Streetwise — Chapter 11: Paranoia Is a Job Requirement

1. 1. After Bob Rubin left Goldman Sachs in 1992, no one at the top had deep trading experience, creating an imbalance that would have consequences.
2. 2. J. Aron contributed a third or more of Goldman's profits in 1991-1993, far above the industry norm of about 20% for currency and commodities trading.
3. 3. Goldman's pretax profits reached $2.3 billion in 1993, an unprecedented amount for any Wall Street investment bank at that time.
4. 4. Lloyd Blankfein was duped by Robert Maxwell, who used Goldman to move money from his public companies to his private company before his death.
5. 5. The Maxwell affair taught Blankfein that rising success creates susceptibility to being manipulated by powerful people.
6. 6. Goldman's London proprietary traders suffered from overconfidence and lacked adequate risk controls, with traders encouraged to 'bet the ranch.'
7. 7. Goldman's three trading divisions used different risk-management systems, with no unified oversight, leading to undetected failures.
8. 8. In 1994, the Fed began hiking rates after five years of cuts, catching Goldman's traders holding long positions in bonds and currencies, causing large losses.