Copyright © 2011 by William D Cohan All rights reserved Published in the United States by Doubleday, a division of Random House, Inc., New York, and in Canada by Random House of Canada Limited, Toronto www.doubleday.com DOUBLEDAY and the portrayal of an anchor with a dolphin are registered trademarks of Random House, Inc Portions of this work were previously published in Vanity Fair Grateful acknowledgment is made to the Columbia University Oral History Research Office Collection Jacket design by John Fontana Jacket illustration by Serial Cut™ Title page photograph by Marco Di Fabio / Flickr / Getty Images Cataloging-in-Publication Data is on file with the Library of Congress eISBN: 978-0-385-53497-0 v3.1_r1 TO QUENTIN, DEB, AND TEDDY CONTENTS Cover Title Page Copyright Dedication PROLOGUE / The Pyrrhic Victory CHAPTER / A Family Business CHAPTER / The Apostle of Prosperity CHAPTER / The Politician CHAPTER / The Value of Friendship CHAPTER / “What Is Inside Information?” CHAPTER / The Biggest Man on the Block CHAPTER / Caveat Emptor CHAPTER / The Goldman Way CHAPTER / A Formula That Works CHAPTER 10 / Goldman Sake CHAPTER 11 / Busted CHAPTER 12 / Money CHAPTER 13 / Power CHAPTER 14 / The College of Cardinals CHAPTER 15 / $10 Billion or Bust CHAPTER 16 / The Glorious Revolution CHAPTER 17 / It’s Too Much Fun Being CEO of Goldman Sachs CHAPTER 18 / Alchemy CHAPTER 19 / Getting Closer to Home CHAPTER 20 / The Fabulous Fab CHAPTER 21 / Selling to Widows and Orphans CHAPTER 22 / Meltdown CHAPTER 23 / Goldman Gets Paid CHAPTER 24 / God’s Work ACKNOWLEDGMENTS NOTES INDEX Other Books by This Author PROLOGUE THE PYRRHIC VICTORY Street has always been a dangerous place Firms have been in and out of business ever since speculators rst W allgoing 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 rm’s steadfast, zealous belief in its ability to manage its multitude of internal and external icts 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 icts that have humbled, then humiliated lesser rms—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 bene t, with little concern for how its success a ects the rest of us The rm 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 rm’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- rst century, thanks to the fallout from Goldman’s very success, the rm is looking increasingly vulnerable To be sure, the rm has survived plenty of previous crises, starting with the Depression, when much of the rm’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 rms 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 rm has come far closer—repeatedly—to nancial collapse than its reputation would attest Each of these previous threats changed Goldman in some meaningful way and forced the rm to adapt to the new laws that either the market or regulators imposed This time will be no di erent What is di erent for Goldman now, though, is that for the rst 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 rm no longer appears to have sympathetic high-level relationships in Washington Goldman’s friends in high places, so crucial to the rm’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 fty-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 t o Newsweek columnist Jonathan Alter’s book The Promise, the “angriest” Obama got during his rst year in o ce was when he heard Blankfein justify the rm’s $16.2 billion of bonuses in 2009 by claiming “Goldman was never in danger of collapse” during the nancial crisis that began in 2007 According to Alter, President Obama told a friend that Blankfein’s statement was “ atly 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 rm’s e orts to be better understood by the Complicating the rm’s e orts 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 rm’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 rm’s disciplined administrative bureaucracy, run by John F W Rogers—a former chief of sta to James Baker, both at the White House and at the State Department—before agreeing to be interviewed Most have likely signed dentiality or nondisparagement agreements as a condition of their departures from the rm Should they make themselves available, unlike bankers and traders at other rms—where self-aggrandizement in the press at the expense of colleagues is typical—Goldman types stay rmly 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 o You’ll never get a Goldman banker after three beers saying, ‘You know, listen, my colleagues are a bunch of fucking dickheads.’ They just don’t 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.” —— ANYONE WHO MIGHT have forgotten how dangerous Wall Street can be was reminded of it again, in spades, beginning in early 2007, as the market for home mortgages in the United States began to crack, and then implode, leading to the demise or near demise a year or so later of several large Wall Street rms that had been around for generations—including Bear Stearns, Lehman Brothers, and Merrill Lynch—as well as other large nancial institutions such as Citigroup, AIG, Washington Mutual, and Wachovia Although it underwrote billions of dollars of mortgage securities, Shultz, George, 9.1, 14.1 Siegel, Martin, 9.1, 11.1, 11.2, 11.3, 11.4, 11.5, 11.6, 11.7, 11.8, 11.9, 11.10, 11.11, 11.12, 11.13 as ‘CS-1,’ 254, 11.1, 11.2, 11.3, 11.4, 11.5, 11.6 Silfen, David Silverstein, Howard, 15.1, 15.2 Simmons, Ruth Simon, Norton “Simple Algorithm to Compute Short-Dated CMM Forwards, A” Sinclair Oil Singapore, 2.1, 15.1 Sinha, Gyan, 20.1, 20.2 Siva-Jothy, Christian, 14.1, 16.1 60 Minutes, 23.1 Skidmore, Owings & Merrill Sloss-Sheffield Steel & Iron Company, 1.1, 2.1 Smeal, Frank, 10.1, 14.1 Smith, Bernadette Smith, John K Smith, Roy, 5.1, 5.2, 7.1, 7.2, 8.1 Smith Barney Smith Breeden Associates Smithies, Arthur Social Reponsibilities of Business, The (Goldman), 9.1 Social Security Société Générale, 17.1, 23.1, 23.2 Sokolow, Ira Soros, George Sosin, Howard Sotheby’s Southland Corp South Seas Bubble Soviet Union, 1.1, 1.2, 3.1, 3.2, 9.1, 17.1 Sparks, Daniel, 18.1, 20.1, 21.1, 21.2, 21.3, 21.4, 22.1, 23.1 “big short” of, prl.1, prl.2, 19.1, 19.2, 19.3, 20.1, 20.2, 20.3, 20.4, 20.5, 21.1, 21.2, 21.3, 21.4, 22.1, 23.1 Senate testimony of, prl.1, prl.2 Spear, Leeds & Kellogg, 17.1, 17.2, 17.3 special purpose acquisition corporations (SPAC) Special Situations Group (SSG), 15.1, 18.1 Spector, Warren speculators, speculation, 1.1, 3.1 get-rich-quick schemes and Wall Street crash created by Wall Street created by Sperling, Gene, 13.1, 13.2, 13.3 Speyer, Jerry Spitzer, Eliot, 16.1, 17.1, 17.2, 23.1, 24.1 Standard & Poor’s (S&P), 18.1, 18.2, 18.3, 21.1, 23.1 Stand House Stanfield Capital Partners Stanford University Stanton, Louis, 11.1, 11.2 STAR TV State Department, U.S., prl.1, 5.1 Staten Island, N.Y State Street Bank State Street Investment Corporation steamships Stearns & Foster Stebbins, Henry V Stecher, Esta Steck, Fred steel Steel, Robert, 17.1, 17.2, 17.3 Stein, Alan, 6.1, 8.1 Steinberg, Saul, 14.1, 14.2 Stendhal Stephanopoulos, George Stern, Robert A M Stetinius, Edward Stevens, Robert Stewart, James B., 11.1, 11.2 Stewart, Jon Steyer, Thomas, 11.1, 18.1 Stifel, Nicolaus & Co stock market crash (1929), 2.1, 2.2, 2.3, 3.1, 5.1, 6.1, 6.2, 7.1, 8.1, 8.2 causes of as created by speculation Weinberg’s memory of stock market crash (1973) stock market crash (1987), 12.1, 13.1, 15.1 StorageNetworks Storehouse PLC Storer Communications, 11.1, 11.2, 11.3, 11.4, 11.5 Strauss, Robert, 13.1, 13.2 Studebaker Corporation Studebaker-Packard Company subprime mortgage market, 18.1, 18.2, 18.3, 19.1, 19.2, 19.3, 19.4, 20.1, 20.2, 20.3, 20.4, 20.5, 21.1, 21.2, 22.1, 22.2, 22.3, 22.4 Sullivan, Joe Sullivan, Martin, 23.1, 23.2, 23.3, 23.4, 23.5, 23.6 Sullivan & Cromwell, prl.1, prl.1, 2.1, 2.2, 4.1, 4.2, 4.3, 5.1, 5.2, 7.1, 7.2, 7.3, 7.4, 7.5, 14.1, 16.1, 17.1 Sumitomo Bank, Ltd., 10.1, 12.1, 12.2, 15.1, 16.1, 16.2, 17.1 Summers, Anita Summers, Lawrence, 13.1, 13.2, 13.3, 13.4 Summers, Robert Sundaram, Ram, 23.1, 23.2, 23.3 Sunday Times (London), 16.1, 17.1, 17.2, 24.1 Super AAA Offering support tranches Suskind, Dennis Swenson, Michael, 18.1, 18.2, 22.1, 23.1 “big short” of, prl.1, prl.2, 18.1, 19.1, 19.2, 19.3, 19.4, 20.1, 20.2, 20.3, 21.1, 22.1, 22.2, 23.1 Switzerland syndicated bank loans synthetic collateralized debt obligations (CDOs), prl.1, prl.2, prl.3, prl.4, prl.5, 20.1, 20.2, 20.3, 20.4, 21.1, 21.2, 22.1, 23.1, 23.2, 24.1 Tabor, Timothy L., 11.1, 11.2, 11.3, 11.4, 11.5, 11.6, 11.7, 11.8 Taibbi, Matt, prl.1, 21.1, 24.1 Tannin, Matthew, 20.1, 21.1, 22.1, 22.2, 22.3 taxes, mergers and Taylor, Frank Telmex Temple Emanu-El Tenenbaum, Harry Tenenbaum, L Jay, 5.1, 6.1, 7.1, 7.2, 11.1, 11.2 Friedman hired by hired at Goldman Sachs inside information and Jewish refugee clients of on Levy, 5.1, 5.2 Phillips Petroleum deal and promotions of, 5.1, 5.2 retirement of, 5.1, 7.1 Rubin hired by Sinclair Oil deal and Tepper, David, 16.1, 18.1 Tercek, Mark Terkel, Studs, 2.1, 3.1 Tett, Gillian Texas Gulf Producing Company Texas Gulf Sulphur Company Thain, John, 15.1, 17.1, 17.2, 17.3, 17.4, 17.5, 17.6, 17.7, 17.8, 22.1, 24.1 background of on Goldman Sachs board LTCM deal and, 16.1, 16.2, 16.3 and move to go public, 15.1, 16.1, 16.2, 16.3, 17.1 and NYSE/Archipelago merger in “palace coup” against Corzine, 16.1, 17.1, 17.2 retirement of salary of Thatcher, Margaret Thayer, Eugene TheStreet.com Inc., 17.1 Thiokol, Morton Thiokol Corp Thomas, Landon, Jr Thompson, Julian Thornton, John, 15.1, 15.2, 17.1, 17.2, 17.3, 17.4 background of on Goldman Sachs board and move to go public, 16.1, 16.2, 16.3, 16.4, 17.1 in “palace coup” against Corzine, 16.1, 17.1, 17.2 retirement of September 11 attacks and stock of Thornton, Margaret Tilden Park Capital Management Timberwolf, prl.1, 21.1, 21.2, 21.3, 22.1 Time, 2.1, 3.1 Tisch, Laurence Tonka Coporation too-big-to-fail mentality Tourre, Fabrice, 7.1, 20.1, 20.2, 20.3, 20.4, 20.5, 20.6, 20.7, 21.1, 21.2, 21.3, 22.1 affair of, prl.1 SEC’s accusations against, prl.1, prl.2, prl.3, prl.4, 23.1 Trading Places, 19.1 Trading with the Enemy, 17.1 Travelers Insurance, 16.1, 16.2, 16.3 Treasuries, Italian Treasury, U.S., 4.1, 13.1, 14.1, 17.1 preferred stock of Wall Street firms purchased by, prl.1 Trott, Byron Troubled Asset Relief Program (TARP), Goldman Sachs funded by, prl.1, 24.1 Truman, Harry S., 3.1, 3.2, 3.3, 6.1 Trust Company of America Tsinghua University Tulane University, 5.1, 5.2 Tung Chee Hwa Turner, Stansfield ’21’ Club, 3.1, 5.1, 6.1, 7.1 Tyco Tyson, Laura D’Andrea, 13.1, 13.2, 13.3 UBS Underwood Corporation underwriting banking vs by Goldman Sachs, see Goldman Sachs, deals and underwriting of Medina’s judicial ruling on on mortgages risks of Union Investment Management United Aircraft United Cigar Manufacturers’ Corporation United Corporation United Technologies University Hill Foundation Univis Lens Co Unocal, 11.1, 11.2, 11.3, 11.4, 11.5 UPI USG Corp U.S Steel utility bonds, 1.1, 5.1, 5.2 Utley, Kristine value-at-risk (VAR) system, 14.1, 20.1, 20.2, 22.1, 22.2, 22.3, 22.4, 23.1 Vanderbilt, Cornelius Vanity Fair, 17.1, 23.1, 24.1 van Praag, Lucas, 17.1, 17.2, 22.1, 22.2 Venice Victor, Ed Vietnam War Viniar, David, prl.1, 3.1, 18.1, 18.2, 19.1, 19.2, 19.3, 20.1, 20.2, 21.1, 21.2, 21.3, 21.4, 21.5, 21.6, 22.1, 22.2, 22.3, 22.4, 22.5, 22.6, 22.7, 23.1, 24.1 Senate testimony of, prl.1, prl.2, prl.3 Vogel, Jack, 7.1, 7.2, 7.3, 7.4 Vogel, Matthew Vogelstein, John Volcker, Paul, 13.1, 18.1, 18.2, 19.1 Voltaire Vranos, Michael Wachovia, financial troubles of Wachtell, Lipton, Rosen & Katz, 11.1, 11.2, 11.3 Waldorf-Astoria Hotel, 4.1, 7.1 Walgreens Walker, Doak Wall Street Journal, 5.1, 7.1, 7.2, 7.3, 7.4, 7.5, 8.1, 10.1, 12.1, 15.1, 16.1, 16.2, 17.1, 17.2, 18.1, 19.1, 20.1, 20.2, 20.3, 22.1, 23.1, 23.2, 23.3 article on M&A business, 9.1, 9.2, 9.3 on insider training scandal, 11.1, 11.2, 11.3, 11.4 Wall Street Letter, 12.1 Walt Disney Company, 7.1, 11.1, 17.1 Wambold, Ali Warburg Pincus Warner, Ernestine Warner, Douglas “Sandy,” 16.1, 16.2, 16.3 Warner Bros War of the Spanish Succession War Production Board (WPB), 3.1, 3.2 Washington Mutual, prl.1, 20.1, 22.1 Washington Times, 17.1 Wasserstein, Bruce, 9.1, 18.1 Watergate break-in Watson, Edwin Waxman, Henry Webb & Knapp WebEx Wechsberg, Joseph Weil, Gotshal & Manges Weill, Sanford, 16.1, 16.2 Weinberg, Helen Livingston Weinberg, Jimmy Weinberg Weinberg, John L., 3.1, 7.1, 7.2, 9.1, 10.1, 10.2, 10.3, 12.1, 12.2, 12.3, 12.4, 12.5, 14.1, 14.2, 14.3, 14.4, 14.5, 14.6, 14.7, 14.8, 16.1, 17.1 BP underwriting and Broad Street Building desired by Eisenberg’s sexual scandal and on Goldman Sachs board insider trading scandal and, 11.1, 11.2, 11.3 on mergers and move to go public, 10.1, 10.2 Penn Central deal and, 7.1, 7.2, 7.3 promotion to head of Goldman Sachs retirement of, 9.1, 12.1 Sumitomo deal and Weinberg, Peter, 3.1, 6.1, 10.1, 15.1, 16.1 Weinberg, Sidney James, 8.1, 8.2, 12.1, 15.1, 16.1, 17.1 and acquisition of J Aron, 9.1, 9.2, 9.3 and antitrust lawsuit, 4.1, 4.2, 4.3 arbitrage department and background of on board of investment trust, 2.1, 2.2 bond trading by, 3.1, 3.2 cars of Catchings fired by Christian Science Monitor article of, 5.1 corporate board seats of, 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 4.1, 4.2, 4.3, 4.4, 5.1, 6.1 corporate management’s confidence in death of, 6.1, 6.2, 6.3, 14.1 FDR’s friendship with, prl.1, 3.1, 3.2, 6.1 Ford IPO handled by, 4.1, 5.1 as irreplaceable as janitor at Goldman Sachs made partner at Goldman Sachs Management Committee created by in move uptown, 6.1, 7.1, 8.1 Musica’s swindle and New York Stock Exchange seat of, 3.1, 5.1 on 1929 crash at OPM, 3.1, 3.2 options trading opposed by Owens-Corning IPO handled by as parochial, 8.1, 8.2 partners made by political views of, 3.1, 3.2, 6.1, 9.1 public service of, 3.1, 3.2, 3.3, 3.4, 17.1 Scarsdale home of, 3.1, 3.2 sense of humor of surgery of Trading Corporation stock manipulated by Walter Sach’s praise of, 3.1, 4.1 Whitehead’s relationship with Weinberg, Sidney “Jimmy,” Jr., 3.1, 6.1, 7.1, 10.1 at Owens-Corning Fiberglass Weinberg & Co Weinstein, Harvey Weintz, J Fred Welch, John F., 9.1, 10.1 Welch Foods, Inc., 7.1, 7.2 Wells Fargo Wertheim & Co., 4.1, 5.1, 5.2 Westin Hotels & Resorts When Genius Failed (Lowenstein), 16.1, 16.2, 16.3, 16.4, 16.5, 16.6 Whitehall real-estate fund Whitehead, Eugene Cunningham Whitehead, John, 4.1, 6.1, 8.1, 12.1, 12.2, 12.3, 12.4, 14.1, 14.2, 14.3 acquisitions and annual budgeting pushed by background of Broad Street building desired by calling effort of as deputy secretary of state ethical code written by, 8.1, 16.1 hired at Goldman Sachs international expansion pushed by New Business Department of Penn Central lawsuit and, 7.1, 7.2 promotion to head of Goldman Sachs and purchase of J Aron, 9.1, 9.2, 9.3, 9.4 in racial discrimination suit, 7.1, 7.2 retirement of, 9.1, 9.2, 9.3, 10.1 seersucker suit of Weinberg as mentor to White, Weld antitrust suit and, 4.1, 4.2 Whitman, Martin Whitman, Margaret Whitney, John Hay, 3.1, 8.1 Whitney, Meredith Whittle, Reed Wigmore, Barry Wigton, Richard B., 11.1, 11.2, 11.3, 11.4, 11.5, 11.6, 11.7, 11.8, 11.9 Williams, Geoff, 19.1, 20.1 Williams, Robin Wilson, Charles “Electric Charlie,” 3.1, 3.2, 4.1, 4.2, 4.3 Wilson, Ken, 16.1, 17.1 Wilson, Malcolm Wilson, Robert G., 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7 Wilson, Woodrow Wilson administration Windsor, duke and duchess of, 4.1, 7.1 Winkelman, Mark, 9.1, 12.1, 14.1, 14.2, 14.3, 17.1 as dysfunctional, 15.1, 15.2, 15.3 1994 losses and, 14.1, 14.2 Winkelried, Jon, 20.1, 20.2, 21.1, 21.2, 21.3, 22.1, 22.2 Wisenbaker, Scott Wit Capital Witco Chemical Corporation, Inc Witten, Richard Wolf, Alec Wong, Richard “Dickie” Woolworth Woolworth, Frank Woolworth Building Worcester County National Bank World Bank, 9.1, 13.1, 14.1 WorldCom World War I, 1.1, 2.1, 2.2, 3.1, 4.1, 4.2, 8.1 World War II, 3.1, 3.2, 3.3, 3.4, 4.1, 4.2, 5.1, 5.2, 5.3, 6.1, 8.1, 8.2, 12.1, 17.1 Wright, Neil Wu Bangguo W.W Sith & Co., 3.1, 3.2 Yahoo! Yamaichi International Yang, Jerry yen Young, Howard “Ray,” 7.1, 7.2, 9.1 Young, Owen Young, Robert R Young Lords Younkers Inc., 7.1, 7.2 Zeitlin, Jide Zell, Samuel Zhu Rongji Zimmerman, Jörg, prl.1, 21.1 Zuckerberg, Roy, 14.1, 14.2, 16.1, 16.2, 16.3, 16.4 Zuckerman, Gregory ALSO BY THE AUTHOR The Last Tycoons House of Cards ... decision to repay the TARP money or that the TARP money was supposed to be used to make loans to corporate borrowers Instead, Goldman likes to boast that for the nine months that it had the TARP money. .. against Goldman But then the SEC stopped responding to S&C and to Goldman, which tried again to contact the SEC during the rst quarter of 2010 to see if a settlement could be reached The next... while they still struggled Those who believe, like Obama, that the steps the government took in September and October 2008 helped to resurrect the banking sector, and Goldman with it, point to a