Treasury Secretary Paulson Ousted N.J. Governor Corzine at Goldman

Jon Corzine and Hank Paulson were number one and two at Goldman Sachs (GS) in 1994, replacing Steve Friedman who left from exhaustion. Charles D. Ellis, author of The Partnership: The Making of Goldman Sachs, tells that the two were polar opposites. This excellent company biography traces the development of Goldman’s culture through both success and scandal, from small partnership through the Goldman Sachs Trading Corp., alleged insider trading, Robert Maxwell and Long-Term Capital Management (LTMC) difficulties. Throughout its history Goldman was a disciplined, but not risk adverse enterprise. The company continuously sought competitive advantage through superior talent, technology and ethics.

Corzine was titled senior partner, but he told the outside world that he was CEO. He had broad, but not unlimited authority and technically was under the control of the management committee. Corzine wanted to run Goldman as the chief executive of a public company, while it was still a partnership. Paulson was titled president and was the second highest ranking partner at the time. Paulson was promised a power sharing arrangement, but Corzine did everything possible to subvert that by acting on his own. The two constantly fought, until Paulson joined four others on the management committee to vote Corzine out in 1998, just before the Goldman IPO. Corzine agreed to leave shortly after the IPO.

Paulson believed in structure, both in organization and presentation. He was a traditional Republican investment banker. Corzine won his fame through a highly profitable bond trading operation. He was a bit sloppier, much less formal in organization and presentation. Corzine was a liberal Democrat who relied heavily on his instinct and intuition. Corzine was selected number one based on his profitability to the firm and Goldman’s trading origin. But, the management committee felt the job of running Goldman was too big for Corzine alone. The political challenge was to convince Paulson that he was Corzine’s equal while not being called co-leader.

As the 1990s were coming to a close, fixed income trading went from being highly profitable to incurring large losses. This did not endear the management committee to Corzine. While the management committee was already tiring of Corzine’s freewheeling ways, his reaching beyond his authority in the LTCM rescue and clandestinely feeling out commercial banks as merger partners ended his run.

Paulson’s discomfort with the unpredictability of the trading world should have provided clues that the TARP was never intended to be used to trade mortgage securities. His greater comfort with the controlled world of investment banking has been clearly revealed in his actions as Treasury Secretary. Paulson has been the most prolific investment banker the Treasury has ever employed. Too bad he hasn’t maintained his reputation for careful planning and strategizing.

No disclosures.

Comments

[herbert hoover:]

Paulson has also managed to make Bush totally superfluous

2008 Dec 22 08:51 AM

[monday1929:]

Can you be made something you do not know the meaning of?


On Dec 22 08:51 AM Herbert Hoover wrote:

> Paulson has also managed to make Bush totally superfluous

2008 Dec 24 07:59 AM

[MYC:]

"Paulson’s discomfort with the unpredictability of the trading world should have provided clues that the TARP was never intended to be used to trade mortgage securities."

I am not sure that TARP is the right word here.

Apr 29 03:02 PM