they are there to help. they are there to do, you know, fundamentally humanitarian things, and that's a mission they've embraced. it's a rewarding mission, but it's one that has unintended consequences, so i wanted to at least share that there's a little bit of an ironic juxtaposition there. >> armed humanitarians the name of the book, the rise of the nation builders, author's nathan hodge. ..

the follow-up to his best-selling book house of cards is an inside story of the rise and continued strength of investment bank and goldman sachs. mr. cohan had access to several current and high-level goldman employees including ceo lloyd blank fine and he shares his discoveries with chief economics correspondent for the "the washington times", patrice hill. >> host: mr. cohan, thank you for coming for this interview. this is a man who works and lives in new york, works on wall street and is very esteemed in the world of wall street and that's what he's talking about. he's written a book money and power and how goldman sachs

extremely well-written and redouble, extremely well research with more than 100 interviews, the top chairman and ceo, six of the top of chairmen and living atop chairman and ceo of goldman sachs plus many of the sort of lower pleaders but still important people in that world, and it's a very serious book. this is not you're hollywood version of the wall street although there are elements of intrigue that could form a plot for hollywood. basically you're going to get all of your details and some of the dry of stuff you have to learn to understand above wall street does nowadays in the 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 i was thinking about sort of the average guy who likes to watch the basketball game on the weekends or whatever, why would he want to read this detailed book on goldman sachs? >> guest: the thing is if you want to understand the way i think the world today really works which is the intersection of wall street and how power flows back and forth between the two and the way the sort of 20th century and early 21st century america evolves in this country, evil in this country and around the world, and the influence wall street had both on this country and around the world it is really one of our great success stories, wall street, american success is wall street has become the sort of leading maker of providing access to people with capital of around the world and this is

one of our leading exports. so if you want to truly understand how that works, you have to understand goldman sachs because goldman sachs has been at the nexus between power in washington and wall street for 100 plus years in 142 years giving them the benefit of the doubt very powerful from the 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 for many people it is very mysterious and now the sort of object of so much scorn, and really sort of appeals that the on in on ne of what wall street and goldman sachs is about and it's done in a very readable narrative that will engage the reader's with characters that come to life as

they make their way through the firm. >> host: yes it certainly does and there are some highlights with one of the of original partners in goldman sachs. i felt this was an outstanding portraitist in in in the book. henry paulson, there's a lot of stuff in there that i'm sure people would be amazed to hear about the treasury secretary chairman. i guess one thing i would say the book sort of i don't know whether this is a catch phrase to try to get people to buy the book or what most goldman sachs down i think that you mentioned during the panic of 1907 they

had trouble, they had a serious trouble in the great depression , they had their penn central bankruptcy to contend with which almost brought them down as understand. they had a serious trouble in 1994 when interest rates went up precipitously. so, it seemed to me once you get into your history of goldman you find that it's been battered around the years 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 most other wall street firms. i wasn't sure -- i wasn't convinced that you believe goldman sachs rules the world. i sense that you realize that there is weakness, too. >> guest: first of all the subtitle's of books are created

for many different reasons. it is catchy, and i think there is certainly an narrative in there about how these had the reputation of being very powerful and the envy of any other firm on wall street. i work on wall street for 17 years and no matter which firm i worked out, we all in the goldman sachs. we wanted to be like goldman sachs even though we worked at different firms some of which were like goldman and some were not. they wanted to be like goldman because they make so much money , they have this history of people who their alumni are getting important positions in washington we mention bob rubin and hank paulson, just two recent examples there's many others i described in the book and so even in this financial crisis we've just come through in 2007, 2008, goldman was able to see trouble coming on like every other firm in 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 gold in that every other firm did not see and just pretend it didn't exist and basically went down the tube. but i see what we do get all of the story is how often would goldman found itself in trouble and how skilled it was getting out of trouble petraeus that was probably -- don't forget, wall street has always been a dangerous place. firms have been going in and out of business for the whole 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 have limited amounts of capital that, you know, they got from their partners and if something happened, their partners were the ones that suffered losses up until and including their entire net worth. so when somebody goofed off,

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 the existential that threat was and how close it came to going out of business to a petraeus waiting while this certainly would be hard-pressed to argue there's another firm that is as powerful on wall street now as goldman sachs even with all of its troubles and the hearing from the committee last april, the sec lawsuit, even with senator levin's report which came out last week that has referred to the justice department and number of gold and executives from the prosecution, perjury, even with all of that, goldman is still i think the envy of the few firms that exist on wall street and and really other financial institutions around the world still in fi and ed meijer goldman sachs. and i think that how they got

to be in that position despite all of their existential threat along the way is the story of the book and so while they don't start off a ruling the world to think it is safe to say that even and despite the air as they suffered and looking at sebastian for the moment the of risen to the remained out of wall street and so they sort of rule the world of wall street and hal they got to the position is what this book is all about. >> host: okay that is convincing and i can definitely see that. that is what i was thinking when you talk about ruling the world is more political power, and there has been and the element of that because particularly the very influential treasury secretary of the last couple of decades and -- >> guest: even as you mentioned sidney weinberg who, famously as a rout in the book, took the subway of town one day from wall street for a meeting

to decide who should be eisenhower's treasury secretary . he came up with a name on the subway that blinded eisenhower didn't even hear of an eisenhower said all right. if you say yes okay we will do it and that was the guy that became the treasury secretary. so, they've been behind the scenes very powerful for a long time. i think ironically as a result of paulson being the treasury secretary and all of the troubles that goldman found itself in politically and from the public relations point of view it is unlikely that the current ceo of goldman sachs, llwyd blank fine, is going to get the call from president obama to be the treasury secretary, so they've had an incredible amount of power on wall street and in washington, and frankly the rest of the world and governments around the world for about 100 years, and as a result of the crisis, i think maybe this spigot has been turned off a little bit although they still have the head of the commodities futures

trading commission was a former goldman partner and the deputy secretary of state is a former goldman partner, the world to become head of the bank is a goldman partner and the head of the guide is about to, mario, considered to be the leading candidate to take over the european union is also a former goldman partner. so they are around. >> host: they seem to be everywhere. >> guest: don't fall asleep at the switch, the true chance of them becoming treasury secretary any time soon is unlikely. >> host: one of the things you point out in your book and it doesn't seem to be as much the case with other wall street firms also you are 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 wealthy individuals. many of them want to stay away from washington where the taxes and regulation get made, and i

gather when i was reading the book that was sidney weinberg essentially started that tradition he took an intense interest in political affairs. it seemed he was also tended to be more of the democratic and republican also we worked with as you mentioned with eisenhower and other republicans. >> guest: after a while they became sort of ecumenical. if there's a chance to be closer to the president, he didn't really care 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 until sidney weinberg dhaka, but there's a couple things going on. first of all, wall street executives, once -- that is one of the nine sort of reasons i like the title of the book is because once people on wall street have money than they tend to want power and there has been a long tradition of wall street executives going to

washington and not just goldman sachs so people with names like to the lan and bush have been going from wall street to washington for a long time. at goldman sachs there is a slightly different twist, and why it's been more prevalent with them first of all, you are right, he 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 powers board and be this very important person taking the u.s. industrial power and turning it towards the war effort and finding people to fill the jobs he became known as the body snatcher because he would go to all these clients and insist they come to washington to help with the war effort so that had been going on even before siddhi weinberg henry goldman who is the son of marcus goldman, the founder of the firm, had a very important

prominent role in the creation of the federal reserve system the federal reserve banking system when after the panic of 1907 they decided to create the federal reserve system. the couple of cabinet secretaries came to new york to interview goldman to get his intake, his input on what the federal reserve system should look like. and i felt like in reading the transcript of the hearings it could have been laid talking to henry paulson as opposed to henry goldman talking to the cabinet secretaries in the early 1900's. 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 were to get access to the federal reserve bank if they needed the funds if they were in a crisis situation was played out 100 years later and goldman was a beneficiary of that, so it was eerie how long goldman has had an influence in washington and

where this all began with henry goldman, but then after sidney weinberg basically every leader of the firm was either interested in the politics or came to washington and part of the reason is because goldman has now especially very much up and out mentality. once you have made your pile of cash they sort of force you out which is interesting. other firms aren't set up like that. when i worked it was our fair people like steve ratner wanted to be treasury secretary. they never got there but felix ended up being investor to france and steve was the car is far, but there was this mentality that yes public service was an important, but until we get sort of attack on the shoulder for the right job we don't want to leave all the millions we have to give up being there. but at goldman, the force people out, since you get your time in the sun, you make your

pile and then you get shown the door for less made into a limited partner or actually relieved of your duties and so a lot of people who are quite young and energetic maybe in their late forties and early 50's want to give something back so what better way to do that than to come to washington especially if president clinton or president bush is going to tap you on the shoulder and say will you be my treasury secretary? so, that -- there is a long tradition of that at goldman, and again, unfortunately i think there is now a chill of people coming to washington because of all of the political hay may is the last few years. >> host: well that's a very good point. i think most people say look at the history would conclude that washington benefited a great deal from goldman's expertise and the financial matters and helping to structure their

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

gets swept up into that so that's why wall street and goldman has played so close to the edge. they know what the regulations are, they know exactly where the lines are drawn. most of the time they say just on the other side of it. sometimes they crossed the line and get into trouble but this has been going on for a very long time and a gold mine is just because the high year so many lawyers and have so many lobbyists they are just expertly years in this particular activity and we can't pretend that it's not the case. even the regulations that need to be written with dodd-frank are being influenced while we are sitting here having this conversation down the street over the sec the golden lobbyists are sitting there right now with the sec regulators to figure out what the new regulations governing wall street should be all about . >> host: it seems like washington has suffered increasingly from not having

the expertise on these very complicated financial products that the people on wall street to do so the regulators often are the holding essentially to the banks to explain and help regulate so there's a big discussion going on now about the commodity futures commission over various kind of derivatives instruments that were using kind of central in the financial crisis that we just went through to read and clearly will street is going to have a big say in what happens there. it's interesting fact that you mentioned the nexus which is the critical issue with the 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 in which you account how ruben, who eventually became president clinton's treasury secretary, he essentially interviewed clinton when he was still just governor of arkansas and considering the run for president, and essentially sort of endorsed him almost like he was selecting clinton as the candidate. is that something that you can talk about a little bit more? >> guest: we have eisel first to your point about sort of why not more behind-the-scenes

political stuff. i want to be clear this is a book about a goldman sachs. so once the player involved, say bob rubin, you know, did interview clinton down in little rock, sort of blessed him and had fund raisers and stuff like that, once bob reubin left the stage of goldman sachs and became the national economic, head of the national economic council in january of 1993, basically that was the end of bob ruben in my book. so i have to keep going on my narrative focus is who was left behind at goldman and what they did, how they have to sort of clean up the mess that bob rubin had left behind and then became the story of what happened in '93 and '94 of the firm when they almost ran out of business. hank paulson, interested in politics.

the senior partner of goldman sachs and then was left alone when reubin went to washington and then eight years later i ron ackley steve got offered, steve friedman got offered the same job and the white house that bob rubin had in the national economic council you could come and work in the white house and that is exactly what he did. so, you know, yes, a whole nother book could have been written and probably has been written about the vignette of

what ruben did in washington or friedman or paulson, paulson's book to get into that. i wanted to stick as you point out this is a long enough book as it is. if i had delved into policies rubin had pursued in washington that may or may not have benefited goldman sachs or paulson, people have already written the story of what paulson did in the treasury, during the bailout and what it may or may not have benefited goldman sachs i was mostly interested in how these guys would evolves in these positions at goldman sachs to the point they were willing to lead what has got to be seen as like the holy grail on wall street being the head of goldman sachs and willing to leave to go into washington and yes we have evolved into 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 rubin so the people who run wall street are

sort of employee and candidates . nobody's going to take him serious as a candidate until people on wall street start taking him seriously, too. i don't see that happening anytime soon so that might doom may be donald trump would be doomed anyway given this silly candidacy as it is that strictly because the money they have to finance the campaigns or how would you -- what would you ascribe that to? >> guest: part of it is you cannot have capitalism as basically everyone practices around the world without

capital and wall street is the capitol cartel. the wall street firms, the few wall street firms that are left control capital and and capital flow in much the same way that opec controls the flow of oil. there's not a whole lot of difference. so the engine of capitalism as wall street that's why the end of the bush and attrition and obama administration are so focused on re-establishing the status quo on wall street so in other government might have taken the whole approach to that wall street is bankrupt let's let the collapse of its own weight and something else will be called out of the ashes of that but that's not the approach they took. i thought maybe that would have

been. maybe that was naive. >> host: there seemed a lot of public sentiment. >> guest: it seemed like it could happen and don't forget, when the first paulson asked for t.a.r.p. to be approved congress voted it down. as in the beginning of october, 2008 that the second plan got proposed and approved. there was a moment that it really could have gone a different direction. but it's so powerful and so important to the way the country functions and hopefully jobs are created and capital its allocated and without the proper allocation of capital from savers to investors you can't have the businesses to grow and prosper since that is the engine room of capitalism you've got to restore it so that they chose to do. most of it is a very eloquent statement of exactly what

happened over the last several years. which continues to reverberate and be an issue politically. >> guest: because to main street as been basically kept out of the fun. of re-establishing the status quo on wall street and in the last year i note with interest $150 billion, billion dollars of bonuses were paid out to wall street in 2010. wall street is -- main street is correct in saying what about us. we bail out wall street. they are now getting the benefit of the bailout in their pocketbooks and in street is still hurting. it's a serious problem so to go back to the first question, why i think people do need to read this book even though some of the concepts are complicated although i am very careful to try to explain them when they do get a little complicated but the narrative of understanding what is this firm, what is it all about? why are they worth saving when people on main street are sort

of not worth saving? what's going on there? why have these guys got in all the cake and i just get the crumbs? it was a mystery to me that i even wanted to try to solve just like in the last book about bear stearns house of cards how bear stearns could have collapsed but i wanted so quickly to try to understand and that is why i wrote that book. to understand why is it that goldman sachs gets the benefit of the bailout, how are they able to see around the corner and that against the mortgage market perhaps at the expense of their clients, and what about mean st? what's happened to everybody on main street in the wake of all this? and why have these guys been anointed while everyone else apparently still has to suffer? >> host: that's an interesting point because i think if you do read the book you may still kind of question that in the sense that i think as you're saying people realize that you can't do without wall

street or something like that. >> host: gets to you have to allocate capital around the world when its needed especially in the capitalistic system. basically it's sort of central allocation of capital is clearly discredited in this country but basically around the world, capitalism is a concept that has taken root around the world very successfully. >> host: so this gets to the core of one of our most sensitive and important political issues and the nexus between washington and wall street we are going to break right now and will get back to the particulars in the book afterwards. >> guest: thank you.

we are back with patrice hill and william cohan on "after words". >> host: goldman sachs without question remains one of the most powerful investment banks in the world they may also claim the title and one of those is jpmorgan which remains a powerhouse and i believe that was jpmorgan was the one bank the was singled out as not

meeting a bailout perhaps, i believe 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 its own and 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: i think that you need to make a distinction, if i can it's a depository institution, it's a commercial bank with a large investment banking component to it, it is adding colin company -- bank holding company.

before march of 2008, when the fed and the treasury decided to step in and save their stearns the government had never bothered to come in and save a securities firm as opposed to a bank holding company or commercial bank. the firms don't have depositors who could go to the tune, there's no goldman sachs atm or bear stearns atm they finance 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 or the made proprietary trades or the use it to underwrite securities or whatever they did use that capital. no securities firm had ever been rescued. the treasury made the decision in march 2008 to save their

stearns and 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 -- >> host: and was jpmorgan that stepped forward. >> guest: yes, bernanke and paulson and geithner dandridge jpmorgan chase to buy rear at a rock-bottom price. that fell apart until the fed stepped in to buy $30 billion of the assets jpmorgan chase didn't want. so there is no question the fed facilitated that. they had their good reasons for that and i suppose that there was something they thought they needed to do to put their finger in the dike of what was about to be a tsunami, and that worked for a little while until we got to september of 2008 when basically the water

crashed over the walls and it was clear september of 2008, six months later that the whole structure of wall street securities firms that financed 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's one of those things that is like a light switch that worked for a long time and flip the switch and basically it stopped working. that is the counterparties wanting to do business with firms and credit quality and basically the whole thing fell apart. september 22nd, 2008, goldman sachs and morgan stanley were allowed to become a bank holding companies by the fed making them very much like the jpmorgan chase of the world, wells fargo, bank of america, interestingly they did not allow lehman brothers to become a bank holding company, lehman brothers asked to do that and they denied that opportunity for them just like the fed

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

arbitrage game since yes, jpmorgan chase was probably the only institution that was strong enough to have weathered this crisis. they had done a few things right. they basically got of the business of underwriting mortgage-backed securities sooner rather than later but had a lot of risk in the balance sheet but they had a different funding model so they were not nearly as susceptible to the whims of the overnight financing market as goldman sachs and morgan stanley and lehman brothers and merrill lynch which had a different model. now it's all the same, so i think you also have to look at the fact that jpmorgan chase has been, you know, i don't know i lost count of how many of its the mergers but ten or 15 or 20 of the mergers over the years, the old jpmorgan and company looked a lot like goldman sachs did in its day. he was incredibly powerful as a banker after the panic of 1907 he alone brought the other --

she provided the role of the fed in long-term capital management or even during this crisis when they brought the ball straight elders together and decided to put together a rescue package. jpmorgan to death himself but we have come a long way from jpmorgan to man and his eponymous firm that was named after him to what we have today . it's a very different institution. yes, they are very powerful but they do business in a different way. goldman basically stayed pure. they 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 whoever it was they resisted that and they stuck to their knitting and as a result of that, they are still very strong as is jpmorgan, and goldman is more

in the, feared, admired, whichever one of those words you want to use in ways that jpmorgan chase has done and i know i worked at jpmorgan chase so i'm familiar with that firm. and goldman still has a certain cachet. >> host: your book certainly explains very well the very disciplined model that goldman follows in recruiting and hiring the best of the class and the harvard business school and other top schools, and i guess one of your points is this type, it is a meritocracy. >> guest: very much so. >> host: this is a society where we reward the meritocracies but also in the the ones that succeed 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 yondah 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 sidney weinberg who actually had a very different background and i thought you might want to get into that. >> guest: sure. unlike -- you know, i worked out lazard for six years which is elite -- number is public but for a long time a private partnership and i would walk around and wonder how i got there because next to the words of sons and daughters of presidents and sons and daughters of ceos of publicly traded companies and then me a kid from massachusetts, so that was a firm you expected to see

the pedigree individuals and a goldman sachs it truly was. not that they were not smart because they were and they recruited jury smart people, but at goldman it is something else. it's this notion of being team players, academically gifted, being achievement oriented, having achieved greatness at every step of the way, and also being a team oriented. so somehow your ego stayed in check while enough to help the team so they love athletes and they love people who are hungry to succeed. and so that was very much in the mold of sidney weinberg whose father was a bootlegger in brooklyn, even after team kids and basically after his eighth grade school and ended in a public school in brooklyn, he decided he had to get a job and he 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 st. 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 the third floor which is where goldman was and he got hired to clean the platoons and be an errand boy. this was basically after he was an eighth grader and over time was a man of i fink great character and living by his wits and figured out a way to impress the partners of the firm, goldman and saks. i think that he wants -- he sort of got his big break when one of the sachs brothers asked him to take a flagpole from lower manhattan to his home by the polo ground way uptown in the 130th street or something and some house it me weinberg who is a very short fellow

brought this flagpole up to the senior partners house and they got to talking and that led him to get a real job at goldman sachs and that sort of became a part of the myth of the mythology of the firm the high gear people like this and frankly -- >> host: people themselves held by the bootstraps. >> guest: and it's not just -- to some degree it is a mess because there are plenty of people there. besio's sons both worked at goldman, and later had to pull himself up by his bootstraps but not his kids. there are plenty of people there who have privileged backgrounds but even the people who make it to the top, look at delayed. he grew up in the south bronx, removed to the part of brooklyn which isn't the greatest part of town, you know, for a better life. his father was a postman. he told me and i thought this was fascinating that his father was then after he retired was replaced by a machine.

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

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

was exhausted. i needed a break. >> i was going to ask of hank paulson because that was once a portrait of henry paulson that comes out in this book is one of the to the role of the tory parts of its -- revelatory. you start out as such a straight arrow and blows raised up in to the management because he had honesty, forthrightness, he established good relationships with people, he was a relationship banker. >> guest: he's not going to in paris the firm at as our partners had been doing it the time that he was elevated to the management of the firm. >> host: mia lee missile read , but i perceive him as ending up as a kind of machiavellian figure who ended up in aging out his chairman john courts nine and some other people that he pushed out and

almost like a backstedt for in that regard. that seemed surprising to me, and he comes across as an extremely forceful person which is 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 talking a little bit more about this and, you know, the way that he pushed out course nine who was also a figure here in washington? a former senator. >> guest: former senator from new jersey and governor from new jersey. again, you are right, this was a revelation to me because my image of hank paulson was the one we saw on tv during the crisis, the one who got down on bended knee to ask nancy pelosi for $700 billion which was plenty audacious enough to admit, and but i found somebody who was, as i said, extremely charming, articulate, a man of high integrity.

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

i sure he would say in all humility i was just doing what my partners wanted me to do or what i thought was the best for goldman sachs but it does come off very machiavellian and he basically got rid of it, he completely me kafta john cornyn wind and he never saw it coming and before he do it dewitt on oppressiveness of the ipo and the spring of 1999 he was out and paulson had made alliances with other people, other people in the management team to become the ceo and take a firm public and ironically the two guys who became his allies, john who later became besio of merrill lynch and is now the ceo and john thornton who was now the head of the brookings institute, a former an alliance with paulson and with the understanding paulson was going to be the ceo for a couple of years and then leave and turn it over to these two guys. hank being hank sort of liked

the job too much, he was having a great time and frankly who can blame him. be the ceo of republika goldman sachs seems like one of the greatest jobs in the world when you're the target of so much public ire as lloyd blank blankfein at the moment, but 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 them expendable and pushed them out, too and it does look very modest volume. you got this one by that is a very charming personable and down-to-earth and makes plenty of time for people like me which i appreciate and on the other hand if you just look at what he did and say this guy does what has to be done it's in the best interest of goldman sachs to do that so the reason

he pushed them aside ultimately he saw the direction the business was going and the way that they could make the most money which is in the trading proprietary trading business and he knew that they didn't have those skills. sycophant expendable and he saw him and he did. he plucked him out of the masses and made him the next leader of the firm, and when he went to washington as the treasury secretary it was obvious he was going to get the job, so again, it looks very ruthless and mulkey of italy and i did what was in the best interest of goldman sachs. and it's hard to debate that because it floyd a blank line hadn't been the ceo of goldman sachs during the crisis, goldman may have gone down the tube like everybody else and instead they put on this big short and 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 they could make a credible argument that they

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

the what was it 60, 70's, 80's this other functions appear on the scene and has now. 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 have become their own clients and there in the business of making money for themselves and getting extremely rich. this issue that became problematic for goldman sachs in this whole crisis but it's a business for all the wall street firms now.

goldman has pushed this to the image in this behavior. lloyd lazard hs provide investment management advice. they don't need any proprietary bets. greenhill, same thing. basically the same thing. there are other models out there and those people getting back to what we're talking about before have that old model, that sort of securities firm model. they were taking big risks with their balance sheets leveraging them way out and whittled collapsed caused us to have to bail them out. there are many people who felt the whole business model has gone down the tubes instead of being reestablished which is what the government ended up doing and there would have been firms like lazard and green hill that would have come up

out of that providing services once again for the clients without this the trading side of the balance sheet. goldman post as i said this will proprietary trading business, this whole trading enterprise, making markets for their clients as lloyd blankfein tried to explain to senator levin that requires huge amounts of capital, the balance sheets, lots of leverage and lots of risk. now goldman thinks of itself as being the best manager of risk on wall street. these all the risk coming in the mortgage market and uniquely did something about it . everybody else didn't see the risk and let it take them down. goldman saw something about it comes all the risk and did something about it but at the same time it created a huge conflict for themselves. the other tenant of their philosophy is they believe they are great at managing conflicts

whether it is with their clients or internally. we are in the business of managing conflict. lots of conflict in the business of managing them. well, i think that has gotten them into a lot of trouble and you can see as i write in the book during this crisis is, they were very smart about see in the trouble coming in the mortgage market and then making a big proprietary bet against the mortgage market. very smart move, and made them billions of dollars while the cost of the deals billions of dollars, but they didn't stop underwriting of mortgage-backed securities were causing the problems because they continue to make money another six months that is an inherent conflict that is not manageable , that couldn't be managed and has proven itself unable to manage that conflict despite with a mantle senator levin this is a subtle but even senator levin didn't get into the financial crisis increase commission did and of the people read that report they would see this described is the

effect of goldman's marks on the securities they had in the market is lower than any other firm instead of sinking the series were trading at 100 cents or 98 cents the had the interesting and 50 or 60 cents and the same time they had a big short on for which the would benefit if with the lower marks and those marks got translated into the market because these are not stocks better treated on an exchange where the difference is in the price from one 16th of a dollar or of a penny or whatever it is . they are lightly traded securities the free trade, so if they say there were 50 cents and merrill lynch says 95 cents than they have a debate, but eventually the rest of the market had to admit that goldman was right about these remarks so goldman had this big short and had a ton of money and the effect as i described in the book and in this book of putting their stearns out of business, putting aig out of

business they would have gone out of business any way the exacerbated the decline of all of their competitors. so if you can imagine goldman put on the street in the december of 2016 period that made them billions of dollars at the same time it put all the counterparties and competitors out of business. ruffles and devastating on another and cost us, all of us taxpayers trillions of dollars to rectify. >> host: people have raised problems with this proprietary trading things as you are seeing. it would have been better off letting that i am letting at collapse in the financial crisis. have we really resolved this issue as a nation? >> guest: this issue is not resolved, the local rule has

supposedly made proprietary trading or some parts of the proprietary trading. now in truth, the guys that came up with this idea for the bet against the mortgage market , this proprietary trading 2006 was three or four guys on the mortgage desk. >> host: and they seem to borrow heavily from the famous basically didn't want to trade with him anymore because they wanted to put the same trick on themselves so to there is an example of taking their clients good ideas. the market for crudités is available to everybody but the obviously were aware this is a proprietary idea that their client had, john paulson and they copied