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Money and Power: How Goldman Sachs Came to Rule the World

 
 
Reply Tue 21 Aug, 2012 08:49 am
Money and Power: How Goldman Sachs Came to Rule the World
by William D. Cohan

Book Description
Publication Date: January 10, 2012

The bestselling author of the acclaimed House of Cards and The Last Tycoons turns his spotlight on to Goldman Sachs and the controversy behind its success.

From the outside, Goldman Sachs is a perfect company. The Goldman PR machine loudly declares it to be smarter, more ethical, and more profitable than all of its competitors. Behind closed doors, however, the firm constantly straddles the line between conflict of interest and legitimate deal making, wields significant influence over all levels of government, and upholds a culture of power struggles and toxic paranoia. And its clever bet against the mortgage market in 2007—unknown to its clients—may have made the financial ruin of the Great Recession worse. Money and Power reveals the internal schemes that have guided the bank from its founding through its remarkable windfall during the 2008 financial crisis. Through extensive research and interviews with the inside players, including current CEO Lloyd Blankfein, William Cohan constructs a nuanced, timely portrait of Goldman Sachs, the company that was too big—and too ruthless—to fail.

Editorial Reviews

“[The] definitive account of the most profitable and influential investment bank of the modern era.” —The New York Times Book Review

“The best analysis yet of Goldman’s increasingly tangled web of conflicts. . . . The writing is crisp and the research meticulous.” —The Economist

“[A] revelatory account of the rise and rise of Goldman Sachs. . . . A vast trove of material.” —Financial Times

“Well done and absorbing. Cohan’s grasp of the . . . recent inside politics of the firm is sure and convincing.” —The Washington Post

“The frankest, most detailed, most human assessment of the bank to date. Cohan portrays a firm that has grown so large and hungry that it's no longer long-term greedy but short-term vicious. And that’s the wonder—and horror—of Goldman Sachs.” —BusinessWeek

“Brings the bank’s sometimes ‘schizophrenic’ behavior to vivid life. . . . Cohan evinces an eye for telling images and an ear for deadpan quotations. . . . [and] puts his skepticism to good use.” —Bloomberg News

“[Cohan is] one of our most able financial journalists.” —Los Angeles Times

“A former Wall Street man and a talented writer, [Cohan] has the rare gift not only of understanding the fiendishly complicated goings-on, but also of being able to explain them in terms the lay reader can grasp.” —The Observer (London)

“Cohan writes with an insider’s knowledge of the workings of Wall Street, a reporter’s investigative instincts and a natural storyteller’s narrative command.” —The New York Times

About the Author

William D. Cohan is the author of the New York Times bestsellers House of Cards and The Last Tycoons, which won the 2007 FT/Goldman Sachs Business Book of the Year Award. He is a contributing editor at Vanity Fair, has a weekly opinion column in Bloomberg View, and writes frequently for Fortune, The Atlantic, Art News, BloombergBusinessWeek, The New York Times, The Financial Times, The Irish Times and The Washington Post, among other publications. He also is a contributing editor on Bloomberg Television and a frequent on-air contributor to MSNBC, CNN and CNBC. A former investment banker, Cohan is a graduate of Duke University, Columbia University School of Journalism and the Columbia University Graduate School of Business.

Most Helpful Customer Reviews

5.0 out of 5 stars Inside scoop on the "giant vampire squid" April 17, 2011
By Srikumar S. Rao VINE™ VOICE

In his now famous - infamous? - Rolling Stone article Matt Taibbi refers to Goldman Sachs as a "...great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells of money." Cohan,whose earlier books gave you the inside scoop on Lazard Freres and Bear Stearns now turns his searchlight on Goldman Sachs, arguably one of the most powerful financial institutions that ever existed.

It is not really a Goldman "bashing" book but there is plenty of hard reporting that lead one to wonder how Goldman can get away with proclaiming itself to be a temple of team play and a firm where customer interests always come first. Team playing culture? Cohan gives you details about the unusually sharp knives that came out frequently in succession struggles from earlier days - Gus Levy clashing with Sid Weinberg - to more recent events - Hank Paulson ousting Jon Corzine - and paint a picture quite at variance with Goldman PR.

Customer comes first? Cohan reveals that way back in the sixties Goldman was sued for "...fraud, deception, concealment, suppression and false pretense..." in connection with the Penn Central fiasco. Creditors claimed that Goldman "...made promises and representations as to the future (of the company) which were beyond reasonable expectations and unwarranted by existing circumstances." You make up your mind about whether this was a disgruntled customer trying to splash mud or a depiction of Goldman's approach. It certainly was a harbinger of later developments such as the firms disingenuous statement that it was not "betting against its customers" during the sub-prime crisis but merely and prudently managing its risk profile. If you believe that may I interest you in a solid gold brick I found on Fifth Avenue the other day? I will let you have it real cheap because I like you.

Whether you like it or not Goldman executives - past and present - play larger than life roles on a global stage. Cohan gives you engaging details about the real person behind the persona. Did you know that Robert Rubin dropped out of Harvard Law to bum around Europe and persuaded the dean of the school to hold his admission for a year by getting a psychiatrist to testify that he was making a "reasonable" decision?

Cohan does a splendid job of describing how Goldman grew from a small but influential investment bank - and a partnership where the partners were liable to the full extent of their personal net worth - to the titan that it is today with the ability to shake the central banks of major nations and tentacles into the inner political circles of many countries and where Croesus may envy the amount of moolah the senior guys rake in with limited liability.

It is possible, indeed likely, that Goldman is actually the "good guy" in the field in which it plays and that its competitors are far worse in morality and tactics. And that, my friend, is the really scary story.

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5.0 out of 5 stars Wow, what a book - EXTRAORDINARY - No Holds Barred - 5 STARS !!!! April 19, 2011
By A Customer TOP 500 REVIEWERVINE™ VOICE

Every now and then, someone comes along and writes a book, and in the process lays out a new framework of understanding with such exquisite detail that the average reader's generalized understanding of how the world works is blown away, and a new understanding becomes the norm. This is EXACTLY what author William Cohan has achieved with "Money and Power: How Goldman Sachs Came to Rule the World."

Such a book was Carroll Quigley's "Tragedy and Hope". Quigley understood how the world worked and the dark forces that can exert undue enormous power behind the scenes. President Clinton in his inauguration speech specifically mentioned the power that Carroll Quigley had over him when he was student at Georgetown and Quigley lectured about those who truly control the world. Clinton understood the power structure, and their assumed ruthlessness, and was forever changed by it. Now we have in Cohan's book the thorough exposure of the less seemly side of Goldman Sachs.

Today there are only two firms that have the cache value to make an MBA's dream of working for them. They are Goldman Sach's in the financial world and McKinsey & Company in management consulting. If you work for either entity, it is the equivalent of having a halo over your head. You are anointed. Goldman Sachs now stands alone as the ultimate financial wheeler dealer in our time. With 35,000 employees, they still manage to be able to cut and slash like an institution a tenth of their current size.

Being a former alumnus of both Lehman Brothers and Bear Stearns, and currently managing several billions of dollars of private money, I have always had the utmost respect for Goldman. I believed then as now that only Goldman could possibly have been better run than either Bear or Lehman. The rest of the players were a joke compared to these three firms.

Now it appears that Goldman was head and shoulders above the other two. I only say this on the basis of survival. No matter how smart you are, if you manage to have your business platform destroyed like Bear and Lehamn, even if it takes a tsunami type event, you simply did not manage well. Goldman demonstrated the ultimate in management style by surviving the financial crisis of 2008 completely intact. Some would argue including the author of this book that perhaps Goldman completely planned the coming debacle to knock out their two arch rivals Lehman and Bear Stearns and have the playing field basically to themselves. Keep in mind that the three of them dominated the fixed income arena for a century.

Back in the old days of the late 1800's and 1900's, German-Jewish firms were not allowed in investment banking, and therefore exploited those areas where they could shine, like fixed income trading. The so called "White Shoe" firms headed by JP Morgan at the top of the list, completely controlled the banking side of the business. Big corporate America would only deal with Christian dominated Wall Street, corporate America was held captive by the big firms. They had a lock on the business. You must read Stephen Birmingham's exquisite book "Our Crowd" for the details of this period. Slowly but surely, absolutely brilliant German-Jewish minds came into Wall Street including but not limited to August Belmont, Felix Warburg, Otto Kahn, Jacob Schiff, and many, many more. They built firms that intellectually were magnitudes smarter and better run than the White Shoe houses like Dillon Read, White Weld, Kidder Peabody, Brown Brothers Harriman and others. Of course JP Morgan stood alone.

Where the German-Jewish firms took off and completely dominated was fixed income, and to this day Bear, Lehman, and Goldman dominated this vast, quiet, non-publicized multi-trillion dollar market, and then with Bear, and Lehman gone there is one left - Goldman. Author William Cohan does an extraordinary and exemplary job of documenting the rise, and dominance of Goldman Sachs. I do not see how this book could have been done any better. I have thought about how to criticize it, where is it lacking, could it have been done tighter (less pages) or better edited. I keep coming up empty. This work is simply superb.

There are 610 pages of superbly written, entertaining narrative spread over 24 chapters. The book reads like lightening. There is not a dull page in the book. If you have read a corporate thriller like the "Smartest Guys in the Room," which is the story of Enron, you will know what I mean by thrilling. If you have any desire to know how Wall Street is really run, about how the world works, and what power is, than you must read this book. Here are just a few things that I found fascinating:

* For 142 years this firm has been the envy of corporate America - its ability to move swiftly from area to area and to cloak its moves has been unequalled. With each generation, Goldman gets stronger and stronger, and more entranched in the financial world.

* The way they manage conflicts, make money, and deal with global power is second to none.

* Goldman can come at you from the short side as well as the long side. They are masters of hedging, and then disguising it. Nobody knew they were hedged during the financial crisis which is why they came out of the crisis unscathed.

* In September of 2008 when Lehman was filing bankruptcy, Goldman had already refinanced the firm with $5 billion of Warren Buffett's money, and another $5 billion raise from the public. They did not need a dollar of government bailout money.

* In October of 2008, they were forced to take $10 billion of government money at the insistence of the Secretary of the Treasury. Less than a year later they would pay it back with interest and buy back the warrants that were issued. For the government it was a 23% profitable annual rate of return.

* You will recall that the government brought legal charges against Goldman for their marketing of the Abacus 2007-AC1 CDO underwriting. They would wind up paying a $550 million fine for this act of greed.

* They also demonstrated to the world during this period that the firm was beyond greedy. They put their own interests and the interests of another client ahead of the clients who were buying the underwriting. Their reputation would never be the same again, but no one served time, and they could easily write the check.

CONCLUSION:

My favorite chapter is entitled POWER which is chapter 13. It is the story of Robert Rubin who would become Co-Chairman of the firm and then shortly thereafter retire from Wall Street to become assistant to President Clinton for economic affairs. Ultimately Rubin would become Secretary of the Treasury in his own right, and establish an illustrious career in government. Do not think about reading any other book on Wall Street until you have read the history of Goldman Sachs by reading Cohan's book. The depth, the insights, the exhaustive research that was done on this book is second to none. I promise you that you will love it, and thank you for reading this review.
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BumbleBeeBoogie
 
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Reply Tue 21 Aug, 2012 08:53 am
@BumbleBeeBoogie,
Diving in Search of the ‘Great Vampire Squid’
By JANET MASLIN
New York Times
Published: April 11, 2011

In his 2009 Rolling Stone article about Goldman Sachs, Matt Taibbi called the firm “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” Say what you will about that description, but it does express a clear point of view. The same cannot be said for William D. Cohan’s “Money and Power,” which invokes the “vampire squid” line twice but has no comparably bold attitude of its own.

Mr. Cohan, whose title signifies nothing more fine-tuned than “The Goldman Sachs Story,” even puts the squid on his opening page. He juxtaposes it with his own calmer version of the same idea: that Goldman Sachs is “a symbol of immutable global power and unparalleled connections, which Goldman is shameless in exploiting for its own benefit, with little concern for how its success affects the rest of us.” But that hint of combativeness is misleading. Most of his long, carelessly shaped, jargon-filled book is far more conciliatory than that.

In the wake of his tightly constructed “House of Cards,” about the collapse of Bear Stearns, Mr. Cohan (who is a regular contributor to the Opinionator blog of The New York Times) has taken on a much broader and more daunting subject. However much enthusiasm he brought to the task, he does not inspire optimism by writing in an author’s note that he and his editor deemed Goldman Sachs “the next mountain we needed to climb.”

What a big mountain it is. The span of “Money and Power” extends from the firm’s founding in 1869 to the April 2010 hearing of the Senate Permanent Subcommittee on Investigations, at which an angry Senator Carl Levin, Democrat of Michigan, presided, and browbeaten Goldman Sachs executives were the main attraction. Most of this terrain has been traveled by others, whose books are abundantly cited in Mr. Cohan’s “ibid.”-filled endnotes.

He draws on sources from Stephen Birmingham’s 1967 “Our Crowd: the Great Jewish Families of New York City,” to John Kenneth Galbraith’s “Great Crash, 1929,” from 1954, to Charles Ellis’s thorough, elegant and much better-explicated 2008 Goldman Sachs history, “The Partnership.” Mr. Cohan’s most important material is that which extends beyond Mr. Ellis’s and documents the firm’s recent history. This is uncharted territory, thanks to the proliferation of opaque mortgage-backed securities, the decline of corporate accountability, the damage inflicted by the Great Recession (though not to Goldman Sachs) and the existence of embarrassingly candid e-mail. There are Goldman Sachs staff members who write “$$$” when they mean money. That’s not even the embarrassing part.

Mr. Cohan, who received the 2007 FT/Goldman Sachs Business Book of the Year Award, was able to interview many of the firm’s recent leaders, most notably Lloyd Blankfein, its current chief executive and chairman. Mr. Blankfein talks about himself humorously and well. But the book digs up minutiae like Mr. Blankfein’s ability to sing sitcom theme songs from the 1970s and a rabbi’s comment that Mr. Blankfein “was brilliant as a 12-year-old boy.”

Despite this level of detail, “Money and Power” remains relatively impersonal about the people it profiles, even when Mr. Cohan has interviewed the participants in bitter he said/he said Goldman Sachs disputes. (Jon Corzine versus Henry Paulson is the book’s most heated bout.) Its many thumbnail biographies tend to concentrate on educational background and favorite sports.

Interviewees range from Mr. Paulson, who is said to have a “heavily book-filled” office, to Robert Freeman, who speaks angrily about the insider trading scandal in which he was embroiled and vehemently accuses the writer James B. Stewart of unfair reporting in The Wall Street Journal. (“I think he’s absolutely dishonest,” Mr. Freeman says.) But this book does its hardest hitting when the interviewees are allowed to remain anonymous. Their candor is conspicuously different from the schmoozy yet careful information provided by those with clear Goldman Sachs connections.

About Goldman Sachs’s present-day business practices, one “private equity investor” says this: “They view information gathered from their client businesses as free for them to trade on ... it’s as simple as that. If they are in a client situation, working on a deal, and they’re learning everything there is to know about that business, they take all that information, pass it up through their organization, and use that information to trade against the client, against other clients, et cetera, et cetera.” The speaker stops short of labeling this as insider trading, but only barely, saying, “I don’t understand how that’s legal.”

Mr. Cohan raises the same question as he writes that the firm’s onetime dedication to its clients has evolved into something more ruthlessly self-serving. “Its primary source of profit has shifted from banking to trading,” he writes, “and the firm is intentionally quite vague about how, and precisely where, those trades are made or, equally relevant, from whom the profits are coming.” When “Money and Power” can boil down its arguments that clearly, it has welcome moments of toughness and precision.

But the explication of intricate financial and legal issues is an art form not easily mastered. Mr. Cohan has done a better job of reporting and gathering information than he has of relaying it to the reader. Over the span of 600 pages, “Money and Power” includes an exhausting load of reasonable but clumsy observations like this, about the refinancing of mortgages by homeowners when interest rates fell in 1985 and 1986:

“This caused Goldman’s portfolio of mortgage-backed securities, which contained mortgages with higher interest rates, to be paid off early (through refinancings) and to lose value rather than increase in value as would be expected when interest rates fell, since the value of a bond with a higher interest rate increases when relative interest rates fall.”

There’s a better way to say this. And there is a better raison d’être for a new Goldman Sachs book than this one provides. Here are three central questions: “Why is Goldman Sachs so very powerful on so many dimensions? How did the firm achieve its present leadership and acknowledged excellence? Will Goldman Sachs continue to excel?”

Those were asked in 2008, by Mr. Ellis. Their meaning has changed startlingly over the last three years. Somewhere within “Money and Power” there should be new answers.

This article has been revised to reflect the following correction:

Correction: April 19, 2011

An earlier version of this review misstated the middle initial of a noted financial journalist referenced in the book. He is James B. Stewart, not James W.
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