by Joshua Green
Throughout his seven-year tenure in the Navy, Bannon was a faithful reader of The Wall Street Journal, and had enough success as an amateur speculator in commodities such as gold and silver that shipmates sought out his investment advice. Still intoxicated by the go-go Reagan eighties, his restlessness mounted as he began to sense that the real action lay not in Washington but on Wall Street, which, by the fall of 1982, was beginning to boom as the economy began pulling out of a deep recession. “I decided I wanted to go to Wall Street,” he recalled, “and somebody told me, ‘If you want to go to Wall Street, then you’ve got to go to Harvard Business School.’” Harvard accepted him, and Bannon, at twenty-nine, matriculated in 1983.
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By the time he arrived in Cambridge, the Dow Jones Industrial Average was flat-out soaring—up 50 percent in just eighteen months. To Bannon and his Harvard Business School classmates, Reagan made capitalism feel vital and newly alive, while Wall Street held the glittering allure of the riches that the sizzling economy could bestow on an elect few—many of them HBS graduates—who won positions at the leading financial firms. Almost overnight, the once sleepy profession of investment banking came to seem exciting, central, and valorous in a way that nobody had quite anticipated. It was the job that encapsulated the zeitgeist of the eighties.
For some students, Wall Street’s boom fueled fantasies of the full-on, debauched eighties-investment-banker lifestyle. Not for Bannon, who wouldn’t permit himself the distraction. Although he dressed the part of a rich preppy, in khakis and yellow Polo sweaters, he mostly forswore partying and resolved to become a grind. “He was not a rebel looking for a cause,” recalled Scot Vorse, his friend and classmate. “You don’t go to Harvard Business School to be a rebel and cause problems. You go to Harvard Business School because it was the most prestigious school to get in at the time.” Ever alert to signifiers of class, Bannon understood that he differed from most of his HBS peers: he was several years older, married (he’d wed Cathleen “Susie” Houff, a young woman from Richmond who’d gone to Virginia Tech), had blue-collar Irish roots, and had made it to Harvard by way of the Navy rather than an elite university that might have endowed him with useful friendships and business connections.
The brass ring for HBS students was a summer associateship at one of the big investment banks, typically the prelude to a coveted job offer upon graduating. Competition was fierce. Bannon, who made friendships easily, was warned by his more well-bred classmates that he would probably have to stand out academically to have a hope of landing one. “They told me, ‘Hey, since you were in the Navy and didn’t really come up with us, you’ve got to become a first-year honors guy,’” he said. He took the advice to heart. “I was really focused on getting first-year honors, getting really great grades.”
It helped to be hyper-competitive and driven, which Bannon was, and to have a healthy dose of charisma, which he certainly did. HBS divided its first-year students into sections of about ninety people and then pitted them against one another to determine their grades. Half of their grade was based upon class participation. Adding to the pressure, the program was designed to fail 7 percent of the class, in order to foster competition. Bannon was assigned to Section H and quickly distinguished himself as “the leader of the pack,” said Vorse.
He had a knack for expository speaking and a self-confidence that bordered on arrogance, both attributes that lent themselves to the performative demands of the business school curriculum. “Most of the time, there is not a right answer,” Vorse said. “These are cases where part of succeeding in business is figuring out what’s important and what’s not. . . . Steve is as good as anybody at getting through the noise, deciphering the issue, and deciding what’s relevant.”
For all that he studied, however, Bannon was no apple polisher. He invariably chose a seat in the back of the classroom, among a group of friends who sneered at the grasping, overeager “tire biters” in the front row. He felt comfortable doing this not only because it was entirely in his nature, but also because he felt increasingly sure of his academic primacy. “In my view, Steve was certainly top three in intellectual horsepower in our class—perhaps the smartest,” recalled David Allen, who sat with him in the back of the class. “But he combined horsepower with logical, well-structured arguments. Whenever Steve spoke, my advice was to ‘listen for understanding.’”
When he returned to Richmond over the Christmas holiday, Bannon mailed out dozens of letters requesting interviews for summer associateships. Goldman Sachs was, for him, an especially sought-after target, as it was for most of his classmates. Each year, hundreds of HBS students applied for what usually numbered fewer than two dozen Goldman slots. Bannon, having succeeded in earning first-year honors and fancying himself “a pretty hot runner,” figured he had a better shot than most at landing one.
Yet weeks went by without an interview invitation, then months. Bannon was stunned. The firms that replied turned him down. Many didn’t reply at all. “I thought it would be a very simple process,” he said. “Everyone would want me because I’m a superstar, right? Nope. All rejections. One hundred percent.”
In the spring, chastened, he resolved to make a good showing for the recruiters who filtered onto campus to tout their firms and select the next class of associates. “I remember going up to the guy from Dillon, Read & Co.—a classic investment bank with a great name on Wall Street—and I said, ‘Hey, look, I sent in a request for an interview,’” Bannon recalled. “He goes, ‘Lemme check . . . Bannon . . . Oh yeah, you were rejected.’” Bannon flushed, as some of his classmates looked on. Worse still, the Dillon, Read recruiter confirmed what his friends had warned him about. “He goes, ‘Look, I’m sure you’re a great guy and you’re probably gonna be a rock star somewhere,’” Bannon recalled being told. “‘But we’re a small investment bank. You’re older, you’ve been a naval officer. I need a guy who does finance, and I can’t make a mistake. We’re not the Dallas Cowboys—we don’t draft talent. We’re looking for a position player.’” Bannon walked away convinced that, despite his grades and class standing, he might not get an interview anywhere, much less get a job.
He had little choice but to keep trying. A short while later, a team from Goldman Sachs arrived on campus. Bannon dutifully attended a presentation delivered by Kevin Kennedy, a young vice president who would go on to become a senior partner at the firm. Thirty years later, Bannon could still summon the details of Kennedy’s no-bullshit pitch to the HBS students for a Goldman Sachs that was then still a close-knit, privately held partnership. “He says, ‘We’re a very hard-working place. There are no stretch limos outside. We’re very middle class. We work very hard. It’s all about the firm. It’s about partnership. It’s about teamwork. What we’re going to do is have an open bar, and we’d like all of you to come and have a drink with us.’ It sounded perfect to me. It wasn’t Gordon Gekko. I thought to myself, I gotta do this.”
The next day, Bannon put on his best suit and headed over to the Goldman recruiting party, hoping to somehow inveigle his way into getting an interview. “I get there, and there’s like seven hundred people jammed into this tent,” he said. “I said, ‘Fuck it. There’s no chance.’” With practically his entire class jockeying to make an impression on the recruiters, Bannon calculated that the odds were impossible for him. He grabbed a beer and stood, discouraged, on the periphery of the crowd. Social animal that he was, however, he soon struck up a conversation with a pair of strangers who were milling nearby. “I’m there with my drink and these two other schmendricks standing next to me,” he said. “I start talking to these guys, and we have the greatest conversation about baseball, and I find out after about half an hour that it was John Weinberg, whose dad runs the firm, and a guy named Rob Kaplan, who became a senior partner”—and, later, chairman of the Dallas Federal Reserve Bank.
At the time, Kaplan and Weinberg were both young associates. They came away from their improm
ptu conversation entertained and impressed by the charismatic naval officer who had worked his way up from Richmond to Harvard. Bannon, an engrossing storyteller with a gift in the Irish comic tradition, had regaled them with tales of his exploits around the globe, as well as his thoughts on subjects ranging from Harvard to Reagan.
That evening, the Goldman executives gathered in a room to compare notes and begin winnowing the pool of applicants. One of them later recounted the scene.* They placed the names of prospective hires up on a board. When they got to Bannon, someone said, “I guess we’re going to reject him. He’s too old for a summer job.” Kaplan and Weinberg leaped up. “And these guys say, ‘Oh no, we talked to him—he’s terrific,’” Bannon said. “It was literally a complete crapshoot. But I got a job.”
FOUR
“A DANGEROUS WAY TO LOOK AT THE WORLD”
After Bannon graduated from Harvard Business School in 1985, he parachuted into a war zone, landing in Goldman Sachs’ New York office at the height of the hostile-takeover boom. The job thrust him into the kind of high-pressure situation he adored: a primal, intense, all-consuming struggle between two warring factions. Goldman Sachs put him on the front lines.
A few years earlier, in the late 1970s, a young bond trader named Michael Milken had quietly set the stage for a revolution on Wall Street when he discovered that, in the aggregate, bonds of former blue-chip corporations that had fallen on hard times—known as “fallen angels”—consistently outperformed those of current blue chips with better creditworthiness. Because struggling corporations held a higher risk of failure, fallen angels had to offer higher interest rates than blue-chip bonds to attract customers. These higher interest rates meant that a portfolio of fallen angels, even though some would go bust, would almost invariably beat a portfolio of blue-chip bonds. Yet most investors shunned them as “junk.” Milken’s insight was that junk bonds were undervalued assets because investors, who feared seeming imprudent, didn’t want to own them. An enormous opportunity awaited someone less constrained by appearances.
Milken made himself rich by trading junk bonds. Then he made himself vastly richer by becoming the chief evangelist for their cause. Along the way, he upended U.S. corporate finance. By convincing other investors that junk bonds were a shrewd bet, Milken almost single-handedly created a market for them. The demand he created meant that two types of businesses considered too risky to lend to by commercial bankers—new, smaller businesses and large, struggling corporations—could suddenly gain access to capital by floating junk bonds. Some of them failed. But many junk-fueled corporations, such as MCI and Chrysler, hit it big. And even though he won extraordinary wealth and renown, Milken had the chutzpah to style himself a populist, conjuring up capital for businesses that were looked down on and refused by established lenders.
By the time Bannon graduated from HBS, Milken’s revolution had generated tens of billions of dollars in junk bonds, enough to fund all the companies shut out of the credit markets. So Milken and his firm, Drexel Burnham Lambert, devised an ingenious new use for them: they used junk bonds to finance raids on undervalued blue-chip corporations. Milken and Drexel would fund these hostile takeovers by pledging the assets of the target corporation as collateral, in the same way that a home buyer obtains a mortgage by pledging the collateral of the home against the loan. This practice gave rise to an army of corporate raiders, men such as Ron Perelman, Carl Icahn, T. Boone Pickens, and Nelson Peltz, who became rich selling junk bonds through Drexel Burnham to finance predatory raids on such Fortune 100 companies as TWA, Disney, Revlon, and Phillips Petroleum. So fearsome did Milken’s reputation become that sometimes the mere rumor that a company might come under siege was enough to send it scrambling toward a defensive merger.
Hostile takeovers became a hugely profitable business for Milken and Drexel. By 1986, Bannon’s first full year on Wall Street, Milken had become Wall Street’s most notorious villain and Drexel Burnham its most profitable investment bank, clearing $545.5 million on revenues of $4 billion. More important for Bannon and Goldman Sachs, Milken and his army of raiders had struck terror in the hearts of the chief executives of America’s finest corporations. “Everything in the Midwest was being raided by Milken,” said Bannon. “It was like a firestorm.”
The attacks by Milken had a corollary effect on the companies he targeted: they needed help staving off the barbarians at the gates. This, too, created profitable new business opportunities. Goldman Sachs, not yet evolved into the money-grubbing “vampire squid” it would later become, was a white-shoe firm that wouldn’t deign to represent corporate raiders in hostile takeover bids. Instead, Goldman developed a specialty in raid defense for blue-chip companies targeted by the likes of Drexel Burnham and First Boston. Bannon landed in the firm’s mergers-and-acquisitions department, the SWAT team that companies called in to advise and protect them when the raiders came calling.
Ensconced on the twenty-third floor of Goldman’s old headquarters at 85 Broad Street, Bannon spent his first few years at Goldman working one-hundred-hour weeks and clocking in every day except Christmas. “You’d get a call at seven a.m. on Sunday from a partner wanting to go over your work schedule for the day,” he said. Goldman’s M & A department was led by Geoff Boisi, the fanatically driven “Mastermind of the Mega-Deals” (as The New York Times dubbed him), and Mike Overlock, who had served in a long-range reconnaissance patrol in the Vietnam War. “I was just a junior grundoon,” said Bannon. “But we got to work with Hank Paulson [the future treasury secretary], who was the new-business guy in the Chicago office and the most intense guy in humanity.” It was a grueling life, but one that he loved. “The environment was intense, but the camaraderie was amazing,” he said. “It was like being in the Navy, in the wardroom of a ship.”
At the time Bannon arrived, Goldman Sachs was the last major partnership on Wall Street. “Goldman then was a very different place than it is today,” he said. “A very small partnership and an enormously conservative place at the time.” Goldman’s caution was dictated by its ownership structure. Not only did the partners have their own money on the line, but they held unlimited liability if an investment went wrong. “If Milken came in and did a raid,” said Bannon, “and you were going in to tell the board of directors that you could get a better price, it was like going to argue before the Supreme Court: you had better be able to back it up. Because if it turned out you were wrong, shareholders would come back and sue the partnership for bad information.” These circumstances instilled a rigor that Bannon, like Michael Lewis and other Wall Street veterans turned critics, believes was lost when investment banks became publicly traded companies that felt free to gamble with shareholders’ money.
“Goldman in the eighties was like a priesthood,” said Bannon, “a monastic experience where you worked all the time but were incredibly dedicated to client services, to building and growing companies.” The firm thought of itself as “long-term greedy,” meaning that it was devoted to the well-being of its clients, who, over years and decades, would reward that devotion by giving Goldman their business. “It was a calling, like joining the Jesuits,” he said, “to build and grow companies. Somebody once told me, ‘The river of history runs deep through Goldman’s M & A department, because you’re at the forefront of helping the country restructure into a post-industrial economy.’ We believed that.”
Yet even as Bannon was imbibing the lore of Goldman’s high priests, the firm was headed down a path that would destroy this careful balance of interests, when the partners cashed out their stakes in Goldman’s public offering a decade later. Without the restraining force of their liability, Goldman began to emulate the behavior of other publicly traded investment banks, whose collective excesses ultimately precipitated the 2008 financial crisis. “Cut to twenty years later,” Bannon said, “and Wall Street is a casino that taxpayers have to bail out. I soured on Wall Street for the same reason everybody else did: the American taxpayer was forced
to cut mook deals to bail out Wall Street. It was totally unfair.”
Even in the eighties, long before Wall Street’s collapse, Bannon harbored an admiration for the villain whom he and his colleagues were often matched up against in his early Goldman days. Milken, a Jew who wore an ill-fitting toupee, was initially shunned, and later despised, by the old-money firms with their WASP lineage and culture of restraint. But it was Milken who ultimately prevailed by storming their fortresses and upending their businesses. Eventually, they wised up and began doing what Milken had been doing all along: taking big stakes in the companies for themselves. Bannon had the brains and the social intelligence to pass as a Harvard preppy and a Goldman whiz kid, but deep down he identified more with Milken, a swashbuckler and rogue who struck fear in his adversaries. “The strengths that Milken had—the aggressiveness, the creativity, the hard work—those are all traits Steve admires,” said a former Goldman colleague. Whether he recognized it or not, Bannon was better suited to the other side.
Later on, when Milken went to prison for insider trading, Bannon did a deal to roll up one of his companies. After Milken was freed and had begun rehabilitating his image, Bannon appeared as a featured speaker at one of his conferences. More than anything, Milken was a kind of spirit animal who fired the imagination and showed just how far you could go if you stopped worrying about appearances and seized opportunity. His lesson was never forgotten. If you took Michael Milken and Drexel in 1985 and teleported them from Wall Street to Washington, D.C., in 2015, what you’d wind up with would look a lot like Stephen Bannon and Breitbart News: a band of outsiders laying siege to a comfortable, fattened, and vulnerable establishment.
