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Excerpt: 'Money And Power'

NPR | By William D. Cohan

Published April 8, 2011 at 4:04 PM EDT

The Pyrrhic Victory

Wall Street has always been a dangerous place. Firms have been going in and out of business ever since speculators ﬁrst gathered under a buttonwood tree near the southern tip of Manhattan in the late eighteenth century. Despite the ongoing risks, during great swaths of its mostly charmed 142 years, Goldman Sachs has been both envied and feared for having the best talent, the best clients, and the best political connections, and for its ability to alchemize them into extreme proﬁtability and market prowess.

Indeed, of the many ongoing mysteries about Goldman Sachs, one of the most overarching is just how it makes so much money, year in and year out, in good times and in bad, all the while revealing as little as possible to the outside world about how it does it. Another— equally confounding— mystery is the ﬁrm's steadfast, zealous belief in its ability to manage its multitude of internal and external conﬂicts better than any other beings on the planet. The combination of these two genetic strains— the ability to make boatloads of money at will and to appear to manage conﬂicts that have humbled, then humiliated lesser ﬁrms— has made Goldman Sachs the envy of its ﬁnancial- services brethren.

But it is also something else altogether: a symbol of immutable global power and unparalleled connections, which Goldman is shameless in exploiting for its own beneﬁt, with little concern for how its success affects the rest of us. The ﬁrm has been described as everything from "a cunning cat that always lands on its feet" to, now famously, "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money," by Rolling Stone writer Matt Taibbi. The ﬁrm's inexorable success leaves people wondering: Is Goldman Sachs better than everyone else, or have they found ways to win time and time again by cheating?

But in the early twenty- ﬁrst century, thanks to the fallout from Goldman's very success, the ﬁrm is looking increasingly vulnerable. To be sure, the ﬁrm has survived plenty of previous crises, starting with the Depression, when much of the ﬁrm's capital was lost in a scam of its own creation, and again in the late 1940s, when Goldman was one of seventeen Wall Street ﬁrms put on trial and accused of collusion by the federal government. In the past forty years, as a consequence of numerous scandals involving rogue traders, suicidal clients, and charges of insider trading, the ﬁrm has come far closer— repeatedly— to ﬁnancial collapse than its reputation would attest.

Each of these previous threats changed Goldman in some meaningful way and forced the ﬁrm to adapt to the new laws that either the market or regulators imposed. This time will be no different. What is different for Goldman now, though, is that for the ﬁrst time since 1932— when Sidney Weinberg, then Goldman's senior partner, knew that he could quickly reach his friend, President- elect Franklin Delano Roosevelt— the ﬁrm no longer appears to have sympathetic high- level relationships in Washington. Goldman's friends in high places, so crucial to the ﬁrm's extraordinary success, are abandoning it. Indeed, in today's charged political climate, which is polarized along socioeconomic lines, Goldman seems particularly isolated and demonized.

Certainly Lloyd Blankfein, Goldman's ﬁfty-six- year- old chairman and CEO, has no friend in President Barack Obama, despite being invited to a recent state dinner for the president of China. According to Newsweek columnist Jonathan Alter's book The Promise, the "angriest" Obama got during his ﬁrst year in ofﬁce was when he heard Blankfein justify the ﬁrm's $16.2 billion of bonuses in 2009 by claiming "Goldman was never in danger of collapse" during the ﬁnancial crisis that began in 2007. According to Alter, President Obama told a friend that Blankfein's statement was "ﬂatly untrue" and added for good measure, "These guys want to be paid like rock stars when all they're doing is lip- synching capitalism."

Complicating the ﬁrm's efforts to be better understood by the American public— a group Goldman has never cared to serve— is a long-standing reticence among many of the ﬁrm's current and former executives, bankers, and traders to engage with the media in a constructive way. Even retired Goldman partners feel compelled to check with the ﬁrm's disciplined administrative bureaucracy, run by John F. W. Rogers— a former chief of staff to James Baker, both at the White House and at the State Department— before agreeing to be interviewed. Most have likely signed conﬁdentiality or nondisparagement agreements as a condition of their departures from the ﬁrm. Should they make themselves available, unlike bankers and traders at other ﬁrms— where self-aggrandizement in the press at the expense of colleagues is typical— Goldman types stay ﬁrmly on the message that what matters most is the Goldman team, not any one individual on it.

"They're extremely disciplined," explained one private- equity executive who both competes and invests with Goldman. "They understand probably better than anybody how to never take the game face off. You'll never get a Goldman banker after three beers saying, 'You know, listen, my colleagues are [worthless].' They just don't do that the way other guys will, whether it's because they tend to keep the uniform on for a longer stretch of time so they're not prepared to damage their squad, or whether or not it's because they're afraid of crossing the powers that be, once they've taken the blood oath... they maintain that discipline in a kind of eerily successful way."