WHAT IS it about Goldman Sachs?
President Bush's nomination last week of Henry M. Paulson Jr., Goldman Sachs' chairman and chief executive, to replace John W. Snow at the Treasury Department has refocused attention on what has become, quite simply, the most influential company on the planet.
Goldman Sachs alums now run the White House bureaucracy (in new Chief of Staff Joshua B. Bolten), , the state of New Jersey (Gov. Jon Corzine) and the New York Stock Exchange (Chief Executive John Thain). Not since John D. Rockefeller's Standard Oil -- and maybe not even then -- has one firm exerted such muscle over national economic and fiscal policy.
Goldman Sachs' reach has expanded in part because the people who run the firm have done it enormously well. The company's 40% profit margins make it a superpower, and its soaring share price and generous bonus policies have helped turn hundreds of its 24,000 employees into millionaires.
But that in itself doesn't explain Goldman Sachs' allure. Most Wall Street firms are making buckets of money, and lots of executives hitting middle age feel compelled to punch the public-service clock.
Nor is the company without faults. Goldman Sachs has become so dominant -- particularly in investment banking and trading -- that it increasingly finds it hard not to step on its own toes. Critics howled, for instance, when Goldman Sachs represented both sides in the New York Stock Exchange's purchase of electronic rival Archipelago, which Goldman Sachs also owned a stake in. These same skeptics are looking warily at Goldman Sachs extending its influence into Europe now that Thain, a former president of the firm, plans to expand the exchange's reach into Europe in a $10-billion deal.
No, the company is running the world these days because it perfectly hits all the buttons of our intertwined age. First, its outlook is fundamentally global. Analysts, bankers and traders at Goldman Sachs work across industry lines -- like telecoms or retailing -- regardless of where their companies are based. Soon, non-U.S. revenues at the firm will be bigger than those produced at home.
Paulson has boasted of visiting China more than 70 times -- not a bad resume at a time when China owns more U.S. Treasury bonds than Americans do. With most analysts expecting the dollar to sharply decline soon, it is going to take someone with a knack for stroking our foreign partners to keep the U.S. economy from hitting a wall.
Second, Goldman Sachs people are multilateralists. Joining it is like hooking up with a Wall Street cult, in that the group is more important than any individual. At other Wall Street firms, individual traders and executives can become rock stars. At Goldman Sachs, such celebrity is frowned on. For anyone who doubts that, count the number of young bankers with blue Goldman Sachs gym bags slung over their shoulders in lower Manhattan, a show of team spirit rarely seen in corporate America.
Adding to Goldman Sachs' aura is the fact that its retail presence on Main Street is nonexistent. Not only does that contribute to its mystique as a behind-the-scenes player -- as opposed to, say, Merrill Lynch or Citibank -- but it has helped insulate the firm from the kind of boiler-room investor scandals that have plagued its rivals.
The global economy has become a mammoth, interconnected firm, with no single country able to call the shots. Although the Bush team may not accept this view, there are signs -- in Bolten's appointment, Condoleezza Rice's elevation and Karl Rove's sidelining -- that it finally recognizes the importance of engaging the rest of the world.
This is particularly important when it comes to economic policy, where markets are more linked than ever and where one country's trading foe (say, China, in the case of the U.S.) can also be its biggest creditor (ditto).
Finally, Goldman Sachs executives in general, and Paulson in particular, are pragmatists to the point of being mercenary. It's all about the markets, politics be damned.
Bush's appointment of Paulson is a sign that the president recognizes that playing partisan games with the economy gets us nowhere. In Snow, the president had a secretary who would do as he wished, and economic vital signs that weren't half bad, yet most Americans remain convinced that the country is in the doldrums. Bush's job-approval rating suffered accordingly.
Much has been made about the toothlessness of the Treasury secretary, particularly in this administration. The truth is that this is a job to be molded. Incoming secretaries shrink (Snow) or expand the post (Robert E. Rubin) as they are capable.
Hank Paulson and his Goldman Sachs touch can refurbish the office. Even bringing him aboard is something of a capitulation for the president, whose good-old-boy demeanor never has seemed that comfortable around the Wall Street crowd.
Almost no one believes that Paulson, a consummate deal maker, would have taken the job if he hadn't wrung a mandate, directly from the president, to take charge. With many of Treasury's non-economic duties moving to the Department of Homeland Security and elsewhere, Paulson can take the economic reins of a country with a storied past, a difficult future and the raw materials to make it all work.
And that's a pure-play turnaround story even a junior Goldman Sachs analyst could sink his teeth into.