By Leah Spiro
|Money and Power, How Goldman Sachs Came to Rule the World |
By William D. Cohan
William D. Cohan, a Lazard banker–cum-journalist, has written what is essentially a schizophrenic book about Goldman Sachs. In “Money and Power: How Goldman Sachs Came to Rule the World,” Cohan initially lionizes the firm and its storied history. But he is also harshly critical of Goldman and raises basic questions about the integrity of its business model. Cohan tries to put it in a larger context: What is the social purpose of financial firms, namely, are banks looking out for their customers or for themselves?
Cohan dutifully spends the first 450 pages on the chronology of the firm, starting in 1869. He interviews all living Goldman leaders—John Whitehead, Stephen Friedman, Robert Rubin, Jon Corzine, Henry (Hank) Paulson and Lloyd Blankfein—telling in rich, human detail the epic story of Goldman Sachs and how it became so powerful in business.
Unfortunately, Cohan does not really explain how Goldman—aka “the vampire squid” following the publication of Matt Taibbi’s infamous Rolling Stone article on the firm—became so powerful in government. He also reminds readers of the scandals Goldman has been involved in, from the demise of Goldman Sachs Trading Corporation, an investment trust, in 1931 to the Penn Central bankruptcy in 1970.
But the crux of the book is Goldman’s involvement in the 2008 crash. The history lesson segues into detailed reporting and a scathing critique of the now-familiar details of its role in the mortgage mess. Goldman’s biggest sin was massively profiting at the expense of its clients.
Indeed, the top five executives split $322 million in 2007. Blankfein alone made $70 million. “There is little doubt that Goldman’s dual decisions to establish ‘the big short’ and then to write down the value of its mortgage portfolio exacerbated the misery at other firms,” Cohan writes. That charge has been made before (notably by the Securities and Exchange Commission), but Cohan goes further. He alleges that Goldman uses nonpublic information about clients to make money for itself, from its client’s trades to private equity opportunities. “They view information gathered from their client business as free to them to trade on. . . . I don’t understand how that’s legal,” says one investor. One unnamed Goldman banker blames Blankfein: “There was this huge change that came with Lloyd where he wanted to ‘monetize client relationships.’ I think it was a euphemism for sort of harnessing the relationship banking side of the house to generate investment opportunities for both the various internal funds and other businesses Goldman was in.”
One fresh detail is Cohan’s focus on Josh Birnbaum, who now runs hedge fund Tilden Park Capital Management. Birnbaum is portrayed as the only reason Goldman made money in 2007, when the rest of the industry cratered.
A Goldman “aleph male” (Cohan’s word play on “alpha male,” with aleph being the first letter of the Hebrew alphabet), Birnbaum realized Goldman should be mimicking John Paulson’s short subprime trade and convinced the firm to let him follow suit.
The huge gains from this position offset the huge losses that came from underwriting what Goldman execs themselves termed “shitty” CDOs. In 2007, Birnbaum’s trading group made $3.7 billion, and the rest of the mortgage group lost $2.4 billion. Birnbaum’s bonus: $10 million.
Many of Cohan’s most serious allegations come in unattributed quotes, and he stops well short of blaming the senior people at the firm for any wrongdoing. But by following the money and the mystique, Cohan shows why Goldman Sachs is at once the most worshipped and loathed firm on Wall Street.
Leah Spiro is president of Riverside Creative Management, a literary agency.