A new book from Vanity Fair contributing editor William Cohan uncovers a raging civil war that went on in the upper echelon of Goldman Sachs during the rule of Hank Paulson and Jon Corzine.According to Vanity Fair, Cohan discovered that the pair’s governing of the bank “was an unmitigated disaster.”
The so-called Alpha War began in the aftermath of Stephen Friedman’s retirement in 1994, according to Cohan.
Then in 1998, Corzine commenced negotiations with Mellon Bank about the possibility of a merger.
He never told Paulson or the bank’s Management Committee about his meetings with then-Mellon CEO Frank Cahouet, according to Cohan. And it was a “major political misstep” of which Paulson took advantage.
“The majority of the Management Committee members were so irate at Corzine for discussing a merger with Mellon without their knowledge or consent—and then not coming clean about it—that they decided to prevent him from engaging in any future strategic discussions at all,” Cohan writes in his book.
From Vanity Fair,
Friedman admits that Corzine and Paulson—two men with similar rural-Illinois upbringings and drastically conflicting temperaments—became senior partners by default. “What you could safely say is, there would have been no broad support for anyone other than those two, and Corzine was accepted by most people as a part of the solution.
Paulson tells Cohan he didn’t focus on their differences at first. “When you’re boiling in oil, in the middle of a crisis, the challenges are so consuming there is no time for anything else,” he says. But as business improved and an I.P.O. loomed, Corzine’s desire to expand the firm irritated Paulson.
When Paulson found out about the Corzine-Cahouet talks, and subsequently Corzine was elusive about the extent of the negotiations, he threatened to quit.
There was no way the firm could afford to lose him on the eve of the long-awaited I.P.O. A majority of the committee demanded that Paulson take the reins of the firm from Corzine. John Thain, the C.F.O., a onetime close ally of Corzine’s and then named in his will as one of the executors of his estate, was asked to speak with him about the committee’s decision.