Review: Money and Power

Award-winning financial writer William D. Cohan has produced a warts-and-all portrait of Goldman Sachs

By Alex Brummer, May 18, 2011
Goldman Sachs employees being  sworn in a year ago in Washington before testifying to a Senate sub-committee

Goldman Sachs employees being sworn in a year ago in Washington before testifying to a Senate sub-committee

By William D. Cohan
Allen lane £25

Investment banker-turned-author William Cohan is becoming the master of the Wall Street biography. Having plundered the archives at his former employer Lazard and chronicled the rise and fall of Bear Stearns & Co in House of Cards, he has now aimed even higher with an examination of Goldman Sachs.

The book's prologue is a devastating critique of the behaviour of Goldman in the run-up to, and aftermath of, the 2007-09 financial panic now regarded as the nearest the world came to monetary meltdown for more than a century. It tells how Goldman ruthlessly turned the table on its rivals by taking massive bets against the sub-prime mortgage debt which was at the heart of the crisis, effectively helping to destroy Lehman and Bear Stearns.

Goldman likes to portray itself as an investment bank devoted to public service. Some of this is true. Its former partners included the legendary Sidney Weinberg, who steered the firm through the Great Depression and served in successive US administrations.

At the height of the recent financial panic, Goldman's boss Lloyd Blankfein was in almost constant telephone contact with his former boss Hank Paulson who had gone on to serve as President George W Bush's Treasury Secretary.

The group founded in 1869 by a Jewish peddler from Germany, Marcus Goldman and his son-in-law, Walter Sachs, moved an enormous distance. Together with the other Jewish-founded investment banks, including Lehman and Lazard, it invented many of the techniques of modern finance, including capital raisings for big corporations.

However, its political connections and monetary muscle did not stop the Securities & Exchange Commission, the American financial regulator, throwing the book at Goldman in the aftermath of the recent crisis when it found that the bank had colluded with one client - the hedge-fund manager John Paulson (no relation to Hank) - in a transaction that cost the clients on the other side of the deal (including Britain's own hapless Royal Bank of Scotland) hundreds of millions of dollars.

Cohan's lengthy investigation of the firm's origins shows it to have a history of conflicts of interest. Sidney Weinberg, was the son of a Brooklyn liquor dealer, who joined Goldman as an assistant to the janitor. After serving in the First World War he rejoined the firm and, as the influence of the original family partners faded, grabbed the reins of power.

No less a figure than Senator Harry S Truman, who went on to succeed Franklin D Roosevelt at the White House, accused Weinberg in the 1940s (when he was in government) of "favouring the big corporations", where he had formerly been a director and which were Goldman clients, in the award of wartime procurement contracts.

Such accusations will sound familiar to those who have followed recent Senate investigations. Senator Carl Levin, who heads a vital investigations committee, indicts Goldman for placing "its own interests ahead of the interests of its clients and communities" by spreading the "exotic debts" and caused global mayhem thereafter.

Cohan traces the story of Goldman from its lowly origins in the hills of Pennsylvania to the heights of world capitalism, providing insights into the leading characters, many of them Jewish. But he also reveals a troublesome history of greed, moral turpitude and ethical lapses.

Alex Brummer is city editor of the Daily Mail

Last updated: 10:10am, May 18 2011