Streetwise

Lloyd Blankfein grew up in the Linden Houses, a public housing development in East New York, Brooklyn, sharing a cramped apartment with his parents, older sister Jacky, and maternal grandmother. His father, Seymour, sorted mail on the night shift at the post office; his mother, Blanche, was a receptionist. The family descended from Yiddish-speaking Jewish immigrants who arrived in the 1880s from the Russian Pale of Settlement, a region in the western Russian Empire. Money was perpetually tight, and the neighborhood deteriorated through the 1960s as white flight transformed East New York from predominantly white to mostly Black and Hispanic. Blankfein was mugged at knifepoint several times and attended an overcrowded, failing high school where the gymnasium had been converted into a police station. Despite these obstacles, he skipped eighth grade and became class valedictorian.

Accepted at Harvard College with a full financial aid package, Blankfein arrived in September 1971 at age 16. The culture gap between his working-class background and the prep-school world of his classmates was enormous. He worked 15 hours a week washing dishes and struggled academically sophomore year before recovering with the help of friends from similar backgrounds, including David Grizzle, whose father worked in a quarry. He nearly failed to graduate when he missed his senior thesis deadline, rescued only by Grizzle and his girlfriend typing it overnight. He graduated in 1975, reflecting that he survived Harvard more than he enjoyed it.

At Harvard Law School, Blankfein focused on tax law and joined the law firm Donovan, Leisure, where he spent two years in Los Angeles litigating tax cases for recording companies. Back in New York, he met Laura Jacobs, a Georgetown Law graduate, through a colleague's matchmaking. Growing disillusioned with tax law, he decided he needed a change.

In 1982, at 28, Blankfein left his law firm to join J. Aron, a commodity trading firm recently acquired by Goldman Sachs, taking a pay cut. The trading floor was chaotic, with rotary phones, shouting, and cigarette smoke. The two firms operated as separate entities: Goldman was Ivy League and polished; J. Aron was scrappy and outer-borough. As gold arbitrage profits declined, a major layoff eliminated about a third of the staff. Blankfein survived but was told he had been considered for dismissal.

Blankfein devised a breakthrough transaction for Al Rajhi, a Saudi bank whose clients needed returns compliant with Islamic law, which prohibits charging interest. Drawing on his tax background, he structured an S&P 500 arbitrage capturing a high annualized yield. The $100 million order required collaboration with Goldman's equities division and introduced him to senior partner Bob Rubin. Mark Winkelman, a Dutch-born partner, then overhauled J. Aron, introducing rigorous analytics and recruiting quantitative talent. He tapped Blankfein to build a foreign exchange sales force. Blankfein's team developed innovative hedging products and created the Goldman Sachs Commodities Index (GSCI), enabling institutional investors to gain passive exposure to commodities.

Blankfein made partner in October 1988. In 1991, British press lord Robert Maxwell, a Goldman client, died under mysterious circumstances; it emerged he had used foreign exchange transactions Blankfein facilitated to siphon pension fund money, costing Goldman a $254 million settlement. The episode taught Blankfein that rising status creates susceptibility to manipulation.

The 1994 bond market crisis devastated Goldman. London-based proprietary traders refused to cut losses and doubled down, giving back roughly $800 million. About 50 of 162 partners departed to protect their wealth under the firm's unlimited liability structure. CEO Steve Friedman resigned without a succession plan. Jon Corzine became chairman, with Hank Paulson as vice-chairman. Blankfein and Steve Hendel, a fellow executive, were appointed co-heads of J. Aron with limited authority. The crisis strengthened the case for an initial public offering (IPO).

Goldman's IPO came in May 1999 after the 1998 collapse of the hedge fund Long-Term Capital Management (LTCM) temporarily derailed the offering and a power struggle resulted in Corzine's ouster. Priced at $53 per share, the stock closed above $70 on its first day; Blankfein's shares were worth $168 million.

Through the early 2000s, Goldman navigated the dot-com crash, the September 11 attacks, and corporate accounting scandals. Senior executives John Thornton and John Thain, both succession contenders, departed in 2003. Their exits elevated Blankfein to sole president and chief operating officer (COO) by early 2004. When Paulson left to become Treasury secretary in June 2006, the board named Blankfein chairman and CEO. He articulated a vision of Goldman as a "modern merchant bank" integrating advisory, financing, and investing roles, and launched philanthropic programs including 10,000 Women and 10,000 Small Businesses.

The global financial crisis of 2007-2008 defined his tenure. Goldman's risk management, rooted in marking all positions to current market prices daily, kept the firm solvent when competitors collapsed. CFO David Viniar directed mortgage traders to reduce risk by late 2006. The firm bought credit default swaps, contracts that pay out when a borrower defaults, on mortgage securities from AIG at low cost. Bear Stearns collapsed in March 2008, and Lehman Brothers went bankrupt that September. Goldman converted to a bank holding company, a regulated structure with access to Federal Reserve funding. It secured a $5 billion investment from Warren Buffett on a handshake and accepted $10 billion from the government's Troubled Asset Relief Program (TARP).

The reputational fallout proved more painful than the financial emergency. A Rolling Stone article called Goldman a "giant vampire squid," and Blankfein's offhand remark about doing "God's work" in a newspaper interview became a global headline. He testified before the Senate Permanent Subcommittee on Investigations, where Senator Carl Levin accused Goldman of betting against clients. The firm settled civil charges from the Securities and Exchange Commission related to the ABACUS mortgage derivative for $550 million, and a criminal investigation hung over Blankfein for over a year before being dropped in 2012. In response, Blankfein appointed a business standards committee whose 39 recommendations shifted the firm's approach from "Can we?" to "Should we?"

Additional crises tested Goldman. Board member Rajat Gupta, the former head of the consulting firm McKinsey, was convicted in 2012 of insider trading for passing confidential board information to hedge fund manager Raj Rajaratnam. In Malaysia, Goldman underwrote bond issues for a sovereign wealth fund called 1MDB that proved to be a vehicle for massive fraud, ultimately costing the firm billions in settlements.

In 2015, Blankfein was diagnosed with advanced-stage, aggressive non-Hodgkin's lymphoma. Because a serious CEO illness constituted material insider information, he could tell almost no one. He underwent six rounds of chemotherapy while continuing to lead the firm, holding meetings from his hospital room. The cancer did not return.

By 2018, after 12 years as CEO, Blankfein found that the burdens of the role had overtaken its rewards. Gary Cohn, who served as co-chief operating officer, had departed in early 2017 to become President Trump's national economic adviser, narrowing the succession field. The board selected David Solomon, an investment banker, as Blankfein's successor, reflecting a pattern of alternation between trading and banking leaders throughout Goldman's history. Blankfein stepped down at the end of 2018. In retirement, he trades for his own account and studies linguistics and physics. He reflects that Goldman's enduring strength lies in the partnership culture connecting its alumni and that the American economy's resilience flows from its tolerance for risk-taking and willingness to give people another chance after failure.