The inside story of a banking behemoth

How do you prise secrets from one of the most secretive giants on Wall Street?

Goldman Sachs has survived 139 years of boom and bust. It is weathering the financial storm that claimed rivals such as Merrill Lynch and Lehman Brothers. And one of its former bosses has just engineered the world’s biggest bail-out from his desk at the US Treasury.

But consultant Charles D Ellis is among the first to crowbar open the history book for this revered organisation. And it only took him just over a decade to do it.

The Partnership: A History Of Goldman Sachs is a meticulously researched chronicle of the firm’s successes and scandals, built through interviews with around 100 partners.

But the former managing partner of strategy company Greenwich Associates very nearly called off the project, after encountering a company “with a near fetish for no publicity�.

He said: “I started with a big unfair advantage because I’ve been consulting with the organisation for 30 years, so I knew a lot of people. But it took a lot of time and effort.
“I’ve got a couple of guys who will never speak to me again, and some of them are pretty senior.
“There’s even one guy who is preparing legal action. I know he’s mad and I understand why he’s angry. But I’ve told the folks at Penguin that I’m very confident what’s been said is accurate.�

The 729-page book relates many of the major events in Goldman’s history, from its rise to glory under former assistant janitor and eventual CEO Sidney Weinberg to insider trading rows, dotcom losses, public flotation and dominance in the financial world.

But Charles’ respect for the firm stems from his admiration of its “screwball� drive to succeed.

He said: “I could tell 20 years ago that Goldman Sachs was the strongest firm around.
“There was a culture of discipline and intensity which was unmatchable. Employees would come in at 7am every day, and on weekends, and they’d be really working, not playing around.
“There’s something screwball about this organisation in that they all really care that much.
“Why do people want to play for Man Utd when they know it’s hard? It’s because, if you’re good enough to play in the first team, you’re good and you know it.
“Goldman is utterly ruthless about being at the very top. It’s quite direct about people having to go when they’re not the best.�

Despite Charles’ long association with the company, Goldman initially threatened to advise employees to give him the cold shoulder when he announced his plans for a book. Bosses later allowed some interviews, but only with a “chaperone� present.

Charles said: “Interviews went from being candid and useful to being bland and uninteresting.
“I was sure I could do a really first-rate job. But I didn’t want to do a book unless I could do a good one. If we were just going to put lipstick on every pig it just wasn’t going to work.�

It took the intervention of a public relations friend to smooth the way, but Charles eventually came to an arrangement in which Goldman would check chapters for accuracy, but he would retain editorial control.

Some critics have criticised the book for painting too rosy a picture of the organisation, but the author is not convinced.

He said: “It’s a favourable review, and some have criticised it for being more favourable than it ought to be. But I made a point of including things that I thought it did wrong.
“Having said that, I’m describing a wonderfully effective, successful and powerful firm, and in that respect it’s positive because it’s accurate.�

He is especially keen to back Goldman over one of the more contentious events in its history, namely the arrest and subsequent imprisonment of then-partner Robert Freeman for insider trading. Freeman was removed from the firm's Manhattan officers in handcuffs back in 1987. He served four months in jail after pleading guilty to one of the 17 charges placed against him.

But Charles argues there was more to the saga than meets the eye, and lays much of the blame on the ambitious US attorney Rudy Guiliani. He believes Guiliani was keen to use his perceived crackdown on white collar crime to boost his chances of a political career, which would include a famous spell as New York mayor and an unsuccessful run for the presidency.

Charles said: "What everybody knew was that Bob Freeman was guilty of insider trading. He confessed to it, he went to prison for it, but he didn't do it. He took two lie detector tests to convince his employers he didn't do it.
"Goldman Sachs said the chance of conviction was too high, and if he got convicted he might have got five to ten years, and could have lost his entire fortune.
"The smart answer was to go to prison for a little bit by confessing to one of the 17 charges, accept a modest penalty and go back to living his life afterwards.
"Guilliani knew he had railroaded an innocent man, but he didn't give a s**t because he was off to politics."

One of his biggest coups was gaining a two-hour interview with former chief executive Hank Paulson, the current United States Treasury Secretary, on his return from talks in China.

Mr Paulson was appointed by the Bush administration in 2006, but Charles reveals it wasn’t considered a
great move by many.

He said: “He was advised by friends that had known him and had experience of government that he should never take the job.
“They warned him he was entering a failed administration, and that he would never accomplish anything, he would embarrass himself and would damage his reputation.
“But he’s a very sincere and patriotic man, and if you’re asked by the president to do something for your country it’s pretty hard to say no.
“He’d turned it down twice before but this was a serious one-on-one request.
“He knew he could do the job better than anyone else and he’d more or less completed his work at Goldman Sachs. It was time to move on.�

Mr Paulson has since been a key figure in the $700billion bail-out of US banks, including his former employer.

While Charles believes Mr Paulson is a “sincere, hard-working and smart man�, he is critical of the initial handling of a bill which was bounced out of America’s House of Representatives at the first attempt.

He said: “You can’t go to Congress and ask for the biggest amount of money anyone has ever had to spend, in an area with lots of dangers of things going wrong, and in return only offer a proposal of three pages.
“How can you be so unrealistic about the political process, especially when you’re three weeks from an election?�

The collapse of several of the world’s largest banks has left the financial world jumpy, and peering into the fog of a recession. Goldman Sachs itself has announced worldwide cuts of around 3,300 jobs, approximately 10 per cent of its staff.

Charles believes the time has come to change the way the system works, and that the new president might provide the spark needed to make the change.

He said: “We as a world society need a new financial system.
“The problem is that we need an international system and there are only national governments.
“We’re going to need some wonderfully capable people and we’re very fortunate that we’ve got a really good group looking into this.
“Barack Obama is all about successful and disciplined people working together.
“I’m much more optimistic now, but the problems created by George W Bush are pretty serious.�

The Partnership: A History of Goldman Sachs is available from Allen Lane in the UK, priced at £25