On a clear day, Lloyd Blankfein can look through the windows of his office on the 30th floor at the tip of Manhattan and see the Linden housing project in the East New York section of Brooklyn. That's the rough neighborhood where he grew up, the son of a mail sorter at the local post office.
As head of Goldman Sachsgs today, Blankfein has come a long way from the projects to becoming one of the highest-paid CEOs on Wall Street. Perhaps he's come too far, because it's a place that many people who live in his old neighborhood might find hard to comprehend. After all, Blankfein and his fellow executives make eight-figure salaries running a company that devised and dabbled in the complex financial products that many believe caused the near-collapse of the global economy last year.
No wonder Goldman's recent feats, which in any other environment would have drawn applause, this year are attracting derision and suspicion. As the economy struggled to shake off the recession and unemployment approached 10%, Goldman did some of the best investment banking of its 140-year history, posting record quarterly revenue of $13.8 billion and 65% growth in profits.
Just months after many on Wall Street debated whether the investment banking industry it dominated was dead, Goldman has proved the naysayers wrong. Shareholders have chalked up big gains from the bank's banner performance in the first half of the year. Goldman's stock has doubled since January.
"Goldman's success lies in the culture of the firm — of stability, strength and focus. It's a culture that you cannot build overnight," says Thomas Marsico, founder and CEO of Marsico Capital Management, which manages $51 billion in assets and owns 13 million Goldman shares. "At a time when Lehman and Bear (Stearns) were gone, Citi was dealing with its financial issues and Merrill (Lynch) its new leadership, Goldman executed for its customers."
However, Goldman's profits stand in sharp contrast to what the rest of the country is facing, hobbled with hundreds of thousands of job losses each month and hundreds of businesses shuttering on Main Street. Goldman also set aside $11.4 billion in the first half of this year for compensation and benefits for its employees, a 33% increase from last year. At a time when there has been intense focus on bankers' compensation, including congressional hearings, Goldman's decision has been hard to swallow on Main Street.
After all, the belief is that Goldman and some of the other Wall Street banks might not still be around if they hadn't gotten government help. And the plight of taxpayers who are funding the bailout of financial institutions stands in stark relief to bankers' stratospheric pay. CEO Blankfein, for instance, earned in excess of $100 million in the past three years, even though he didn't take a bonus last year.
Last fall, Goldman, along with eight large banks, was given billions in taxpayer dollars to boost confidence in the financial system. This June, Goldman was one of the first firms to reimburse the government in full, paying back its $10 billion plus interest.