Goldman Sachs - Company that Ruled the World | 2023 Documentary

Through cut-throat competition and self-interest, one firm has managed to survive for more than

a century and in the process become the symbol of Wall Street.

Much admire, much hated, and the best Risk Manager on Wall Street.

it's clearly a culture that cultivates ruthlessness.

Remember for Goldman to be winners, there had to be losers.

[Music]

[Music]

in 1886 after making a small fortune from his clothing business, the Jewish immigrant

Marcus Goldman decided to get into Finance.

He sees a need for small businesses to turn their accounts receivables into cash quickly.

At the time, bank loans are harder to get for these small businesses.

He would offer to buy their short-term debt at a discount and resell them later to other

investors and bankers at a higher price.

These short-term loans later became what's called commercial papers.

Around that time, it was the beginning of the investment banking industry.

Unlike commercial banks that provide more guaranteed and safe financing, firms like

Goldman Sachs provide riskier financing - hence the term Investment Banks.

Ten years later Marcus Goldman grows his business to selling around 30 million dollars in commercial

papers per year.

At the age of 60, Goldman has already surpassed the average life expectancy and to make sure

the family business thrives after he retires he brings on his son-in-law Samuel Sachs as

a partner.

By 1896 Sachs grows the firm to have 1.6 million dollars in capital, shared among five partners

for the business of issuing and trading commercial papers is quickly becoming saturated.

To grow, they need to find the next big thing - by the late 19th century, it is taking companies

public AKA IPOs.

If it's the first time you've been issued shares it's called an IPO or initial public

offering.

So you're a private company.

It's just you and a few friends own the company but now you want to go public, you would generally

go to an investment bank, talk to them about how to do it and the Investment Bank would

solve that problem for you by doing an underwriting.

At the time doing IPOs belonged to more elite firms with a European heritage.

As a Jewish firm, Goldman Sachs was sort of the outsider.

But the Goldman Sachs partnership is determined to break into the IPO underwriting business

and they know just where to look.

[Music] They're going to start by taking a Jewish company public.

[Music]

In 1897 Sears had a net worth of 250 thousand dollars, but by 1905 it made 37 million dollars

in revenue and 2.8 million dollars in net income.

It's a perfect candidate for an IPO.

But taking Sears public will be a tremendous undertaking, more than what Goldman Sachs

can handle alone.

Goldman Sachs decides to partner up with another up-and-coming Jewish firm - the Lehman Brothers.

Together, they underwrite 30 million dollars of Common Stocks and 10 million dollars of

preferred stocks for Sears.

Both firms rake in an unprecedented amount of fees from this deal.

As a result of their success, many companies become their clients and by 1914 Goldman Sachs

becomes a prominent Investment Bank on Wall Street!

The senior partner Henry Goldman even gets invited to become a designer for the U.S Federal

Reserve System.

But IPOs are a cyclical business.

After profiting millions in fees for issuing stocks and bonds, Goldman Sachs now needs

to find a way to reinvest its money.

The timing is flawless!

The Roaring 20s is one of the greatest bull markets in the history of America.

It was a boom like we've never had.

There was a belief that we were in the Emerald City!

Think about the Roaring 20s it was the Go-Go, everybody was optimistic, markets were soaring,

when it's so easy for anybody to go get out alone and then go speculate.

As an opportunist, Goldman Sachs intends to fully capitalize on it.

It forms a trading Corporation by putting down one million dollars in capital, but immediately

sells more shares to the public at 10 times the price.

As a result, the trading Corporation raises 93 million dollars and their original investment

is worth almost 10 million dollars.

Today the entity is more or less like the SAPCS - special purpose acquisition corporations.

As you can see, the essence of Finance hasn't really changed.

After making money virtually from thin air, Goldman Sachs Stars more investment trusts

simply because there are people in the market willing to pay for them.

This is not unlike the.com bubble during the early 2000s or the cryptocurrency mania recently.

During the Roaring 20s, you can just create an investment trust out of thin air, take

it public and the market will buy it.

Day by day we were nearer to the final triumph over poverty than ever before in the history

of any land.

But nothing good lasts forever.

Eventually, everything comes crashing down.

That day it's October 29, 1929.

Half of the active manpower of the United States drifting helplessly in search of work.

Marriage is off 22 percent, divorce rate down sharply, suicide rate 40 percent higher.

The crash is the worst America has seen in its short history and Goldman Sachs trading

Corporation is reduced almost to nothing.

Hundreds of millions of dollars are evaporated, and the partnership of Goldman Sachs lost

13 million dollars of its investment.

Within a year, hundreds of investment trusts go bust, taking down investors and investment

banks with them [Music]

Goldman Sachs manages to survive the crash and its clients surprisingly stayed with the

firm, all thanks to one man - Sidney Weinberg.

Sydney Weinberg is raised in a poor Brooklyn household.

He's the third of 11 children.

To support the family, he's forced to quit high school early, but even as a young man

Sidney shows a willingness to work hard and the ability to network.

Started as a janitor at Goldman Sachs, he hustles his way to the very top of the company

in a period of 15 years.

He had a tremendous capacity for connectivity with other people it was impossible to not

like being with Sydney Weinberg.

With his ability to make friends in high places Weinberg single-handedly brings about the

majority of the investment banking business to Goldman Sachs, including taking General

Electric public.

Even after the collapse of Goldman Sachs Trading Group Sydney's clients still decide to stay

with the firm.

The successful comeback of Goldman Sachs makes Sddney Weinberg hungrier than ever.

He now attempts to do something impossible he's going to take four Motors public [Music]

Fort Motors is a giant car manufacturing company started by revolutionary entrepreneur Henry

Ford.

Ford always thought in the sense of consumerism - how one could sell a vehicle at its cheapest.

You know sometimes populist in politics talked about "a chicken in every pot ." Henry Ford

wanted a car in every driveway.

By 1956, Ford is the second-largest cart maker in America.

Its IPO will make any Investment Bank a fortune.

Henry Ford, he never trusted Wall Street.

He thought Wall Street was gambling and that it was to rip off the folks.

Even JB Morgan Jr has failed to take Ford public at one point.

Henry Ford was a great man but not a good man and you know was really devoured anti-semite,

so we can never mistake greatness in business for being a great person.

But it has been nine years since Henry Ford died, his grandson Henry Ford II is a vastly

different man.

To Sidney Weinberg, this is his chance to cash in!

[Music]

A big breakthrough came in the 1950s when golden was allowed to underwrite the IPO of

Ford Motor Company, given that Henry Ford was considered anti-semitic.

(It's a )sort of a seed change on Wall Street.

As profit rolls in, Goldman Sachs needs to find more ways to reinvest them.

As it turns out, a small trading department at Goldman Sachs has been making a killing.

This department is led by a legendary Trader [Music] Gustav Levy.

America is on the rise!

After the Civil War, the country experiences rapid growth like never before.

One industry reaps the reward of this economic prosperity more than any other - Wall Street.

Goldman Sachs, a prominent Investment Bank, capitalized on the expansion of American businesses

by taking them public and in the process making itself rich and powerful.

After the IPO of GE and Fort Motors, Goldman Sachs becomes one of the most profitable investment

banks on Wall Street.

But to them, it's never enough.

They don't think in terms of money.

They think in terms of winning.

Now, naturally if you win big in business, money follows.

But that shouldn't be your objective.

Your objective should be to win - to win!

Win all the time!

Not sometimes, every time!

[Music]

While Weinberg brings in a steady stream of investment banking deals, one Goldman Sachs

trader has struck gold with a trading strategy called "Block Trading."

His name is Gus Levy [Music]

Born in a middle-class household in May 1910 in New Orleans, Levy dreamed of making the

big bucks in New York.

Through calculated risk-taking, by the time Levy turns 30, he's already a millionaire

and a well-respected partner at Goldman Sachs.

His specialty is block trading - a form of arbitrage.

Levy learns that because the market can react unpredictably when the investor sells a large

block of shares, he could negotiate a price with the investor privately, at a discount.

He then will resell the shares gradually in the market at a profit.

At that time there were many inefficiencies in the market that get rise to these arbitrage

opportunities.

The profit is small but firms like Goldman Sachs had a high leverage.

By the 1960s as Sydney Weinberg is approaching his retirement, Gus Levy becomes his heir

apparent and for the first time a traitor becomes the boss at Goldman Sachs.

The guy was a shaker, maker, doer.

Gus Levy was in there seven o'clock in the morning with two secretaries working with

him around the clock.

His life was the business.

For the coming decade, Gus Levy drastically grows the trading business making it a major

source of revenue for the firm.

But as Goldman Sachs issues more Securities and engages in trading at a larger scale,

the firm becomes even more vulnerable.

For a lot of finance companies, it doesn't matter how big they get, they're often just

one mistake away from a total collapse.

Goldman Sachs is back to make that mistake [Music]

When the Pennsylvania Railroad acquires New York's Central Railroad in 1968, it becomes

the country's largest railroad company, called Penn Central.

While the company already has a 1.2 billion dollars in debt, an enormous amount, it still

needs more to operate.

It hires Goldman Sachs to issue another 100 million dollars of commercial papers.

With a high rating and especially seeing Goldman Sachs as their underwriter, investors pour

in, eager to buy Penn Central's commercial papers, believing they're a safe investment.

The bankruptcy trustees have done their best to give good railroad service but Penn Central

has not been able to generate revenues sufficient to prevent continuing deterioration of its

track and equipment, including its Freight Yard Fleet.

After the bankruptcy of Penn Central, the investors of its commercial papers are nearly

wiped out and they immediately start suing Goldman Sachs for misrepresentation.

The funny thing is that the national credit office, a reading agency gave the debt a high

rating, because Goldman Sachs was its underwriter and Goldman Sachs pushed the company to issue

more debt because of high ratings.

In the end Goldman Sachs is ordered to pay 20 cents on the dollar for the investors of

Penn Central's commercial papers [Music]

That's interesting isn't it??

It's almost as if Goldman Sachs knew something was going to happen beforehand.

But the Penn Central Scandal is just a sign of things to come for Goldman Sachs.

As the economic conditions worsen in the 1970s, more Securities Goldman Sachs issued are going

bad.

Goldman Sachs is repeatedly forced to pay millions of dollars in settlements to companies

like Getty Oil and University Hill Foundation.

But none of this prepares Goldman Sachs for the tragedy that is about to unfold [Music]

[Music]

For a while Gus Levy seemed Invincible.

He's transformed Goldman Sachs from a boutique Investment Banking house to an elite institution

that is disciplined and hungry.

But in recent years, the stress we have caught up to him.

He dies from a stroke during a business trip.

[Music]

It's a shock to everyone at the firm as Gus Levy never even left any succession plan but

people at Goldman Sachs know there is one man who's capable for the job and he may just

be the guy to turn Goldman Sachs around - John Whitehead [Music]

Harvard educated, John Whitehead was also a Navy Commander during World War II and was

a part of the D-Day.

He realizes Goldman Sachs cannot continue to conduct business the way it has been.

The firm needs to operate like the military, where everyone must follow a code of conduct.

I wondered how all these new people that we were hiring - how they could be indoctrinated

with the principles of Goldman Sachs, the conduct that we expected from our people.

So on a Sunday afternoon and with a yellow pad, I wrote down what turned out to be these

principles.

Whitehead also started to standardize the investment banking business at Coleman making

sure the employees put their clients' interest first.

We arrive at the at the meeting at 5 PM.

It's the Friday before the Memorial Day three-day weekend and guess what?

We are sitting there waiting!

A couple guys left okay?

When the guy showed up at 10 o'clock, five hours late, he said you know the lesson today

is about waiting for people that are more important than you and he said someday if

there'll be a billionaire you need to get to, he's going to make you wait in his lobby,

okay?

You need to be conditioned for that?

Whitehead's leadership not only makes Goldman Sachs more profitable, he also restores the

trustworthiness in the minds of their clients.

The timing again is impeccable!

Whitehead knows to win in the business of investment banking Goldman Sachs must provide

the highest quality

of service.

[SPONSORSHIP]

Driven by easy money and relaxed regulation, the 1980s is a decade of a deal-making.

Companies are eager to acquire and merge with each other, creating an abundant opportunities

for the investment banking industry.

After overcoming countless crises, Goldman Sachs remains a force to be reckoned with.

Under the leadership of John Whitehead, in 1983, Goldman Sachs makes 400 million dollars

in profit - a 60 increase from the previous year.

But at the height of his power, Whitehead retired from Goldman and becomes the Deputy

Secretary of State under President Ronald Reagan and passes the mantle to Steve Friedman

and Robert Rubin.

Rubin built the options trading business at Goldman from scratch into a major profit engine

for the firm.

Now having Goldman under his control, he's confident the firm has nowhere to go but up.

But he has no idea that an unlikely adversary is coming after them!

In 1987, Goldman Sachs senior partner Robert Freeman is under arrest for insider trading.

A few years back, Goldman Sachs was the underwriter for KKR's hostile takeover deal, over the

Broadcasting Company Storer.

As an insider, Friedman indirectly revealed to a business friend the best price level

to sell a call option to make a profit.

Now that's classic insider trading, but you'd be surprised how many incidents like this

go unnoticed.

But not this time!

Robert Friedman's insider trading was noticed by one rising politician, who is looking for

an opportunity to propel himself to the mayorship.

Rudy Giuliani, the U.S attorney of the Southern District of New York.

But he doesn't just want to prosecute Robert Friedman quietly.

He wants to create a public spectacle.

So he arrested Freeman but he deliberately dragged this case as long as he could and

periodically leaked information to the media.

[Music]

Goldman Sachs's reputation has been dragged through the mud.

For an investment bank, that could be catastrophic as their clients may shun doing business with

them.

as a result.

But their clients decide to stick around.

Goldman Sachs is really great at bouncing back from crises because after all, their

clients are American Corporations and they realize as long as Goldman Sachs keeps making

them money, everything else is secondary.

Rubin successfully navigated Goldman Sachs out of the Black Monday crash in 1987 and

legal troubles during the early 1990s.

Like his predecessor, Rubin also goes to Washington and becomes a politician.

He's the consummate honest broker and Bob Rubin will be a worthy successor to Lloyd

Benson.

Bob!?

By 1993 Goldman Sachs makes 2.7 billion dollars in profit, a large part of it coming from

trading.

For a decade, the firm lives under the principle of putting their clients' interests first,

but that is gradually shifting because Goldman Sachs's trading business is expanding to a

bigger scale, composed mostly of their own money.

Around that time Goldman Sachs had about two billion dollars of Partners Capital, but with

98 billion dollars of total assets!

So that's a very high leverage, but the problem is that a lot of the partners are retiring

and they're leaving with their capital.

They need a stable base of capital that can't be pulled out at a moment's notice.

The solution?

Going public!

But there is just one problem - by 1997 Goldman Sachs has two bosses John Corzine and Hank

Paulson.

It's an arrangement that has worked well for the firm since the 1970s, but as a public

company, there can only be one King and Hank Paulson knows it!

[Music]

I was a competitive kid!

I had a little bit of what my wife ridicules as a gold star mentality.

I didn't want to just learn - I wanted to learn, I want to get an A.

As a devout Christian, Paulson strictly follows a code of conduct in life and business.

At Goldman Sachs, Hank Paulson was known to have really loyal clients that stick with

him through thick and thin.

I think it's because they see him as an honest broker.

I have never been a career planner.

I am ambitious and competitive but whatever I'm doing at the time seems enormously important

to me.

But Hank Paulson doesn't get along with his partner Corzine, and eventually the partners

of the firm decide to support Paulson as the only senior managing partner at the firm.

By 1997, after bringing three billion dollars of pre-tax income for the year and as Paulson

firmly installed as the leader.

The partnership is ready to go public

But no one knows - an unexpected crisis is about to ruin their IPO plan!

Long-term Capital Management was a hedge fund started by John Meriwether, a famed Bond Trader

at Solomon Brothers, and backed by a group of world-renowned economists.

[Music] In a moment of tremendous clarity, they realized that two risky positions taken

together can effectively eliminate risk itself.

The hedge fund had an instant success, making 40 percent during this first year and many

Wall Street firms are competing to become its trading partner.

The fund operated on perfect mathematical models, designed by genius economists who

studied the history of the financial Market.

That's an old Market rule - "the market will test you and do what you don't expect it to

do."

In 1998, the so-called Black Swan event happened something that their models didn't account

for a sovereign country defaulting on its debt.

August 1998, something happened, no one had considered possible - the biggest country

in the world suddenly and without explanation refused to pay all its international debts.

In a single day, LTCM (Sorry guys.) loses 353 million dollars.

After learning about LTCM's trouble, Goldman Sachs immediately starts dumping its own bond

positions into the market, accelerating LTCM's downfall.

But ultimately the Fed comes in and bails out LTCM and saving Goldman Sachs in the process.

We expect that they're going to explain to the members of this committee why the Federal

Reserve has organized the three and a half billion dollar bailout for billionaires.

Why Americans should be worried about the gambling practices of the Wall Street Elites?

LTCM's failure may have almost caused a financial crisis but for Goldman Sachs, it only matters

that Goldman Sachs survives.

Now with the LTCM's crisis resolved and at the peak of the.com bubble, Goldman Sachs

goes public!

[Music]

A big debut expected tomorrow for the Goldman Sachs initial public offering.

The IPO is ... Goldman Sachs goes public by the end of 1999, selling 11 percent of its

shares, bringing home 3.7 billion dollars.

To go public Goldman Sachs had to release a lot of never-before-seen information about

the company.

People now realize just how profitable Goldman Sachs has been.

In the five and a half years before 1998, Goldman had made a pretax profit of 12.2 billion

dollars.

Because of the partnership accounting much of the 12.2 billion dollars have been paid

out to the Goldman Sachs partners.

Now as a public company, Goldman Sachs searches for more ways to make money.

By the start of 2000, a new business is booming - mortgage-backed securities!

[Music] And $500 a ticket, they've come to hear how to buy their very own piece of the

American dream.

You had a huge boom in housing that made no sense at all.

The financing appetites of the financial sector drove what everybody else did.

By 2006, mortgage-backed Securities become one of the most profitable businesses for

Wall Street Banks.

In a span of two years from 2005, Goldman Sachs underwrites about 203 billion dollars

of mortgage-backed securities.

At the peak of his success, Hank Paulson follows Goldman Sachs tradition.

Good morning welcome to the White House I'm pleased to announce that I will nominate Henry

Paulson to be the Secretary of the Treasury.

He has a lifetime of business experience.

He has an intimate knowledge of financial markets, and an ability to explain economic

issues in clear terms.

Since trading has become the main business for Goldman Sachs, the next CEO will be a

trader - Lloyd Blankfein.

At that point, Goldman Sachs is almost like a hedge fund.

They have tens of billions of their own money, managed by their own people.

Their clients begin to play a lesser role.

During the bull market, the issue is less visible, but no bull market can go on forever,

and their principles of putting their clients first are about to be tested by the biggest

Financial storm in recent history.

A news story?

The mortgage meltdown!

This morning in the mortgage meltdown new numbers showing that a record number of Americans

are losing their homes.

More than 70 mortgage companies have failed in the last few months in America and now

the biggest of the big companies, the bear Stearns, that the big banks are caught holding

the bag.

What was considered to be a profitable business turns out to be a financial weapon of massive

destruction.

Everybody in this secretization food chain from the very beginning until the end, they

didn't care about the quality of the mortgage.

They were caring about maximizing their volume, and getting a fee out of it.

After the fire sale of Bear Stern to JP Morgan Chase and the bankruptcy of Lehman Brothers,

the entire Investment Banking sector is on the verge of total ruin.

Having a large exposure to supply mortgage loans, Goldman Sachs is among the most vulnerable

firms on Wall Street.

We're faced with the prospect of a global meltdown!

Out of options, Goldman Sachs turns to an unlikely savior.

[Music] Warren Buffett's investment gives Goldman Sachs some breathing room.

To recoup from trading loss, Goldman Sachs not only unloads the mortgage-related assets

but also starts abetting against them, using a type of financial derivatives, called credit

default swaps.

The Sachs figured out before other firms that trouble was coming, they began to figure out

in December of 2006 and they made a big a proprietary bet against the mortgage market.

You shouldn't be selling junk.

You shouldn't be selling crap.

Ya shouldn't be betting against your own customer at the same time you're selling to them.

From Goldman Sachs perspective, their argument is that if a client wants a type of derivative,

they will create it for him, but the actions of Goldman Sachs trading Department are separate.

The 2008 Scandal is just the beginning of Goldman Sachs deteriorating reputation.

Since that, Goldman Sachs has been caught in multiple illegal activities.

[Music]

Even with all of that, Goldman Sachs emerges unscathed and its clients are still with the

firm.

I think the secret to Goldman Zach's success is that it's exceptionally good at spotting

money making trend and simply executing it better than others, and when the bubble burst,

they're quick to cut losses and bounce back.

Whenever there's a boom, Goldman Sachs is always among the first to ride it.

By 2018 America fights itself on the precipice of another booming market, driven by retail

investors.

As companies like Robinhood offer free commission trading, retail investors are flooding the

market, driving the growth of consumer finance.

Goldman Sachs sees this as a new opportunity to cash in.

2020 has seen the rise of the retail investor and now Goldman Sachs, the firm known for

catering to the rich, is preparing to offer wealth management for the masses.

Investing can be an important part of creating the life you want.

So we'd like to introduce ourselves ....

We are Marcus Invest, an automated way to invest from Goldman Sachs.

[Music]

It is now 2022, and the world has changed.

But for Goldman Sachs, it's still the same hungry, opportunistic company.

They have got the most formidable internal culture of commitment and teamwork of any

organization in finance in the history of the world.

In the game of the survival of the fittest, Goldman Sachs has managed to outlast the majority.

It's a firm that is highly disciplined and efficient for one thing - profit!