Money and Power: How Goldman Sachs Came to Rule the World
by William D. Cohan
Quick Summary
An exhaustive investigative history of Goldman Sachs spanning its 142 years from a small commercial paper business to the most powerful and controversial institution on Wall Street. Cohan examines how Goldman built its dominance through superior talent, political connections, and the ability to manage conflicts of interest, while also chronicling the firm's repeated near-death experiences, insider trading scandals, and its pivotal and ethically questionable role in the 2007-2008 financial crisis, including "the big short" on mortgage securities.
Detailed Summary
William D. Cohan's "Money and Power" is a comprehensive investigative narrative of Goldman Sachs that traces the firm from its founding by Marcus Goldman in 1869 through its central role in the 2008 financial crisis and its aftermath. The book draws on extensive interviews (many with former Goldman partners who rarely speak to the media), internal documents, Senate testimony, and SEC filings.
The prologue frames the book's central tension: Goldman Sachs's extraordinary ability to make money while managing conflicts of interest in ways that have alternately impressed and appalled observers. The firm is described as "a great vampire squid wrapped around the face of humanity" (per Matt Taibbi's famous characterization) but also as a genuinely meritocratic institution that has consistently attracted the best talent on Wall Street.
The historical chapters trace Goldman's evolution through key eras: the Goldman Sachs Trading Corporation debacle during the Depression (when the firm nearly destroyed itself through a leveraged investment trust scheme), the Sidney Weinberg era (when the firm rebuilt through client relationships and political connections, including a close relationship with FDR), the rise of Gus Levy and risk arbitrage, the John Weinberg and Robert Rubin leadership periods, and the firm's 1999 IPO, which transformed partners into shareholders and fundamentally altered the firm's risk appetite and culture.
The book's investigative core concerns Goldman's behavior during the 2007-2008 financial crisis. Cohan documents how a small group of mortgage traders -- led by Dan Sparks, Josh Birnbaum, and Michael Swenson -- established "the big short" beginning in December 2006, betting billions that the housing market would collapse. When this bet proved correct, Goldman earned $4 billion in mortgage trading profits in 2007, offsetting its own losses and contributing to record firm-wide profits of $11.4 billion. The top five executives split $322 million in compensation.
Critically, Cohan details how Goldman's decision to mark down the value of its mortgage securities holdings put pressure on competitors -- Bear Stearns, Merrill Lynch, Lehman Brothers, and AIG -- that were holding similar positions but lacked offsetting profits. Goldman's marks, communicated through normal business channels, forced other firms to recognize losses that would ultimately contribute to their destruction. The book includes the key email from Goldman's chief risk officer Craig Broderick noting that the firm's markdowns would have "big P&L impact" on clients and required "30th floor attention."
The subsequent Senate hearings are documented in detail, including the remarkable exchange where CEO Lloyd Blankfein denied under oath that Goldman had made a directional bet against housing -- a claim that Senator Carl Levin characterized as a lie, given the documentary evidence. Cohan explores Goldman's strategic decision to appear "dumb rather than brilliant" in public, reasoning that admitting to profitable shorting of a market whose collapse devastated millions of homeowners would be politically untenable.
The book also covers Goldman's culture of secrecy, the power of its alumni network (including Treasury Secretaries Robert Rubin and Henry Paulson), and the firm's complex relationship with government that has alternately served and undermined the public interest.
