In 1984, Goldman Sachs did both investment banking and trading. It had always been a great trading firm and even more after the acquisition of J. Aron Company. Unfortunately, relative to the profitability loss of this type of riskless arbitrage (commodities and currencies), the company wanted to shift toward more risky forms of arbitrage to reverse this tendency. For that reason, aware of the commercial value of the kind of analytical power that Fischer could bring to bear the trading side of the business, R. Rubin (founder of the Chicago Board Options Exchange, and user of the Black-Scholes Formula) hired Fischer. Indeed, Goldman Sachs had a culture that believes in intellectual firepower as its competitive advantage, and even though Fischer was unlikely to make a big contribution right away, R. Rubin was prepared to wait. There were two mains purposes for hiring Fischer. The first one was that he would help to apply financial theory all across the firm, to transform it into the premier investment-banking firm in the world. The second was that he would build analytical capacity in the Equities division in much the same way that Stanley Diller did in the Fixed Income one. Thus, Fischer had three careers: director of the Quantitative Group in the Equity division, member of the Management group in GSAM, and then member of the Fixed Income Research.
However, Fischer’s personal contribution to the firm brought mixed impressions and controversy. Although some resented to the fact he was enjoying an enviable position for no veritable reason, others while noting the lack of any direct contribution, were conscious of the indirect value of having his name on the firm’s roster (i.e. expansion to Japan, and Development of Price Theory talk). Moreover, for those running the firm, Fischer contributed to tremendous value, because by being the first “quant”, he truly helped the firm to build up a strong quant side of its operation. Finally, the quantitative finance style of Fischer gradually seeped into the general culture of the firm, despite his very unique personality. As pointed by M. Winkelman, Fischer as a puzzler was not using the money as a yardstick but had a different scale and never switched from it.
B for Tom for some grammatical mistakes.
ReplyDeleteThere's a lot of name dropping in this section.
Robert Rubin left Goldman to become one of the top economics advisors in the Clinton administration. He gets primary credit for getting Clinton to produce surpluses towards the end of his administration.
Jon Corzine left Goldman to become a Senator from New Jersye, and later Governor. He's still popular among Democrats, but is not viewed as a successful governor.