Gary
Rivlin, Michael Hudson
Part
6 - TROJAN HORSE
There’s
ultimately no great mystery why Donald Trump selected Gary Cohn for a
top post in his administration, despite his angry rhetoric about
Goldman Sachs. There’s the high regard the president holds for
anyone who is rich — and the instant legitimacy Cohn conferred upon
the administration within business circles. Cohn’s appointment
reassured bond markets about the unpredictable new president and lent
his administration credibility it lacked among Fortune 100 CEOs, none
of whom had donated to his campaign. Ego may also have played a role.
Goldman Sachs would never do business with Trump, the developer who
resorted to foreign banks and second-tier lenders to bankroll his
projects. Now Goldman’s president would be among those serving in
his royal court.
Who can say
precisely why Cohn, a Democrat, said yes when Trump asked him to be
his top economic aide? No doubt Cohn has been asking himself that
question in recent weeks. But he’d hit a ceiling at Goldman Sachs.
In September 2015, Goldman announced that Blankfein had lymphoma,
ramping up speculation that Cohn would take over the firm. Yet four
months later, after undergoing chemotherapy, Blankfein was back in
his office and plainly not going anywhere. Cohn was 56 years old when
he was invited to Trump Tower. An influential job inside the White
House meant a face-saving exit — and one offering a huge financial
advantage.
Trump spoke
of the great financial price Cohn paid to join him in the White House
during his speech in Cedar Rapids. But something like the opposite
was true. A huge amount of Cohn’s wealth was tied up in Goldman
stock. By entering government, he could sell his stake in the firm to
comply with federal ethics laws. That way he could diversify his
holdings and avoid roughly $50 million in capital gains taxes — at
least until he sold the replacement assets.
A job in the
White House might also prove an outlet for his frustrations with
politicians and regulators intent on reining in the worst impulses of
Wall Street. Trump was Trump, but he had also vowed to dismantle
financial reform. “Dodd-Frank has made it impossible for bankers
to function,” Trump said during the campaign. The new president
had the potential to serve as a vessel for Goldman’s corporate
interests.
“Maybe
the one thing that holds this administration together is a belief
that markets know best, and the least regulation is the best
regulation,” said Dennis Kelleher of Better Markets. “Goldman’s
interests fit with that very nicely.”
Trump had
given Steve Mnuchin, his campaign finance chair, the grander title.
But taking over as Treasury secretary meant being confirmed by the
Senate. Mnuchin’s confirmation vote was delayed after it was
revealed that he’d neglected to list $95 million in assets
(including homes in New York, Los Angeles, and the Hamptons) on his
Senate Finance Committee disclosure forms and failed to disclose his
ties to an offshore hedge fund registered in the Cayman Islands.
Mnuchin was not confirmed until mid-February. The president’s
pick for commerce secretary, Wilbur Ross, a financier who had bailed
out several of Trump’s casinos a few decades earlier, was not
confirmed until the end of February.
As a
presidential aide, Cohn did not need Senate approval. He was part of
the skeletal crew that arrived at the White House on day one, giving
him a critical head start on wielding his clout and cultivating his
relationship with the new president. At that point, Trump was
summoning Cohn to the Oval Office for impromptu meetings as many as
five times a day.
In early
February, Trump signed an executive order giving his Treasury
secretary 120 days to give him a hit list of regulations the
administration could eliminate. But with Mnuchin yet to be confirmed,
the task appeared to land in Cohn’s eager hands. He was standing at
the president’s shoulder when Trump said, “We expect to
be cutting a lot out of Dodd-Frank.” Shares in Goldman
Sachs, which had jumped by 28 percent after the election, rose
another $6 a share that day. Soon Cohn was coordinating Trump’s
plans not only for rolling back regulations, but also for creating
jobs and slashing taxes. He met with a health care specialist, along
with House Speaker Paul Ryan and other Republican leaders, to discuss
alternatives to the Affordable Care Act.
Proximity is
power inside any White House, especially in this one, where policy
often seems shaped by Trump’s last conversation. Treasury is
several blocks away, while Cohn’s office was in the West Wing,
directly across the hall from Bannon’s. Operating within a chaotic
administration, Cohn was reportedly energized and focused, working
around the clock. Cohn is a tenacious practitioner who, after
ascending to the heights of Goldman Sachs, could teach a master class
on the art of seizing a leadership vacuum and building alliances. On
day 39 of the new administration, the White House sent out a press
release introducing the “best-in-class team” Cohn had assembled
“to drive President Trump’s bold plan for job creation and
economic growth.” The 13 advisers included familiar figures who had
worked for George W. Bush or his father, but they also included at
least three former lobbyists so conflicted they would need an ethics
waiver to work in the White House. For instance, Michael Catanzaro,
the man Cohn chose to oversee energy policy, was until last year a
lobbyist for such oil, gas, and coal companies as Devon Energy and
Talen Energy. Shahira Knight had been a lobbyist for Fidelity, the
mutual fund giant, before joining Cohn’s team.
Cohn’s
strategy in those early months was to make himself indispensable to
the new president. Cohn emerged as one of the few people around Trump
comfortable interrupting him during a meeting or openly disagreeing
on points of policy. The New York Times reported that Trump often
turned to Cohn during a meeting and asked him directly, “What do
you want to do?” Early on, Trump referred to Cohn as “one
of my geniuses” — a quote Reuters attributed to a “source
close to Cohn.”
Soon, major
media were painting Cohn as a leading centrist inside the Trump White
House because he had staked out positions on immigration,
international alliances, and global warming at odds with Bannon’s
hard-right nationalism. Bannon and his allies only bolstered this
narrative by characterizing “Carbon Tax Cohn” and his allies,
Jared Kushner and Ivanka Trump, as interlopers — “the Democrats,”
as some inside the White House called them. “Within Trump’s Inner
Circle, a Moderate Voice Captures the President’s Ear,” read the
headline of a Cohn profile in the Washington Post.
“Led by
Gary Cohn and Dina Powell — two former Goldman Sachs executives
often aligned with Trump’s elder daughter and his son-in-law —
the group and its broad network of allies are the targets of
suspicion, loathing and jealousy from their more ideological West
Wing colleagues,” the Washington Post reported. Fueling the rage of
the ideologues, Cohn and his allies were largely winning. Trump
dropped Bannon from the National Security Council and elevated Powell
to deputy national security adviser. When, after Charlottesville,
false reports leaked that Cohn was so disgusted with the president he
was resigning, blue-chip stocks slid down. Instead, Bannon was out.
Cohn, despite reports that he invoked Trump’s wrath for critical
remarks to the Financial Times, was still in and expected to deliver
the president a win on corporate taxes.
On the day
it was announced that he was joining the Trump administration, Cohn
said on a goodbye podcast for Goldman Sachs, “You look at the
size of our capital. You look at the size of our balance sheet. You
look at the size of our people — it’s just enormous.” More
than $40 billion had flowed into the bank in 2016, bringing the
bank’s assets under management to a record $1.38 trillion. That
meant pressure to find ways to put that money to work — an enormous
challenge if regulators finally shut down Goldman’s prop trading
arm.
How exactly
could Cohn recuse himself from matters involving Goldman when almost
every aspect of his job has the potential to either grow Goldman’s
profits and inflate its stock price — or tank them both?
“To the
extent Goldman Sachs is a direct party in a matter, Gary will recuse
himself,” a source familiar with the situation said. But, the
source added, “As NEC director, Gary is going to touch on
matters on the day-to-day economy as a whole and Goldman Sachs is a
participant in the economy, thus Gary will indirectly touch on things
that affect Goldman Sachs along with other banks and institutions.”
Yet rather
than publicly recuse himself on attempts to undo Dodd-Frank, Cohn has
led the charge from inside the White House. On that matter, Cohn is a
walking, talking conflict of interest.
While at
Goldman, Cohn had personally met with officials at the Commodity
Futures Trading Commission to discuss the derivatives reform plank of
Dodd-Frank, an arena in which Goldman is a dominant player. He had
taken issue with rules imposed by Dodd-Frank that require banks to
keep more capital on hand. Requiring banks to hold more money in
reserve made them “unequivocally” safer than before 2008, he said
in a 2015 interview while still Goldman’s president, but he
complained that Goldman was now able to lend less money, hurting
profits. And then there’s the Volcker Rule. Cohn, while still
president of the firm, had traveled to D.C. at least twice to
personally lobby regulators about its implementation.
These days,
it can be hard to tell whether Cohn is speaking as a high-ranking
White House official or a former Goldman Sachs executive.
In the wake
of Trump’s February call for a rollback in financial regulations,
Cohn vowed in an interview with Bloomberg TV, “We’re going to
attack all aspects of Dodd-Frank.” The first example he gave:
the Volcker Rule, which he cast as harmful to the country’s
competitive advantage. In an interview that same day with Fox
Business, he homed in on another Goldman obsession: Dodd-Frank’s
capital requirements. “Banks are forced to hoard money because
they are forced to hoard capital, and they can’t take any risks,”
he said. Mortgage, auto, credit card lending, and commercial
lending are all up since 2010. Yet Cohn told Fox viewers, “We
need to get banks back in the lending business, that’s our No. 1
objective.”
Roy Smith, a
former Goldman partner now teaching at the NYU Stern School of
Business, argues that Cohn should avoid the administration’s effort
to unwind Dodd-Frank altogether, but “at a very minimum he has
to excuse himself whenever the discussion turns to Volcker.”
But Smith said he has trouble imagining Cohn leaving the room when
Volcker comes up. “The hard part for someone like Cohn is that
he knows where all the pain points are with Volcker and other parts
of Dodd-Frank,” Smith said. “His every instinct would be
to get involved.”
Beyond
deregulation, two other pillars of Trump’s economic plan —
cutting taxes and investing in infrastructure — would have dramatic
impacts on Goldman’s bottom line.
Thanks to
loopholes, many Fortune 500 corporations pay little or no corporate
income tax at all. By contrast, Goldman Sachs typically pays taxes
near the official 35 percent federal tax rate. In 2014, for instance,
Goldman paid $3.9 billion in taxes on profits of $12.4 billion, or 31
percent. Last year, the firm’s tax bill was $2.7 billion on profits
of $10.3 billion, or 28 percent. In that same Fox Business interview,
Cohn said that “lower corporate taxes” was the White
House’s “starting point” on tax reform; cuts to personal
income taxes were a secondary concern.
Under the
plan Cohn and Mnuchin announced last spring, what Cohn called “one
of the biggest tax cuts in the American history,” corporate
taxes would be capped at 15 percent. If Cohn succeeds, Goldman will
save massive sums: At that rate, Goldman would have paid $2 billion
less in taxes in 2014, $1.4 billion less in 2015, and $1.4 billion
less in 2016. The Koch brothers’ network of political groups has
already spent millions of dollars to promote the proposal. Even
Blankfein, who the Trump campaign singled out in the commercial it
ran in the final days of the campaign, acknowledged in a voicemail to
employees that Trump’s commitment to tax cuts, deregulation, and
infrastructure “will be good for our clients and our firm.”
The details
of the president’s “$1 trillion” infrastructure plan are
similarly favorable to Goldman. As laid out in the administration’s
2018 budget, the government would spend only $200 billion on
infrastructure over the coming decade. By structuring “that funding
to incentivize additional non-Federal funding” — tax breaks and
deals that privatize roads, bridges, and airports — the government
could take credit for “at least $1 trillion in total infrastructure
spending,” the budget reads.
It was as
if Cohn were still channeling his role as a leader of Goldman Sachs
when, at the White House in May, he offered this advice to
executives: “We say, ‘Hey, take a project you have
right now, sell it off, privatize it, we know it will get maintained,
and we’ll reward you for privatizing it.’” “The
bigger the thing you privatize, the more money we’ll give you,”
continued Cohn. By “we,” he clearly meant the federal
government; by “you,” he appeared to be speaking, at least in
part, about Goldman Sachs, whose Public Sector and Infrastructure
group arranges the financing on large-scale public sector deals.
“Goldman Sachs is one of the largest infrastructure fund
managers globally,” according to infrastructure advisory firm
InfraPPP Partners, “having raised more than $10 billion of
capital since the inception of the business in 2006.” Lost in
the infamous press conference the president gave in the lobby of
Trump Tower a few days after Charlottesville, with Cohn and Mnuchin
visibly uncomfortable at his right flank, were Trump’s remarks on
infrastructure, the ostensible purpose of the event. The thrust was
that the president would grease the wheels for project approvals by
signing an executive order rolling back environmental impact
requirements and other elements of an “overregulated permitting
process.”
In countless
other ways, Cohn is positioned to help the firm that has been so good
to him over the years. The country’s National Economic Council
adviser might caution a president against running too large a
deficit, especially amid a healthy economy. But Goldman Sachs is in
the business of finding investors to underwrite government debt. An
economic adviser might caution a populist president that corporate
inversions often cost jobs and tax revenue. Instead, Trump has
ordered a review of policies Obama put in place to discourage them —
good news for Cohn’s former colleagues. Transparency has been a
watchword of initial public offerings dating back at least to the
Securities and Exchange Act of 1934, but easing those rules, a step
Goldman has sought, could potentially generate hundreds of millions
of dollars in fees for investment banks such as Goldman. The SEC
announced in June that it would allow any company going public to
withhold details of its finances and strategies, an exemption
previously available only to firms with under $1 billion in revenue —
more good tidings for Goldman. Just loosening the rules for IPOs,
said Tyler Gellasch, the former Senate staffer, “could
mean hundreds of millions of dollars more to Goldman.”
In June, the
Treasury Department released a statement of principles about the
administration’s approach to financial regulation focused on
promoting “liquid and vibrant markets.” Not surprisingly, the
report included a call to ease capital requirements and substantially
amend the Volcker Rule.
It’s
Cohn’s influence over the country’s regulators that worries
Dennis Kelleher, the financial reform lobbyist. “To him, what’s
good for Wall Street is good for the economy,” Kelleher said of
Cohn. “Maybe that makes sense when a guy has spent 26 years at
Goldman, a company who has repaid his loyalties and sweat with a net
worth in the hundreds of millions.” Kelleher recalls those who
lost a home or a chunk of their retirement savings during a financial
crisis that Cohn helped precipitate. “They’re still
suffering,” he said. “Yet now Cohn’s in charge of the
economy and talking about eliminating financial reform and basically
putting the country back to where it was in 2005, as if 2008 didn’t
happen. I’ve started the countdown clock to the next financial
crash, which will make the last one look mild.”
***
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