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.
Richard Stoyeck
