By 1999, Goldman’s reputation had recovered to its previous zenith–to the point that a public offering again was possible. Its partners had debated the merits of such a change for years, and, even when the decision was made to go forward, the decision was reached only after vigorous debate and much disagreement. In favor of going public were those partners who saw a need for a larger capital base to allow the firm to compete in the increasingly globalized economy with the larger players both in the U.S. and overseas. Furthermore, once a public market was established for its shares, Goldman would have a currency other than cash with which to acquire other businesses and grow into financial services it could not afford to enter as a private partnership. On the other side of the argument were those partners who were worried about the impact that transition to a public firm would have on the firm’s culture. Heretofore, the firm had been known for its low ego and gang-tackling ethos, with aggressive personalities kept in check by the partnership potential that was strongly linked to both productivity and cultural fit.

What neither the firm’s partners nor outside observers were able to foresee was the resulting change in the firm’s risk tolerance. Goldman Sachs was the last of the major Wall Street houses to go public. (Donaldson, Lufkin and Jenrette had been the first in 1970.) As of May 4, 1999, all of Wall Street were now playing with other people’s money (whose acronym, OPM, is not coincidentally pronounced “opium” in financial circles).

That’s a former Goldman Partner.

What goes unsaid is that it isn’t just shareholders and bondholders that got screwed. It’s that, somehow, lax oversight can lead to systemic armageddon.

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