left with a huge mess in 1861. america has to go through civil war. >> are some of the story's going to make their way into the pages of hustler? >> guest: we are doing an excerpt. the key thing i am happy to do, the reception is great. a strong indicator as well. >> host: you are on your ..

>> mr. cohen, thank you for coming for the interview. >> guest: thank you for having me. >> host: this is a man who works and lives in new york, works on wall street, and is very steeped in the world in wall street. he's written a book "money and

power and how goldman sachs seems to rule the world." extremely well written, readable, e dreamily well researched, the top chairman and ceos, six of the top chairmans and -- living top chairmans and ceos of goldman sachs, but many, many of the sort of lower players, but still important people in that world. and it's a very serious book. this is not your hollywood version of wall street. although there are elements of intrigue that could form a plot for hollywood. basically, you are going to get all of your, you know, details and some of the drier stuff that you have to learn to understand what wall street does nowadays in a very complicated financial instruments. >> guest: right. >> host: so what i wanted to ask is a rather long book up to 600 pages.

and enjoyable reading for me. i was thinking about sort of the average guy who likes to watch, you know, the basketball game on the weekends 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 that 20th century and early 21st century evolved in america and in this country and around the world and the influence that wall street had both on the country and around the world, it's one the great success stories, wall street. american success stories. wall street, we've become the leading maker of -- and providing access to people with

capital all around the world. this is one of our leading exports. if you want to truly understand how all of that worked, you have to understand goldman sachs. because goldman sachs has been at the nexus between power and washington for 100 plus years. giving them the benefit of the doubt, they have been very powerful for around 100 years. so this tells the story of how they got so powerful, and the kind of power that they have and influence that they have. how the black box that is goldman sachs for many people that are mysterious and is the object of so much scorn. it really sport of peels back the onion, you know, on what wall street and goldman sachs is all about. i think it's done. i hope it's done in a very 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. there's some real highlights with -- one the original partners in goldman sachs, sidney weinberg. and henry paulsen, there are a lot of stuff in there that people would be amazed to hear about the former secretary and chairman. one thing, the book is -- i don't know whether it is a catchy phrase to try to get people to buy the book or what, how goldman sachs came to rule the world, i'm not convinced of that thesis after reading the book. what strikes me is the world came to rule goldman sachs in a lot of times -- or ways -- and almost brought goldman sachs down at various times. i think that you mention during the panic of 1907, they had

trouble, 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 the history of goldman, you define the whole goldman has been batted 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 thannen awful lot of 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 you think you must -- i sense that you realize that there's sweetness 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, you know, certainly goldman sachs has a reputation of being powerful and envy on every other firm on wall street. i worked for wall street for 17 years. no matter which firmed i worked at, we envied goldman sachs, even though i worked at a bunch of firms, some of like goldman, some not, they wanted to be like goldman. they make so much money, they have the history of people who their alumni getting important positions in washington. you mention bob rubin and hank paulsen, two others. even in the financial crisis that we've come through, the 2007 two 2008 crisis, goldman was able to see trouble coming

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 of 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. if something happened, their partners were the ones that suffered the losses. up until, including the entire net worth. when somebody goofed, there was

always the danger on wall street that the firm would go out of business. and so what i show in the first part of the book is how often goldman sachs found itself in trouble and how extensional that threat was and how close it came to going out of business. while 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, and even with the hearing from levin committee last april, the fcc lawsuit, even really with senator levin's report, which has referred to the justice department a number of goldman executives for prosecution, perjury, even with all of that, goldman is still, i think, the envy -- of the new remaining firms that exist on wall street. and really other financial institutions an the world. still envy and admire goldman

sachs. i think that how they got to be in that position despite all of their extensional threats along the way is the story of the book. while they don't start off ruling the world, it's safe to say the arrows that they've suffered, looking like interestian at at -- looking lie sebastian at the moment. how they got to that position is what the book is about. >> host: that's convincing. i can definitely see that. i guess what i was thinking when you talk about ruling the world was political power. there has been an element of that with goldman, because of particularly the very influential treasury secretaries over the last couple of decades. >> guest: even as you mention sidney weinberg who famously look the subway up town one day

from wall street to midtown to decide who should be eisenhower's treasury secretary. he came up with the name on the subway that he hasn't heard of, he told eisenhower, sidney, if you say yes, okay, we'll do it. that was the guy that became the treasury secretary. they've been behind the scenes very powerful for a long time. i think ironically as a result of, you know, paulsen being the treasury secretary and all of the trouble that goldman has found itself in politically and from a point of view, it's unlikely the current ceo of goldman sachs, lloyd blankfein is going to get the call from president obama to be the treasury secretary. they've had an incredible amount of power on wall street and in washington and in frankly the rest of the world and governments around the world for about 100 years. as a result of the crisis, i think maybe the spigot has been

turned off. although the head of the trading commission was goldman partner, and secretary of state is former goldman partner, head of the world bank, and marchy draggy who is the leading candidate to take over the european union is also a former goldman partner. they are around. don't -- >> host: they seem problem -- they seem to be everywhere, don't they? >> guest: chances of them being treasury secretary is unlikely. >> host: it doesn't seem to be as much of the case with other wall street firms, although you are a better judge of that. is how the goldman people seem interested in politics, interested in getting involved. that isn't always the case with, you know, wealthy individuals. many of them want to stay away from washington where the taxes and regulation get made. and so what is the -- i gather

when i was reading the book that that was sidney 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 mention with eisenhower and other republicans. >> guest: after a while, he became ecumenical. if there's a chance to be close to the president, he didn't really care who -- what political party the president had. he advised every president from roosevelt, who he had known when he was governor of new york, to johnson, until sidney weinberg died. you know, there was a couple of things going on here. first of all, wall street executives. that's one 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. there's been a long tradition of wall street executives going to

washington and not just goldman sachs, people with names like dylan and harem and bush has been going from wall street to washington for a long time. at goldman sachs, there's a slightly different twist on it. why it's been more prevalent with them. first of all, you are right. sidney weinberg had the long history of being advising presidents and then taking leave of absence from goldman sachs during world war ii to lead up the war powers board and 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 of the clients and insist they come to washington to help with the war effort. that had been going on a long time. even before sidney weinberg, the founder of the firm had an

important and 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 up to new york to interview henry goldman to get his intake -- his input -- on what the federal reserve system should look like. i felt like in reading the transcripts, it could have been lloyd blankfein talking to henry paulsen, rather than cabinet secretaries in the i recallly -- in the early 19 00s. his description, be the most powerful, as well as how banks were to get access if they needed funds in a crisis situation, was played out exactly 100 years later. goldman was the beneficiary of that. it was eerie how long goldman

has had an influence in washington and where it began. it began with henry goldman. after sidney weinberg, basically every leader of the firm was interested in politics or women to washington. part of the reason is because goldman has now, especially, very much up and out mentality. once you have made your pile of cash as goldman goldman sachs aa partner, they force you out. other firms are not set up like that. when i worked, for instance, felix and steve wanted to be treasury secretary. they never got there. felix ended up being ambassador to france and steve was the car czar. but there was the mentality that public service is important. until we get sort of tapped on the shoulder for the right job, we don't want to leave all of the millions that we have to give up being the czar. but goldman, they force people out. you get your time in the sun,

you make your pile, then you get shown the door, more or less, made into limited partner, or actually, you know, relieved of your duties. so a lot of people who are quite young and energetic, you know, maybe in the late 40s and early 50s, want to quote, give something back. what better way to do that than to come to washington. especially if president clinton or bush is going to tap you on shoulder and say will you be my treasury secretary? you know, there's a long tradition of that at goldman. unfortunately, there's a chill. >> host: that's a great point. people look and say washington has benefited from the financial matters and helping to structure

the regulations and various institutions that prop up wall street in the banking industry, the fed and the fcc and so on. >> guest: they've had a big role in the firms. wall street has always had a big role and big influence in setting up the agencies that are responsible for regulating it. it's a relationship, some people call it a resolving door. people go from fcc to wall street, or wall street to fcc. >> host: particularly the new york fed. >> guest: i mean the head of the new york fed now is 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. he never did.

he was an acolyte of bob and larry summers. he gets swept up into that. that's why wall street and goldman has always played so close to the edge. they know exactly what the regulations, they are exactly where the lines are drawn. most of the time, they say just on the other side. most of the time, they cross the line and get into trouble. this has been going on for a very long time. goldman is just because they hire so many lawyers, have so many lobbyist, 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 are sitting here having the conversation, you know, down the street over at the fcc, the goldman lobbyist are sitting there right now with the fcc regulators to try to figure out what the new regulation 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 in wall street do. so the regulators often are beholden, essentially to the banks, to explain and, you know, help essentially help regulate these instruments. so there's a big discussion going on now about the commodity 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 is going to have a big say in what happens there. well, the -- it's interesting that you mention the nexus between washington and wall street. they seem to have mastered, you

know, 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 rubin 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 evolved -- first of all, to your point about sort of why not more

behind-the-scenes political stuff. i want to be clear, this is a book about goldman sachs. once they -- you know, the player involved, say bob rubin, you know, did interview clinton down in little rock, sort of blessed him and had fundraisers for him and things like that. once bob rubin left the stage of goldman sachs and became national economic -- head of the national economic council in january of 1993, basically that was the end of bob rubin in my book. so -- because i had to keep going on my narrative focus was who was left behind at goldman and what they did -- and how they had to clean up the mess that bob rubin has left behind. that became the story of what happened in '93, and '94. so i try to tell a few vignettes about what got people like bob rubin or john whitehead, or steve friedman, or hank paulsen

interested in politics. or why when they got the call, steve friedman, who was bob rubin's senior partner at goldman sachs and left alone by rubin when rubin went to washington. and eight years later, ironically, steve friedman got offered the same job in the white house that bob rubin had had in national economic council. bush calls him up and insists he come do the job. he tells bush, look, i got heart arrhythmia, i don't know that i can do this. that kind of pressure is not going to be good for me. bush says, steve, my father had a heart arrhythmia. president bush, the first president bush, he was in world war ii. you can come with your heart arrhythmia and come and be and work in the white house. what could he say? that's exactly what he did. yes, i mean a whole nother book

could have been and probably was written about vignettes about what washington did or paulsen did in washington. i wanted to stick -- you know, as you point out, there is a long enough book as it is. if i had delve into, you know, policies rubin had pursued in washington that may or may not have benefited goldman sachs or paulsen, people have already written the story of what paulsen did in the treasury, during the bailout, what may or may not benefited goldman sachs. i was mostly interested in how they would evolve in their positions at goldman sachs to the point where they were willing to leave what has got to be seen as the holy grail on wall street and willing to leave to go to washington. yes, it is -- 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.

the people who run wall street appoint the candidates. i assure you, nobody is going to take donald trump seriously for a while as the presidential candidate if they ever do until, you know, people on wall street start taking them seriously too. and i don't see that happening any time soon. so that might doom, you know, maybe donald trump would be doomed anyway given the silly candidacy, if it is one. we've come to an intersection at that point in the 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 have, you know, to finance the campaigns or -- how would you -- what would you ascribe that too? >> guest: well, part of it is, you know, you cannot have capitalism, you know, as basically everyone practices around the world. without capital.

and wall street is the capital cartel. the wall street firms, the few wall street firm that is 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. the -- 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 the crisis. i mean 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 that they took. i thought maybe that might

happen. might be that was naive. >> host: there seemed to be a lot of public sentiment. >> guest: it seemed like it could happen. and don't forget when first paulsen asked for the t.a.r.p. to be approved, congress voted it down. market fell 700 points at the end of the september and wasn't until the beginning of october 2008 what the second t.a.r.p. plan got proposed and approved. there was a moment there where it could have gone a different direction. but, you know, it's so powerful and so important to the way the country funks -- functions and the way jobs are created and capital gets allocated. without the proper allocation, you can't have new plant equipment, new businesses grow and prosper. you know, since that is the engine room of capitalism, you've got to restore it. that's what they chose 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 and -- > guest: wall street -- main street has been kept out of the fun of reestablishing the status quo on wall street. and within the last year, i note with interest with $150 billion were paid out to wall street in 2010. wall street -- main street is saying, you know, what about us? we bailed out wall street. they are now getting the benefit of that bailout in their pocket book. main street is still hurting. it's a serious problem. that's why, frankly, going back to your first question, why, i think, people need to read the book. even though some of the con septembers are complicated. although i'm very careful to try to explain them. but the narrative of understanding what is the 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 of 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 that bear stearns collapsed so fast. here i wanted to understand why is that goldman sachs gets the benefit and see around the corner and benefit themselves, perhaps at the expense of their client. and what about main street. what's happened to everybody in the main street in the wake of all of this. why have these guys been anointed while everybody else apparently still has to suffer. >> host: that's an interesting point. if you do read the book, you may still kind of question that in the sense that -- i mean i think as you are saying people realize that you can't do without wall

street or something like that. but -- >> guest: you have to be able to al gait capital around the world when it's needed, especially in a capitalistic system. basically it's 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 the most sensitive and political issues in the next decade, the nexus between washington and wall street. we're going to be taking a break right now. we'll get back to some of the particulars in the book afterwards. >> guest: thank you.

>> "afterwords" is available via podcast. visit booktv and select podcast. select the podcast you'd like to download and listen to " afterwords" while you travel. >> we're back to "afterwords." >> 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. one of those is jpmorgan, which really is -- remains a power house. i believe that was the -- jpmorgan was the one bank that was singled out as not needing a bailout, perhaps. i believe it was bernanke who said -- fed chairman bernanke

that even goldman sachs would have been gone down without the bailout. there was only one bank that could have survived on its own, i believe he was referring to jpmorgan. can you talk about that? we don't want to create the impression that goldman sachs was the only one with power and influence? >> guest: well, clearly the folks at jpmorgan chase would like -- would argue that they are 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 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 amt, no bear stearns amt, they financed themselves in the public markets. or by various other means of borrowing money from banks or influence companies and took that money and they invested it, or they made proprietary trades or used it to under write securities or whatever they did. they used the 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 who 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 and -- >> guest: yeah, bernanke and paulsen and geithner, you know, encouraged jpmorgan chase at the rock bottom price. that deal fell apart until the feds stepped in to buy $30 million that jpmorgan chase didn't want. there's no question that the feds facilitated that, they had their good reasons for that, i suppose that that was something they thought they needed to do to try to put their finger in the dike of what was about to, 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, i.e., six months later, that the whole structure of wall

street, i.e., securities firms that financed themselves in the short-term market, and borrow short and lend long, that whole model was bankrupt. that whole model was no longer functioning. it's one the those things that's like a light switch. it worked for a long time. you flipped the switch and it stopped working. now that's a matter of confidence. that's a matter of counterparties wanting to do business with the firms. it's a matter of credit quality. basically the whole thing fell apart. goldman sachs and morgan stanley were allowed to become bank holding companies by the fed. making them like the jpmorgan chases, wells fargo, bank of america. interestingly, they did not allow lehman company. they of asked. they denied just like the fed had denied bear stearns access to the feds window 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 -- than goldman sachs and morgan stanley. now they fund themselveses in a similar way. although not only does jpmorgan chase have access to the fed window, but it's depositors, you know, money that it uses and basically gets for free because we all know what the interest rate is on the savings accounts or checking accounts, virtually nothing. they get the money for free and lend that out, you know, for higher interest rates. they are playing an arbitrage game. yes, jpmorgan chase was probably the institute that was strong enough to have wattered wattere-

weathered the crisis. they had a lot of risk in the balance sheet. they had a different funding model. they weren't nearly as susceptible to the whims of the overnight financing market as goldman sachs, morgan stanley. now it's all the same. so, you know, i think that you also have to look at the fact that, you know, jpmorgan chase is a mongul firm. i don't know -- i lost count of the mergers, 10, 15, 20 mergers over the year. the old jpmorgan and company looked a lot like goldman sachs did in the day. he was incredibly powerful as the banker. aft panic of 1907, he alone provided the role like the fed did in long term capital management or even during this crisis when they brought the wall street elders and decided

to put together a rescue package. jpmorgan the man did that himself. we've come a long way from jpmorgan the man and his 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 is basically stayed, you know, pure. they've made a few small mergers overt -- over the years, and one large one that didn't work out. they avoided even during the crisis, the fed was trying to get goldman to merge with wachovia, or citigroup or whatever it was. they resisted that and stuck to the knitting. and i think that as a result of that, you know, they are still very strong as is jpmorgan. they are both very strong. but i still think goldman is more envied, feared, admired, whatever one of those words that you want to use in ways that jpmorgan chase is not. i know i worked at jpmorgan

chase. i'm familiar with the firm. 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 and 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 amyrrh tock si. >> guest: very much so. >> host: this is a society when we reward that. and we also envy the one that is succeed so well, like goldman. that seems to be in play today too. so your back -- book discusses the goldman type. i saw very types. one is just your young, brilliant, harvard business

school graduate who maybe like a math phd or something and can do the complicated securities. but there was also the type of sidney weinberg who actually had a very difficult background and i thought you might want to get into that. >> guest: sure. unlike -- you know, i worked at lizard for six years. it was elite and now it was public, but it was private partnership for a long time. i walked around the corners. next to me were sons of daughters of presidents of france and sons and daughters of ceos of publicly traded companies. then me. a kid from western massachusetts. so that was a firm where you expected to see pedigreed individuals. goldmansachs -- they were smart

to, at goldman, it was the team players, being academically gifted, achievement oriented, having achieved greatness at every step of the way and being team oriented. somehow your egostayed in check while, you know, enough to help the team. they love athletes at goldman and they love people who are hungry to succeed. that was, you know, very much in the mold of sidney weinberg who's father of the a bootlegger in brooklyn. i think he was one of 11 or 13 kids. and basically after the 8th grade schooling end 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

went to each business on each floor until somebody agreed to hire him. he got to the third floor, and he got hired to clean and be an errand boy. this is after he was an 8th grader. over time, you know, he was the man of -- i think -- great character and living by it's wits. figures out a way to impress the name partners of the firm, goldman, sachs, he once got his big break when one the sachs brothers asked him to take a flag pole from lower manhattan to his home in -- you know, by the polo grounds up town in 130th street. somehow sidney weinberg who is a very elf-like character, short fellow, brought the flag pole up to, you know, the senior partners house and got to talking and that led him to get a real job at goldman sachs.

and that sort of became part of the myth of mythology of the firm that they fire people like this. and frankly -- >> host: people who pull themselves up by their bootstraps. >> guest: by the bootstraps. to some degree there's a myth. plenty of people there. lloyd blankfein, the ceo's sons work there. lloyd balance -- blankfein had to pull himself up, not his sons. he grew up in the eastern part of brooklyn which is not the greatest part of town. lloyd told me i thought that was fascinating that his father was then, you know, after he he retd was replaced by a machine. the job his father was doing, a machine could do it better. his mother worked in an alarm

security country which he described in that part of brooklyn. he went to public school and have harvard happened to recruit, found him, he was clearly one the smartest kids in the class and gave him a full scholarship where he found himself surrounded by prep school and didn't feel like he fit in. he did well at harvard. i went from being under privileged child to a child of privilege because he had access to harvard and harvard law school. you know, this is very much the kind of person that makes it to the top at goldman sachs. i mean, you know, henry paulsen grew up on a farm, you know, 40 miles outside of chicago. and his, you know, grandfather had been a leading watch maker and businessmen in chicago. but those businesses failed during the depression, and his father was basically a farmer. and john corzine who ran goldman

for a period of time grew up on a form in southern illinois. this is the kind of person that make it is to the top there. we're not talking about sons, rarely -- i mean daughters don't seem to have much place at goldman, but sons -- these are not sons of privilege. this is real, and it is -- in reporting the book and interviewing the people, they exhausted me. spending three hours with henry paulsen can be exhausting. he has so much energy. he came across when he was treasure secretary as somewhere inarticulate. i found him extremely articulate and charming. incredibly charming. three hours later with an alpha male, i was exhausted. >> host: i was going to ask you about hank paulsen.

because that was one -- the portrait of henry paulsen that comes out in the book is one the rev tour parts of it. because you show how he started out as such a straight arrow and raised up into management because he had honesty, he established good relationships with people. he was a relationship banker. >> guest: he's not going to embarrass the firm. as some other partners had been doing about the time that hank paulsen was elevated to the management of the firm. >> host: but maybe i misread it. i received him as ending up as a machiavellian figure who ended up edging out his co-chairman john corzine and other people in the firm that he pushed out opinion >> guest: it's true. >> host: almost like a back stabber in that regard. he's an extremely forceful

person. which is interested for those of us in washington that saw him as treasury secretary and the key role he played throughout the financial crisis. can you talk more about this? you know, the way he pushed out corzine, who was also a figure here in washington. >> guest: i mean -- >> host: former senator. >> guest: former senator and governor of new jersey. again, you are right, this is a revelation to me. my image of hank paulsen was the one we saw on tv during the crisis. the one that got down on bended knee to ask nancy pelosi for $700 million. which was audacious. you have to admit. i found someone that was extremely charming, articulate, a man of high integrity. nevertheless, all of that can be true at same time that he -- he was quite ruthless about, you

know, making sure that -- i mean he would say, of course, he did it in the interest of he thought what was best for goldman sachs. in other words, the reason john corzine had to be pushed out was because hank paulsen and others thought that -- particularly hank paulsen 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 the mergers first with solomon brothers, then travelers, jpmorgan, and the one that ultimately tripped him up was when he started merger discussions with mellon bank. which frankly may have been a very good fit for goldman. his other partners didn't want him to do that. paulsen and others thought that corzine was just leading the firm in the wrong direction. so then, you know, i'm sure he would say in all humility, i was just doing what me -- doing what my partnered wanted me to do.

it does come off a machiavellian. he got rid of and kneecapped john corzine. he never saw it coming. before he knew it, on the verge and the principal of the ipo and in the spring of 1989, corzine was out. paulsen had used and made alliances with other people to become ceo and take the firm public. he ironically the two guys he told who became his allies, john thane who later became ceo of john lynch, and john thornton, now the head of the brookings institute. these two guys formed an alliance with paulsen with the understanding that paulsen 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. who can blame him? being ceo of the public goldman sachs seems like one the

greatest jobs in the world when you are not the target of so much eyier. hank had the board of directors in his pocket. they wanted him to continue to lead the firm. basically hank didn't want to leave, and that made thane and thornton expendable. he pushed them out too. you know, you sort of take that in toto and it does look very machiavellian. and so, you know, on the other hand, you've got this guy who's very charming and personable and down to earth and makes plenty of time, you know, for people like me which i appreciated. on the other hand, you look at what he did. he does what has to be done, even if he thinks it's in the interest interest of goldman sachs to do that. the reason he pushing him aside was because he saw the guy lloyd blankfein. he saw the direction that the business was going and the way

that goldman could make the most money. and he knew that thane and thornton didn't have those skills. they became expendable. he saw lloyd blankfein who did. he plucked him up out of the masses and made him the next leader of the firm. when he went to washington, it was obvious that he was going to get the job. again, it looks very ruthless. he would say i did what was in the best interest of goldman sachs. if lloyd blankfein wasn't the ceo, they have gone down the tube. instead, they put on the big short and did things to save themselves. at least now they can make a credible argument that they, you know, didn't need the bailout. which is something they have done. i think they would have gone down the tubes in the tsunami

like everybody else. clearly goldman was the only one to see it and doing something about it. we now know they did other things, which was continue to sell mortgage-backed security at the same time they made the bet. basically, their clients suffered, i think, financially as a result of goldman's decisions. >> host: well, 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 stalk issues, helping to arrange loans and bond issues and so on for corporations. helping individuals, valuable service, and then somehow somewhere in the -- what, was it 60s, '70s, '80s, the other function aperiod on the scene

and has now one could -- looks like outgrown the original service model 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 they are 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 as an issue for virtually all of the wall street firms now. >> guest: well, again, this is important to make the distinction. goldman has really pushed this

to the edge. this behavior. you know, lazard, the business where i work and now a public company, they provide m & a advise and investment management. they don't have any trading or make any propriority bets. green hill, the same thing. there are other models out there. there are the people getting back to where had the old model and security firms model of where the goldman, lehman, merrill, leveraging them, and when it collapsed caused us to have to bail them out. there were many people that thought the business model should go down the tubes. which is what the government ended up doing. they would have been firms like lazard and green hill that would have come up out of that providing services once again to their clients without this whole trading side of the balance sheet.

and which got everybody into so much trouble. and so, you know, goldman pushed as i say, pushed this whole proprietary trading business, the whole trading enterprise making markets for their clients as lloyd blankfein tried to explain. yes, all of that, but requires huge amounts of capital, big balance sheet, lots of leverage, and lots of risk. goldman thinks of itself as being the best manager of risk on wall street. they are not wrong. they saw 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, saw the risks, and did something. at the same time, they created huge conflict for themselves. they believe they are great at managing conflicts. whether it was their clients or internally. we're in the business of managing conflicts. there are lots of conflicts. we're in the business of

managing them. i think that's gotten them into a lot of trouble. you can see as i write in the book, yes, they were very smart. then making a big bet against the mortgage market. check for goldman. very smart move. and made them billions of dollars while it cost everybody else billions of dollars. but they didn't stop underwriting the mortgage-backed securities that were causing the problems. why? because they say a way to continue to make money. they kept doing it. that's a conflict that is unmanageable. that cannot be managed. goldman has proven itself unable to manage, despite what they may have told senator levin. at the same time, this is a subtle point that senator levin didn't get into. if people read that report, they will see it described. is the effect that goldman's marks, the marks on the securities that it had in the market is -- it's marks were lower than every other firm. if they are saying the security

were trading at 100 or 98, goldman had them trading at 50 or 60, or the same time they had the short on from which they would benefit. those marks not translated into the market. these are not stocks traded on an exchange where the differences in price 1 1/16. these are lightly traded securities that don't trade and trade by appointments. goldman says 50 cents, merrill lynch says 95 cents, then they have a debate. the rest of the market had to admit that goldman was right about the marks. goldman had the short on, lowered their marks, made a ton of money and the effect on the book, putting bear stearns, aig, they would have been got out of business anyway. as i say, they exacerbated the decline of all of their competitors. goldman put on the trade in the

december of 2006 time period that made them billions of dollars at the same time, put all of the counterparties and competitors out of business. i mean i'm sure they didn't start out doing that. but that was the affect that this trade had. brilliant on the one hand. but ruthless and devastating on another. and cost us, you know, all of us taxpayers trillions of dollars to rectify. >> host: well, a number of people have raised problems with this proprietary trading thing as you are saying. you look back and wonder if they wouldn't have been better off just letting that die, letting it collapse with the crisis -- in the financial crisis. have we really resolved this issue? as a nation? >> guest: this issue is not resolved. you know, the volcker rule has supposedly made proprietary trading or some parts unlawful

now. goldman make the argument it was only a small part of the business. now in truth, the guys who came up with the idea for the bet against the mortgage market, the proprietary trade in 2006 was three or four guys on the mortgage risk. so -- >> host: they seem to borrow heavily from the famous paulsen hedge fund. >> guest: yes, he was their client. at one point they were executing trades, then they copies him and didn't want to trade, because they wanted to put the same trade on themselves. there's an example of, you know, taking their clients good idea, you know, there's no market for good -- i mean the market for good ideas is available for everybody. they were aware because it was the proprietary idea. they copied it. then all of the sudden he wasn't a good client. because they didn't want to do the trade for him, they wan