Josh Birnbaum was a star trader at Goldman Sachs and engineered the firm’s $3.7 billion short against the subprime market, just before the whole market blew up. The trade saved Goldman barrels of money and Birnbaum assumed that he should be properly rewarded for his efforts in his investment banking job.
In his self-review, which Goldman investment bankers fill out to present their best case for a big bonus, Birnbaum reportedly wrote: “My performance in 2007 has been my best ever by any objective means.” He also noted that the shorts were not a hedge, but a directional bet, and further example of his trading prowess.
Thanks to William Cohan’s new expose on Goldman, Money and Power, we now know that Birnbaum received a $10 million bonus for his efforts. But he wasn’t made partner. That, plus the paltry bonus, made Birnbaum quit the investment banking firm for greener pastures.
Is a $10 billion fair for a $3.7 billion winning trade? “I guess it depends on your perspective of what’s fair, right?” Birnbaum said in an interview for the book. “If you’re a steelworker, you probably think I got paid pretty well. If you’re a hedge fund manager, you probably don’t.” Not surprisingly, Birnbaum’s new job is with a hedge fund firm.
The book itself takes an in-depth look at Goldman’s recent history and the damage done to its reputation by its dealings during the financial crisis. Goldman’s big short bet on subprime helped it whittle down its mortgage exposure. But the fact that it was actively selling CDOs while betting against the market has tarnished the firm’s perceived integrity. In addition, its practice of exploiting information gleaned from client activities resulted in being charged with securities fraud by the SEC and paying a $550 million penalty to settle the matter.
The investment banking firm that has emerged from the crash does not appear to be quite so impregnable or impressive, notes John Gapper of the Financial Times. Nevertheless, Goldman still has an innate ability to focus on the biggest, most important, most lucrative deals … “whale hunting” versus fishing, notes the Times.
Your thoughts? Think Birnbaum was justified at jumping ship and seeking even greater fortunes in the hedge fund world? Add your comments below.