lynch, whose trademark bull symbolized Wall Street to many Americans, is being folded into Bank of America, located hundreds of miles from New York, in Charlotte, N.
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For most of the financiers who remain, with the exception of a few superstars, the days of easy money and supersized bonuses are behind them. The credit boom that drove Wall Street’s explosive growth has dried up.
Regulators who sat on the sidelines for too long are now eager to rein in Wall Street’s bad boys and the practices that proliferated in recent years

“The swashbuckling days of Wall Street firms’ trading, essentially turning themselves into giant hedge funds, are over. Turns out they weren’t that good,” said Andrew Kessler, a former hedge fund manager.
“You’re no longer going to see middle-level folks pulling in seven- and multiple-seven-dollar figures that no one can figure out exactly what they did for that”

The beginning of the end is felt even in the halls of the white-shoe firm Goldman Sachs, which, among its Wall Street peers, epitomized and defined a high-risk, high-return culture

Goldman is the firm that other Wall Street firms love to hate. It houses some of the world’s biggest private equity and hedge funds. Its investment bankers are the smartest. Its traders, the best. They make the most money on Wall Street, earning the firm the nickname Goldmine Sachs.
(Its 30,522 employees earned an average of $600,000 last year — an average that considers secretaries as well as traders)

Although executives at other firms secretly hoped that Goldman would once — just once — make a big mistake, at the same time, they tried their darnedest to emulate it

While Goldman remains top-notch in providing merger advice and underwriting public offerings, what it does better than any other firm on Wall Street is proprietary trading.
That involves using its own funds, as well as a heap of borrowed money, to make big, smart global bets

Other firms tried to follow its lead, heaping risk on top of risk, all trying to capture just a touch of Goldman’s magic dust and its stellar quarter-after-quarter returns

Not one ever came close

While the credit crisis swamped Wall Street over the last year, causing Merrill, Citigroup and Lehman Brothers to sustain heavy losses on big bets in mortgage-related securities, Goldman sailed through with relatively minor bumps

In 2007, the same year that Citigroup and Merrill cast out their chief executives, Goldman booked record revenue and earnings and paid its chief, Lloyd C. Blankfein, $68.7 million — the most ever for a Wall Street C.E.
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Even Wall Street’s golden child, Goldman, however, could not withstand the turmoil that rocked the financial system in recent weeks.
After Lehman and the American International Group were upended, and Merrill jumped into its hastily arranged engagement with Bank of America two weeks ago, Goldman’s stock hit a wall

The A.I.G. debacle was particularly troubling. Goldman was A.I.G.’s largest trading partner, according to several people close to A.I.G. who requested anonymity because of confidentiality agreements. Goldman assured investors that its exposure to A.I.G.
was immaterial, but jittery investors and clients pulled out of the firm, nervous that stand-alone investment banks — even one as esteemed as Goldman — might not survive

“What happened confirmed my feeling that Goldman Sachs, no matter how good it was, was not impervious to the fortunes of fate,” said John H.
Gutfreund, the former chief executive of Salomon Brothers

So, last weekend, with few choices left, Goldman Sachs swallowed a bitter pill and turned itself into, of all things, something rather plain and pedestrian: a deposit-taking bank

The move doesn’t mean that Goldman is going to give away free toasters for opening a checking account at a branch in Wichita anytime soon.
But the shift is an assault on Goldman’s culture and the core of its astounding returns of recent years

Not everyone thinks that the Goldman money machine is going to be entirely constrained. Last week, the Oracle of Omaha, Warren E.
Buffett, made a $5 billion investment in the firm, and Goldman raised another $5 billion in a separate stock offering

Still, many people say, with such sweeping changes before it, Goldman Sachs could well be losing what made it so special.
But, then again, few things on Wall Street will be the same

GOLDMAN’S latest golden era can be traced to the rise of Mr. Blankfein, the Brooklyn-born trading genius who took the helm in June 2006, when Henry M. Paulson Jr.
, a veteran investment banker and adviser to many of the world’s biggest companies, left the bank to become the nation’s Treasury secretary

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