Below are excerpts from three reviews:
Book Review: Money and Power: How Goldman Sachs Came to Rule the World by William D. Cohan
By Ian McGugan - Bloomberg Business Week
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Given Goldman's bare-knuckled attitude, Cohan depends on a wide range of unnamed sources. Judiciously relying on their insights, he has produced the frankest, most detailed, most human assessment of the bank to date. Yet the firm winds up looking in many ways like nothing more than a slightly brighter, slightly less foulmouthed version of Bear; it's just as greedy, just as arrogant, and just as prone to mistakes. Though Cohan acknowledges the firm's extraordinary ability to recruit and indoctrinate the best and brightest, what seems to truly set Goldman apart is its ability to be a half step quicker than its rivals in correcting itself.
After all, this is a firm that periodically eviscerates those who trust it most. In the 1920s, Goldman ran a Ponzi-like scheme involving investment trusts. In the 1970s, it peddled soon-to-be-worthless commercial paper for the soon-to-be-bust Penn Central Railroad. And, in 2007, the firm that prided itself on being "long-term greedy" sold gullible clients on the merits of mortgage-backed securitieswhile simultaneously shorting some of those same debt obligations. The firm has succeeded, in part, by ignoring these nastier aspects of its past. In fact, Goldman never misses an opportunity to celebrate the holier-than-thou principles laid down by former senior partner John Whitehead. Rule No. 1: Our client's interests always come first.
Money and Power suggests the bank does possess a few special powers, starting with its remarkable ability to convince some of the world's smartest young people that touting stocks, sniffing out arbitrage opportunities, and shaking down corporate clients amount to a noble calling. One illuminating anecdote in Money and Power concerns Robert Rubin, the former Goldman head who would go on to become Treasury Secretary under Bill Clinton. During his third year at the firm, back in 1969, Rubin's career path may have hit a rough patch. Sandy Lewis, who at the time ran the arbitrage department for a rival bank, tells Cohan that Rubin approached him regarding a job opportunity. Lewis explains that Rubin had grown disgusted with the Goldman way. "It's a dishonest mess," Lewis recalls Rubin saying to him, "that's making honest people dishonest."
Whether or not Rubin was seriously looking outside the firm, he stuck around and soon led Goldman into areas that had previously been considered off-limits—such as asset management—for fear of potential conflicts with clients. A former top partner—unnamed, but in a position to judge the firm's swelling appetite for profits at any cost—says Rubin encouraged a culture of undisciplined risk taking. "A lot of these practices were set up when [Rubin] was there," he tells Cohan. "The lack of a risk committee, trusting individual partners ... and letting traders become too important and being afraid to confront them if they've been big moneymakers. All that sort of stuff built up."
As profits swelled under Hank Paulson, and then Lloyd Blankfein, Goldman was edging further into trading money for its own account—and pushing the boundaries of what had previously been considered an acceptable conflict of interest. Simultaneously, the bank became more obsessive about managing the darker side of its sprawling empire. A reputational risk department, staffed by former CIA operatives and private investigators, vetted new hires and policed employees who got out of line. While the department may have missed clues about "Fabulous" Fabrice Tourre, the firm relied on its level of diligence, and it became part of the culture. "Not that they would come to my house and beat me up or something or kill my children," a former Goldman trader says. "But certainly they would drag you through court or do something to screw up your life. If you did anything to hurt that firm in any way, all bets were off."
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Read the review here
by Mary Kissel - WSJ
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Mr. Cohan's complaints against Goldman seem to be that it is "ruthless" in pursuit of profit; doesn't do enough to protect its institutional clients from making bad decisions; works too closely with government; too often advises companies on both sides of a deal; and skirts close to the line of "insider trading."
The first two complaints would be better lodged against the very nature of capitalism; the third does address the problem of cronyism that has always existed on Wall Street. The last two complaints—about the firm's being on both sides of a deal and relying on "insider" knowledge—are areas worth exploring, though regulators have never drawn bright lines (in part because it is almost impossible to do so). The relationship of Goldman to the Fed and its "too big to fail" status definitely merit a studied critique. But Mr. Cohan doesn't have enough knowledgable sources or hard evidence to write a full book on such matters. Instead he gives us reams of unedited emails between Goldman insiders peppered with drivel, including nauseating missives from trader Fabrice "Fabulous Fab" Tourre boasting to his girlfriend about his genius.
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Read the rest of the review here
Annals of C-suite dysfunction, Goldman Sachs edition
By Felix Salmon - Reuters
Ian McGugan has a good review of Bill Cohan’s huge new book on Goldman Sachs which includes an intriguing quote about how Bob Rubin “encouraged a culture of undisciplined risk taking” — something which goes directly against the reputation he’s spent many years cultivating. It comes from Chapter 15, which starts in the dangerous year of 1994 and which is full of juicy gossip about the very human frailties of the people running Goldman. Here’s more of it:
“For a long time he just sort of sat in his office,” one partner said of Corzine. “He would sit in his office breaking out in tears at various times while the firm was losing all this money.”…
As the losses in 1994 mounted, many partners became increasingly nervous that the firm was at risk… Some forty partners left Goldman at the end of 1994, the first time anything like that many partners had voted with their feet. “People resigned out of fear,” one partner said. “That should tell you something.”… Howard Silverstein, the partner in charge of Goldman’s Financial Institutions Group, left. “He was perceived as being an expert,” one partner on the Management Committee said. “And all he did was just do a simple calculation if this continues. You know: wiped out.”…
Paulson cut people, travel expenses, allowances for overseas living, and many of Goldman’s vaunted perks. He even cut back on the use of a corporate jet and recalled grueling overseas trips flying around Europe and Asia on commercial flights…
Goldman’s problems at that time weren’t only ones of cost and bad bets. A culture of undisciplined risk taking had built up over many years. “A lot of these practices were set up when [Rubin] was there,” one top partner said. “Okay? The lack of a risk committee, trusting individual partners, model-based analytics — that by God you can be smart and figure it all out — and letting traders become too important and being afraid to confront them if they’ve been big moneymakers. All that sort of stuff built up.” …
Aside from why Friedman had seemingly botched his departure, the other lingering question that remained among many of the Goldman partners was how Corzine could have emerged as the firm’s leader when he was leading the very division — fixed- income — that had lost hundreds of millions of dollars in 1994…
Goldman had selected as its new leader the very person who had just presided over a complete meltdown in Goldman’s fixed- income business and who, as a result, never fully had the trust and faith of the firm’s investment bankers. “That is one good question,” one Goldman trading partner said. “At a normal place, it would be discordant. You couldn’t imagine it. And I guess at this place, somehow you could.”
This, remember, is the world’s best investment bank. It’s worth bearing in mind when you see those eight-figure salaries and wonder whether they’re earned. And when you hear politicians bellyaching about the importance of keeping US banks “competitive” on the international stage. If this is competitive, it might well be best to just drop out of the competition all together.
Read the review here