Former Lazard banker William Cohan's new book about Goldman Sachs is called Money and Power: How Goldman Sachs Came to Rule the World. But in a Q&A, the author suggests another title might be more appropriate—too bad it's already taken.
A lot of Wall Street books have come out since the financial crisis. I’d say approximately one million, including several about Goldman Sachs. Why should anyone read yours?
First of all, this is not a financial-crisis book. It’s about unlocking the black box that is Goldman Sachs. It’s about revealing to all of us, for maybe the first time, what this firm is all about and how it got the way it is, and how the financial crisis was like the perfect combination of events that let its DNA sort of bloom and flower, if you will.
Everything came together for Goldman in the crisis. Everything that makes Goldman tick, which is how they managed to become a winner as opposed to one of the losers.
So, okay, I’m ready: What’s inside the black box? What’s the big mystery behind the workings of the world's most notorious financial firm?
The big mystery to me is how adept Goldman is at public relations and spin, and how it has been for 160 years. When you sort of peel back the onion you realize that basically, they’re not so much different from other firms. But they’ve created a mystique.
Wait, that’s it? You got in there and it was just like the Wizard of Oz, you pulled back the curtain and it was just Lucas van Praag, cackling madly?
There are some things they do better than other firms. Number one is they put a premium on finding the best and the brightest. They like them young, before they’re fully formed, mentally, because they like to indoctrinate people in the Goldman way. The second thing is they have a high reliance on teamwork, and sharing information. You know the expression, every part of the pig including the squeal? That’s what they do, they use every part of every bit of information they get including the squeal, and they figure out how to make money on it. And everyone reaps the rewards. It’s like a beehive that is perfectly designed to make honey and reproduce.
Isn't the sharing of information at a multi-service firm like Goldman sort of, like, legally dubious?
The rap on Goldman for a long time is that they front-run their clients. I talked to Eliot Spitzer about this, and basically he said he’d heard the rumors like everybody else, but he could never find the evidence. But clearly a lot of clients I have talked to, whether they be private-equity firms or hedge-fund managers or corporate clients, are really pissed off at Goldman for this.
I feel like whenever those kinds of people complain about Goldman Sachs, they also sound a little bit impressed by them, by how awesome they are.
It’s at once being pissed off at them and in awe of them. They know if they want the best execution, they have to go to Goldman. It’s like the Yankees. They’re feared, and loved ...
I don’t understand sports metaphors.
It’s like hating Duke in college basketball ...
No, sorry ...
You envy them and you hate them, it’s the same idea.
They’re the Gwyneth Paltrow of banks, is what I’m hearing?
Okay. And yes, Americans, we love this sort of thing. We love a narrative where you build someone up and then we tear them down. We’ve spent decades building Goldman up, and now they’re being knocked off their perch.
Earlier this week Janet Maslin gave your book a scathing review, in which she called it “schmoozy” among other things, and suggested much of the information in the book had been reported elsewhere. This is especially awkward as you’re a contributor to the New York Times. Are you pissed?
I obviously don’t agree with her review. I think she didn’t get it. She started the review talking about how I don’t get into a polemic like Matt Taibbi. One of the things about the post-vampire-squid era is if you don’t immediately put up your own version of the vampire squid, you’re looked at somehow like you are in Goldman’s camp or an apologist for Goldman. In fact, I do have a point of view as strong as Matt Taibbi’s, but I don’t use “vampire squid” language. I basically lay out in 628 pages how basically I cannot believe how close to the line Goldman plays it, how they’ve been in and out of trouble their whole existence, and how they’ve, frankly, done a lot of things that I would say are ethically challenged, some would say immoral. It’s frustrating. You spend a year and a half of your life pouring your heart out and it's dismissed on the front page of the New York Times "Arts" section as pablum. You know, as rehashed material. I mean, there’s so much new material in here, there is so much incredible detail, there's so much that hasn’t been explored before. It makes me almost question whether she got through it. So.
Janet Maslin can suck it, is what you’re saying.
Your words, not mine. She’s my colleague at the New York Times. [Shrugs, as though to say, “But yes, Janet Maslin can suck it.”]
What is your favorite hard-won, revelatory nugget?
You know, I call this the Book of Revelations. And why I do say that? I say that because I worked on Wall Street for seventeen years. I thought I understood Goldman. And I just couldn’t get over the things that I uncovered.
Like what? What's one thing?
There’s so many one things. Everything from the brief story about James Cofield, who was a Stanford Business School student in the seventies who happened to be black, and was trying to get a job at Goldman and then got blackballed, no pun intended, from working there, and was told that it was because a senior partner in the firm does not like blacks —
Right, and there’s a story from the same era about a female executive who got shut out of a dinner because it was at the Yale Club and they didn’t allow women. But racism and sexism at that time weren’t unique to Goldman Sachs ...
Okay fine. The story about Penn Central bankruptcy. It’s extraordinary, because even though it happened in the seventies, I felt like it could have been in 2010 ...
I’m sorry I am laughing. But what is one new thing.
What’s the big recent revelation? I think I lay out in clear, narrative prose — with all due respect to Janet — how Goldman shorted the mortgage market. They got the idea from John Paulson, the hedge-fund manager. They were making fees off him placing his trades. Then in December 2006, they saw he was right about the mortgage market. But they didn’t call up Hank Paulson and say, “We’re worried about the mortgage market, let's shut it down.” Instead, they basically decided to mimic the trade. They put this big short on, while they were still selling mortgage-backed securities to investors on the long side. They had these two things on at the same time. I don’t know if that’s genius — going by Einstein’s definition of being able to keep two opposing thoughts in your head at the same time — or whether it’s immoral or unethical or illegal. But it is something. And as Josh Birnbaum told me, John Paulson went from being their favorite call, to one of their least favorite calls, because they were basically competing with him to do that trade. Which is prima facie evidence of how Goldman takes the information that its clients share with it, concludes the client is onto something, and constructs a trade themselves, even if it's not in the clients' best interests. It's not front-running, because it happened afterward, but it's something. The thing I find most incredible is at the Levin hearing, [Goldman CEO Lloyd Blankfein] basically denies it all. The political environment we live in now is such that he would rather look like they were as dumb as the other firms on Wall Street. And yet the evidence is overwhelming. They didn’t do it nefariously. They did it because they thought they could make money. And they did. I think they made $13 billion pre-tax in 2007.
You spoke to Lloyd for the book. What did he say when you confronted him about that disparity?
He stuck to this story that they did not make a lot of money in the mortgage markets.
Speaking of, in House of Cards, your book about the collapse of Bear Stearns, I’ve always assume you got access to Bear's CEO Jimmy Cayne by agreeing not to mention his pot smoking ...
Time out, girlfriend! Time out! It’s in there. I mentioned the Kate Kelly story.
Well, that’s a back-door way of getting it in there. Anyway: Why did Lloyd Blankfein and other top executives at Goldman agree to be interviewed for this? What do you have on him?
I don’t know why they did that. My wife says to me, why do people talk to you, I don’t know. Why do people talk to Bob Woodward? I‘m not comparing myself to Bob Woodward —
But, you know. Maybe because I worked on Wall Street, that I understand their language. Because it’s better to participate than to not. I’m sure Goldman’s first choice would be that I would have gotten hit by a bus rather than do the book.
It’s weird, then, they didn’t try to arrange that.
They may have, but maybe I got lucky and managed to sidestep the bus.
I noticed my description of Lloyd as a “chipper elf” made it into the book, though you neglected to credit me. Do you find him at all ... adorable?
He can be incredibly charming when he wants to. He can also be ruthless. You don’t get to the top of Goldman Sachs always being charming. I talked to some of his colleagues, and he has very sharp elbows. He was kind of ruthless about getting rid of anybody who was pretender to the throne. It was Machiavelli 101 or something.
But he’s sensitive, right?
Course he’s sensitive. He’s called me up when I’ve written things about him ...
Did he cry?
No, but I can hear the angst, the anguish. How could you do this to me, Bill?
There’s been rumors that he’s going to retire this year. Given your relationship with him, what do you think?
I don’t buy it at all. I don’t believe it for a second. Short of this Levin report turning into something bigger, Lloyd Blankfein’s not going anywhere.
This interview has been condensed and edited.