Goldman Sachs has long been one of the most powerful and respected banks in the country, but its reputation has taken a serious hit since the financial crisis. The firm's CEO, Lloyd Blankfein, has been publicly flogged by lawmakers and recently testified in an insider trading case.
William Cohan, author of Money and Power: How Goldman Sachs Came to Rule the World, says the Wall Street firm's involvement in financial scandals isn't anything new, even if people don't seem to remember past incidents.
"For many years, the firm was constantly in and out of trouble," he tells Renee Montagne on Morning Edition. "In 1929-1930, they created the Goldman Sachs trading corporation that nearly bankrupted all the investors that invested in it; it was a bit of a ponzi scheme."
In the 1940s, Cohan says, the firm was involved in an antitrust lawsuit by the Justice Department that could have put it out of business had the decision gone the other way, and it was also involved in the bankruptcy of Penn Central railroad in 1970.
"I would say its reputation for pristine excellence — the envy of Wall Street, if you will — has really been in and around since the 1980s," Cohan says.
The scandal that many people do remember nowadays comes from the financial crisis of 2008. In September of that year, it looked like "all of Wall Street was literally imploding overnight," Cohan says, with Goldman Sachs and Morgan Stanley the last two remaining firms. The Federal Reserve decided to make those two bank holding companies, an unprecedented move that gave them access to the resources of the Federal Reserve.
Because so many of its former bankers have gone into government work, Goldman Sachs has an unflattering nickname — Government Sachs. One of the founding partners of the firm, Henry Goldman, was asked by the Cabinet members who would create the Federal Reserve system in 1913 how he would go about doing it, Cohan says, and they mostly followed his lead.
Cohan also points to Sidney Weinberg, a longtime Goldman Sachs partner, who advised presidents from Franklin D. Roosevelt to Eisenhower on financial matters. One day on the subway, Weinberg came up with the name of a man he thought should be Treasury secretary, Cohan says. Weinberg told Eisenhower, who had never heard of the man, and the president appointed him right away.
"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," Cohan says.
Unlike other firms that encourage their partners to stay around longer, Goldman Sachs has what Cohan calls an "up and out" mentality that encourages employees to leave after five to seven years.
"They talk about public service, giving something back...and [having] a responsibility to make available their 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," Cohan says.
He acknowledges that all of Wall Street in general exerts a tremendous influence over Washington, D.C., in terms of helping to write the regulations of financial systems, but he argues that Goldman Sachs in particular has used its power.
"Goldman Sachs especially has been very, very good at getting right up against that line of wrongdoing. They know exactly where that line is, and they're very careful most of the time to just stay on this side, and they help influence the way regulations are enforced," he says.
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