Reading William Cohan's new chronicle of Goldman Sachs makes me think of nothing so much as Louis D. Brandeis, late Supreme Court justice and onetime power lawyer in the commercial and economic life of New England.
On Cohan's account, Goldman's greatest evil is not its size or its aggressiveness nor its unmatchable brilliance but its utter incapacity to see a conflict of interest, ever--or at least, ever in any situation that might might make Goldman a dime. It was Goldman, of course, who garnered an unwelcome dose of notoriety (and coughed up a painfully large chunk of cash) for flogging "Abacus," a mortgage security package that had been designed to fail. At the time, one could anticipate "the department store defense"--gee, we welcome all customers, we sell suntan lotion and umbrellas, we don't offer an opinion on whether it will rain. It's a beguiling story, although Cohan's final chapters provide a powerful case for the proposition that it is laughable in the particular context.
But much more: Cohan's version persuades that for Goldman Abacus was not an aberration but a way of life, as much a part of the Goldman DNA as the storied "Fourteen Principles" that are supposed to set it aside from the ordinary herd. Rather, it would appear that Goldman for as long as anyone can remember has felt entitled to take all sides of every issue, not because they are more sleazy but precisely because they are more pure and thereby exempt from rules that might apply to ordinary mortals. "Just tell me whether you are my agent or my competitor," Cohan quotes the legendary Sam Zell as saying, in defending his hesitancy to do business with the great money machine. I grew up taught that your banker is supposed to be your friend, part of your team. With Goldman, it seems we add the codicil: but not if it costs Goldman a dime.
It's precisely the serene self-approval that makes the attitude so scary and here in particular, the comparison to Brandeis appears apt. Brandeis treated his habit of dual representation as a feature, not a bug--"lawyer for the situation" is a phrase that he put into the language. If he represented adverse interests, betrayed confidences, blurred loyalties, it was all for the greater good and anyway, he was Louis D. Brandeis so he could handle it.
The scary part is, of course, that Brandeis is onto something here: oftentimes it is good to have one even-tempered wise man who can step in and crack heads and make everybody behave. That sort of thing is less possible once everybody lawyers up (do they say "bankers up?"). But lawyers at least go through the pretense of declaring that they're bound by principles of client loyalty. With bankers, it seems much more a matter of lip service.
In the case of Goldman, at least, I can see one ineluctable force that drives the enterprise in this direction--trading, particularly prop trading. Cohan does a splendid job of accounting for how Gus Levy by his own energy and will transformed Goldman-as-counselor into Goldman as slam-bam-thak-you-ma'am market activist. Once trading comes to dominate the income statement, I suspect it is impossible not for it to dominate the enterprise. But by that point, you aren't really an investment bank any more--you are a trading engine with an investment bank in the caboose. I just wish that Goldman, like Brandeis, wasn't so smug about it.
[Time allocation note: no, I am not wasting, Paris. This was on the plane.]