June 14 (Bloomberg) -- Note to Lloyd Blankfein: Imagine, for a moment, what would happen if a cardiac surgeon were paid like a Wall Street banker in 2006.

For each operation, the doctor would earn more, regardless of the risk to the patient, writes Suzanne McGee in “Chasing Goldman Sachs.” The greater the risk, in fact, the higher the fee. Should half his patients die the next year, the hospital might dismiss the surgeon -- with a golden handshake. He could then take up a post elsewhere or set up his own practice. “Wall Street doesn’t have to purchase malpractice insurance,” says McGee in this disturbing account of how the big boys ran amok and began blowing up the money grid. “There isn’t even a sense that there is a duty of care to the ‘patient’ -- whether that patient is the client or the financial system.”

McGee, a contributing editor at Barron’s, isn’t out to bury Goldman Sachs Group Inc. or Blankfein, its chief executive officer. Her goal is, rather, to show how Wall Street bankers became preoccupied with their own short-term interests and drifted away from their raison d’etre -- to funnel capital from investors to companies that need it. They were, by this account, almost predestined to do so from the moment the Securities and Exchange Commission banned fixed trading commissions in the stock market on May 1, 1975. The prohibition turned their comfy business model upside-down: “Mayday,” they called it, hinting at their distress level. In the decades that followed, Wall Street morphed from an intermediary into “a self-serving, risk-taking machine for generating profits,” says McGee. No player was better at the game than Goldman, the most profitable securities firm in Street history.

Pied Piper

The peril wasn’t that Goldman became “a great vampire squid,” as a Rolling Stone writer so delicately phrased it. The firm actually became something much more dangerous: a seductively successful Pied Piper, luring other banks down a path that led to destruction. Its profitability was the envy of its peers, McGee writes: Trying to match Goldman’s return on equity was the only way for rivals to pacify their restive shareholders and increase their personal wealth.

This isn’t what Wall Street was built for, she reminds us. The financial system is a public utility, akin to a power company or the water system, no matter how much the comparison makes bankers bristle, she says. Turn the tap, you expect water. Flip a switch, you get light. The money grid works the same way: It connects buyers to sellers and lenders to borrowers, making it possible to raise capital to repair roads and finance companies.

Purcell Lesson

McGee walks us through the trends that led us to this day, notably the shift away from private partnerships, which limited risk. Going public allowed executives to place big bets with other people’s money; it also exposed them to shareholders anxious to match Goldman’s ROE, as the admittedly unpopular Philip Purcell discovered at Morgan Stanley. His ouster as CEO in 2005 reflected his aversion to taking big balance-sheet risks, McGee writes. “We watched, we listened, and we all learned from that,” McGee quotes one banker as saying. Year after year, the focus shifted from providing services to selling products: “Wall Street is really the breakfast cereal business,” Marty Fridson, the junk-bond specialist, tells McGee.

This is an exhaustive piece of reporting that draws on interviews with some 200 people whose lives are tied to the Street, from hedge-fund managers and venture capitalists to private-equity dealmakers and corporate executives. Billionaire Wilbur Ross makes an appearance, as does John Costas, the former head of investment banking at UBS AG.

Target Audience?

McGee’s target audience isn’t entirely clear. Joe Public is unlikely to lug this 398-pager to the beach, while old hands on Wall Street are already aware of what happened. Still, memories on trading floors are short, and bankers under 35 could absorb important lessons from these chapters. The book does offer some reasons to believe Wall Street can change. McGee notes, for example, the emergence of boutique advisers dedicated to serving corporate clients. And don’t forget the elephant out in Chicago, Citadel Investment Group LLC. Founder Ken Griffin has vowed to press ahead with plans to bolt an investment bank onto his $12 billion hedge fund.

“Griffin sees himself not as chasing Goldman Sachs but rather as becoming Goldman Sachs,” writes McGee. By serendipity, the author delivered the final page proofs of this book to her editor on the morning the SEC sued Goldman for fraud tied to collateralized debt obligations. By then, one thing was abundantly clear, she says in a foreword: “Wall Street is no longer run in the interests of its clients, but in the interests of Wall Street entities themselves.”

“Chasing Goldman Sachs: How the Masters of the Universe Melted Wall Street Down . . . . And Why They’ll Take Us to the Brink Again” is from Crown Business (398 pages, $27). To buy this book in North America, click here.