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The Partnership

The history of Goldman Sachs and its rise from Manhattan basement to ‘global juggernaut.’

By Christopher Hartman / November 8, 2008

In the 139 years of its existence, Goldman Sachs has endured the Great Depression, the collapse of the high-tech hedge fund called Long Term Capital Management in the late 1990s, and, most recently, the crisis in world credit markets.

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Charles Ellis, who for 30 years managed the international financial consulting firm Greenwich Associates, details the company’s rise from “marginal Eastern US commercial paper dealer” to “global juggernaut” in The Partnership: The Making of Goldman Sachs.

Ellis convincingly demonstrates, using both humorous and sober anecdotes and well-researched analysis, that this path has been anything but linear.
Founded in 1869 by Marcus Goldman, a German-Jewish emigrant who came to Philadelphia in 1848, the firm originally specialized in the brokering of commercial paper. In 1882, the company became a family affair when son-in-law Samuel Sachs joined the firm.

Throughout this period, Ellis asserts, anti-Semitism was rampant in the investment world. Two of the leading financiers of the era, J.P. Morgan and George F. Baker (head of what is now Citigroup), would not deal with “Jewish companies.” So these companies turned to “Jewish firms,” such as Goldman Sachs.

Anti-Semitism also served to exclude Goldman Sachs from underwriting the new bond and stock issues of the rapidly expanding railroad industry – leaving the firm to pursue “industrial financing” instead.

This resulted in two noteworthy successes: Sears, Roebuck and Co. and F.W. Woolworth.
Two early crises rocked the company. First, Henry Goldman (son of Marcus), who was responsible for much of its success up to and throughout World War I, was forced out for his outspoken German sympathies – which not only caused a severe rift within the closely related Goldman and Sachs families, but also threatened the firm’s very survival after Goldman withdrew his considerable capital.

Second, Goldman’s successor, senior partner Waddill Catchings, aggressively invested in the “Goldman Sachs Trading Corporation” – a trust which speculated heavily on margin.

Catchings’s dealings left the company severely overleveraged. As a result, Goldman Sachs saw both its fortunes and reputation severely depleted following the stock market crash in October 1929.

The company barely survived the Depresssion.

At its helm, however, was  the “smart, tenacious and aggressive” Sidney Weinberg, who combined street savvy (“he had scars on his back from knife fights as a newspaper boy”), a legendary sense of humor, and a fierce loyalty to his clients. Known as “the body snatcher” for his ability to persuade top executives on Wall Street to participate in the World War II production effort, Weinberg “launched a series of relationships with occupants of the White House that would continue for more than thirty-five years.”

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