Goldman Sachs' Long History Of 'Money And Power' The author of a critical history of Goldman Sachs says the firm has been through troubled times before — and only since the 1980s gained a reputation for being "the envy of Wall Street." Recent scandals concerning the role of former Goldman partners in government also go way back, the author says.
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Goldman Sachs' Long History Of 'Money And Power'

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Goldman Sachs' Long History Of 'Money And Power'

Goldman Sachs' Long History Of 'Money And Power'

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Goldman Sachs has long been one of the most powerful and respected banks in the country. But since the financial crisis, Goldman Sachs' reputation has taken a serious hit. Its CEO, Lloyd Blankfein, has been publicly flogged by lawmakers, and recently testified in a big, government insider-trading case.

Now in a new, critical history of the bank, financial writer William Cohan examines Goldman's influence over government and the financial system. The book is called "Money and Power," and William Cohan joined us from our New York bureau to talk about it. Good morning.

Mr. WILLIAM COHAN (Author, "Money and Power: How Goldman Sachs Came to Rule the World"): Good morning, Renee.

MONTAGNE: Give us a reminder of what happened, during or just after the financial crisis, to damage Goldman Sachs' name.

Mr. COHAN: Well, you have to remember that in September of 2008, it looked like all of Wall Street was, literally, imploding overnight. And Goldman Sachs and Morgan Stanley were sort of the last two remaining soldiers on the firing line. And then virtually overnight, the Fed agreed to make them bank-holding companies -which was incredibly unprecedented - and gave them huge access to the resources of the Federal Reserve.

A few days prior to that, the government had also rescued AIG, the big insurance company, to the tune of something like $180 billion. And over time, people were wondering, where did all that money go? Finally, the New York Federal Reserve Bank revealed that Goldman Sachs, among others, got something like $13 billion from the bailout of AIG - directly into their pockets. And that created a huge controversy.

MONTAGNE: So what was Goldman Sachs' image up until the financial crisis?

Mr. COHAN: For many years, the firm was constantly in and out of trouble. I mean, in 1929 and 1930, they created something called the Goldman Sachs' Trading Corporation, that nearly bankrupted all of the investors who invested in it. It was a bit of a Ponzi scheme, if you will.

In the 1940s, Goldman Sachs, like a number of other Wall Street firms, was the subject of a Justice Department antitrust lawsuit - had it gone against them, would have put the firm, likely, out of business as well.

In the 1970s, the firm was involved in a very serious matter involving the Penn Central Corporation, which was a large railroad that went bankrupt in 1970. So the firm has been in and out of trouble for a very long time, which people forget. I would say its reputation for pristine excellence - the envy of Wall Street, if you will - has really sort of been in and around since the 1980s.

MONTAGNE: In becoming what one might call the gold standard on Wall Street over the last - say, 30 years, how did that image come about? Was it cultivated? Was it thought out?

Mr. COHAN: Well, I think it was cultivated in as much as Goldman set about assembling the best people it could possibly find, at every turn of the road. Its success, its - the reason other firms envied Goldman Sachs for so long, and probably still do, is because they continue to be the leading firm on Wall Street in terms of underwriting the most, advising the most, trading the most, having huge amounts of capital. And that gives them huge cache, huge prestige, and huge power.

MONTAGNE: Goldman Sachs has sent many of its bankers into the government - I mean, so many that the company has been called, jokingly, Government Sachs. How much influence has Goldman Sachs had on the government? In your book, you describe Henry Goldman's role during the creation of the Federal Reserve System. I mean, that was nearly a hundred years ago.

Mr. COHAN: Well basically, you're absolutely right, Renee. It goes back nearly a century to Henry Goldman, one of the founding partners of the firm, who was asked by the Cabinet members who were tasked with putting together what became the Federal Reserve System - in 1913 and 1914 - how he would go about doing it. And basically, he gave a prescription for which - was pretty much what they followed.

And you know, beyond that, I also write in the book about Sidney Weinberg, who of course, was the longtime senior partner of Goldman Sachs. This is a fellow who had an eighth-grade education, grew up in Brooklyn, but had tremendous power over every president, from FDR on. But he played a tremendous, behind-the-scenes role during the Eisenhower administration. He came up with who the secretary of Treasury should be one day - when he was taking the subway from downtown to midtown - and came up with a name; told Eisenhower. Eisenhower had never heard of the fellow - and appointed him Treasury secretary.

And so this had been going on for a very, very long time, and just continued through every senior partner of Goldman Sachs up until Hank Paulson - as we know - when he was named Treasury secretary.

MONTAGNE: Now, is Goldman Sachs unique in its influence over government? In a world where money means power, and bankers often do have sway over what the government does, has Goldman had that much more influence than other banks?

Mr. COHAN: Well, they've had much more influence in terms of positions of power, whether it was Bob Rubin or Steve Friedman at the National Economic Council; whether it was Bob Rubin or Hank Paulson at the Treasury. Disproportionate number of senior partners from Goldman Sachs have gone into government. And one of the reasons is - by the way - is because at Goldman, it's very much and an up-and-out mentality. You have your five to seven years in the sun, and then they push you out and, you know, you're a young person - generally, still young, and wanting to make a contribution. Other firms' people stay around a lot longer. So they've always had great influence. It's in their DNA to have great influence. It goes back to Sidney Weinberg and Franklin D. Roosevelt. And it's been, you know, continued on through much of the 20th and now the 21st century.

I think Wall Street has always had a tremendous influence - and it's not just Goldman Sachs - but Wall Street generally has had a tremendous influence over Washington. They helped write the regulations; they're help - writing the regulations now. They know what they can and can't do, and they and Goldman Sachs, especially, has been very, very good at getting right up against the line of wrongdoing. They know exactly where that line is, and they're very careful of - most of the time - to stay just on this side. And they help influence the way the regulations are enforced.

MONTAGNE: Are you asserting, in your book, that Goldman Sachs is sending its graduates, if you will, into the government - that this is deliberate policy on Goldman's part?

Mr. COHAN: Well, I think it's one of the very powerful messages that is delivered continuously at the firm. Now, they couch it in much more genteel terminology. They talk about public service, giving something back - to whom much is given, much is expected - and have a responsibility to make available their multiple talents in many different parts of our society.

And one of the ways to do that is, of course, through government service. And that is very different than other firms. And you know, by the way, it's not just government service. They're leaders in philanthropy; they're leaders in education, at this point. You know, their tentacles are everywhere, and they're very powerful.

MONTAGNE: William Cohan is author of the new book "Money and Power: How Goldman Sachs Came to Rule the World."

Thanks very much for talking with us.

Mr. CHOAN: Thank you, Renee.

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MONTAGNE: This is NPR News.

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