"This is like the perfectly designed machine for making money," author William Cohan says of Goldman Sachs. "You couldn't possibly design a machine better than that. It relies on capital and ideas."
Cohan knows Wall Street from the inside out. After a lengthy career as an investment banker (he spent many years at Lazard), Cohan took up the pen. In the last few years has written knowing, well-received books about his former employer and about Bear, Stearns. Now he's turned his critical attention to the firm everybody loves to hate. In the accompanying video, Cohan discusses his new book, Money and Power: How Goldman Sachs Came to Rule the World with me and Aaron Task.
For all the triumph, glory, and riches, the picture of Goldman that emerges from these pages isn't entirely flattering. It's a ruthless, Darwinian place, in which time horizons are limited -- older partners are routinely booted out — and executives are always scheming against one another. It's less like CNBC and more like The Borgias. Cohan highlights how the firm, generation after generation, transforms outsiders with obscure backgrounds into wealthy establishmentarians.
Some of the best passages in Money and Power deal with the cage match between future-Senator and Governor Jon Corzine and future Treasury Secretary Henry Paulson, who ran the firm together for a tumultuous period in the 1990s. On several occasions, Corzine tried to merge Goldman with other firms and Cohan reports that one such attempt to do so -- with Mellon Bank -- essentially did him in. Paulson struck a deal with executives John Thain and John Thornton: they'd support his effort to push Corzine out and he'd eventually turn over the reins of the firm to them. But Paulson found he liked being CEO so much that he got rid of the two Johns and brought in current CEO Lloyd Blankfein as his deputy.
One contradiction emerges. Many of the top executives, while at Goldman, maintained auras of hyper-competency and success. And while many ex-Goldman bosses have gone on quietly to mint money at hedge funds, several other alumni haven't exactly covered themselves in glory post-Goldman -- i.e. Robert Rubin at Citi, Jon Corzine in politics, John Thain at Merrill and Henry Paulson at Treasury -- leading readers to question whether there is something about Goldman, Sachs that endows its employees with extra powers.
"The jersey gives a lot of cache, and tremendous access to clients," Cohan says. In his 17 years on Wall Street, Cohan frequently competed against Goldman counterparts on deals and collaborated with them on others and "I'd find that they were every bit as ordinary as I was."
Information Is Power
The difference between Goldman and other firms is precisely the attribute that got it into trouble by, for example, shorting mortgages even as it was peddling them to its clients. (See: Greed, Lies & MBS: "No Question Goldman Did Exactly What Sen. Levin Said," William Cohan Says)
"Unlike every other firm on Wall Street, team Goldman believes in sharing information," Cohan said. "They use every part of the information that they get in house. They know how to dice up information they're getting from clients, markets, counterparties."
By contrast, at other firms on Wall Street, bankers and traders tend to hoard information. "At Goldman, you're rewarded for sharing information," he says.
Cohan is highly critical of Goldman's behavior, and notes that its reputation has been tarnished by the massive 2010 settlement with the Securities and Exchange Commission over its mortgage dealings, and by the just-released Senate report on the financial crisis. But he also argues that the firm's behavior during the crisis has also contributed to the Goldman mystique. "They did save their own firm. They made billions of dollars. Merrill didn't see it, Morgan didn't see it," he said. "I find that fascinating."
Money and Power is really three books in one: a history of the small firm that has grown to occupy an outsized role on Wall Street, in politics, and in public life; an insider chronicle of the bloody civil wars between top executives in the 1990s and the oughts; and an assessment of how the firm weathered (barely) the financial storm of 2008. The lengthy historical section covers much of the same terrain that Charles Ellis did in his 2008 book The Partnership. (To see my review of that book, click here.)
But Cohan breaks plenty of new ground in the latter sections, in large part because he was able to do what so many other writers and journalists have failed to do: convince the main Goldman protagonists to sit for lengthy interviews. "I can't exactly say why they chose to speak," he says. "But every one of them checked with the mother ship before they spoke to me."
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Daniel Gross is economics editor at Yahoo! Finance
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- John Thain
- Goldman Sachs
- Henry Paulson
- Wall Street
- hedge funds
- Robert Rubin
- investment banker