NEW YORK (FORTUNE Magazine) - "If I weren't afraid to assert anything with any kind of confidence, I would tell you that I'm the most insecure person in the world."

So says Lloyd Blankfein, 51, the president and chief operating officer of Goldman Sachs. It's a comment not unlike one you might hear from former Treasury Secretary (and Goldman CEO) Robert Rubin, who's famously doubtful that any proposition is provable. Blankfein is an admirer of Rubin's, and while he's too savvy to admit it to a journalist, he'd surely like to follow in Rubin's footsteps. And he's heir apparent to current CEO Hank Paulson. At least it looks that way now.

Lloyd Blankfein, Goldman Sachs

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Inside Goldman Sachs (Research) there has always been competition -- "war" is probably too strong a word -- between the bankers and the traders. Like Rubin, Blankfein came up through the trading ranks. The Bronx-born Blankfein put himself through Harvard and Harvard Law School and joined the J. Aron division of Goldman in 1981 as a gold salesman after the investment bank refused to give him a job.

At that time J. Aron, which traded commodities, lacked both the prestige and the strict hierarchy of Goldman's investment bank. (When Blankfein asked about his title, a boss at J. Aron said, 'You can call yourself contessa if you want.'") But it was the perfect spot for someone like Blankfein, who friends and foes alike say is incredibly smart, has a preternatural instinct for making money, and has the rare ability to manage unruly traders.

By 1994 he was co-head of J. Aron, and by 1998 he was co-head of all Goldman's fixed income, currency, and commodities. After the tech bubble burst, that business began to produce an increasing proportion of the firm's profits, and in 2003, Blankfein was appointed president and chief operating officer of Goldman, displacing heir apparent John Thain, who came from the banking side and who left the company soon after. (Blankfein downplays the rivalry between trading and banking, noting that trading opportunities arise from banking relationships.) A trading-dominated shop has its disadvantages.

Despite strong profits, Goldman's stock-price multiple has slid to just 11 times earnings because of worries about its trading risks. "We have to take risks or we lose our franchise," says Blankfein, who is careful not to portray himself as a swashbuckler. In fact, he describes himself as a "paranoiac," especially today, when the premiums on every kind of risk have fallen dramatically.

"I say, 'My God, look at how much further things could fall -- how much fatter the fat tails could be.'" Whenever the 59-year-old Paulson retires -- and people at Goldman say he will be around for quite a while -- for the first time in the firm's history the board of directors, not the management committee, will choose the new CEO. (That's because there was no board when it was a private company.)

If there's one lesson of the past few years, it's that life at Goldman is unpredictable. No wonder Blankfein says, "My cautious side says if I could lock in things as good as they are today, I'd be happy."