A disturbing story
By Sarthak Shankar
Money and Power: How Goldman Sachs Came to Rule the World, William D Cohan, Allen Lane, Pp 658 (HB), £25.00
Unless you’ve been in comatose for the past five years you may have noticed that people all over the world are really peeved at corporate sector, particularly in the US where the masses are blaming Goldman Sachs. While this phenomenon is ubiquitous enough to have earned international attention, there are just a handful of people that seem to understand what is going on. William D Cohan’s Money and Power is a one-stop shop for anyone wanting insight into the murky world of corporate failure and Goldman’s hand in it.
Goldman is one of the seasoned players of Wall Street “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.” Cohan explains right off the bat the cause for Goldman coming under scrutiny: when the mortgage bubble burst and we were ushered into the great depression era, financial misery became commonplace. Businesses that had weathered generations fell in need of bailouts. Yet one firm not only managed to mitigate losses entirely, rather it went on to earn the highest profit it had ever earned. This firm was none other than Goldman Sachs. In fact “Goldman was able to offset its own mortgage – related losses with huge gains – of some $4 billion – from its bet the housing market would fall.”
Cohan also points out that what was even more interesting was Goldman’s reaction – one of utter humility and modesty. This is very intriguing that, throughout Wall Street out of the hundreds of firms Goldman Sachs was the only one with the prescience to correctly guess the market and act appropriately – no small feat. And in spite of this, along every step of the way Goldman tried to avoid the spotlight. “Rather than crow – as would be typical on Wall Street – about its trading prowess in 2007, … Goldman has been taking the opposite tack in public lately of obfuscating and suggesting that it was just as stupid as everyone else.” Cohan believes that Goldman’s reasons for doing this is to avoid scrutiny which may expose the skeletons in its closet. Goldman undeniably abused its power in the market to not only earn huge profit but also to cause some of its competition to fail drastically. AIG, Bear Stearns are among the firms that went bust thanks to Goldman.
Cohan tells the story of Goldman Sachs right from its origins. It started as a family business in 1869 founded by Marcus Goldman. He mentions how Marcus worked solo for a long time, then eventually brought his son-in-law, Sam Sachs. Slowly the partnership grew and Goldman Sachs started hiring people from outside the family.
Cohan then proceeds to narrate the various exploits of Goldman Sachs how its alums went on to take key positions at the government, how the firm formed the right relations with the right people and started orchestrating the outcome of the market.
Cohan exposes how Goldman used its presence in the government and market to profit handsomely from the 2008 meltdown. Goldman uses a “mark” system to designate the value of securities in the market. They are so heavily relied upon that other firms generally base their marks upon the ones given out by Goldman Sachs. Goldman used this fact to make risky funds appear stable. Then it bet against the very same funds and so when the funds did crash Goldman ended up earning a pretty buck for cheating the market. This is just one of the tricks employed by Goldman Sachs. Cohan reveals that Goldman was also guilty of insider trading, short selling. Shorting the market was also a part of the Goldman arsenal (in fact Goldman used it so well that it is called the “big short”). Goldman also collected insurance on scores of stocks, knowing full well that they would collapse and when they did Goldman further took money from the banks that had insured the stocks. Incidentally, these banks too referred to the Goldman marks to get an idea of the stocks they were insuring.
Thus Goldman turned the entire finance system into a gamble and rigged all of Wall Street so that Goldman could feed its insatiable appetite for profit with the taxpayer’s money. Not one weapon was left unused in Goldman’s kitty, from the marks to the insecurities of the buyers, Goldman dominated the scene absolutely. At the same time Goldman used its power to pull the wool over everyone’s eyes and instead of parading over its profits, Goldman tried to pass itself off another victim of the failing market. Cohan’s Money and Power is the go – to book to get a thorough understanding of the scene in Wall Street today. While it is packed with information, the excess of financial lingo may confuse some. Also everyone may not be interested in knowing Goldman Sachs’ origin. That said it is by far the most comprehensive source to refer to regarding the ongoing Great Recession and Goldman’s role in it. Cohan is an award-winning journalist and Wall Street veteran and has authored two bestselling books on the financial world.
(Allen Lane, Penguin Books Ltd, 80 Strand, London, WC2R, ORI England)