Streetwise — Chapter 12: My First “Crisis of the Century”

1. 1. The 1994 trading losses at Goldman Sachs were worse than the 2008 financial crisis for the firm because Goldman was on its own as a partnership.
2. 2. Loss aversion and macho trading culture caused traders to double down on losing positions, turning $100 million monthly losses into $200 million by fall 1994.
3. 3. Superior traders are distinguished by how quickly they adjust to new market realities, not by being right more often.
4. 4. Steve Friedman resigned as CEO in September 1994 during the crisis, citing stress and heart palpitations, without paving the way for succession.
5. 5. Partner departures created a vicious cycle: each exit reduced primary capital and signaled lack of confidence, prompting more to leave.
6. 6. Jon Corzine succeeded Friedman as chairman, with Hank Paulson as vice-chairman, a rushed succession that sowed future conflict.
7. 7. The rise of bond traders to top Wall Street positions in the 1980s and 1990s was driven by fiscal deficits, falling interest rates, and the explosion of junk bonds and mortgage-backed securities.
8. 8. The 1994 crisis made it clear that Goldman needed to go public to maintain a stable capital base, but resistance to ending the partnership culture remained intense.
9. 9. The 1994 partner class, the largest ever with 58 new partners, accepted lower bonuses but received higher partnership percentages, which paid off at the IPO.
10. 10. The departures elevated the class of 1988, including John Thain, John Thornton, Steve Hendel, and the author, who became co-heads of J. Aron with observer status on the management committee.