Money and Power

by William D. Cohan

  Ten minutes later, he heard tapping on the glass in Levy’s office. “Which is twenty feet in back of me. ‘Brooth! Brooth! You’re having a trouble with Joe Jones at such-and-such?’ ”

  Mayers told Levy he had done a trade with the client and that there “was no problem at all.” But Levy told him he had to cancel the trade. “I said, ‘No, Gus. I can’t cancel the trade. A trade is a trade. I’ve arbitraged against it four million [dollars], a pretty reasonable size, not a small transaction,’ ” Mayers said. “He said—and to make a long story short—Gus said, ‘They have indicated that they would take a big position in the Ford bonds that are coming out next week. And they need to cancel the trade.’ I said, ‘Gus, you’re the boss. You can do whatever you want to do, but if you cancel the trade there’s gonna be no integrity, there’s gonna be no Bruce, there’s gonna be no arbitrage, blah-blah-blah, and I’m outta here.’ And he said, ‘I have to cancel the trade.’ I said, ‘Good luck,’ and I walked out. And I quit. I was just gone. I just left my positions, my stuff, and I was gonna come back in and pick up my stuff and get another job if I could. My whole life is exploding because of this one thing of morality, and of integrity.”

  Over the weekend, Mnuchin called him at home. They talked for two hours about what had happened and Mayers decided to return on Monday to Goldman. “But the trade was canceled,” he said. “Don’t misunderstand. I lost. Gus was the boss. He had the last say. The integrity was very important to me. I never made a trade that was not based on honesty or morality. It’s one of the reasons I left my [previous] partnership because they did a trade once, which was very meaningless, because they had information that was public but very obscure and we saw it and the other guy didn’t see it. And we—not me, but the firm—took advantage of this to make a half a point on a thousand shares or some ridiculous thing.”

  He said that, despite the incident, his opinion of Levy did not change. “He was running a business and I had always found him to be of the highest caliber,” he said. “He was in a class by himself. I thought to myself, ‘I guess there are certain things he has to do that are unpalatable to him but from a business point of view had to be done,’ so I just let it go and that was the end of it.” He thought that his stature at the firm might actually have increased as a result of the dispute. “It absolutely helped because everybody knew about it because I was goddamning it all over the place, which is my favorite thing to do, stomping around and saying, ‘Goddamnit, how can they do this? It’s Goldman Sachs, who cares about this other fucking firm!’ ” Mayers spent thirty years at Goldman Sachs but never became a partner. Robert Rubin, soon to be a major force at Goldman, used to say about Mayers that in “a fair world,” he would have become a partner. But that didn’t happen. He retired in 1995 and lives modestly in an apartment complex on Long Island.

  CHAPTER 6

  THE BIGGEST MAN ON THE BLOCK

  The Goldman arbitrage machine, like a shark, had to keep moving forward, and Tenenbaum needed a new assistant. He received a call from Martin Whitman, a fund manager, and he suggested that he consider hiring Robert E. Rubin, the son of Alexander Rubin, a lawyer whom Whitman had known in New York. Bob Rubin was then working at Cleary Gottlieb, a New York law firm, but was considering a move to Wall Street. Rubin had worked for Fowler Hamilton, one of Cleary Gottlieb’s name partners, and a former antitrust lawyer in the Justice Department. Tenenbaum figured Rubin knew his way around antitrust procedures pertaining to mergers, an important skill in Goldman’s prospering arbitrage department.

  “There’s only one problem,” Whitman told Tenenbaum. “I think he’s going to go work at Lazard for Felix Rohatyn.” Tenenbaum called Rubin. “Marty Whitman called me,” he said he told Rubin. “He’s a good friend of your dad. I know you want to come to the Street. Give me a shot. Let’s have lunch.” Rubin agreed to have lunch with Tenenbaum at a restaurant near Wall Street.

  Tenenbaum used the idea that Rubin might work for Rohatyn against the impressionable youth. “I hear you may work for Felix Rohatyn,” Tenenbaum told Rubin. “I’ve known Felix a long time, extremely competent, really quite a big guy. Matter of fact, he’s on four major corporate boards. You’ll really be working for a very important guy. You’ll carry his briefcase to every one of those meetings. That’s what you’ll be doing, but that’s what he needs you for.” Tenenbaum hoped his message was getting through to Rubin. “I lost my assistant,” he continued, referring to Lenzner, who by then had left to work elsewhere. “I investigated four hundred and twenty-eight deals last year. I need somebody to investigate half of them. So, you work for me. You’d be your own man. You’d be investigating deals, which is right up your legal background. I think you’ll have a lot of fun. You’ll be working for Gus Levy. He’s a pretty big man, like Felix. It’ll be more of a line job than an assistant to an important guy.”

  Reflecting on this moment many years later, Rubin wrote in his memoir, In an Uncertain World, “I was an odd choice for Goldman Sachs when the firm hired me, at the age of twenty-eight, to work in its storied arbitrage department. Nothing about my demeanor or my experience would have suggested I might be good at such work.” The one thing that can unequivocally be said about Bob Rubin is that he has perfected the persona of the modest, self-deprecating man. From his conservative, somewhat threadbare attire to his stated preference for consensus building rather than to be seen taking unilateral action, to his penchant for seemingly random calls to journalists soliciting their views, he has come to embody Goldman’s team-oriented approach to banking. One Bob Rubin story after another fits into the construct of the unassuming overachiever. Thinking he did not fit in at Goldman was in perfect keeping with his whole affect. “The stereotypical personality type of the arbitrageur was, in those days, forceful and confrontational,” he continued. “I was then, as now, a low-key, not manifestly aggressive person. As for my qualifications, I don’t think I’d ever heard the phrase ‘risk arbitrage’ before I started the job search that led to Goldman Sachs.”

  Morris Rubin, his paternal grandfather, born in 1882 in Minsk, Russia, came to Ellis Island in 1897 to avoid conscription into the czar’s army. “As a young Jew,” Rubin wrote of his paternal grandfather, “he didn’t think the Russian military would be a terrific career choice.” In 1906, he married Rose Krebs, a Polish immigrant. They settled in a tenement on the Lower East Side, where Morris was a milkman. Shortly after the birth of their first child, Alexander Rubin, in 1907, the family moved to Flatbush Avenue in Brooklyn, which Rubin described as a “step up” from the tenement. The Rubins’ fortunes improved in Brooklyn, until Morris became gravely ill in the 1920s after developing an infection following a tonsillectomy.

  On his doctor’s advice that a warm, sunny climate would be Morris’s best hope for recovery, the Rubins left Brooklyn for Miami. Miraculously, the climate change did the trick, and Morris’s health improved, as did—for a time—his personal finances. Morris Rubin’s arrival in Miami in the 1920s coincided with a wave of southern migration and land speculation that the businessman could not easily resist. “He quickly made a good deal of money speculating in real estate with large leverage,” his grandson wrote. “For a short time in the 1920s, Morris Rubin was a wealthy man.” But then, as a precursor to the Crash of 1929, the Florida land bubble burst, taking Morris Rubin’s fortune with it. For several years thereafter—until he regained his composure—Morris Rubin seemed somewhat deranged.

  By the time Rubin was born, living a mile away from his grandfather in Miami, Morris had regained his equanimity and learned to live with the money he had saved. He was never rich again.

  Samuel Seiderman, his maternal grandfather, came from a powerhouse family in Brooklyn that had lived in the borough for generations. Seiderman was “a lawyer, an investor in real estate, a political activist, and a major figure in his Brooklyn world,” Rubin wrote, and a big part of the Democratic Party machine in Brooklyn. “Family legend has my grandfather and his colleagues sitting around in the basement
of what I remember as their enormous house at 750 Eastern Parkway”—in Brooklyn—“and choosing judges,” Rubin wrote. Rubin’s grandfather died in 1958, when Rubin was a sophomore at Harvard, but “his influence remained with me.”

  Rubin’s parents met at a benefit dinner-dance at the Waldorf-Astoria in 1933. Alexander Rubin, who had graduated from Columbia Law School and was a property tax attorney, was at the benefit with a client who had made a large donation to a hospital and was being honored. During the course of the dinner, the client lamented that he had never married and urged Rubin not to make the same mistake. He suggested that his lawyer dance with one of the women seated nearby. After giving her the once-over, Rubin said he didn’t feel like dancing, but he thought another woman he saw in the balcony was more his type. Sam Seiderman overheard Rubin’s comment. “You’d like to dance with that young lady?” he said. “That’s my daughter.” They would be married for some seventy years.

  The Rubins lived in Neponsit, Queens. Bob Rubin was born in 1938. When he was three, the family moved from Queens to an apartment on West Eighty-first Street, in Manhattan, across from the American Museum of Natural History. He went to the Walden School, around the corner on Central Park West. During World War II, Alexander Rubin offered to donate the family’s money-losing mica mine—which was a remnant of Morris Rubin’s business empire—to the U.S. government for the war effort. (Mica was used as a wire insulator for airplanes.) The government accepted the offer but then requested that Alexander run the mine. The family moved—briefly, it turned out—to Sylva, North Carolina, in the Great Smoky Mountains. “The people in the town called my father ‘Jew man’ and ‘Mr. Jew,’ ” Rubin recalled. “It was a bit much for my mother, who felt as if she’d woken up in the wrong century.” Rubin, his sister, Jane, and their mother moved back to New York, while Alexander stayed in Sylva and visited them every few weeks by train.

  When Bob Rubin was nine, the family moved to Miami Beach to be closer to his grandfather and to allow his father to have a “calmer, more pleasant life.” Alexander Rubin built a shopping center, continued to practice some law, and played golf, as did his wife, who had a “shelf full of local club trophies.” On Bob Rubin’s first day in fourth grade at North Beach Elementary, his teacher announced to the class, “Robbie Rubin has gone to a private school in New York and has never learned script. So let’s all be very nice to him.” That same day, over his protests, his classmates elected him class president. “I wasn’t the class president type, but in a funny way the designation stuck with me,” he wrote. “Though I was never a class leader, I held class positions intermittently throughout my school years.”

  In his autobiography, Rubin described a typical, idyllic boyhood in post–World War II America. He rode his bike to school every day, had a paper route, read Hardy Boys mysteries, developed a lifelong love of fishing, and tried not to be too heavily influenced by Rabbi Leon Kronish at the local temple. His parents had many friends, played golf and cards regularly, and hung out at the cabana club at the Roney Plaza Hotel. But, as he had briefly in North Carolina, Rubin again witnessed racial prejudice firsthand. He and his sister attended segregated schools, and the local Woolworth’s had white and “colored” drinking fountains. Jane Rubin made a point of drinking from the “colored” drinking fountain and sitting in the back of the bus. Bob managed to thrive in that unsettling environment, partly by playing a fair amount of poker, at which he allowed he was “pretty good at.”

  Rubin has described his admittance to Harvard as both a matter of luck and, in keeping with the established pattern, his election as president of his high-school senior class. “My grades were good but not outstanding,” he observed, “and I came from a regular public high school.” But the critical factor, he maintained, was serendipity. At a Harvard Glee Club concert, Rubin’s father saw a lawyer he knew whose friend—the Harvard College dean of admissions—happened to passing through Miami at the same time. One thing led to another, and Bob Rubin had a fortuitous interview with the dean.

  As a member of the Harvard class of 1960, Rubin was overcome by a feeling of inadequacy. Despite taking four years of French in high school, he failed the test to release him from the entry-level course. He couldn’t even get into the entry-level math course because he had not taken calculus in high school. On the first day of freshman orientation, in the fall of 1956, he took it to heart when the dean said that 2 percent of the class would flunk out. “I looked around and thought that everyone else was lucky,” he later wrote, “because I was going to fill the entire quota by myself.”

  At the end of his first year, Rubin was doing fine at Harvard. Since law school seemed to be his ultimate destination, he started off as a government major. But then Rubin switched to economics, which was largely taught as a conceptual course of study, rather than with the mathematical rigor of subsequent decades. “I found it difficult but engrossing,” he wrote. He worked with the Nobel Prize–winning economist Thomas Schelling on his—basically incomprehensible—125-page senior honors thesis, “Inflation and Its Relationship to Economic Development in Brazil.” Schelling had just moved from Yale to Harvard, and Rubin was his only advisee. The subject appealed to him, Rubin later wrote, because it “seemed a potentially fruitful area for entrepreneurial involvement,” whatever that means.

  Atypically, Rubin spent the summer between his junior and senior years hanging around Cambridge “with no job, sleeping on a broken couch in the living room of a shared apartment, and working on my thesis to get a head start.” Researching and writing the thesis “in the stacks of the Widener Library every day” turned out to be one of his best memories of Harvard, along with occasionally hanging out in coffeehouses in Harvard Square contemplating existentialism and the meaning of life.

  Rubin didn’t find his “sense of belonging” at Harvard until his senior year. He admitted that his early anxiety about whether he should be at the school was unrealistic but concluded that the paranoia spurred him on and was a “powerful driver” for him. “After thinking I wasn’t going to cross the finish line,” he wrote later, he managed to graduate from Harvard “with the unexpected distinctions” of Phi Beta Kappa, summa cum laude, and a “summa minus” on his Brazil thesis. He had applied—and was accepted—to Harvard Law School and the Harvard PhD program in economics. Apparently as a joke, after graduating from Harvard, Rubin sent a letter to the dean of admissions at Princeton, where he had been rejected four years earlier. “I imagine you track the people you graduate,” he wrote. “I thought you might be interested to know what happened to one of the people you rejected. I just wanted to tell you that I graduated from Harvard summa cum laude and Phi Beta Kappa.” He received a letter back. “Thank you for your note,” the dean wrote. “Every year, we at Princeton feel it is our duty to reject a certain number of highly qualified people so that Harvard can have some good students too.”

  In the fall of 1960, Rubin showed up again in Cambridge but with little enthusiasm for gearing up anew for the rigors of law school. After three days, he went to see the assistant dean to tell him he was dropping out. The dean was unsympathetic. “You’ve taken a place somebody else could have had,” he told Rubin.

  “I told him that I was dropping out anyway,” Rubin explained.

  The dean told him that unless there were “extenuating circumstances,” Rubin would not be readmitted to Harvard Law. They kept talking, though, and the dean said that if Rubin would go to a psychiatrist, get examined, and it was determined that he was making a reasonable decision, he would be readmitted the following year. The psychiatrist told Rubin that when he was about to start medical school, he took a year off instead. Rubin was fine, the psychiatrist told him, but “perhaps the dean ought to come see him if he found what I wanted to do so troubling.” With a free option on Harvard Law School in hand, Rubin wondered how to spend his next year.

  After realizing it was too late to apply to academic programs at Cambridge and Oxford, he ended up applying by cable to the London S
chool of Economics, “emphasizing my Harvard credentials.” The school cabled him back with an acceptance. Only then did Rubin tell his parents he was dropping out of Harvard Law School for the London School of Economics. Before he could head to London, though, Rubin had to return to Miami and get the approval of the local draft board to be deferred from the draft while studying abroad in graduate school, an acceptable option as long as the school was properly accredited. The Miami draft board rep had never heard of the London School of Economics. “The trouble with boys of your race is they don’t want to go to war,” he told Rubin. To get the draft board’s approval, Rubin asked Arthur Smithies, the chairman of Harvard’s economics department, to write a letter stating that the London School of Economics was the real deal. It worked.

  Aside from a school trip to Cuba—when that was still possible—and a family trip to Mexico, Rubin had never been abroad before. His account of the year seems particularly self-indulgent. He was “an occasional student” at the school, “working toward a certificate rather than a real degree,” allowing him to do what he pleased, which was pretty much what he did. “I spent most of my time talking to people,” he wrote. “The sense of freedom was marvelous. In my lodgings on Earls Court Road, I could make dinner at midnight, sleep late, and then wake up and read all day if I felt like it.”

  Along with his traveling companion, David Scott, Rubin also indulged his wanderlust. He hitchhiked in England, albeit wearing a suit and a hand-lettered sandwich board with the plea “two Harvard students need ride” on it. He went skiing—for the first time—in Austria and spent six weeks in Paris, during Christmas vacation, living in a cheap hotel on the Left Bank reading Jack Kerouac and Arthur Miller. He spent Easter in Italy, and that summer drove around Denmark, Norway, and Sweden with Scott.