Money and Power (25 page)

He really did want to work at Goldman but felt an obligation to stay at Gregory & Sons because he had not been there very long. But in the wake of Feldman’s departure, Tenenbaum and Mnuchin were increasingly anxious to find a trader to replace Feldman. “It got to the point one night where L. Jay said, ‘Will no amount of money buy you?’ ” Mayers recalled. “Well, jeez, I had never heard that expression
before.” Goldman ratcheted up the pressure further on Mayers. “How would you like to make a hundred thousand dollars a year?” they asked him. “Jesus, that was
absolutely
mind-boggling to me,” he remembered. “And I said, ‘It’s not the money. It’s the fact that I have this obligation, a moral obligation, legal if you want but nothing in writing, to spend a year with Gregory & Sons.’ ”
Tenenbaum told Mayers Goldman could not wait, and if he wanted the job he needed to decide sooner rather than later. Mayers went to see Hamilton W. Gregory III, the head of the firm, and told him he had an offer to go to Goldman. “Jesus, that’s the Yankees of Wall Street,” Gregory told him. They resolved that if he could find his own replacement—which he soon did—Gregory would release him from his moral obligation to stay at his firm.

Mayers started at Goldman on Valentine’s Day 1966, and for the balance of the year, he received his pro rata for the time that year he worked at Goldman, or $87,500. As much as he loved working at Goldman, he noticed a few things right from the start that were troubling to him. First, even though some block trades were not particularly profitable, Levy wanted him to trade them anyway. “He would put his two cents in,” Mayers remembered,
“and he would say, ‘I saw
Morgan Stanley put this block of stock on. Did you have a chance to bid that?’ I said, ‘Yes, I got the call, it was from such-and-such a fund, but I didn’t think
the price was right. They wanted to sell it at thirty-two and that clearly wasn’t worth taking on that.’ And he would say, ‘Brooth’—he had this lisp—‘Brooth, that’s a
client of the firm’s. You’ve gotta lift a leg a little bit to take care of what they want.’ ”
Mayers said he learned to show a little leg. “It was not necessarily in my best interest as a trader,” he said. “But in the long run, it was in the best interest of the firm to be identified with constantly doing the right thing. I understood that. But I was still personally motivated. I mean, I was motivated for
Goldman, obviously, but I said, ‘Jeez, why should I end up taking the loss and at the end of the year they’re gonna say you lost a lot of money on this or whatever?’ But I learned how to do that, [and] that was the whole basis of block trading. That was never a moneymaker.”

Mayers also was uncomfortable with Levy’s arrangements with
L. F. Rothschild and Wertheim. “One of the things that really gripped me the wrong way at Goldman is that we did a lot of business, joint account, with Rothschild,” he said, “so the relationship between Levy and Cohen was obviously a strong one.” Mayers said he “fought it from day one” but soon enough decided, “What’s the
point?” since Levy was the boss and Levy liked the relationship the way it was and had no interest in changing it. Mayers remembered one arbitrage he did, in 1970, in some
AT&T bonds where the issue of the joint accounts—in this instance, the issue involved Wertheim—“came to a head” with Levy. When he had the trade on, he discovered that when it came to AT&T arbitrage trades, Goldman was always
joint account with Wertheim. This particular trade involved bonds that AT&T had issued with five-year warrants. Mayers called it the “spotted zebra” trade because it was “a unit of two totally diverse things” that lent itself to “terrific trading opportunities.” He made $200,000 on the trade on the first day, which certainly caught Levy’s attention.

During the few weeks the trade was on, though, Mayers knew that Wertheim had traded none of the units. Half of Goldman’s profit went to Wertheim anyway. “That’s great,” Mayers told Levy. “I’m the arbitrageur and I’m stuck with doing business with Wertheim, who didn’t do one trade during the three-week period, nothing.” At Mayers’s urging, Goldman ended the deal with Wertheim. “I said,
‘As long as we’re doing this why don’t you review what we’re doing with L. F. Rothschild, too,’ ” he recalled. “And we did that and we parted amicably.” Mayers got a plaque and a dinner from Goldman for creating one of the best arbitrage trades of the year.

Before receiving that modest accolade, though, Mayers had a major dispute with Levy about a trade he had made on the AT&T bonds. He had sold $4 million of the bonds, plus the attached warrants, to a very big
trading account Goldman had. “I wouldn’t want to use the name,” he said. “But one of the largest accounts.” He had offered the bonds at 94
⁷
⁄
₈
to 95,
a very tight spread. But the client came back and said he wanted to buy them even tighter, at 94
¹⁵
⁄
₁₆
. Mayers was slightly perturbed that the guy was cutting it so close but he agreed to the deal. That was the end of the trade. Three hours later, Mayers got a call from an intermediary saying that the client wanted to cancel the trade. It turned out the price of the bonds had fallen to around 94½ in those few
hours and the client wanted out. “It was an absolute idiotic reason,” Mayers said. Mayers told the intermediary “a deal’s a deal” and he would not rescind it. He hung up the phone. The ostensible reason he wanted to cancel the trade, Mayers was told, was because the client had “an obligation to trade with
Morgan Stanley.” Of course, Mayers knew that he had offered a better price than Morgan Stanley had.
“I’m not canceling the trade,” he said. “Click.”

Ten minutes later, he heard tapping on the glass in Levy’s office. “Which is twenty feet in back of me. ‘Brooth! Brooth! You’re having a trouble with Joe Jones at such-and-such?’ ”

Mayers told Levy he had done a trade with the client and that there “was no problem at all.” But Levy told him he had to cancel the trade. “I said, ‘No, Gus. I can’t cancel the trade. A trade is a trade. I’ve arbitraged against it four million [dollars], a pretty reasonable size, not a small transaction,’ ” Mayers said. “He said—and to make a long story short—Gus said, ‘They have
indicated that they would take a big position in the
Ford bonds that are coming out next week. And they need to cancel the trade.’ I said, ‘Gus, you’re the boss. You can do whatever you want to do, but if you cancel the trade there’s gonna be no integrity, there’s gonna be no Bruce, there’s gonna be no arbitrage, blah-blah-blah, and I’m outta here.’ And he said, ‘I have to cancel the trade.’ I
said, ‘Good luck,’ and I walked out. And I quit. I was just gone. I just left my positions, my stuff, and I was gonna come back in and pick up my stuff and get another job if I could. My whole life is exploding because of this one thing of morality, and of integrity.”

Over the weekend, Mnuchin called him at home. They talked for two hours about what had happened and Mayers decided to return on Monday to Goldman. “But the trade was canceled,” he said. “Don’t misunderstand. I lost. Gus was the boss. He had the last say. The integrity was very important to me. I never made a trade that was not based on honesty or morality. It’s one of the reasons I left my [previous] partnership because they did a
trade once, which was very meaningless, because
they had information that was public but very obscure and we saw it and the other guy didn’t see it. And we—not me, but the firm—took advantage of this to make a half a point on a thousand shares or some ridiculous thing.”

He said that, despite the incident, his opinion of Levy did not change. “He was running a business and I had always found him to be of the highest caliber,” he said. “He was in a class by himself. I thought to myself, ‘I guess there are certain things he has to do that are unpalatable to him but from a business point of view had to be done,’ so I just let it go and that was the end of it.” He thought that his stature at the firm
might actually have increased as a result of the dispute. “It absolutely helped because everybody knew about it because I was goddamning it all over the place, which is my favorite thing to do, stomping around and saying, ‘Goddamnit, how can they do this? It’s Goldman Sachs, who cares about this other fucking firm!’ ” Mayers spent thirty years at Goldman Sachs but never became a partner. Robert Rubin, soon to be a major force at Goldman, used
to say about Mayers that in “a fair world,” he would have become a partner. But that didn’t happen. He retired in 1995 and lives modestly in an apartment complex on Long Island.

T
he Goldman arbitrage machine, like a shark, had to keep moving forward, and Tenenbaum needed a new assistant. He received a call from
Martin Whitman, a fund manager, and he suggested that he consider hiring Robert E. Rubin, the son of
Alexander Rubin, a lawyer whom Whitman had known in New York. Bob Rubin was then working at
Cleary Gottlieb, a New York law firm, but was considering a move to Wall Street. Rubin had worked for
Fowler Hamilton, one of Cleary Gottlieb’s name partners, and a former antitrust lawyer in the Justice Department. Tenenbaum figured Rubin knew his way around antitrust procedures pertaining to mergers, an important skill in Goldman’s prospering arbitrage department.

“
There’s only one problem,” Whitman told Tenenbaum. “I think he’s going to go work at Lazard for
Felix Rohatyn.” Tenenbaum called Rubin. “Marty Whitman called me,” he said he told Rubin. “
He’s a good friend of your dad. I know you want to come to the Street. Give me a shot. Let’s have lunch.” Rubin agreed to have lunch with Tenenbaum at a restaurant near Wall Street.

Tenenbaum used the
idea
that Rubin might work for Rohatyn against the impressionable youth. “I hear you may work for Felix Rohatyn,” Tenenbaum told Rubin. “I’ve known Felix a long time, extremely competent, really quite a big guy. Matter of fact, he’s on four major corporate boards. You’ll really be working for a very important guy. You’ll carry his briefcase to every one of those meetings. That’s what you’ll be doing, but that’s what he needs you for.” Tenenbaum hoped his message was getting through to Rubin. “I lost my assistant,” he continued, referring to Lenzner, who by then had left to work elsewhere. “I investigated four hundred and twenty-eight deals last year. I need somebody to investigate half of them. So, you work for me. You’d be your own man. You’d be investigating deals, which is right up your legal background. I think you’ll have a lot of fun. You’ll be working for Gus Levy. He’s a pretty big man, like Felix. It’ll be more of a line job than an assistant to an important guy.”

Reflecting on this moment many years later, Rubin wrote in his memoir,
In an Uncertain World,
“
I was an odd choice for Goldman Sachs when the firm hired me, at the age of twenty-eight, to work in its storied arbitrage department. Nothing about my demeanor or my experience would have suggested I might be good at such work.” The one thing that can unequivocally be said about Bob Rubin is that he has perfected the persona of the modest, self-deprecating man. From his conservative, somewhat threadbare attire to his stated preference for consensus building rather than to be seen taking unilateral action, to his penchant for seemingly random calls to journalists soliciting their views, he has come to embody Goldman’s team-oriented approach to banking. One Bob Rubin story after another fits into the construct of the unassuming overachiever. Thinking he did not fit in at Goldman was in perfect keeping with his whole affect. “The stereotypical personality type of the arbitrageur was, in those days, forceful and confrontational,” he continued. “I was then, as now, a low-key, not manifestly aggressive person. As for my qualifications, I don’t think I’d ever heard the phrase ‘
risk arbitrage’ before I started the job search that led to Goldman Sachs.”

Morris Rubin, his paternal grandfather, born in 1882 in Minsk, Russia, came to Ellis Island in 1897 to avoid conscription into the czar’s army. “
As a young Jew,” Rubin wrote of his paternal grandfather, “he didn’t think the Russian military would be a terrific career choice.” In 1906, he married Rose Krebs, a Polish immigrant. They settled in a tenement on the Lower East Side, where Morris was a milkman. Shortly after the birth of their first child,
Alexander Rubin, in 1907, the family moved to Flatbush Avenue in Brooklyn, which Rubin described as a “step up” from the tenement. The Rubins’ fortunes improved in Brooklyn, until Morris became gravely ill in the 1920s after developing an infection following a tonsillectomy.

On his doctor’s advice that a warm, sunny climate would be Morris’s best hope for recovery, the Rubins left Brooklyn for Miami. Miraculously, the climate change did the trick, and Morris’s health improved, as did—for a time—his personal finances.
Morris Rubin’s arrival in Miami in the 1920s coincided with a wave of southern migration and land speculation that the businessman could not easily resist. “
He quickly made a good deal of money speculating in real estate with large leverage,” his grandson wrote. “For a short time in the 1920s, Morris Rubin was a wealthy man.” But then, as a precursor to the Crash of 1929, the
Florida land bubble burst, taking Morris Rubin’s fortune with
it. For several years thereafter—until he regained his composure—Morris Rubin seemed somewhat deranged.

By the time Rubin was born, living a mile away from his grandfather in Miami, Morris had regained his equanimity and learned to live with the money he had saved. He was never rich again.

Samuel Seiderman, his maternal grandfather, came from a powerhouse family in Brooklyn that had lived in the borough for generations. Seiderman was “
a lawyer, an investor in real estate, a political activist, and a major figure in his Brooklyn world,” Rubin wrote, and a big part of the Democratic Party machine in Brooklyn. “Family legend has my grandfather and his colleagues sitting around in the basement of what I remember as their enormous house at 750 Eastern Parkway”—in Brooklyn—“and choosing judges,” Rubin wrote. Rubin’s grandfather died in 1958, when Rubin was a sophomore at Harvard, but “his influence remained with me.”