on family, they had begun to regard themselves as perhaps just a little bit ‘better’ than ‘the butterflies’ of Newport.” On July 20, 1904, Marcus Goldman, whose health had been failing for a “long time,” according to the
New York Times,
died at his daughter and son-in-law’s Elberon home, where he had spent the summer. A few weeks earlier, Sam Sachs’s sons, Arthur and Paul, had joined Goldman Sachs shortly after graduating fromHarvard University.
——
T HE FIRM Marcus Goldman bequeathed to his son Henry Goldman and to his son-in-law Samuel Sachs was in fine form and was nothing less than the leadingcommercial paper house on Wall Street. But Goldman, Sachs & Co. had greater ambitions than just trafficking in commercial paper and precious commodities such as gold. Goldman Sachs wanted to become part of the banking elite that raised debt and equity capital for American companies. Still in its infancy at the start of the twentieth century, the task of raising capital—dubbed “underwriting”—became one of the most crucial roles Wall Street would perform for corporate clients eager to expand their workforces and their factories, and led to the creation of Americancapitalism, one of the country’s most important exports.
Henry Goldman, who ironically had dropped out of Harvard without a degree because he had trouble seeing, had a vision of GoldmanSachs as a leading securities underwriter. He had been a traveling salesman after leaving Harvard but had joined the family business at age twenty-eight and would help lead a transformation of the firm into the underwriting business, which meant taking calculated risks for short periods of time by buying the debt or equity securities of its corporate clients before turning around and quickly selling these securities to investors who had been previously identified and were eager to buy them, assuming they had been priced correctly. The idea of the business was that Goldman would get a fee for providing the capital to its clients and would unload its risk as rapidly as possible by selling the securities to investors. Usually, when markets were functioning properly—and investor panic was not an issue—the process of underwriting worked smoothly, seeming almost risk free and allowing the underwriter to perform what appeared to be an act of magic or one of alchemy. But, at other times, if the securities were poorly priced or investor fear was palpable, underwriters could get left holding huge amounts of the securities without a buyer in sight. Such misjudgments happened only rarely, of course—the spring of 2007 and the ensuing financial crisis being one particularly acute recent example of this phenomenon—but the consequences could be devastating for underwriters and investors alike.
The brothers-in-law Sam Sachs and Henry Goldman were said to be “a study in contrast.” Sachs was conservative both in his risk taking and in his formal attire: even on the hottest days of the year he was said to wear “a thin alpaca office coat.” He also wanted to build the partnership based upon its past successes—a responsible enough approach to preserving his capital. His son,Paul Sachs, once remarked about his father’s satisfaction that a deal the firm was working on with a partner they did not know particularly well had fallen through. Their first impression of the potential partner had been negative. “From the very first moment,” Paul Sachs revealed, “[we were] disturbed by the moral[ity] of these men and while I do not deny that the business might have proved satisfactory enough, we are as a matter of fact glad to have seen it fall through because as we progressed our first unfavorable impression was at every meeting strongly emphasized.” Goldman, by contrast, worked in his shirtsleeves and often would tell his nephewWalter Sachs, “Money is always fashionable” and relished trading railroad andutility bonds—usually at a profit—but risking his
New York Times,
died at his daughter and son-in-law’s Elberon home, where he had spent the summer. A few weeks earlier, Sam Sachs’s sons, Arthur and Paul, had joined Goldman Sachs shortly after graduating fromHarvard University.
——
T HE FIRM Marcus Goldman bequeathed to his son Henry Goldman and to his son-in-law Samuel Sachs was in fine form and was nothing less than the leadingcommercial paper house on Wall Street. But Goldman, Sachs & Co. had greater ambitions than just trafficking in commercial paper and precious commodities such as gold. Goldman Sachs wanted to become part of the banking elite that raised debt and equity capital for American companies. Still in its infancy at the start of the twentieth century, the task of raising capital—dubbed “underwriting”—became one of the most crucial roles Wall Street would perform for corporate clients eager to expand their workforces and their factories, and led to the creation of Americancapitalism, one of the country’s most important exports.
Henry Goldman, who ironically had dropped out of Harvard without a degree because he had trouble seeing, had a vision of GoldmanSachs as a leading securities underwriter. He had been a traveling salesman after leaving Harvard but had joined the family business at age twenty-eight and would help lead a transformation of the firm into the underwriting business, which meant taking calculated risks for short periods of time by buying the debt or equity securities of its corporate clients before turning around and quickly selling these securities to investors who had been previously identified and were eager to buy them, assuming they had been priced correctly. The idea of the business was that Goldman would get a fee for providing the capital to its clients and would unload its risk as rapidly as possible by selling the securities to investors. Usually, when markets were functioning properly—and investor panic was not an issue—the process of underwriting worked smoothly, seeming almost risk free and allowing the underwriter to perform what appeared to be an act of magic or one of alchemy. But, at other times, if the securities were poorly priced or investor fear was palpable, underwriters could get left holding huge amounts of the securities without a buyer in sight. Such misjudgments happened only rarely, of course—the spring of 2007 and the ensuing financial crisis being one particularly acute recent example of this phenomenon—but the consequences could be devastating for underwriters and investors alike.
The brothers-in-law Sam Sachs and Henry Goldman were said to be “a study in contrast.” Sachs was conservative both in his risk taking and in his formal attire: even on the hottest days of the year he was said to wear “a thin alpaca office coat.” He also wanted to build the partnership based upon its past successes—a responsible enough approach to preserving his capital. His son,Paul Sachs, once remarked about his father’s satisfaction that a deal the firm was working on with a partner they did not know particularly well had fallen through. Their first impression of the potential partner had been negative. “From the very first moment,” Paul Sachs revealed, “[we were] disturbed by the moral[ity] of these men and while I do not deny that the business might have proved satisfactory enough, we are as a matter of fact glad to have seen it fall through because as we progressed our first unfavorable impression was at every meeting strongly emphasized.” Goldman, by contrast, worked in his shirtsleeves and often would tell his nephewWalter Sachs, “Money is always fashionable” and relished trading railroad andutility bonds—usually at a profit—but risking his
Similar Books
