What Happened to Goldman Sachs Reviewed

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The CEO of a significant hedge fund with whom I enjoy a close relationship recently recommended for me (strongly) What Happened to Goldman Sachs by a former employee of Goldman’s, Steven Mandis. The implicit pitch for the book was that finally someone had gone beyond the superficial analysis of Goldman that others had done (I think Cohan’s work warrants that label as much as any other work does), and dug deep into the good, bad, and ugly at one of Wall Street’s premier investment banks, Goldman Sachs. 325 pages later, I am a bit confused as to what my friend was exactly recommending.

Like other opportunistic books we have seen in recent years, Mr. Mandis was not an inside player at Goldman Sachs (and he is actually honest enough to say so). He worked there for a bit a long time ago, and came back many years later as a small client, but the entire book is riddled with literally hundreds of references to “conversations with partners” he had, or “talks with people who say” … There is hardly a single reference in the entire book properly sourced, so we are left to read this inside expose of Goldman Sachs written by a non-insider on the word of his non-substantiated quotes from other people who do not appear to be insiders. Mr. Mandis is an accomplished academic, and seems sharp and qualified to discuss “economic sociology”. Sadly, the book does not leave readers feeling full.

Part of my discontent with the book comes from the expectations I had that the book would exceed status quo vanilla analysis. Charitably, Mandis does a bit of this with talk (not sufficiently elaborated, in my opinion, of “organizational drift”). But at the end of the day the underlying thesis of this book is still the same as all the rest: “Goldman used to be a partnership and they were good; and then they went public and became bad”. I am purposely being over-simplistic, but it is the takeaway an honest reader would have, and I find it wholly inadequate.

Mandis is reasonably guarded in how he indicts Goldman Sachs for particular actions and accusations, often referring to the line between “ethical” and “legal” (essentially saying they have often broke the former but not the latter). Readers are going to just have to take his word for both, because the details of their alleged major misdeeds are simply not given proper treatment. Was hedging one’s housing exposure in 2006 wrong or not? Did they lie to clients about what role they were playing or not? Were the clients sophisticated big boys with a thesis they wanted to play or not? It is just not good enough to stick to the standard insinuations and fail to exhaustively analyze what really did happen. But putting that aside, what Mandis does is essentially presuppose some bad did take place (and again, he is more guarded and reasonable in how he does this than guys like Cohan and certainly Taibbi), but then moves to the monumentally debatable assertion that the incentives and interests of GS actors were to blame post-IPO.

I have been asking for years where the outrage is against ALL public companies if such analysis were really cogent. Why is it that I have never read a book stating that the geniuses who merged AOL and Time Warner did so because they lacked fear of personal liability once their companies were publicly held? If the partnership model is the only real way to guarantee prudent allocation of capital, why would that be limited to financial companies like Goldman Sachs, but not be true of industrial companies, utility companies, telecom companies, and marketing services companies? I think Mandis is fair in analyzing the realities Goldman faced in 1999 post-Glass Steagall (competitively), but he clearly feels that a nearly utopian culture existed pre-IPO, and that the net-net consequences of the IPO were negative. I would suggest that the book falls short in really analyzing (a) If anything has gone wrong at Goldman (besides errors made in the capital markets, errors made by all market participants in the middle of last decade), and (b) if those errors have resulted in a response from the media and regulators that is proportionate to what Goldman has actually done. I will let someone else do that analysis. Sadly, What Happened to Goldman Sachs fails to do it.