“McGee’s book forces us to confront whether we want our economic future to be determined by playground daredevils or responsible grown-ups.” —Eric Dezenhall, CEO Dezenhall Resources, Ltd., Author, Damage Control: Why Everything You Know About Crisis Management is Wrong
In a new book, Suzanne McGee provides a piercing and disturbing look at the forces that have transformed Wall Street into a risk-taking giant that spun out of control and took the economy and millions of 401(k)s down with it. And primary among these forces was “Goldman Sachs envy.”
CHASING GOLDMAN SACHS
How the Masters of the Universe Melted Down Wall Street… and Why They’ll Take Us to the Brink Again
How did Wall Street become a self-serving and ultimately destructive profit machine? Wall Street’s rightful role is to serve as our “financial utility”—good financial plumbers that funnel capital to companies so the economy can expand and create jobs and also provide the means for individual investors to build portfolios that will increase personal wealth.
But Wall Street went haywire and became (in Jon Stewart’s words) a “bizarro” place that lost touch with most of America. In Chasing Goldman Sachs: How the Masters of the Universe Melted Down Wall Street… and Why They’ll Take Us to the Brink Again (Crown Business; June 15, 2010; $27.00), Suzanne McGee, award-winning journalist and contributing editor at Barron’s, shows that Wall Street, at its heart, is a utility, the financial system’s version of a power grid, with capital, rather than electricity, flowing through the system. When the money grid functions smoothly, we take it for granted, just as we take for granted the fact that when we flick a switch, the living room lights come on. But just as a power grid can come under stress and collapse, so, too, can a “financial grid” be strained beyond its capacity if its functions are distorted.
For the last two or three decades, chasing Goldman Sachs has been the game on Wall Street. And why not, since Goldman played the game better than anyone else. The firm has consistently been one of the top securities underwriters and advisors on mergers and acquisitions; its success has produced billions of dollars in profit, including $3.46 billion for the first three months of this year, and billions more in salaries and bonuses for its senior bankers, about 1,000 of whom are rumored to have received bonus payouts of $1 million or more last year.
Now, the very strategies that made Goldman Sachs the envy of Wall Street are under scrutiny. Every successful initiative the firm has undertaken—Goldman’s creativity in devising and structuring new products, the insight displayed by its proprietary traders making money for the firm’s own account, the firm’s success in developing relationships with Wall Street’s new power players—is being placed under a microscope by regulators and legislators.
But the problem for Wall Street doesn’t lie just in what Goldman was doing, but in Wall Street’s propensity to try to mimic whatever its most successful member is up to (which has led to its abandoning its role as a public utility in favor of treating itself as its #1 client).
Regardless of what happens to Goldman Sachs itself, the phenomenon of Goldman envy is here to stay. Lloyd Blankfein himself, asked by members of the Senate subcommittee in April whether Goldman’s competitors were taking the same approach to their business that Goldman was, responded without hesitation or equivocation. “Yes, and to a greater extent than us,” he replied.
Through interviews with the traders, the hedge fund managers, the private equity dealmakers, the venture capitalists, and the corporate executives who rely on Wall Street to help them find financing and the investors who rely on it to provide them with attractive investment products, McGee lifts the curtain on Wall Street in Chasing Goldman Sachs to show us:
How we came to the point where Wall Street was in so much jeopardy that the staid and somewhat self-important Henry Paulson was willing to go down on one knee in front of House of Representatives Speaker Nancy Pelosi—a Democratic politician most investment bankers distrusted and even roundly disliked—to beg for her assistance in passing a financial aid package for the surviving firms, including his own alma mater, Goldman Sachs
What happened to Wall Street that Ben Bernanke could describe it as an “abstraction” and be greeted not with howls of outrage or confused questions by his audience but rather with nods of acknowledgement and understanding
Why Wall Street drifted away from its core intermediary function and morphed from utility to casino
This book isn’t another anecdotal history of the subprime crisis of 2007 and 2008. Instead, McGee takes us inside and backstage through more than 100 interviews with veteran players—those whose experiences reflect what’s really happening on Wall Street and whose jobs get cut when things go wrong—to find a real grasp on where we stand today and where we need to go next.
For more information, please visit: www.RandomHouse.com.
SUZANNE McGEE is a contributing editor at Barron’s. Previously on staff for the Wall Street Journal, she is a veteran reporter on the financial markets having also written for the New York Post, Institutional Investor, Portfolio.com, and the Financial Times. McGee regularly appears on Bloomberg Television, and is a Loeb Award winner for a multimedia series on consumer culture in China.