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Paper Fortunes: A Half Century of Wall Street

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Henry Paulson isn't the only Goldman, Sachs & Co. veteran with a book about the travails of Wall Street (see a review of Paulson's On the Brink here). Roy Smith, a former Goldman partner who went limited in the late 1980s and undertook a career teaching and writing at New York University's Stern School of Business, recently published Paper Fortunes: Modern Wall Street; Where It's Been and Where It's Going. Smith has long been a kind of village explainer of Wall Street in earlier books such as The Global Bankers and The Money Wars. If Paulson's crisis memoir On the Brink is an action drama leavened with flashes of personal revelation, Smith's Paper Fortunes is a recitation of trends, enlivened by memories of his own career.

Paper Fortunes is thus really two books that uneasily co-habitate. For anyone who has spent time thinking about Wall Street, the real attraction of Paper Fortunes is Smith's own recollections. His introduction takes us to 1965 and involves a gracefully told tale that ends with an odd meeting with Goldman's eminence grise Sidney Weinberg and a job offer at the then-tiny partnership. This effectively sets the scene and makes a statement: Wall Street was radically different in those days -- smaller, more intimate, more personal, less self-important. Smith was eager for an interesting career, not fixated on hair-raising bonuses. He was fascinated by finance, but he had other interests; and Goldman itself, still reeling from its brush with disaster in the Great Depression, was like a small, slightly eccentric law firm.

Alas, Smith drops his personal narrative for long stretches as he lays out a textbook-like history of Wall Street from that point on. This is quite good, and even though Smith and others have covered this ground before, students, journalists and newcomers to the Street can learn a lot as Smith lays out the high points. The history he unfolds, cleanly if a little antiseptically, involves the stop-and-start evolution of Wall Street from a band of poorly capitalized partnerships offering some advice, some underwriting services and some trading to the global, highly interconnected, technologically sophisticated money (or doomsday) machines of today. Much of this history is fascinating, if only for its complexity of cause and effect -- or cause and multiple consequences.

This history is also a nuanced rebuke to the paranoid school of Wall Street coverage. Yes, there was greed and recklessness and, as Smith regularly points out, huge mistakes in the scramble to grow and diversify, not to say mounting problems of management and control. But he is careful to suggest how many of these trends, from trading to globalization to universal banking, began for what seemed, at the time, to be good, even essential, reasons; and there is considerable food for thought as he explores that multilayered development. Wall Street was not "built"; it evolved. True, there were giants, like Gus Levy and Sandy Weill, but they were far more determined by complex, dynamic conditions than they were self-determined Faustian shapers.

That said, Smith's march through the decades wears thin by the late '80s, particularly as the material grows more familiar (though this might not be a problem for neophytes born yesterday). Now and again, to great relief, he returns to his previous, less formal tone, to offer glimpses of his own career or his own, often-pungent evaluations of some of the characters that stroll onto the stage. He is particularly interesting on the interplay at Goldman: John Weinberg's disappointment at Robert Rubin for leaving the firm for the White House; his portraits of Levy, Steve Friedman, Jon Corzine and Paulson himself; the breakdown of the partnership ethos, the rise of trading, the erosion of relationship banking. This leaves you wishing for more -- much more. You also read on expecting a big finish, where Smith offers judgments in light of the financial crisis, as his title promises: where Wall Street's going. But while he plods through the crisis like a man trying to catch up to the newspapers, he never really provides the kind of deeply considered, informed opinion of one who has seen the whale from within and without. A pity. Maybe next time.

Do Smith's and Paulson's books share even the hint of a common Goldman DNA? Smith is more relaxed than the tightly wound Paulson, but why wouldn't he be? His personal revelations are sharper, less self-involved, more contextual, more amusing. Neither book is particularly theoretical or hypothetical: They are, for all their differences, practical books by practical men. They suggest that Goldman, for all the backlash it has stirred, is less a monument to greed and hubris and more the construction of hard, pragmatic, goal-oriented men immersed in the money-making possibilities of finance. Both men recognize the problems latter-day finance has spawned but struggle, not surprisingly, to offer answers. You walk away from both realizing how Goldman, like Wall Street, was as much determined as self-determined, shrewd and hardworking, to be sure, but neither omniscient nor superhuman: human constructs that can fall as easily as rise. That's worth remembering.

Robert Teitelman is the editor in chief at The Deal.

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