WAY OF THE WORLD
sides of the market to maximise its own profit, while giving secondary attention to the interests of its clients – though it has never run short of clients, so it must do something right for them.
Playing both sides is certainly what it appeared to do in the Abacus case in 2007. Abacus was the name given to a ‘synthetic collateralised debt obligation’, essentially a big bundle of subprime mortgages turned into a bond to be sold to investors. On one side, advising Goldman what to put into the bundle, was the New York hedge-fund manager John Paulson. He believed the mortgage market was about to collapse, but in order to bet that way he needed securities like Abacus to be bought by investors who took the opposite view, so that he could ‘go short’ against them. The bigger the wipeout of Abacus, the more Paulson would make from it. But on the ‘long’ side were the likes of ABN AMRO, the Dutch bank that had been bought by a consortium led by Royal Bank of Scotland. Goldman sold Abacus to them without revealing Paulson’s position.
Goldman itself eventually lost $100 million on the deal because it got stuck with a piece of Abacus it could not sell. But the most telling sentence in Cohan’s account is: ‘On August 7, 2008, RBS paid Goldman $840.9 million, much of which Goldman paid over to Paulson.’ That’s another bill the British taxpayer eventually had to pick up, but the official Goldman reaction was no more than an amoral shrug: if clients want to
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take different market views, we’re here to serve them all.
That is the substance behind the Goldman legend, and Cohan writes about it very well. His technique combines mastery of financial detail with extensive use of quotes to catch the authentic Wall Street voice. He offers a fluent retelling of the whole history of Goldman Sachs, starting with German Jewish immigrant Marcus Goldman in 1869. This has been done before, by Lisa Endlich in Goldman Sachs: The Culture of Success (1999), but perhaps too respectfully; Cohan is more warts-andall, particularly in unravelling the struggles between clashing Goldman egos over the past thirty years.
But the people must have been the toughest part of the task. When he wrote about Lazard, Cohan knew many of the characters as former colleagues: he could describe the cigar habit of the firm’s proprietor, Michel David-Weill, and the icy stare of its leading dealmaker, Felix Rohatyn. When he wrote about Bear Stearns, the Runyonesque card-players who ran the firm into the ground all seem to have been eager to talk to him in order to bad-mouth each other, their competitors and the New York regulators in the foulest terms. But at Goldman, even longretired former partners seem to have taken a blood oath of silence, or at least of blandness, in what they say about anything connected with the firm: ‘they maintain that discipline in a kind of eerily successful way’.
Cohan does his best to conjure up the human portraits that a book like this needs, but one senses that he has had to rely much more on archive material and less on face-to-face interviews than in his previous outings. The last leader of the firm who sounds like a relatively normal human being and concer ned citizen was John Whitehead, co-chairman from 1976 to 1984, who went on to be Reagan’s deputy secretary of state, setting the pattern for his successors to glide effortlessly into government or politics. There are entertaining accounts of the debate over going public or remaining a pr ivate partnership in the 1990s, and of the power struggle in which Hank Paulson defeated his co-chief executive Jon Corzine, who left to become a senator and governor of New Jersey. All the Goldman players are here, up to and including current chairman Lloyd Blankfein, famous for saying that he was just ‘doing God’s work’.
And there are plenty of verbatim utterances for authenticity: ‘You know, I think, you know, I wish, you know, I hadn’t sent those,’ says one executive, challenged at a Congressional hear ing about some controversial emails. But most of the character sketches are painted in watercolour. Cohan has done a comprehensive and highly professional job. No fact or nuance of the known Goldman story has escaped him. But the blood oath prevails: Goldman folk have closed ranks to prevent even this inexhaustible investigative author from finding their innermost tribal secrets. To order this book for £20, see LR bookshop on page 22
LITERARY REVIEW May 2011