It was not much of an excuse, but the Sachses—Walter and Arthur—were in Europe during the summer when Catchings constructed and sold Blue Ridge. Walter Sachs was in Merano, Italy, up north, with his wife when he received a cable informing him of the Blue Ridge deal. “Well, this is just absolutely crazy,” he said to her, and then he stayed up all night worrying about what might come of the deal. When Sachs returned to New York in September, he made a beeline to Catchings’s apartment at the Plaza Hotel and told him he thought “this thing was crazy” and that he “didn’t agree with it.” Sachs remembered precisely what Catchings responded. “The trouble with you, Walter, is that you’ve got no imagination.”
In the end, the entire enterprise collapsed, and Goldman lost nearly its entire $10 million investment plus another $3 million from other associated liabilities in the Goldman Sachs Trading Corporation—a meaningful chunk of capital in those days and of Goldman’s. The other shareholders had lost hundreds of millions of dollars more.
Of the Crash itself, Sidney Weinberg later told the writer Studs Terkel, “I remember that day very intimately. I stayed in the office a week without going home. The tape was running. I’ve forgotten how long that night. It must have been ten, eleven o’clock before we got the final reports. It was like a thunder clap. Everybody was stunned. Nobody knew what it was all about. The Street had general confusion. They didn’t understand it any more than anybody else. They thought something would be announced.” Weinberg said he remembered that John D. Rockefeller Jr. stood on the steps of the J. P. Morgan building on Wall Street to announce that he and his sons were buying stock. “Immediately the market went down again,” Weinberg said. “Pools combined to support the market, to no avail. The public got scared and sold. It was a very trying period for me.” Weinberg blamed the Crash on “over-speculation” and a “reckless disregard of economics.” He said he doubted those people who claimed to have gotten their money out of the market before it collapsed and saw many people scarred psychologically by what happened. “I don’t know anybody that jumped out of the window,” he said. “But I know many who threatened to jump. They ended up in nursing homes and insane asylums and things like that. These were people who were trading in the market or in banking houses. They broke down physically, as well as financially.”
A couple of months after the Crash of 1929, Catchings headed out west, to Reno, Nevada, to “secure a divorce from his first wife.” One day while Catchings was on the West Coast as the markets were, according to Walter Sachs, “beginning, in 1930, to show some improvement,” Catchings called his partner Sidney Weinberg from San Francisco and said, “We owe $20 million to the banks and we have certain other obligations, amounting to about $10 million. We ought to fund this debt into a two-year convertible note. We ought to sell $50 million of two-year convertible notes” and take the balance of the proceeds—$20 million or so—and give it to Frank Taylor, an investment manager affiliated with the firm, to invest. “Frank Taylor can make a world of money,” Catchings told Weinberg.
Walter Sachs and Sidney Weinberg thought perhaps that Catchings had lost his mind. How in the world, a mere three months after the most devastating financial crisis in American history, did Catchings think Goldman would be able to issue $50 million in new risky securities? “Weinberg and I talked together,” Sachs said. “We spent practically the whole night talking about this thing. At first we said, ‘We can’t sell a note like that.’ ” Sachs then said to Weinberg, “Well, either you and I are crazy, or this man Catchings is crazy, and of course it can’t be done.”
The next morning, when Walter Sachs went into the office—“and this was not an easy thing to do,” he said—he found his brother, Arthur, and admitted to him that he had been right about Catchings all along. “Arthur, you have been right about this man Catchings and I have been wrong,” he told his brother. “The sooner we mend our fence the better.” It fell to Walter Sachs to arrange for Catchings to meet him in Chicago shortly thereafter. “In those days we didn’t fly very much,” Sachs said. “I took the Century”—a cross-country luxury train—“in the afternoon and got there the next morning.” Sachs and Catchings spent the whole morning “closeted” together at the Chicago Club discussing recent events at the firm. First, Sachs told Catchings that his idea for the $50 million of financing would not be done and made no sense. He also said the firm was going back “to the old principle of agreement on the part of all partners if anything was undertaken.” In recounting the meeting some twenty-six years later, Sachs said he “took a position of clipping his wings, and he took it.” A newly contrite Catchings got the message. “Walter, I cannot imagine ever making a decision again without your agreement,” Catchings told him. Catchings went back to Reno; Sachs returned to New York.
But the real work of digging Goldman out of its sizable financial hole had just begun. The Sachs brothers realized that the only way out of the Goldman Sachs Trading Corporation fiasco was to sell as many of the assets it had—the shares of other companies—as quickly as possible, especially since the markets had improved in the spring of 1930. “Those were the days when I worked every night till nine or ten o’clock at night,” Sachs said. “Then I’d go home and fall into bed and I’d sleep until perhaps four in the morning. Then I’d wake up and have to face the world with a smile.” After the Crash, the stock of the Trading Corporation hit $32 a share—its all-time high was $326 a share—and fell steadily until reaching its low of $1.75 per share in 1931. On January 1, 1932, Goldman announced a deal with the Atlas Corporation, an investor in distressed securities, whereby Atlas would become the largest shareholder in the Trading Corporation and then buy it out completely and run it. The full acquisition by Atlas took place in April 1932. And eventually Atlas sold off the remains of the Trading Corporation at a modest profit—for Atlas. “[W]e could hold up our heads,” Walter Sachs remembered, “because we never sold a share of stock until finally a merger took place with the Atlas Corporation”—why he felt vindicated even though investors lost many millions is not mentioned—“and then we turned over the management, and we certainly as far as I’m concerned will never run an investment trust again.”
By then, not surprisingly, the Sachses had decided Catchings had to go. Walter Sachs said that in 1929 Catchings “just went haywire” and reluctantly noted that he and his brother had done nothing to stop him. “We weren’t smart enough perhaps—or perhaps we were too greedy too—but anyway, we didn’t stop it in time.” By the early summer of 1930, “as things became clearer and clearer to us, we made up our minds that we were going to call it a day with Catchings.” The partnership had a contract with him that terminated at the end of 1930, but the Sachses decided they could not wait until then. “[W]e had made up our minds to ask him to retire …,” Walter recalled. “This was because it had become clear to us that we just didn’t think alike, that he had come as near ruining the name and the reputation of the firm as any man could do.”
When Catchings—whom Time magazine referred to as “the loudest prophet of the New Era”—returned to New York from Reno, fresh from his divorce, the Sachs brothers decided les jeux sont faits. Despite Catchings conceding in Chicago that he could not “imagine” making a decision ever again without Walter Sachs’s assent, there was no second chance for him at Goldman Sachs. “Well, that was very nice,” Walter Sachs said of Catchings’s Chicago mea culpa, “but it was too late.” Despite the $13 million of losses that came out of their collective hides, the partners decided to pay Catchings $250,000 to cancel his contract seven months early. The Sachses decided to name Sidney Weinberg the firm’s senior partner. “I was too egotistical to refuse it,” Weinberg said with a smile some thirty-seven years later. At that moment, he had been getting paid one-third of the firm’s profits annually. His role in the Trading Corporation fiasco seemed to have no effect on his rise to power at Goldman Sachs.
Unfortunately, Catchings’s departure from Goldman did not prevent a flood of litigation against the firm fo
r its role in sponsoring, underwriting, and managing the failed trusts. “There were all kinds of stockholders’ suits,” Walter Sachs allowed. “Everybody had them. Our great trouble was that in good faith we had called our investment trust the Goldman Sachs Trading Corporation, while others called theirs things like ‘the United Corporation.’ J. P. Morgan and Company created that. That’s why this stigma clung to us.” Investors who lost money charged Goldman with “neglect and with fraud,” according to Sachs. With Sullivan & Cromwell at its side, Goldman headed off the vast majority of the suits—the last one of which did not get settled until 1968—by compromising and settling.
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.”
CHAPTER 3
THE POLITICIAN
With 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.
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THE 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 w
ays—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.
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