Writer William Cohan

Award-winning investigative reporter and former investment banker assesses the impact of S&P’s downgrading its credit outlook for the U.S. and discusses Goldman Sachs.

William Cohan is an award-winning investigative reporter and a former investment banker. He writes for several publications, including Fortune and The Financial Times, has an opinion column in The New York Times and is a contributing editor at Vanity Fair. He's also combined his journalistic skills and finance background to become a best-selling author, with titles that include The Last Tycoons and House of Cards. In his latest, Money and Power, he offers a revealing history of Goldman Sachs. Cohan is a graduate of Duke and the Columbia Business School.


Tavis: Tonight, though, here in L.A., as usual, we are pleased to welcome William Cohan back to this program. The former Wall Street investment banker is now an award-winning writer and contributing editor at “Vanity Fair.” He is also, of course, a best-selling author whose previous texts include “The Last Tycoons” and of course “House of Cards,” and given the news last week about Goldman Sachs, he could not have picked a more propitious time for the new book. It’s called “Money and Power: How Goldman Sachs Came to Rule the World.” William Cohan, good to have you back on this program, sir.
William Cohan: Thank you, Tavis, nice to be here.
Tavis: Glad to have you here. I want to get to the book. It’s a dense text, there’s a lot to get to. But there’s so much news today. Let’s walk through some of the news stories first, get your take, since you’re here, and then we’ll jump straightaway into the book.
Obviously the first story – Standard & Poors downgrades today. How do you read that?
Cohan: Well, I wonder what took so long. We’ve had such fiscal problems in this country for so many years. You can’t have two wars of choice that cost trillions of dollars and live beyond our means as we’ve been living for the last decade without having some fiscal consequences.
When you combine that with sort of what Congress did in the lame duck session last year, where they extended the Bush tax cuts that seemed to be especially fiscally irresponsible, it’s not a surprise that Standard & Poors comes along and says, “Guess what? You guys are on the watch list for a possible downgrade.”
Tavis: The flip side of what took so long is why they did, in fact, hold off. So you’re asking what took so long – why do you think, conversely, they did hold off this long?
Cohan: Because it’s very unpopular. There was such problems all across Europe; it was inevitable that these fiscal problems would come home to roost for us. Downgrading the United States government’s debt is a big step. Even putting it on a watch list is a big step, so they obviously do it very carefully and without rushing into it, and I think they probably waited too long.
Whenever they’re doing the downgrade or putting it on watch list, by then most people know that (speaks in French), that it’s already occurred, what they should have done before.
Tavis: When you say that to your mind they did the right thing, how is this decision the right thing?
Cohan: You mean downgrading?
Tavis: Yes.
Cohan: Well, because it reflects the inevitable. It reflects the reality. Until you face up to the problems from a credit perspective, your fiscal problems, you can’t begin to solve them. I think it’s probably no coincidence that in the last week the topic in Washington has turned to fiscal responsibility, to which I say finally – what’s taken them so long, to which I say to the S&P, what took you so long to recognize the U.S.’s fiscal problems?
Tavis: All right, so here are how the politics have started to shake out already. So Republicans, of course, are everywhere today, all over the news, beating up on the White House saying “We told you, we’ve got to get a handle on our debt, we’ve got to get a handle on the deficit.” This in part reflects what this budget debate has been about for the last few weeks, to your point earlier.
So the Republicans are using this to grind down the White House, the White House is responding, of course, in kind. So how do you read the politics on this now going forward?
Cohan: Look, I give President Obama a lot of credit for facing up to this problem. Think about the hand that he was dealt, okay? Huge fiscal problems to begin with, exacerbated by two huge, unpopular, expensive wars. Now he’s been given one house of Congress that’s incalcitrant and is very inflexible about trying to help him solve some of the problems of the country.
So finally we have the budget commission that made some interesting recommendations. They’re now finally being taken seriously in Washington, because it’s just come to the point – just like in ’93 and ’94 when Clinton and Bob Rubin, who of course was a former Goldman Sachs executive who became Treasury secretary began to grapple with the budget deficits and problems at that time, and that set the country on a responsible fiscal path from which we did great for a number of years.
We need to show that kind of fiscal discipline once again, and it totally got out of control at the end of last year in the lame duck session, when they are just giving out candy to anybody who had their hand out.
Tavis: How is this S&P decision today going to change in the coming days and weeks the debate in Washington around these issues?
Cohan: Well, Tavis, it’s going to make the U.S.’s borrowing costs higher. They’re going to have to pay – one of the biggest problems that the U.S. now faces with this fiscal budget deficit is the amount of money it has to spend just on paying interest alone on the national debt to creditors like the Chinese and the Japanese.
Well, now those rates are going to go higher because our credit rating is potentially going to fall, and that’s going to increase the urgency, as it should. It’s going to be a good thing, I think. It should increase the urgency for them to get fiscal responsibility – something that they should have done years ago.
Tavis: I just got back from Washington; I was on “Meet the Press” yesterday with Tim Geithner and Alan Greenspan, so as you could imagine the conversation revolved around this issue. This is prior, of course, to the S&P decision coming out today.
But the conversation yesterday was really very economic-centric, specifically around the issue of the debt ceiling and whether or not it ought to, in the coming days, be raised. President Obama, when he was in the Senate, voted against raising the debt ceiling. Now he is all for it. Geithner is suggesting that it has to be raised if we’re serious about this.
So there’s this debate back and forth in Washington now, since we can’t figure this out in the immediate term, whether or not we need to raise the debt ceiling. How does this S&P decision impact that conversation?
Cohan: Well, it makes it all the more important that the debt ceiling get raised so we don’t have like a technical default, and then that we begin to grapple with our fiscal problems.
Because with interest costs going up, with borrowing costs going up, and who knows whether the higher interest rates are going to even appeal to the people who are our creditors. What if the Chinese or the Japanese say, “We’re not going to invest any more in the United States’ Treasury securities?” Then we’ve got serious problems.
We benefit in this country because we’ve been allowed – we’ve had creditors who are willing to continue to buy our debt. But we know that the Chinese have been shortening up the period of time of which they will be willing to accept our debt in terms of the longevity of the debt, so we’re going to run into more and more problems until we fix this.
So the nice thing is everything’s coming together at the moment. There seems to be political will to deal with something that should have been dealt with a long time ago.
Tavis: I accept, William, the seriousness of the S&P decision, but since you raised China and other countries, tell me whether or not this really matters around the world.
It’s a decision that, again, I take seriously, but we’re the mighty U.S. of A. Are people really afraid that we would default, that we would really find ourselves really between a rock and a hard place? We got options here, don’t we?
Cohan: Well, we do have options, but we depend on the kindness of strangers, and how long is that going to go on for? Companies that get downgraded can eventually go into default. It’s not inconceivable. There are some people who think that basically the country is bankrupt already.
Now, that’s strong language, of course, but it happened in Ireland, it happened in Portugal, happened in Greece. Why don’t we think – one of the biggest reasons that the government decided to bail out Wall Street in 2008 was because of how interconnected Wall Street was to the rest of the world. Why do we think we’re somehow outside of world events, somehow that we’re immune to what’s going on in the rest of the world?
We’re absolutely not immune, and once again I think we’ve got to deal with these fiscal problems that we’re faced with. The good news is I think there seems to be finally the political will in Washington to do something about it.
We’ve been wrong before about this, Tavis; we could be wrong again. But let’s hope for the best at this particular moment, because if we don’t face up to these problems we’re going to have serious consequences down the road. Who’s going to bail us out? There’s not enough money in the world to bail us out, I don’t think.
Tavis: I think China might have it.
Cohan: Well, maybe we have to merge. (Laughter) Maybe China and the United States have to merge and the debt will go away.
Tavis: One other thing before I get to – we’ve been talking about issues that you raise in the text, but to the book more expressly in just a second. Put this headline up, Jonathan.
Obviously, for those of us who read “The Wall Street Journal,” you could not have missed this a few days ago. Let me just stay I’m stumbling and stuttering because it just grates at me. I can’t stand when I see headlines like this. Everybody else is suffering and catching hell, and hedge funds are back bigger than they were before the crash. What do you make of this headline?
Cohan: Par for the course, okay? You have to understand, when the government rescued Wall Street in September of 2008, and really, it began with the rescue of Bear Stearns in March of 2008, which was the subject of the “House of Cards” book, the whole idea was to reestablish the status quo on Wall Street as quickly as possible.
What does that mean? That meant re-equitizing, re-capitalizing the banks, getting those banks, those big banks, to start lending money again, which really, frankly, hasn’t happened, and to get them out of the danger zone.
So that’s exactly what the government did, and by the way, it was bipartisan, because it started at the end of the Bush administration and continued in the Obama administration. The good news is they succeeded at that. Last year, bonuses on Wall Street were $150 billion, Tavis – $150 billion. So Wall Street’s back, hedge funds are back.
What about Main Street? It’s incredible – you go out into this country as I have over the last few weeks and the number of for sale signs on real estate all around the country, it’s still larger than it’s ever been. There are small businesses all around the country that can’t get access to loans to grow, to hire more people, to expand their plant and equipment.
Yet Chase Manhattan Bank had no problem providing a $20 billion bridge loan to AT&T so that it could buy T-Mobile, the Deutsche Telecomm wireless business. How about on the smaller scale? We know the big guys are doing well. Wall Street’s doing well, the big companies are doing well, they have $2 trillion in capital on their balance sheet.
It’s time to have some serious – I hate to use this word – trickle down economics so that Main Street begins to benefit from what’s been going on in Washington.
Tavis: So speaking specifically of Goldman Sachs, Congress releases a report the other day. The conclusion is not unlike the conclusions found weeks ago by the Financial Inquiry Crisis Commission headed by former California treasurer Phil Angelides, both reports pointing a serious finger at Goldman Sachs, or as some of us like to call them, Government Sachs – we’ll talk about that in just a second.
What do you make of the report and this finger being pointed right at Goldman Sachs for misleading clients, et cetera?
Cohan: Well, I have to say that I completely agree with Senator Levin’s conclusions. The good news is that a year ago, you’ll recall, he had that major league hearing in Washington which called for the first time these Goldman executives, April 27th of last year.
As part of that he released 900 pages of documents which I painstakingly went through, put in order, made sure I understood what was going on, interviewed all the people involved, and basically told the story that he concludes now in his report in this book about what Goldman Sachs did during this financial crisis, how they uniquely were able to see it coming, benefit from it, but at the same time they continued to package up and sell these same mortgage securities that they were betting against.
That’s what’s got Senator Levin so upset, and I think rightly so. It just doesn’t seem right. If you have decided internally that you’re going to make a major proprietary bet against the mortgage market, which is clever, which is smart, better than everybody else – everybody else was doing the other thing – if you made that decision, as Goldman did in December of 2006, for you to then for the next six months to continue to sell to investors around the world the very kinds of securities that you thought your betting were going to collapse and fail, you can do that, right?
Maybe that’s the definition, I think as Einstein said, of having two opposing thoughts in your head at the same time, that’s the definition of genius, but it is right, is it moral, is it ethical? Is that what we want our leading companies on Wall Street to do?
I think the answer to that is no. I think at Goldman Sachs they would disagree with me – in fact, I’m sure they would disagree with me – but I think that that’s something that they really need to think hard about going forward here.
Tavis: There are those who have defended Goldman by saying the following – that if everybody in the industry had done what Goldman did, we might not even have had a financial crisis in the first place. Your response to that defense of Goldman is what?
Cohan: I think that’s actually an astute observation, because don’t forget, Goldman Sachs was the only Wall Street firm – there were others, there was the hedge fund manager John Paulson and other hedge fund managers, as Michael Lewis wrote about in his book, “The Big Short.”
There were other people who saw this coming and put their money where their mouth is and made a big bet. But Goldman was the only Wall Street firm that saw this coming beginning in the summer of 2006, as I tell in the book, the story of how they came upon this, and decided to implement this, as they called it, the big short in December of 2006.
So they were the only firm that did that. They made billions of dollars on that bet, Tavis. They made $13 billion pre-tax in 2007 when the rest of Wall Street was losing its shirt.
Tavis: That’s my point, though. That’s what business does, so why are people mad at Goldman, then?
Cohan: Well, I think they’re mad at Goldman for two reasons. Number one, as I was saying before, they continued to sell these very securities they had decided were going to fail and turned out to be right. That bothers people.
Number two is that for some reason, Lloyd Blankfein, the CEO of Goldman Sachs, when he testified in front of the Levin hearing a year ago, and even to this day, even to me, he doesn’t admit that they really made this big bet against the mortgage market at the same time that they were selling mortgage-backed securities, but it’s all in their documents that have been released publicly now.
Tavis: To your point now, my read of Blankfein and company is that they’re trying to play naive, almost sheepishly stupid, that they lucked up on this, but it really wasn’t a grand, ingenious design. You take that to task in the text.
Cohan: Totally, and you’re absolutely right, Tavis. One could almost understand, because of the political environment we now live in, where they are such a target. They’ve got the target, the bull’s eye, right on their back. They would rather look sheepish and dumb and as stupid as everybody else on Wall Street when in fact, as I tell the story in the book, they were brilliant.
They saw this coming, and they did something about it. And by the way, they didn’t expect anybody to know about it, frankly. They didn’t expect Senator Levin to be issuing 900 pages of documents or Phil Angelides to be issuing documents, but in fact that’s what happened.
Now we all know what they did, and for them to hide behind it and say oh, we’re just sheepish, we’re really just like everybody else, we really didn’t do what you say we’re doing, that just doesn’t ring true. But I guess they’ve made the decision that it’d be better to look dumb than to look brilliant and to have everybody hate them even more.
Tavis: Since you raised his name a couple of times already and since he did, in fact, talk to you for the writing of the text, Lloyd Blankfein, of course, in the news of late; rumors circulating – rumors to my – I don’t know anything factual about this so I’m going to call them rumors – that he’s going to step down, that folks are talking about him stepping down.
But whether those rumors are true or not, he has survived, to this point, at least, where other CEOs had to step aside or got forced out, and nobody’s had the finger pointed at them more than Goldman Sachs. Who is this guy and why is he still on top? How is he surviving?
Cohan: Because he’s a survivor. He’s a remarkable guy. He grew up in the Bronx and moved to east New York and Brooklyn to get a better life. His father was a postman. His mother worked at an alarm company. He went to Harvard and Harvard law school, was a lawyer for a long time at Donovan, Leisure in L.A., believe it or not.
Then eventually tried to get a job at Goldman Sachs, was rejected, and ended up going to work for J Aron, which was a commodities subsidiary that Goldman had recently bought. That’s how he got to the big house, because he started at J Aron, the stepchild, and then got to Goldman Sachs.
He is just basically a brilliant trader, a salesman and manager of other traders, and he basically ran this huge department that makes Goldman a ton of money. I have to say he became the CEO of Goldman Sachs in June of 2006, when Hank Paulson went and became the Treasury secretary, and in the last four and a half years he has run Goldman Sachs for the purpose for which it is designed to be run, which is to make profits for shareholders and creditors and to make money for the people who work there.
So he was a very, very good steward of the firm during the financial crisis, which began six months after he took the job. He’s navigated the firm through incredibly well. What he’s had a lot more problems with, as we both know, is his public relations, and that has not been as successful.
I have a sense that that’s maybe taking its toll on him a little bit. Maybe the only way – often what happens is people become too much the story themselves, sort of maybe like Cathleen Black did in New York, the schools chancellor, and you can’t turn the page until that person leaves. It seems unfair, because he’s actually done a good job running the firm.
Tavis: Yeah, but telling bad jokes like, “I’m going to do God’s work,” that doesn’t help.
Cohan: Well, as I tell that story in the book, that was utterly taken out of context. Now, fair game to be used – he was giving an interview and as Lloyd told me, they got the last laugh because it was a UK newspaper; he was making an off-the-cuff joke. He’s got a good sense of humor, but it was too good a line for them to pass up and to blow up into a big headline.
Tavis: You mentioned a few names, and I could add to that list, as you could, and you do in the book. We’ve heard the name so far of Hank Paulson, we’ve heard the name Robert Rubin, we could add Jon Corzine – a bunch of folk on this list who have worked and been at the top of the food chain at Goldman Sachs.
I said earlier that many of us refer to it as Government Sachs. How is it – tell me more about this relationship with this particular company that has allowed it to have a revolving door vis-à-vis not just government in Washington but indeed access to the White House and the Oval Office – Republicans and Democrats, I might add.
Cohan: And you know what, Tavis? It’s been going on for a hundred years. First of all, it’s not unusual – it’s never been unusual, whether you like it or not, for Wall Street firms to have influence in Washington and vice-versa. People have been going back and forth between the two for a long time.
Once you have a high government official, what better thing than to go and make a lot of money on Wall Street, and there’s “synergy” there. But Goldman has made this a priority for a hundred years, and it goes back to Henry Goldman, the son of the founder of the firm, Marcus Goldman, who had a seat at the table when they set up the Federal Reserve system and the system of Federal Reserve banks.
The very system that Goldman benefitted from in September of 2008 when it became a bank holding company and from which it benefits today. I felt like as I was coming across those documents that talked about Henry Goldman having a seat at the table when they set up the Federal Reserve system; I thought it could have been Hank Paulson and Lloyd Blankfein a hundred years later. It was that eerie.
But this has been going on for a long time. Sidney Weinberg, who was the long-time leader of the firm from 1931 to 1969, when he died, was an adviser to every president from Roosevelt to Johnson. At one point – this is one of my favorite stories – he took the subway from downtown Manhattan to Midtown. It’s hard to imagine a Goldman partner taking the subway nowadays, but he was a senior partner, took the subway up.
On the subway he came up with who should be the Treasury secretary in the Eisenhower administration. He told Eisenhower, Eisenhower had never heard of him, and that guy got the job and did a good job, by the way. He could have been secretary of the Treasury at any time he wants. Of course, we know with John Whitehead, who was the deputy secretary of State, Bob Rubin, Steve Friedman and Corzine and Paulson all went into government service.
Part of the reason is they believe in it at the firm and they make it a priority, and you have your time in the sun at Goldman Sachs, you have your time making millions of dollars at the top of the firm, and then they want you up and they want you out.
So most of these guys get out of that firm, they’re sort of forced out after a period of time, which may be one of the reasons Lloyd Blankfein is talking about leaving, and then they want to give something back or they want to be involved in philanthropy.
They feel like they’ve got a lot of energy and of course if you get asked to be secretary of the Treasury, guess what? You’re going to do it. It’s not something you campaign for, but if you get asked, you’ll do it. If your jersey says Goldman Sachs, well, all the better.
Tavis: I’m just curious – what kind of bonuses did they give out last year at Goldman Sachs?
Cohan: I don’t know if we can count that high. (Laughter) They gave out something like $16 billion in bonuses.
Tavis: Just in bonuses.
Cohan: Just in bonuses at Goldman Sachs, and that’s –
Tavis: Sixteen billion with a “B.”
Cohan: Sixteen billion with a “B.” If you were a partner at Goldman Sachs, you’re making 10, 20, $30 million a year. It’s a good place to be. It’s good work if you can get it. It’s awfully hard to get there, it’s awfully hard to stay at the top, but they’re like the Derek Jeters. These guys, I don’t frankly understand why they get paid so much, but they do get paid like rock stars.
I’ve never understood it, even when I was a banker on Wall Street. I never understood why people on Wall Street got paid so much. I have been a journalist so I didn’t understand why journalists got paid so little, but I certainly don’t understand why –
Tavis: I don’t, either. (Laughter)
Cohan: I certainly don’t understand why Wall Street bankers get paid so much.
Tavis: What’s the future of the house of Goldman Sachs?
Cohan: I think, ironically, they’ve honestly never – except for the public relations, they’ve never been better positioned, because they have fewer competitors now. Bear Stearns is gone, Lehman is gone, Merrill isn’t what it was, Morgan Stanley is off sort of focusing on its brokerage business, by and large.
Goldman sort of stands alone at the top of the heap, and you combine that with the fact that now they’re a bank holding company and they get access to this Federal Reserve bank which they had a hand in establishing 100 years earlier, they get access to cheap financing.
Basically, you and I, Tavis, are subsidizing their business plan, which really hasn’t changed very much, even though there’s a Dodd-Frank law that’s supposed to mandate change.
Tavis: I was curious as to how they address the issues of race and gender inside the company, and their track record has been suspect at times, shall we say. Am I being charitable and generous?
Cohan: To say the least. Yes, you’re being very diplomatic. Women have been treated horribly up until the present day, and there’s a number of lawsuits pending against the firm that really make your skin crawl when you read it.
I tell the incredibly story of James Cofield, who was a Stanford business school student in the ’70s, who was Black and tried to get a job at Goldman Sachs and got very far and thought he was going to get a job, and then was told that the interviews were over, there was a partner at the firm that didn’t like Black people, and that was it.
Then Goldman Sachs got banned from recruiting on Stanford’s campus for five years after that as a result. I spent time with James, he’s a great guy and I saw his documentation. It’s a really chilling story that I tell in this book.
Tavis: The whole book is a chilling story about the history, the legacy and the future, for that matter, of this company called Goldman Sachs. The book is called “Money and Power: How Goldman Sachs Came to Rule the World,” written by the perennial “New York Times” best-selling author William D. Cohan. William, good to have you on the program and thanks for the book, man.
Cohan: Thank you, Tavis. Thank you for having me.
Tavis: Good to have you here. My pleasure.
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Last modified: April 28, 2011 at 12:34 pm