to do that in the anti-communist so i don't think anybody has respected sovereignty very well and as an ethical matter i think there is an important argument to make that if you really believe that system it produces a certain moderation of international relations because it means you will not get involved in the internal politics of your neighbors to destabilize them but unfortunately gettelfinger we live in that kind of a world. but influence is just across borders all the time that is not realistic. >> guy to a cure class 1999.

i wrote in the mail but he did not get back to me. i have read the book that you wrote about plutocracy but i read it as the grand reputation very historic day referenced of ideology and some people's ability to live or die on the ability to tax. . .

>> that it is able to legitimately tax, and that people are willing to pay taxes in order to support public services. and so i think one of the unfortunate thing -- elements that was thrown into our ideological mix, you know, as a result of reaganism was this view that, you know, in some quarters that, basically, all taxation in illegitimate or, you know, that you can never under any circumstances raise taxes and so forth. because i don't think you're ever going to have a serious country if that's your starting assumption. so, um, so i am not -- yes, you're right, i am not a libertarian. [laughter] and i will talk to you, but it's just i've been busy. so -- [laughter]

>> you described tribal society as a precursor to the state. what does, what relevance does that bear to a country like libya where tribes are still tremendously important, although they have a state? >> yeah. so, you know, it turns out we've discovered to our dismay that there are still many societies in the middle east that are organized tribally. you know, when we stumbled into anbar province, we simply didn't realize, you know, that you had to go to the sheikh and get him to agree on behalf of the tribe rather than, you know, trying to organize elections and all this other stuff that americans are wont to do. and i think one of the big, you know, tunisia and egypt have had national identities and much more modern political systems than, let's say, yemen or libya or even jordan in which tribalism is still extremely

strong. and one of the things we simply do not know about libya is the degree to which the current conflict, you know, represents authoritarianism versus democracy or whether it is a fight between gadhafi's tribe and another tribe. and that's one of the big dangers that we, you know, risked when we got -- i mean, i still think we had to do it because i think if he had been able to crush benghazi, it just would have been terrible. but that being said, we just don't know a lot about that society and how it's actually organized. >> thank you. >> can my friend jonathan pollack ask -- he actually had his hand up. >> wait for the mic so everyone can hear you. please come to the mic because this is on c-span. >> you have to -- >> no, come to the mic! >> i'll take orders. [laughter] >> don't have trouble with authority. [laughter] >> thank you.

frank, you alluded to charles tilley, and i understand and agree with much of what you say about that. but what you haven't alluded to, and i'm not offering another generalization that you have to enter into, is how did the phenomenon of war, and interstate war in particular, affect the evolution of systems as you see it, or is that something -- >> well, no. so it drives state building, but it doesn't cease to drive state building after you get a state, it continues. like, you look at this city. there's this big five-sided building sitting next to the potomac river. where did that come from? where did the growth of the big federal government, you know, before the civil war the population of this city was, i don't know, something like 50,000 people. it was a tiny thing. and then all of a sudden after the civil war it's several hundred thousand, and all because, you know, the needs of war drove, you know, the increases and the need for civilian bureaucracies of various sorts. so i think that is a process that continues to operate. one of the unfortunate things is that a lot of times reform can

only be brought about by military threat and competition because people are kind of mule-headed, and a lot of times they are stuck in certain ways. and unless they're really hit on the head by a 2x4 meaning by the threat of real military danger, they're just not going to, you know, do the things that are necessary. okay, thank you. >> thank you. [applause] >> this event was hosted by politics & prose bookstore here in washington d.c. to find out more, visit politics-prose.com. ♪ >> coming up next, booktv presents "after words," an hourlong program where we invite guest hosts to interview authors. this week wall street veteran william cohan's latest, "money

and power," the follow-up to his best-selling book, "house of cards," is an inside story of the rise and continued strength of investment bank goldman sachs. mr. cohan had access to several current and former high-level goldman employees including ceo lloyd blankfein, and he shares his discoveries with chief economics correspondent for the washington times, pennsylvania reese hill -- patrice hill. >> host: mr. cohan, thank you for coming for this interview. >> guest: thank you for having me. >> host: and this is a man who works and lives in new york, works on wall street and is very steeped in the world of wall street, knows what he's talking about. he's written a book, "money and power: how goldman sachs came to rule the world." extremely well written and readable. extremely well researched with more than 100 interviews with

the top, um, chairman and ceos, six of the top chairmen -- living top chairmen and ceos of goldman sachs plus many be, many of the sort of lower players, but still important people in that world. and it's, it's a very serious book. itthis is not your hollywood version of wall street, although there are elements of intrigue that, you know, could form a plot for hollywood. basically, you're going to get all of your, you know, details and some of the dryer stuff that you learn to understand what wall street does nowadays and the very complicated financial instruments. so what i wanted to ask, it's a rather long book, up to 600 pages. and enjoyable reading for me, but e -- was thinking about sort of the average guy who likes to

watch the basketball games on the weekend or whatever. why would he want to read this very detailed book on goldman sachs? >> guest: well, you know, the thing is if you want to understand the way, i think, the world today really works which is the intersection between washington and wall street and how power flows back and forth between those two and the way sort of 20th century and early 21st century america evolved in this country, evolved in this country and around the world and the influence that wall street had both on this country and around the world, it's really one of our, you know, great success stories, wall street. american success stories. wall street, we've become sort of the leading, you know, maker of providing access to people with capital all around the world, and this is one of our leading exports. so if you want to truly understand how all that worked, you have to understand goldman sachs because goldman sachs has

been at the nexus between power at washington and wall street, the firms 142 years, giving them the benefit of the doubt. you know, they've been very powerful for around 100 years. and so this tells the story of how they got so powerful and the kind of power that they have and influence that they have and how this black box that is goldman sachs that for many people is very mysterious and, you know, now is sort of the object of so much scorn. and it really sort of peels back the onion, you know, on what wall street and goldman sachs is all about. and i think it's done -- i hope it's done in a very sort of readable narrative that will engage readers with characters that sort of come to life as they make their way, you know, through the firm. >> host: yes, it certainly does, and there's some real highlights with one of the original

partners in goldman sachs, sydney weinberg, i thought was an outstanding portrait of him in the book. henry paulson, boy, there's a lot of stuff in there that i'm sure people would be amazed to hear about the former treasury secretary and chairman. i guess one thing, though, i would say the book -- i don't know whether this is a catchy phrase to try to get people to buy the book or what, but how goldman sachs came to rule the world, i'm not really convinced of that thesis after reading the book. what strikes me is the world came to rule goldman sachs in a lot of ways, and they almost brought goldman sachs down at various times. i think that you mentioned during the panic of 1907 they had troubles, they had troubles, serious troubles in the great depression. they had their penn central bankruptcy to contend with which

almost brought them down, as i understand it. they had serious troubles in 1994 when interest rates went up precipitously. so it seemed to me that once you get into your history of goldman, you find that goldman's been battered around the ears just like the rest of us by the financial markets and the economy although they do, definitely, seem to have landed on their feet better than an awful lot of, well, the rest of us and most other wall street firms. so perhaps that's what you mean. but i wasn't sure, i wasn't convinced that you believe goldman sachs rules the world. i mean, i think you must -- i sense that you realize that there's weaknd there too. weakness there too. >> guest: well, first of all, you know, subtitles of books are created for many different reasons. it is catchy. and i think there is, certainly, a narrative in there about

how -- certainly, goldman sachs has a reputation of being very powerful and the envy of every other firm on wall street. i worked on wall street for 17 years, and no matter which firm i worked at, we all envied goldman sachs. we wanted to be like goldman sachs even though i worked at a bunch of different firms, some of which were like goldman, some of which weren't. they all wanted to be like goldman because they make so much money, they have this history of people who -- their alumni getting important positions in washington. you mentioned bob reuben and hank paulson, two recent ones. there's many others i describe in the book. even this financial crisis we've just come through, goldman was able to see trouble coming unlike every other firm on wall street and do something about it. they made a big bet against the mortgage market that paid off in terms of billions of dollars for goldman that every other firm did not see and just pretended

didn't exist and, basically, all went down the tubes. but i think what you do get out of this story is how often goldman found itself in trouble and how skilled it was at getting out of trouble. and so that was probably, you know, don't forget wall street has always been a dangerous place. firms have been going in and out of business their whole, you know, for the history of wall street. most firms don't make it. and most firms before 1970 when they started going public and becoming public companies were small private partnerships that had limited amounts of capital that, you know, they got from their partners. and if something happened, their partners were the ones that suffered the losses. up until the time it worked. so when somebody goofed, there was always the danger on wall street that the firm would go out of business. so what i show in the first part of the book is how often goldman

sachs found itself in trouble and how existential that threat was and how close it came to going out of business. so i think while -- i mean, you certainly would be hard pressed to argue that there's another firm that is as powerful on wall street now as goldman sachs. even with all of its troubles. even with the hearing from the 11 committees last april, the sec lawsuit, even really with senator levin's report which came out last week which, apparently, has referred to the justice department a number of goldman executives for prosecution, for perjury. even with all of that goldman is still, i think, the envy of other -- of the few remaining firms that exist on wall street and, really, other financial institutions around the world still envy and admire goldman sachs. and i think that how they got to be that, in that position despite all of their, you know, existential threats along the way is really the story of the

book. and so while they don't start off ruling the world, i think, you know, it's pretty safe to say that even despite the slings and arrows they've suffered and looking like st. sebastian at the moment, they have risen to remain at the top of wall street. and so they rule sort of the world of wall street. and how they got to that position is really what this book is all about. >> host: okay. well, that's very convincing, and i can definitely see that. i guess what i was thinking when you talk about ruling the world is more like political power, and there has been an element of that with goldman. >> guest: yes, there has. >> host: because of, particularly, the influential treasury secretaries. >> guest: even, as you mentioned, sydney weinberg who famously took the subway up town one day from wall street to midtown for a meeting to decide who should be eisenhower's treasury secretary. he came up with a name on the subway that eisenhower hadn't

even heard of. eisenhower said, all right, sydney, if you say yes, okay, we'll do it. and that was the guy who became the treasury secretary. so they've been behind the scenes very powerful for a long time. i think, ironically, as a result of, you know, paulson being the treasury secretary in -- and all the trouble goldman has found itself in politically and from a public relations point of view, it's unlikely that the current ceo, lloyd blankfein, is going to get the call from president obama to be the treasury secretary. [laughter] so they've had an incredible amount of power on wall street and in washington and, frankly, the rest of the world in governments around the world for about 100 years. and as a result of this crisis, i think maybe the spigot has been turned off a little bit, although they still have the head of the commodities future trading commission was a former goldman partner and deputy secretary of state is a former goldman partner, the head of the

world bank and the guy who's about to -- mario dragge, who's considered to be the leading candidate to take over the european union, you know, is also a former goldman partner. so they're around. don't, don't -- >> host: they seem to be everywhere, don't they? >> guest: don't fall asleep at the switch here. [laughter] the chances of them being treasury secretary anytime soon is unlikely. >> host: well, one of the things that you point out in this your book, and it doesn't seem to be as much the case with other wall street firms although you're a better judge of that, is how the goldman people seem interested in politics, interested in getting involved. because that isn't always the case with, you know, wealthy individuals. many of them want to stay away from washington where the taxes and the regulation get made. and so what is the -- i, i gathered when i was reading the book that that was sydney weinberg, essentially, started that tradition of the interest.

he took an intense interest in political affairs. it seems he was also, tended to be more of a democrat than a republican although he worked, as you mentioned, with eisenhower and other republicans. >> guest: after a while he became sort of ecumenical. you know, if there's a chance to be close to the president, he didn't really care who, what political party the president had. and he advised every president from roosevelt whom he had known when he was governor of new york to johnson when, you know, until weinberg died. but there are a couple of things going on here. first of all, wall street executives -- that's, you know, one of the nice sort of reasons i like the title of the book is because once people on wall street have money, then they tend to want power. and there's been a long tradition of wall street executives going to washington and not just to goldman sachs. people with names like, you you know, dylan and herriman and bush have been going, you know,

from wall street to washington for a long time. at goldman sachs there's a slightly different twist on it, and why it's been more prevalent with them. first of all, you're right, sydney weinberg had this long history of being, advising presidents and then taking leaves of absence from goldman sachs during world war ii to lead up the war powers board and be, be very important person in sort of taking the u.s.' industrial power and turning it towards the war effort and finding people to fill those jobs. he became known as the body snatcher because he would go to all his clients and insist they come to washington to help with the war effort. so that had been going on a long time. even before sydney weinberg, though, henry goldman -- who was the son of marcus goldman, the founder of the firm -- had a very important and prominent role in the creation of the federal reserve banking system when after the panic of 1907 they decided to create the federal reserve system.

a couple of cabinet secretaries came up to new york to interview henry goldman to see, get his intake on, his input on what the federal reserve system should look like. i felt like in reading the transcripts of those hearings that it could have been, you know, lloyd blankfein talking to henry paulson as opposed to henry goldman talking to cabinet secretaries, you know, in the early 1900s. his prescription for what the new york federal reserve should look like, which would be the most powerful member of the federal reserve banking system as well as how banks work to get access to the federal reserve bank if they needed funds, if they were in crisis situation, was played out exactly 100 years later. and goldman was the men beneficy of that, goldman sachs was. so it was eerie how long goldman has had an influence in washington and where this all began. it really began with henry goldman. but then, you know, after sydney weinberg, basically, every leader of the firm was either

interested in politics or came to washington. and part of the reason is because goldman has now, especially, pretty much an up and out mentality. once you have made your pile of cash at goldman sachs as a partner, you know, they sort of force you out. which is very interesting. other firms, you know, they're not set up like that. when i worked at lazar ferrer, for instance, people like steve ratner wanted to be treasury secretary. they never got there, steve ratner was the car czar, but, you know, there was this mentality that, yes, public service is important, but, you know, until we get sort of tapped on the shoulder for the right job, we don't want to leave all the millions that we'd have to give up. but at goldman they force people out. so you get your time in the sun, you make your pile, and then you get shown the door more or less. either you're made into a limited partner or, actually, relieved of your duties. so a lot of people who are quite

young and energetic, you know, maybe in their late 40s, early 50s, want to, you know, quote, give something back. so what better way to do that than come to washington. especially if president clinton or president bush is going to tap you on the shoulder and say, you know, will you be my treasury secretary? so that, you know, there's a long tradition of that at goldman, and, you know, again, unfortunately, i think there's now a chill of having people of goldman coming to washington because of all the political hay that was made, you know, in the last few years. >> host: well, that's a very good point. i mean, i think most people today look at the history would conclude that washington has benefited a great deal from goldman's expeer tease in these -- expertise in this these financial matters and helping to structure the regulations and the various institutions that crop up the wall street and the

banking industry, the fed and the sec and is on. >> guest: thai had a very -- they've had a very big role, i mean, all wall street firms. this is sort of ironic. you're seeing it again in the wake of dodd-frank. i mean, wall street has always had a big role and a big influence in setting up the agencies that are responsible for regulating it. it's a symbiotic relationship, some people call it a revolving door. often people go from the sec to wall street, or wall street to the sec -- >> host: particularly the new york fed. >> guest: i mean, the head of the new york fed now is a former goldman partner. >> host: yes. >> guest: so one thing, you know, everybody thinks that tim geithner went from the new york fed to the treasury secretary, worked at goldman, but he never did. he was an subject of larry summers, but that's why wall street and goldman has always

played so close to the edge. they know exactly what the regulations are, where the lines are drawn. most of the time they stay just on the other side of it. sometimes they cross that line and get into trouble. but, you know, this has been going on, you know, for a very long time, and goldman has just -- because they hire so many lawyers, they have so many lobbyists, they are just expert players in this particular activity, and we can't pretend that it's not the case. you know, even the regulations that still need to be written with dodd-frank are being heavily influenced while we're sitting here having this conversation, you know, down the street over at the sec the goldman lobbyists and morgan stanley lobbyists are sitting there right now with the sec regulators to try to figure out what the new regulations governing wall street should be all about. >> host: uh-huh. yes, it seems like washington has suffered increasingly from not being -- having the expertise on these very complicated financial products that the people on wall street do. so the regulators often are

beholden, essentially, to the banks to explain and, you know, help, essentially, help regulate these instruments. um, so there's a big discussion going on now about the, if commodities futures commission over various kinds of derivatives, instruments that were used in kind of central in the financial crisis that we just went through and, clearly, wall street's going to have a big say in what happens there. um, so we, it's interesting that you mention the nexus which is really the critical issue with goldman, the nexus between washington and wall street. and they seem to have mastered, you know, the art of going between the two and making the maximum sort of profit from being able to maneuver in both

worlds of washington and wall street. but i was a little disappointed that there wasn't more of the sort of behind-the-scenes, juicy stuff about what went in. although i will say that there was a scene which you recount about how reuben who eventually became president clinton's treasury secretary, essentially, interviewed clinton when he was still just governor of arkansas and considering a run for president. and, essentially, sort of endorsed him almost like he was selecting clinton as the potential candidate. is that something that you can talk about a little bit more? >> guest: well, i mean, we've e evolved. first of all, to your point about why not more behind the scenes political stuff, i want to be clear, this is a book about goldman sachs. so once the player involved, say

bob reuben, you know, did interview clinton down in the little rock, sort of blessed him and had fundraisers for him and things like that, once bob reuben left the stage of goldman sachs and became head of the national economic council in january of 1993, basically, that was the end of bob reuben in my book. so, you know, because i had to keep going on my narrative focus was who was left behind at goldman and what they did, how they had to sort of clean up the mess that bob reuben had left behind. and that became the story of what happened in '93 and '94 at the firm when they almost went out of business. so i try to tell a few vignettes about what got people like bob reuben or john whitehead or steve friedman or hank paulson interested in politics and why, you know, when they got the call -- i tell a great story about how steve friedman who was bob reuben's co-senior partner at goldman sachs and then was left alone by reuben when reuben

went to washington, and, you know, eight years later, ironically, steve reuben got offered the same -- i mean, steve friedman got offered the same job in the white house that bob reuben had had in the national economic council. and how bush calls him up and insists he come do this job. and he tells bush, look, i've got physical ailments, i can't -- don't know that i can do this, that kind of pressure is not going to be good for me physically. and bush says, hey, steve, my father had a heart arrhythmia, president bush, the first president bush, he was in world war ii, you can come and -- with your heart arrhythmia and come work in the white house. what could he say? that's exactly what he did. so, you know, yes, a whole other book could be written and probably has been written about vignettes of what reuben did in washington or friedman or paulson. paulson's own book gets into

that. you point out this is a long enough book as it is. if i had delved into, you know, policies that reuben got into or paulson, you know, people have already written the story of what paulson did in the treasury during the bailout and what he may or may not have benefited at goldman sachs, i was mostly interested in how these guys would evolve in their positions at goldman sack toss the point where they were willing to leave what has got to be seen as the holy grail on wall street, being head of goldman sachs, and were willing to leave to go to washington. and, yes, we've evolved to such an interesting point in early 21st century america where people like bill clinton before they could be considered legitimate, serious candidates had to get the approval of people like bob reuben. so the people who run wall street sort of anoint these candidates. i assure you, you know, nobody's going to take donald trump seriously for a while as a

presidential candidate, if they ever do, until, you know, people on wall street start taking him seriously too. and i don't see that happening anytime soon, so that might doom, you know, maybe donald trump would be doomed anyway given his, you know, silly candidacy if even it is one. but we've just come to an intersection at this point in an early 21st century america where wall street has a huge influence on who becomes president of the united states. >> host: is that just strictly because of the money that they, that they have, you know, to finance the campaigns, or how would you -- what would you ascribe that to? >> guest: well, part of it is, you know, you cannot have capitalism as, you know, as basically everyone practices around the world without capital. and wall street is the capital cartel. i mean, the wall street firms, the few wall street firms that are left control capital, and

the capital flows in much the same way opec controls the flow of oil. there's not a whole lot of difference. so, you know, the engine of capitalism is wall street. you know, the left ventricle of capitalism is wall street. so that's why both the end of the bush administration and the beginning of the obama administration were so focused on reestablishing the status quo on wall street in the wake of this crisis. i mean, another, another government might have taken the whole approach that, you know, wall street is bankrupt, the whole wall street system is corrupt. let's just junk it. let's just let it collapse of its own weight, and something else will evolve out of the ashes of that like a phoenix will rise up. but that's not the approach they took. i thought maybe that might happen. i mean, maybe that was naive. >> host: there seemed to be a lot of public sentiment to do that. >> guest: it seemed like it could happen. and, you know, don't forget when

first paulson asked for the t.a.r.p. to be approved, congress voted it down. the market fell 700 points at the end of september, and it wasn't until the beginning of october, 2008, that the second t.a.r.p. plan got proposed and approved. there was a moment there where it really could have gone a different direction. but it's, you know, it's so powerful and so important to the way our country functions and the way, hopefully, you know, jobs are created and capital gets allocated and, you know, without the proper allocation of capital from savers to investors, you know, you can't have new plant and equipment. you can't have new businesses grow and prosper. so, you know, since that is the engine room of capitalism, you've got to restore it. and that's what they chose to to do. >> host: well, that's a very eloquent statement of exactly what happened over the last several years which continues to reverberate and be an issue politically -- >> guest: absolutely.

main street has been, basically, kept out of the fun. of reestablishing the status quo on wall street. and in the last year i note with interest that $150 billion -- billion dollars of bonuses were paid out to wall street in 2010. you know, wall street is, i mean, main street is correct in saying, hey, you know, what about us? i mean, we bailed out wall street, they're now about to get bailed out in their pocketbooks. that's why, frankly, going back to your first question, why i think people do need to read this book even though some of the concepts are complicated even though i'm very careful to try to explain them when they do get complicated. but the narrative of understanding what is this firm, what's it all about, why are they so powerful? why are they worth saving when people on main street are not worth saving? what's going on there? why have these guys gotten, you know, all the cake and i just get the crumbs? it was a mystery to me that i

wanted to try to solve just like in the last book about bear stearns, house of cards. it was a mystery to me how bear stearns could have collapsed so quickly that i wanted to try to understand, and that's why i wrote this book. here i wanted to understand why is it that goldman sachs gets the benefit of this bailout, how were they able to see around the corner and benefit themselves, perhaps at the expense of their clients? and what about main street? what's happened to everybody on main street in the wake of all of this? and why have these guys been anointed while everybody else, apparently, still has to suffer? >> host: well, that's a, you know, interesting point because i think if you do read the book, you may still kind of question that in the sense that, i mean, i think as you're saying people realize that you can't do without wall street or something like that, but -- >> guest: you have to be able to allocate capital around the world when it's needed, especially in a capitalistic system.

i mean, basically, it's sort of central allocation of capital is, clearly, discredited in this country. but basically around the world capitalism as a concept has taken root, you know, around the world and very successfully. >> host: so this is really, gets to the core of one of our most sensitive and important political issues in this decade of the nexus between washington and wall street. we're going to be taking a break right now, and we'll get back to some of the particulars in the book afterwards. >> guest: thank you. >> "after words" with william cohan and patrice hill will be back shortly. >> this weekend on american history tv on c-span3, former massachusetts governor and presidential candidate michael dukakis on the master politician calvin coolidge and how he involved into a popular

political figure. a look back at jimmy carter and his handling of the energy crisis of the 1970s. curator richard coat and the long-term restoration of the treasury building, and american history tv will be live from mississippi for the 50th anniversary of the freedom writers. -- freedom riders. have it e-mailed to you by pressing the c-span alert button. >> we're back with patrice hill and william cohan on "after words." >> host: so goldman sachs, without question, is one -- remains one of the most powerful investment banks in the world. other investment banks may also claim the title, and one of those is jpmorgan which really is, remains a powerhouse. i believe that was, jpmorgan was the one bank that was singled

out as the -- not needing a bailout, perhaps. i believe it was bernanke who said, fed chairman bernanke that even goldman sachs would have gone down the drain without the bailout in the fall of 2008. and there was only one bank that probably could have survived on it own. i believe he was referring to jpmorgan. can you talk a little bit about that? because we don't want to create the impression that goldman sachs is the only one with power and influence. >> guest: well, clearly, the folks at jpmorgan chase would like, would argue that they are as strong, if not stronger than goldman sachs. i think you need to make a distinction, if i can. you know, jpmorgan is a depository institution. it's a commercial bank with a large investment banking component to it. it's a bank holding company. you know, before marr of 2008 --

march of 2008 when the fed and the treasury decided to step in and save bear stearns, the government had never bothered to come in and try to save a securities firm as opposed to a bank holding company or a commercial bank. securities firms don't have depositors who can go to the atm. there's no goldman sachs atm, there was no bear stearns atm. they financed themselves in the public markets or by various other means of borrowing money from banks or insurance companies. and then they took that money, and they invested it or they made proprietary trades or used it to underwrite security or whatever they did, they used that capital. until march of 2008, no securities firm had ever been rescued. the treasury made the decision in march of 2008 to save bear

stearns, and you can debate that decision all along. i think probably now that was a mistake even though i can understand why the decision was made at the time. so, basically, what came out of this crisis, though -- >> host: and it was jpmorgan that stepped forward -- >> guest: well, bernanke and paulson and geithner, you know, encouraged jpmorgan chase to buy bear stearns at a rock bottom price. that deal actually fell apart until the fed stepped in to buy $30 billion of the assets that jpmorgan chase didn't want. so there's no question the fed facilitated that. they had their good reasons for that. i suppose that that was something that they thought they needed to do to try to, you know, put their finger in the dike of what was about to be, you know, a tsunami. and that worked, you know, for a little while until we got to september of 2008 when, basically, you know, the water

crashed over the walls, and it was clear at september of 2008, six months later, that the whole structure of wall street, ie securities firms that finance themselves in the short term markets and then lend long, borrow short and lend long, that whole model was bankrupt. that whole model was no longer functioning. it is one of those things that is sort of like a light switch. it worked if for a long time, and you flip the switch and, basically, it stopped working. now, that's a matter of confidence, that's a matter of counterparties wanting to do business with these firms, a matter of credit quality. basically, the whole thing fell apart. in september of 2008 goldman sachs and morgan stanley were made very much like the jpmorgan chases of the world, the wells fargos, the bank of americas. interestingly, they did not allow lehman brothers to become a holding company. they denied that opportunity for

them just like the fed had denied bear stearns access to the fed window in the march of 2008, in the beginning of 2008 when they asked for that. and they made that ability, allowed securities firms to hit the fed window. the same day that bear stearns was allowed to fail. so the fed was making very important decisions along the way who to save and who not to save. but, you know, jpmorgan chase was a totally different, funded itself in a totally different way than goldman sachs and morgan stanley. now they fund themselves in a similar way, although not only does jpmorgan chase have access to the fed window, but it also has its depositors, you know, money that it uses that, basically, it gets for free because we all know what the interest rate is on our savings accounts or checking accounts, virtually nothing. so they get that money for free, and they can lend that out, you know, for higher interest rates.

so they're just playing an arbitrage game. so, yes, jpmorgan chase was probably the only institution strong enough to have weathered this crisis. they had done a few things right. they, basically, got out of the business of underwriting mortgage-backed securities sooner than others. they had a lot of risk in their balance sheet, but they had a very different funding model so they weren't as susceptible to the whims of the overnight financing market as goldman sachs and merrill lynch which had a different funding model. now it's all the same. so, you know, i think that you also have to look at the fact that, you know, jpmorgan jpmorgan chase is a mongrel firm. it's been, you know -- [laughter] i've lost count of the number of mergers, 10 or 15 or 20 mergers over the years. i mean, the old jpmorgan and company looked a lot like goldman sachs did, you know, in its day. he was incredibly powerful as a banker. after the panic of 1907, he

alone brought the other -- he provided the role of like the fed did in long-term capital management or even during this crisis when they brought the wall street elders together and decided to put together a rescue package. jpmorgan, the man, did that himself. we've come a long way from j.p. morgan, the man, and his firm that was named after him to what we have today. it's a very different institution. yes, they're very powerful, but they do business in a different way. goldman has, basically, stayed, you know, pure. they've made a few small mergers over the years and one large one that didn't work out, but they basically have avoided -- even though during the crisis the fed was trying to get goldman to merge with wachovia or citigroup or merrill or whoever it was. they resisted that, and they stayed -- stuck to their knitting. and i think that as a result of that, you know, they are still very strong as is jpmorgan. they're both very strong. but i still think goldman is

more envied, feared, admired, whatever one of those words you want to use in ways that jpmorgan chase is not. and i know, i worked at jpmorgan chase, so i'm familiar with that firm. and, you know, goldman still has a certain cache that they don't. >> host: well, your book certainly explains very well the very disciplined model that goldman follows in recruiting, in hiring the best of the class in harvard business school and other top schools. and i guess what one of your points is that this type, you know, it's really a meritocracy -- >> guest: very much so. >> host: and this is a society where we reward meritocracies, but we also envy the ones that succeed so well like goldman, and that seems to be in play today too.

so your book discusses the sort of goldman type. and i saw various types, one is just your young, brilliant harvard business school graduate who may be like a math ph.d. or something and can do these complicated securities. but there was also the type of sydney weinberg who actually had a very different background. and i thought you might want to get into that. >> host: sure. you know, unlike, you know, i worked at lazard for six years which, you know, was sort of an elite -- now it's public, but for a long time a private partnership. and i would walk around the corridors and wonder how i got there because, you know, next to me were sons and daughters of presidents of france and sons and daughters of ceos of publicly-traded companies and, you know, me, a kid from worcester, massachusetts. so that was a firm where you expected to see pedigreed

individuals. goldman sachs truly was -- not that they weren't smart, because they were. they recruited very smart people at lazard too. but at goldman it's something else. it's this notion of being team players, being academically gifted, being achievement-oriented, having achieved greatness at every step of the way. and also being team-oriented. so, you know, somehow your ego stayed in check while, you know, enough to help the team. so they love athletes at goldman, and they love people who are hungry to succeed. and so that was, you know, very much in the mold of sydney weinberg whose father was a bootlegger in brooklyn, i think he was one of 11 or 13 kids and, basically, after his eighth grade schooling ended at a public school in brooklyn, he sort of decided he had to get a job and made his way to wall street, made his way to the

tallest building on wall street which happened at that time to be 30 pine street which is where goldman was. took the elevator to the top and then went to each business on each floor until somebody agreed to hire him. he got to, like, the third floor which is where goldman was, and he got hired to, i think, clean the spitoons and be an errand boy. this is, you know, basically, after he was an eighth grader. and he over time, you know, was a man of, i think, great character and living by his wits. and, you know, figured out a way to impress the main partners of the firm, the goldmans and the sachs. he sort of got his big break when one of the sachs brothers asked him to take a flag pole from lower manhattan to his home in, you know, by the polo grounds way uptown on 130th street or something. and somehow sydney weinberg, who was a very elflike character,

very short fellow, brought this flag pole up to, you know, this senior partner's house. and they got to talking, and that led him to get a real job at goldman sachs. and that sort of became part of the myth, mythology of the firm, that they hire people like this. and, frankly -- >> host: people who pull themselves up by their boot straps. >> guest: by their boot straps. and it's not just, you know, to some degree it's a myth. there are plenty of people there. i mean, lloyd blankfein's the ceo, his sons both work at goldman. lloyd had to pull himself up by his boot straps, but not his kids. there are plenty of people there who have privileged backgrounds. look at lloyd blankfein. you know, he grew up in the south bronx, he move today the east new york part of brooklyn which is not the greatest part of town, you know, for a better life. his father was a postman. lloyd told me -- i thought this was fascinating -- that his father was then, you know, after he retired was replaced by a

machine. so, you know, the job that his father was doing was outmoded, and a machine could do it better. and his mother worked in an alarm security company which he described to me as a growth industry in that part of brooklyn. and he went to public high school and, you know, where harvard happened to recruit, found him. he was clearly one of the smartest kids in the class and gave him a full scholarship to go to harvard where he found himself surrounded by, like, prep school students. he didn't feel like he fit in, but he eventually did well at harvard, went to harvard law school. and as he said, i went from being an underprivileged child to a child of privilege because he had access to harvard and harvard law school. and, you know, this is very much the kind of person that makes it to the top at goldman sachs. i mean, henry paulson grew up on a farm, you know, 40 miles outside of chicago. and his, you know, grandfather had been a leading watch maker and businessman in chicago, but

those businesses failed during the depression, and his father was, basically, a farmer. and john corzine who also ran goldman for a period of time grew up on a farm in southern illinois. this is the kind of person that makes it to the top there. i mean, we're not talking about sons -- rarely. i mean, daughters, unfortunately, don't seem to have much place at goldman. but not the sons of privilege. this is not -- this is real meritocracy, and it's an impressive collection of people. you know, honestly, in reporting this book and interviewing these people they exhausted me. i mean, spending three hours with henry paulson can be exhausting because he's so much energy. even though, you know, he came across when he was treasury secretary as somewhat inarticulate, and people have remarked on that, i found him extremely articulate and extremely energetic and charming. incredibly charming. and so, you know, three hours later with an alpha male like

hank paulson, i was exhausted. i needed a break. [laughter] >> host: i was going to ask you about hank paulson because that was one, the portrait of henry paulson that comes out in this book is one of the really, to me, revelatory parts of it. pause you show how he started out as such a straight arrow and was raised up into the management because he had honesty, forthrightness, you know, he established good relationships with people. he was -- >> host: he was not going to embarrass the firm as some other partners had been doing at about the time that hank paulson was elevate today the management of the firm. >> host: but maybe i misread it, but i perceived him as ending up as kind of a machiavellian figure who ended up edging out his co-chairman, john corzine, and some other people in the firm that he pushed out. >> guest: that's true.

>> host: and almost like a back stabber in that regard. that seemed surprising to me. and he comes across as an extremely forceful person which is particularly interesting for those of us in washington who saw him as treasury secretary in the key role that he played throughout the financial crisis. can you talk a little bit more about this, and, you know, the way he pushed out corzine who was also a figure here in washington? >> guest: oh, i mean -- >> guest: former senator of new jersey and governor of new jersey. again, you're right. this was a revelation to me because my image of hank paulson was the one we all saw on tv during the crisis, the one who got down on bended knee to ask nancy pelosi for, you know, $700 billion which was plenty audacious, you have to admit. and, but i found somebody who was, as i said, you know, extremely charming, articulate, a man of high integrity.

now, nevertheless, and all that can be true at the same time that he was quite ruthless about, you know, making sure that -- i mean, he would say, of course, that he did it in the interest of what he thought was best for goldman sachs. in other words, the reason john corzine had to be pushed out of goldman sachs was because he, hank paulson and others thought that -- particularly hank paulson -- thought that corzine was leading the firm in the wrong direction. i tell the story in the book about how corzine was eager to do these mergers first with solomon brothers, then with travelers, jpmorgan, and the one that ultimately tripped him up is when he started merger discussions with melon bank. you know, which, frankly, may have been a very good fit for goldman, but, basically, his other partners didn't want him to do that, and he didn't inform them. so paulson and others thought that corps cyberwas just --

corzine was just leading the firm in the wrong direction. i'm sure he would say in the all humility, you know, i was just doing what my partners wanted me to do. but it does come off very machiavellian, and he basically completely kneecapped john corzine. corzine never saw it coming, and right on the precipice of the ipo in the spring of 1999, corzine was out. and paulson had used and made alliances with other people on the management team to become ceo and take the firm public. and he, ironically, the two guys he told who became his allies -- john thain who later became ceo of merrill lynch and now of cit, and john thornton who is now the head of the brookings institute -- these two guys formed an alliance with paulson. and with the understanding that paulson was going to be the ceo for a couple of years and then leave and turn it over to these two guys. well, you know, hank being hank, you know, sort of liked the job

too much. he was having a great time being ceo of goldman sachs and, frankly, who can blame him? i mean, being ceo of a public goldman sachs seems like one of the greatest jobs in the world especially when you're not the target of so much public ire as lloyd blankfein is at the moment. but, you know, hank had the board of directors in his pocket, and they kept wanting him -- so he says -- to continue to lead the firm. so, basically, hank didn't want to leave, and that made thain and thornton expendable, and he pushed them out too. [laughter] and, you know, you sort of take that in toto, and it does look very machiavellian. and so, you know, on the one hand you've got this guy who's very charming and personal bl and down to earth and makes plenty of time, you know, for people like me which i appreciated. on the other hand, you just look at what he did, and you say, you know, this guy does what has to be done even if he thinks it's in the best interest of goldman sachs to do that.

flow, the reason he pushed -- now, the reason he pushed thain and thornton aside is he saw this guy lloyd blankfein, he saw the direction the business was going and the way goldman could make the most money which was in the proprietary trading business, and he knew that thain and thornton didn't have those skills. he saw blankfein, plucked him out of the masses and made him the next leader of the firm. and when he went to washington as treasury secretary, it was obvious that blankfein was going to get the job. so, again, it looks very ruthless and machiavellian. paulson would say, hey, i did what was in the best interests of goldman sachs. and you know what? it's hard to debate that because if lloyd blankfein hadn't been the ceo of goldman sachs during this crisis, goldman may have gone down the tubes just like everybody else. instead it made this big short against the mortgage market and did things to save itself which now don't look so great either, but at least, you know, they can make a credible argument that

they, you know, didn't need the bailout which is something they've done. i think they probably would have gone down the tubes in the sue tsunami just like everybody else. but, you know, clearly goldman was the only firm on wall street to see the problem coming in the mortgage market and do something about it. and we now know they did other things they shouldn't have done which is continue to sell mortgage-backed securities at the same time they had made a bet against the markets. their clients suffered, i think, financially as a result of goldman's decisions. >> host: this is an issue that you bring to the forefront and explain very well in the book, how wall street came to -- a firm like goldman sachs which started out in the world providing services to clients, helping with mergers, helping to issue first stock issues, helping to arrange loans and bond issues and so on for corporations -- >> guest: a really valuable

service. >> host: a valuable service. and then somehow somewhere in the, what, '60s, '70s, '80s, this other function appeared on the scene and has now one could -- looks like outgrown the original service model. >> guest: to put it mildly, yes. >> host: which is that these companies are now in the business of just making money for themselves. they call it proprietary trading, and it's the reason that goldman sachs can offer billions of bonuses and so on for their partners and their employees each year. and so, essentially, they've become their own clients, and they're in the business of making money for themselves and getting extremely rich. and this puts them at odds with their clients from time to time which is, as you say, the issue that became problematic for goldman sachs in this whole crisis. but i guess is an issue f