MONEY AND POWER: How Goldman Sachs Came to Rule the World

William D Cohan

Doubleday

$30.50

Pp 658

When the hurricane hit, few had seen it coming. Bear Stearns went belly up in March 2008, Lehman Brothers following it to the grave a mere six months later. AIG collapsed into the arms of the American government, while Merrill Lynch fled to the vaults of Bank of America. When the waters receded from Wall Street, only one bluechip was left standing, the house that Marcus Goldman built a hundred and forty years back.

The mind-boggling success of the big kahuna of Wall Street attracts equal doses of admiration and hatred. The same year its chairman Lloyd Blankfein was named Person of the Year by Financial Times, a Rolling Stone article disparaged Goldman Sachs as ?a giant vampire squid around the face of humanity jamming its blood funnels into anything that smells like money?. Despite the fact that vampire squids survive on plankton and that the conspiracies mentioned would confound Sherlock Holmes, Matt Taibbi?s article resonated with a large number of Americans sickened at the sight of bailed-out bankers continuing to enjoy their fat-cat bonuses. Goldman Sachs made pots of money when the market boomed, and Goldman Sachs made pots of money when the roof came crashing. How could that be?

In Money & Power, William D Cohan, investment banker-turned-writer traces the history of the storied firm since the time Marcus Goldman, a Jewish immigrant to the US in the second half of the 19th century moved to New York, and started dabbling in commercial paper. He would go around and buy IOUs from traders at a discount. When the business prospered, he roped in his son-in-law Samuel Sachs as a partner, becoming the Goldman & Sachs franchise, which would continue as a partnership for the next 130 years.

Cohan takes us through the history of Goldman Sachs right through the two World Wars, the Great Depression and the market downturns through the course of its life. Contrary to the general impression about it, Goldman comes across as a firm which has been through several near-death experiences, always coming out stronger. The Great Depression, the investment trust fiasco of 1929 and the inter-war years tested the firm?s mettle during its growing-up years. The Penn Central bankruptcy, the exodus of 1994 and the dotcom bust badly damaged the firm, though it surprised doomsayers every single time.

However, Cohan?s tone is clearly not adulatory; quite the opposite, in fact. Money & Power tells you that Goldman Sachs is greed institutionalised, frequently unethical, and won?t care about arm-twisting clients and competitors alike. While the author doffs his hat at Goldman?s discipline and work culture, he also points to its divorce rates, but giving no comparative figures about similar rates at other firms or in the industry.

Cohan talks of ?fierce? power struggles, which he claims frequently erupt at Goldman, but there is little evidence to this. Except when Waddill Catchings was fired in the early 1940s?following the investment trust fiasco?and Henry Paulson ousted Jim Corzine in 2004, succession within Goldman has by and large been smooth in all its 142 years. In fact, on many occasions, it was steered jointly by two men? Henry Goldman and Samuel Sachs, followed by Sidney Weinberg and Sam Sachs, John Weinberg and John Whitehead, Steve Friedman and Bob Rubin, and until the split, Henry Paulson and Jim Corzine?hardly a picture of mafia dons jockeying for power.

Frequent attention is drawn to Goldman?s financial crises, which have threatened to wipe out the company. However, this owes its genesis to the partnership nature of the firm through most of its life and the consequent danger of being sued out of its existence, besides the possibility of partners walking away with their money, leaving the firm in a capital crisis. Goldman Sachs debated an IPO for nearly a quarter century before going public in 1999.

The author revels in narrating in depth three scandals, which hauled Goldman over the coals?the first, a sexual harassment suit, that Lewis Eisenberg, one of Goldman Sachs? senior officials had sexually abused his secretary, second, a racial discrimination suit filed by a Black candidate who felt he was denied a job because of his colour and third, a case relentlessly?and vengefully?pursued by Rudolph Giuliani on an imaginary case of insider trading. Goldman was on the defensive in each case and dozens of pages are devoted to the scandals. However, each case ultimately shows Goldman in a better light. The court throws out the petition by the Black candidate, the secretary admits she had lied, while the insider trading complaint against Robert Freeman turns out to be fake and finally becomes a witch-hunt to implicate Goldman. (Goldman, with the memory of an elephant, was the only Wall Street firm which did not support Giuliani?s run for presidency nearly 16 years later) .

The author?s intent to ?nail? Goldman shines through in the author?s note at the end, where he mentions discussing with his editor that Goldman is ?the next mountain we should climb,? following his two previous books on financial houses. The opening-chapter theatre of furious Congressmen mauling Goldman officials at a committee hearing delights the author, finally commending leader of the pack senator Charles Levin, with open-mouthed admiration: ?Senator, I salute you.? Objectivity? Hardly.

In fact, it is this lack of balance in Money & Power that irks the discerning reader the most. Cohan allows Goldman?s rivals, one-time partners, business associates and ex-employees to remain anonymous and spit venom, whose opinions?not statements of fact?are accepted as truths and paraded before the reader.

The most readable part of Cohan?s work comes towards the end of the book, where he describes in detail how Goldman made money even while markets were collapsing all around. Though Goldman?s Big Short?a gigantic and daring bet against the direction of the market?has been written about, the books etches out in detail the actors, the tools and whole drama.

Despite the rather montonous narrative punctuated by lengthy personal biographies, Money & Power is recommended for those keen on a short history of Goldman Sachs. Peppered with anecdotes and livened up by personal observations, it is also a must-read for students of the global meltdown.