Building an Empire, One Goldman Brick at a Time

When Money Was in Fashion:
Henry Goldman, Goldman Sachs,
and the Founding of Wall Street
By June Breton Fisher
Palgrave MacMillan, 288 pp., $27.00

Henry Goldman was, in the early 20th century, a great investment banker. Creative, decisive, formidably effective, and a shrewd judge of character, the son of Goldman Sachs (GS) founder Marcus Goldman invented the basic concept of valuation we all use today. When public finance was new and credit was based solely on balance-sheet assets, the German-born Goldman was the first to recognize that "industrial" companies, such as retailers and manufacturers, could be valued on the capitalization of their earning power instead.

Goldman first took public United Cigar—a process that required several months of persistent selling to complete and rewarded Goldman Sachs with a full 25% of the offering as a "commission." The firm next floated Sears Roebuck, (S) a transaction that took several months to close. Profits from the deals doubled the firm's $10 million in capital as the share prices of both stocks grew—and then grew again. This pair of offerings was breathtaking at the time, and it set the stage for an astonishingly creative and adaptable company. Investors were impressed, and Goldman Sachs was established as a firm to be reckoned with.

Henry Goldman was on his way to a substantial fortune and a larger-than-life existence. Along the way, he and his friend—and summertime next-door neighbor—Philip Lehman of Lehman Brothers brought their two firms together in a powerfully successful partnership. They underwrote Underwood Typewriter, May Department Stores, Cluett Peabody, Studebaker, CIT (CIT), and more than 100 other corporations. With a string of successes, Goldman's reputation soared.

When Money Was in Fashion: Henry Goldman, Goldman Sachs, and the Founding of Wall Street is an intimate history of the man written by his granddaughter, June Breton Fisher. While it isn't the rigorous biography of the pioneering financier that some students of business history crave, it's a graceful account of Goldman and his era.

Fisher provides an often charming family scrapbook, with insights into the cruelty of Nazi Germany as well as the systematic repression of Jews by German Catholics over 100 years before that. She touches on the difficulties of refugees' passage to America and sometimes expands into observations on international politics or high finance. She also reminisces about the family's luxurious "camp" in the Adirondacks and Goldman's extraordinary life. While veiled, as family stories often are, the author's accounts describe the persistent animosity between Henry Goldman and his brother-in-law and colleague, Samuel Sachs. Their differences in personality, values, and capabilities were exacerbated by Henry Goldman's great success as a stock speculator and Sachs' jealous tantrums.

Although not much new about Goldman's career as an investment banker is revealed, we learn much about the man behind that career. He summered annually in Germany, and he celebrated the achievements of German culture and government as few could. He patronized German musicians, and he publicly supported Germany as World War I spread. When Goldman refused to allow Goldman Sachs to participate in a $150 million Anglo-French bond issue arranged by J.P. Morgan, a long-festering dispute became an irreconcilable confrontation. In 1917, after 35 years of association, Goldman withdrew from the firm to which, he said, "I have given all that is in me."

Goldman continued to manage his own fortune, and his shrewd anticipation of the Crash of 1929 allowed him to maintain it. Despite the fact that his always poor eyesight deteriorated later in life—requiring numerous operations, all unsuccessful—he began seriously collecting art and lived on a grand scale. The renowned and notorious art dealer, Joseph Duveen, helped him accumulate a superb collection of Renaissance works, and the hobby soon turned into addiction with a trove that included Fra Angelico, Franz Hals, Titian, Masolino, Donatello, Rubens, and Van Dyck.

At 80, Goldman decided to sell the lot. As usual, he was decisive and wanted to complete the sale swiftly. In a particularly telling anecdote, when the discount store owner Samuel Kress needed a bit more time to make a firm offer, Goldman sold his entire collection for $775,000 to Duveen, who turned around and sold it to Kress at a markup.

Goldman's wealth, brilliance, and love of German culture led to a series of friendships, acquaintances, and meetings with some of history's great figures: Albert Einstein (to whom he gave a beautiful 23-foot sloop); Woodrow Wilson; Franklin Roosevelt; Paul von Hindenburg (who conferred honorary Germany citizenship on him); physicist Max Born; Fritz Kreisler; Thomas Mann; and Arturo Toscanini.

It would be easy to complain about Fisher's decision to devote 5% of a book on Henry Goldman to his late-in-life patronage of 12-year-old music prodigy Yehudi Menuhin, to whom he gave a Stradivarius violin as a birthday gift. On the other hand, some might see this as the point of an intimate biography about an enigmatic figure. There are certain incidental inaccuracies, too, such as identifying a Franz Hals painting as being in the National Gallery of Art when another well-known Hals is actually the portrait on display, or calling Waddill Catchings "a well known American economist" when he was an executive who wrote a naïvely oversimplified book about America's glorious economic potential that fit with the excessive optimism leading up to the Great Crash. The author also omits any discussion of Catchings' central role in the spectacular failure of Goldman Sachs Trading Corp. in 1929, which nearly brought the firm down.

In the end, it is ironic that the great firm increasingly cited as "Goldman" has not had a member of the Goldman family among its ranks for nearly a century. Successful in an era of individualists, Henry Goldman couldn't have fit in today at the organization that bears his name.

BANK NOTES

Another ubiquitous effect of the financial crisis is the abundance of nonfiction books attempting to address it. Within this already turgid oeuvre is a fast-growing sub-genre: books about Goldman Sachs. As seen below, even this sub-genre can be dissected further:

GOLDMAN AS EVIL EMPIRE

Chasing Goldman Sachs: How the Masters of the Universe Melted Wall Street Down...And Why They'll Take Us to the Brink Again, by Suzanne McGee. McGee sees the bank as a behemoth with only near-term interests in mind

THE INSIDER'S GOLDMAN

On the Brink: Inside the Race to Stop the Collapse of the Global Financial System, by Henry M. Paulson Jr. While the memoir recounts Paulson's tenure as CEO, it fails to mention the $500 million in Goldman stock he sold before accepting his post at Treasury

The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History, by Gregory Zuckerman. The author claims hedge-fund manager John Paulson's personal gain from betting against the housing bubble in 2007 was more than $10 million a day

GOLDMAN HISTORY 101

The Partnership: The Making of Goldman Sachs, by Charles D. Ellis. The decade-in-the-making history of the bank's founding by the author of this week's review

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