A timely look at a firm that has survived upheavals

By Ross Kerber, Globe Staff  |  December 5, 2008

Charles D. Ellis's timing couldn't be worse - or better - for his broad new history of Goldman Sachs, the firm that survived several upheavals on Wall Street only to be tested as never before by an economic crisis that already has wiped out several competitors.

Ellis's story starts in 1848 and ends shortly before the fall of Goldman Sachs's Wall Street rivals Bear Stearns and Lehman Brothers Holdings earlier this year. In September, Goldman Sachs reregistered itself as a plain-vanilla deposit bank with federal regulators, which closed an era and makes Ellis's work seem more like a history than he may have intended, especially since Henry Paulson left as the firm's chief executive to become US Treasury secretary in 2006.

Yet the sudden rush of events also makes Ellis's history matter more than it might have a year ago. The sweeping tale offers the backstory of how Paulson came to power on Wall Street and offers some hints how his deal-making approach to the current crisis might have originated and some tips on how his successors might handle the same burdens. While Paulson's era may be passing, Goldman Sachs's past leaders also include Democrats Jon Corzine, governor of New Jersey, and Clinton Treasury Secretary Robert Rubin, both still very much on the political stage and major characters in Ellis's account.

The saga begins when a 27-year-old Bavarian Jew, Marcus Goldman, starts saving for passage to America and in the years after the Civil War builds himself a business in "mercantile paper," much like today's commercial paper business loans, in lower Manhattan. The firm's name became Goldman Sachs & Co. in 1888 after a son-in-law joined up.

It was an outsider who created the legend, however, a brash Brooklyn school dropout named Sid Weinberg, whose rise within the firm and role at its helm from 1930 to 1969 form the best parts of the book. A personality who would now be called an aggressive networker, Weinberg was the rare business executive to warm to FDR's New Deal and was appointed to an advisory board at a time when Wall Street's Republican elite would have little to do with the new administration.

"The Partnership" is filled with anecdotes about deals Goldman Sachs handled under Weinberg, such as the initial public offering of Ford Motor Co. in the 1950s, and under later leaders Gus Levy and John Whitehead as the firm pursued a trajectory into new markets. Its growth led to its own IPO, engineered by Corzine, but at the price of losing his grip on the firm and enabling Paulson's rise.

The strengths of this insiders' tale also are its weaknesses. As a strategy consultant to financial firms, Ellis gained great access, and his tone is that of a wise uncle reciting family lore. But Goldman Sachs, gatekeeper to billions of dollars of investors' money and the matchmaker for some of the 20th century's biggest deals, deserves a more dispassionate account.

An indication of that lack of balance is how individual client companies make fewer appearances as the story moves along, suggesting how the emphasis within Goldman Sachs shifted to market activities. The firm's famously high salaries get scant mention. And in the chapter "Collecting the Best," which talks up Goldman Sachs's ability to attract top talent, Ellis doesn't say enough about two gems he picks up along the way: job offers that Goldman Sachs made to financier Michael Milken and telecommunications analyst Jack Grubman, both of whom fortuitously turned down the firm before their epic crashes. Talk about dodging bullets.

Still, what detail Ellis presents is fascinating. Could it be that the current turmoil will be just another slow few years at Goldman Sachs? At the start Ellis declares that the firm "operates with almost no external constraints in virtually any financial market it chooses, when it chooses, and with the partners it chooses."

That's no longer the case, something Ellis seems to intuit as he winds down: "Too much faith in the rationality of the efficient market is not rational. In the vernacular, 'stuff happens.' " Here's hoping Ellis writes a follow-up chapter a year or two from now with the lessons learned from today's upheaval.

Ross Kerber is a member of the Globe staff.