Readers who enjoyed the Rolling Stone writer Matt Taibbi’s famous 2009 hit job — in which he portrayed Goldman as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money” — may find Cohan’s account dry by comparison. In the wake of the financial crisis of 2008, some may question whether he shows too much deference to Wall Street. Cohan, a former investment banker and a regular contributor to the Opinionator blog on, implicitly accepts a social order in which a tiny elite pays itself fabulously for esoteric pursuits far removed from the provision of ordinary products and services. But his lack of populist resentment heightens Cohan’s credibility as a Goldman critic. What can seem at times like excessive solicitousness turns out to be a wise strategy of allowing the firm’s deeds to speak for themselves.

In an earlier work, “House of Cards,” Cohan told the tale of Bear Stearns, the investment bank that collapsed during the crisis as a result of sheer recklessness. Goldman fared very differently. Demonstrating extraordinary discipline, it hedged risks and made piles of money even as the real estate bubble burst and credit froze worldwide. How did this happen? Are Goldman’s people smarter than everyone else? These are the issues at the core of “Money and Power.”

Marcus Goldman, a former clothing merchant from Burgpreppach, Germany, opened his doors at 30 Pine Street in Lower Manhattan in 1869. Working from a cellar office next to a coal chute, he bought accounts receivable from local businessmen at a discount. His clients got quick cash and were saved what at the time was an “arduous trip uptown” to a commercial bank. The maturation of what became Goldman Sachs offers a fascinating narrative of turn-of-the-century New York and its German Jewish establishment. The Goldman firm branched out to help arrange the public sale of shares on behalf of Sears, Underwood and Studebaker; Woolworth, Goodrich and Continental Can. Cohan recounts these events capably, drawing on the work of historians like Stephen Birmingham. Where “Money and Power” begins to make a more original contribution is in explaining Goldman’s cultivation of a reputation for brilliance unique even in the rarefied precincts of Wall Street

Part of the mystique derived from truly exceptional leaders, men like the senior partner Sidney Weinberg, who at dicey moments in the 1930s could consult privately with his friend the president, Franklin D. Roosevelt. Another ingredient was the esprit de corps that Weinberg and his successors nurtured among their subordinates. By demanding utter loyalty and rewarding it richly, Goldman invariably stayed on message and exuded a singular confidence. A private-equity executive who competes as well as invests with Goldman tells Cohan that “you’ll never get a Goldman banker after three beers” saying that his colleagues are a bunch of duplicitous and unpleasant people.

Image control and self-correction have been central to Goldman’s ability to weather catastrophe. During the Great Depression, the firm lost much of its capital in a swindle of its own invention. In the late 1940s, it was one of 17 Wall Street banks accused of illegal collusion by the federal government. More recently, Cohan notes, it has survived “rogue traders, suicidal clients and charges of insider trading.” Goldman, he adds, “has come far closer — repeatedly — to financial collapse than its reputation would attest.”

In the run-up to the crisis of 2008, Goldman underwrote billions of dollars of toxic mortgage securities — the sort of irresponsible financial engineering that helped destroy Bear Stearns and Lehman Brothers. But a small group of Goldman traders realized sooner than most others on Wall Street that the industry had gone overboard wagering that real estate ­prices would rise indefinitely. In December 2006, this trading team began betting that the market would crater. Their billions in winnings allowed Goldman to more than offset its mortgage losses and emerge in 2009 stronger than ever.

Goldman’s willingness in 2007 to mark down the value of its mortgage-related inventory gave it a sober sense of its financial position while rivals were clinging to delusions. As word spread that Goldman was taking write-offs, investors lost faith in the accounting of other financial institutions, hastening the demise of several of Goldman’s key competitors.
Paul M. Barrett is an assistant managing editor of Bloomberg Businessweek.
A version of this review appeared in print on May 1, 2011, on page BR13 of the Sunday Book Review with the headline: Bubble Beater.