"Every day you are competing, and every day you are playing to win," Cohn said in his commencement speech. "So remember, wake up every morning and figure out how to win."
In 1990, Cohn was hired by Goldman Sachs's J. Aron & Co. unit, which traded commodities and currencies. Blankfein, a former tax lawyer, had joined J. Aron eight years earlier as a gold salesman and became a Goldman Sachs partner in 1988.
It was a tumultuous time for Goldman Sachs, the largest private partnership on Wall Street. Chairman and Senior Partner John L. Weinberg retired in late 1990, leaving Robert Rubin and Stephen Friedman to share his responsibilities. Rubin left to join the Clinton administration about two years later.
In 1994, rising interest rates led Goldman Sachs's bond traders to rack up losses. Friedman decided to leave, was replaced by Jon Corzine, and as dozens of partners departed the firm sold about 4 percent of the company to help shore up its capital. Cohn, based in London at the time, was invited to become partner that year.
Clients or Competitors
Blankfein became co-head of J. Aron in 1994 and two years later tapped Cohn as global head of the commodities businesses. A former partner remembers accompanying Cohn that year to a meeting with another commodities-trading firm in a developing country. Cohn delivered a warning that the company could do business with Goldman Sachs or Goldman Sachs would find a way to compete with it, according to the person.
Treating companies as both clients and competitors was typical in the commodities market, where the largest producers are also some of the biggest traders, according to the former J. Aron partner.
Three former employees said it was an approach that Blankfein, Cohn and their colleagues spread through other trading businesses as they climbed the ranks of the fixed- income, currencies and commodities unit, known as FICC, the top revenue contributor at the company.
Ramping Up Risk
In December 2003, Cohn became co-head of the firm's global securities businesses, which include FICC and equities. The next year, the bank's pretax profit from trading and principal investments was $5.04 billion, more than 12 times as much as Goldman Sachs's investment-banking business, and an increase of 44 percent from the previous year.
As the bank's balance sheet swelled, its average daily value-at-risk -- or VaR, a measure of the sum that could be lost on a given day -- hit a record $92 million in the first quarter of 2006, the year Cohn was promoted to co-president. Goldman Sachs executives said in an earnings conference call that equities, in particular derivatives, drove that figure. VaR was more than $100 million at the end of 2006 and, after breaking records for six consecutive quarters, hit $184 million in 2008.
Enforcing Discipline