Tomgram: Nomi Prins, Goldmanizing Donald Trump
By Nomi Prins
Posted on January 29, 2017, Printed on February 3, 2017
http://www.tomdispatch.com/blog/176236/ ;
The Goldman Sachs Effect
How a Bank Conquered Washington
By Nomi Prins
Irony isn't a concept with which President Donald J. Trump is familiar. In
his Inaugural Address, having nominated the wealthiest cabinet in American
history, he proclaimed, "For too long, a small group in our nation's capital
has reaped the rewards of government while the people have borne the cost.
Washington flourished -- but the people did not share in its wealth." Under
Trump, an even smaller group will flourish -- in particular, a cadre of
former Goldman Sachs executives. To put the matter bluntly, two of them
(along with the Federal Reserve) are likely to control our economy and
financial system in the years to come.
Infusing Washington with Goldman alums isn't exactly an original idea. Three
of the last four presidents, including The Donald, have handed the wheel of
the U.S. economy to ex-Goldmanites. But in true Trumpian style, after
attacking Hillary Clinton for her Goldman ties, he wasn't satisfied to do
just that. He had to do it bigger and better. Unlike Bill Clinton and
George W. Bush, just a sole Goldman figure lording it over economic policy
wasn't enough for him. Only two would do.
The Great Vampire Squid Revisited
Whether you voted for or against Donald Trump, whether you're gearing up for
the revolution or waiting for his next tweet to drop, rest assured that, in
the years to come, the ideology that matters most won't be that of the
"forgotten" Americans of his Inaugural Address. It will be that of Goldman
Sachs and it will dominate the domestic economy and, by extension, the
global one.
At the dawn of the twentieth century, when President Teddy Roosevelt
governed the country on a platform of trust busting aimed at reducing
corporate power, even he could not bring himself to bust up the banks. That
was a mistake born of his collaboration with the financier J.P. Morgan to
mitigate the effects of the Bank Panic of 1907. Roosevelt feared that if he
didn't enlist the influence of the country's major banker, the crisis would
be even longer and more disastrous. It's an error he might not have made
had he foreseen the effect that one particular investment bank would have on
America's economy and political system.
There have been hundreds of articles written about the "world's most
powerful investment bank," or as journalist Matt Taibbi famously called it
back in 2010, the "great vampire squid." That squid is now about to wrap its
tentacles around our world in a way previously not imagined by Bill Clinton
or George W. Bush.
No less than six Trump administration appointments already hail from that
single banking outfit. Of those, two will impact your life strikingly:
former Goldman partner and soon-to-be Treasury Secretary Steven Mnuchin and
incoming top economic adviser and National Economic Council Chair Gary Cohn,
former president and "number two" at Goldman. (The Council he will head has
been responsible for "policy-making for domestic and international economic
issues.")
Now, let's take a step into history to get the full Monty on why this
matters more than you might imagine. In New York, circa 1932, then-Governor
Franklin Delano Roosevelt announced his bid for the presidency. At the time,
our nation was in the throes of the Great Depression. Goldman Sachs had, in
fact, been one of the banks at the core of the infamous crash of 1929 that
crippled the financial system and nearly destroyed the economy. It was then
run by a dynamic figure, Sidney Weinberg, dubbed "the Politician" by
Roosevelt because of his smooth tongue and "Mr. Wall Street" by the New York
Times because of his range of connections there. Weinberg quickly grasped
that, to have a chance of redeeming his firm's reputation from the ashes of
public opinion, he would need to aim high indeed. So he made himself
indispensable to Roosevelt's campaign for the presidency, soon embedding
himself on the Democratic National Campaign Executive Committee.
After victory, he was not forgotten. FDR named him to the Business Advisory
Council of the Department of Commerce, even as he continued to run Goldman
Sachs. He would, in fact, go on to serve as an advisor to five more
presidents, while Goldman would be transformed from a boutique banking
operation into a global leviathan with a direct phone line to whichever
president held office and a permanent seat at the table in political and
financial Washington.
Now, let's jump forward to the 1990s when Robert Rubin, co-chairman of
Goldman Sachs, took a page from Weinberg's playbook. He recognized the
potential in a young, charismatic governor from Arkansas with a favorable
attitude toward banks. Since Bill Clinton was far less well known than FDR
had been, Rubin didn't actually cozy up to him from the get-go. It was
another Goldman Sachs executive, Ken Brody, who introduced them, but Rubin
would eventually help Clinton gain Wall Street cred and the kind of funding
that would make his successful 1992 run for the presidency possible. Those
were favors that the new president wouldn't forget. As a reward, and because
he felt comfortable with Rubin's economic philosophy, Clinton created a
special post just for him: first chair of the new National Economic Council.
It was then only a matter of time until he was elevated to Treasury
Secretary. In that position, he would accomplish something Ronald Reagan --
the first president to appoint a Treasury Secretary directly from Wall
Street (former CEO of Merrill Lynch Donald Regan) -- and George H.W. Bush
failed to do. He would get the Glass-Steagall Act of 1933 repealed by
hustling President Clinton into backing such a move. FDR had signed the act
in order to separate investment banks from commercial banks, ensuring that
risky and speculative banking practices would not be funded with the
deposits of hard-working Americans. The act did what it was intended to do.
It inoculated the nation against the previously reckless behavior of its
biggest banks.
Rubin, who had left government service six months earlier, wasn't even in
Washington when, on November 12, 1999, Clinton signed the Gramm-Leach-Bliley
Act that repealed Glass-Steagall. He had, however, become a board member of
Citigroup, one of the key beneficiaries of that repeal, about two weeks
earlier.
As Treasury Secretary, Rubin also helped craft the North American Free Trade
Agreement (NAFTA). He subsequently convinced both President Clinton and
Congress to raid U.S. taxpayer coffers to "help" Mexico when its banking
system and peso crashed thanks to NAFTA. In reality, of course, he was
lending a hand to American banks with exposure in Mexico. The subsequent
$25 billion bailout would protect Goldman Sachs, as well as other big Wall
Street banks, from losing boatloads of money. Think of it as a test run for
the great bailout of 2008.
A World Made by and for Goldman Sachs
Moving on to more recent history, consider a moment when yet another
Goldmanite was at the helm of the economy. From 1970 to 1973, Henry
("Hank") Paulson had worked in various positions in the Nixon
administration. In 1974, he joined Goldman Sachs, becoming its chairman and
CEO in 1999. I was at Goldman at the time. (I left in 2002.) I remember
the constant internal chatter about whether an investment bank like Goldman
could continue to compete against the super banks that the Glass-Steagall
repeal had created. The buzz was that if Goldman and similar investment
banks were allowed to borrow more against their assets ("leverage
themselves" in banking-speak), they wouldn't need to use individual deposits
as collateral for their riskier deals.
In 2004, Paulson helped convince the Securities and Exchange Commission
(SEC) to change its regulations so that investment banks could operate as if
they had the kind of collateral or backing for their trades that goliaths
like Citigroup and JPMorgan Chase had. As a result, Goldman Sachs, Lehman
Brothers, and Bear Stearns, to name three that would become notorious in the
economic meltdown only four years later (and all ones for which I once
worked) promptly leveraged themselves to the hilt. As they were doing so,
George W. Bush made Paulson his third and final Treasury Secretary. In that
capacity, Paulson managed to completely ignore the crisis brewing as a
direct result of the repeal of Glass-Steagall, the one I predicted was
coming in Other People's Money, the book I wrote when I left Goldman.
In 2006, Paulson was questioned on his obvious conflicts of interest and
responded, "Conflicts are a fact of life in many, if not most, institutions,
ranging from the political arena and government to media and industry. The
key is how we manage them." At the time, I wrote, "The question isn't how
it's a conflict of interest for Paulson to preside over our country's
economy but how it's not?" For men like Paulson, after all, such conflicts
don't just involve their business holdings. They also involve the ideology
associated with those holdings, which for him at that time came down to a
deep belief in pursuing the full-scale deregulation of banking.
Paulson was, of course, Treasury Secretary for the period in which the 2008
financial crisis was brewing and then erupted. When it happened, he was the
one who got to decide which banks survived and which died. Under his
ministrations, Lehman Brothers died; Bear Stearns was given to JPMorgan
Chase (along with plenty of government financial support); and you won't be
surprised to learn that Goldman Sachs thrived. While designing that outcome
under the pressure of the moment, Paulson pled with Nancy Pelosi to press
the Democrats in the House of Representatives to support a staggering $700
billion bailout. All those taxpayer dollars went with the 2008 Emergency
Financial Stability Act that would save the banking system (under the
auspices of saving the economy) and leave it resplendently triumphant,
bonuses included), even as foreclosures rose by 21% the following year.
Once again, it was a world made by and for Goldman Sachs.
Goldman Back in the (White) House
Running for office as an outsider is one thing. Instantly inviting Wall
Street into that office once you arrive is another. Now, it seems that
Donald Trump is bringing us the newest chapter in the long-running White
House-Goldman Sachs saga. And count on Steven Mnuchin and Gary Cohn to offer
a few fresh wrinkles on that old alliance.
Cohn was one of the partners who ran the Fixed Income, Currency and
Commodity (FICC) division of Goldman. It was the one that benefited the most
from leverage, trading, and the complexity of Wall Street's financial
concoctions like collateralized debt obligations (CDOs) stuffed with
derivatives attached to subprime mortgages. You could say, it was leverage
that helped propel Cohn up the Goldman food chain.
Steven Mnuchin has proven particularly adept at understanding such
concoctions. He left Goldman in 2002. In 2004, with two other ex-Goldman
partners, he formed the hedge fund Dune Capital Management. In the wake of
the 2008 financial crisis, Dune went shopping, as Wall Street likes to do,
for cheap buys it could convert into big profits. Mnuchin and his pals found
the perfect prey in a Pasadena-based bank, IndyMac, that had failed in July
2008 before the financial crisis kicked into high gear, and had been seized
by the Federal Deposit Insurance Corporation (FDIC). They would pick up its
assets on the cheap.
At his confirmation hearings, Mnuchin downplayed his role in throwing
homeowners (including members of the military) out of their heavily
mortgaged homes as a result of that purchase. He cast himself instead as a
genuine hero, the guy who convened a cadre of financial sharks to help, not
harm, the bank's customers who, without their benevolence, would have fared
so much worse. He looked deeply earnest as he spoke of his role as the
savior of the common -- or perhaps in the age of Trump "forgotten" -- man
and woman. Maybe he even believed it.
But the philosophy of swooping in, attacking an IndyMac-like target of
opportunity and converting it into a fortune for himself (and problems for
everyone else), has been a hallmark of his career. To transfer this version
of over-amped 1% opportunism to the halls of political power is certainly a
new definition of, in Trumpian terms, giving the government back to "the
people." Perhaps what our new president meant was "the people at Goldman
Sachs." Think of it, in any case, as the supercharging of a vulture
mentality in a designer suit, the very attitude that once fueled the rise to
power of Goldman Sachs.
Mnuchin repeatedly blamed the FDIC and other government agencies for not
helping him help homeowners. "In the press it has been said that I ran a
'foreclosure machine,'" he said, "On the contrary, I was committed to loan
modifications intended to stop foreclosures. I ran a 'Loan Modification
Machine.' Whenever we could do loan modifications we did them, but many
times, the FDIC, FNMA, FHLMC, and bank trustees imposed strict rules
governing the processing of these loans." Nothing, that is, was or ever is
his fault -- reflecting his inability to take the slightest responsibility
for his undeniable role in kicking people out of their homes when they could
have remained. It's undoubtedly the perfect trait for a Treasury secretary
in a government of the 1% of the 1%.
Mnuchin also blamed the Federal Reserve for suggesting that the Volcker Rule
-- part of the Dodd-Frank Act of 2010 designed to limit risky trading
activities -- was harming bank liquidity and could be a problem. The way he
did that was typically slick. He claimed to support the Volcker Rule, even
as he underscored the Fed's concern with it. In this way, he managed both to
make himself look squeaky clean and very publicly open the door to a
possible Trumpian "revision" of that rule that would be aimed at weakening
its intent and once again deregulating bank trading activities.
Similarly, at those confirmation hearings he said (as Trump had previously)
that we needed to help community banks compete against the bigger ones
through less onerous regulations. Even though this may indeed be true, it is
also guaranteed to be another bait-and-switch move likely to lead to the
deregulation of the big banks, too, ultimately rendering them even bigger
and more dangerous not just to those community banks but to all of us.
Indeed, any proposition to reduce the size of big banks was sidestepped.
Although Mnuchin did say that four monster banks shouldn't run the country,
he didn't say that they should be broken up. He won't. Nor will Cohn. In
response to a question from Democratic Senator Maria Cantwell, he added,
"No, I don't support going back to Glass-Steagall as is. What we've talked
about with the president-elect is that perhaps we need a
twenty-first-century Glass-Steagall. But, no I don't support taking a very
old law and saying we should adhere to it as is."
So, although the reinstatement of Glass-Steagall was part of the 2016
Republican election platform, it's likely to prove just another of Trump's
many tactics to gain votes -- in this case, from Bernie Sanders supporters
and libertarians who see too-big-to-fail institutions and a big-bank bailout
policy as wrong and dangerous. Rest assured, though, Mnuchin and his Goldman
Sachs pals will allow the largest Wall Street players to remain as virulent
and parasitic as they are now, if not more so.
Goldman itself just announced that it was the world's top merger and
acquisitions adviser for the sixth consecutive year. In other words, the
real deal-maker isn't the former ruler of The Celebrity Apprentice, but
Goldman Sachs. The government might change, but Goldman stays the same. And
the traffic pile up of Goldman personalities in Trump's corner made their
fortunes doing deals -- and not the kind that benefited the public either.
A former Goldman colleague recently asked me whether it was just possible
that Mnuchin was a good person. I can't answer that. It's something only he
knows for sure. But no matter how earnest or sympathetic to the little guy
he tried to be before that Senate confirmation committee, I do know one
thing: he's also a shark. And sharks do what they're best at and what's best
for them. They smell blood in the water and go in for the kill. Think of it
as the Goldman Sachs effect. In the waters of the Trump-Goldman era, don't
doubt for a second that the blood will be our own.
Nomi Prins, a TomDispatch regular, is the author of six books. Her most
recent is All the Presidents' Bankers: The Hidden Alliances That Drive
American Power (Nation Books). She is a former Wall Street executive.
Special thanks go to researcher Craig Wilson for his superb work on this
piece.
Follow TomDispatch on Twitter and join us on Facebook. Check out the newest
Dispatch Book, John Feffer's dystopian novel Splinterlands, as well as Nick
Turse's Next Time They'll Come to Count the Dead, and Tom Engelhardt's
latest book, Shadow Government: Surveillance, Secret Wars, and a Global
Security State in a Single-Superpower World.
Copyright 2017 Nomi Prins
C 2017 TomDispatch. All rights reserved.
View this story online at: http://www.tomdispatch.com/blog/176236
Tomgram: Nomi Prins, Goldmanizing Donald Trump
By Nomi Prins
Posted on January 29, 2017, Printed on February 3, 2017
http://www.tomdispatch.com/blog/176236/ ;
We now find ourselves in Donald Trump's back-to-the-future world. And why
should we be surprised? His whole campaign pitch was to do it "again" -- to
return to his dream of past American greatness, which seems mired in a 1950s
America of burning fossil fuels and urban smog. In his very first days in
office, through executive orders he's already moved to revive two pipeline
projects: the building of the Keystone XL pipeline from Canada to the Gulf
Coast, cancelled by the Obama administration in 2015 after years of massive
environmental protests, and the Dakota Access Pipeline, halted by the Obama
administration late last year after fierce and effective protests by Native
American tribes and others. At the same time, his administration has
"frozen" all grants and contracts at the Environmental Protection Agency, a
first step toward what will undoubtedly be an attempt to drag us back into
an American past that lacked serious environmental protections. The
president also took the first step -- another executive order -- toward
rolling back (or simply rolling up) the Affordable Care Act. This was part
of what will clearly be an attempt to quite literally roll back history by
obliterating the "legacy" of the country's first black president, including
possibly bringing back CIA "black sites" and "enhanced interrogation
techniques," both banned by Obama on entering the Oval Office. (Again, none
of this should be surprising since Trump began his political career as the
chief spokesman for birtherism, the initial attempt to delegitimize Obama's
presidency.) And we await the new president's announcement of his Supreme
Court nominee to fill the empty seat of Antonin Scalia, knowing that at
least one of his leading choices, a fierce opponent of both abortion and gay
rights, would be ready to roll the clock back, in the case of Roe v. Wade,
to the years before 1973, if not to the 1950s. Clearly, these are just
initial steps on the road not to a genuine future but to what, by now, has
become a kind of fantasy past.
And speaking of "again," as TomDispatch regular Nomi Prins, author of All
the Presidents' Bankers, points out today, there's always Goldman Sachs,
which is really a case of again and again and again. Who even remembers the
campaign moments when Trump claimed that "the guys at Goldman Sachs... have
total control over Hillary Clinton" and tweeted that she was "owned by Wall
Street"? Now, The Donald has smashed all past records by appointing six
Goldman Sachs alumni to posts in his administration. Think of that as again
with a couple of exclamation points attached to it, a coup for an investment
bank that has been a government powerhouse, as Prins makes so clear, since
the 1930s. So buckle up, settle into that time machine, and head back to the
future in an unprecedented way. Tom
The Goldman Sachs Effect
How a Bank Conquered Washington
By Nomi Prins
Irony isn't a concept with which President Donald J. Trump is familiar. In
his Inaugural Address, having nominated the wealthiest cabinet in American
history, he proclaimed, "For too long, a small group in our nation's capital
has reaped the rewards of government while the people have borne the cost.
Washington flourished -- but the people did not share in its wealth." Under
Trump, an even smaller group will flourish -- in particular, a cadre of
former Goldman Sachs executives. To put the matter bluntly, two of them
(along with the Federal Reserve) are likely to control our economy and
financial system in the years to come.
Infusing Washington with Goldman alums isn't exactly an original idea. Three
of the last four presidents, including The Donald, have handed the wheel of
the U.S. economy to ex-Goldmanites. But in true Trumpian style, after
attacking Hillary Clinton for her Goldman ties, he wasn't satisfied to do
just that. He had to do it bigger and better. Unlike Bill Clinton and George
W. Bush, just a sole Goldman figure lording it over economic policy wasn't
enough for him. Only two would do.
The Great Vampire Squid Revisited
Whether you voted for or against Donald Trump, whether you're gearing up for
the revolution or waiting for his next tweet to drop, rest assured that, in
the years to come, the ideology that matters most won't be that of the
"forgotten" Americans of his Inaugural Address. It will be that of Goldman
Sachs and it will dominate the domestic economy and, by extension, the
global one.
At the dawn of the twentieth century, when President Teddy Roosevelt
governed the country on a platform of trust busting aimed at reducing
corporate power, even he could not bring himself to bust up the banks. That
was a mistake born of his collaboration with the financier J.P. Morgan to
mitigate the effects of the Bank Panic of 1907. Roosevelt feared that if he
didn't enlist the influence of the country's major banker, the crisis would
be even longer and more disastrous. It's an error he might not have made had
he foreseen the effect that one particular investment bank would have on
America's economy and political system.
There have been hundreds of articles written about the "world's most
powerful investment bank," or as journalist Matt Taibbi famously called it
back in 2010, the "great vampire squid." That squid is now about to wrap its
tentacles around our world in a way previously not imagined by Bill Clinton
or George W. Bush.
No less than six Trump administration appointments already hail from that
single banking outfit. Of those, two will impact your life strikingly:
former Goldman partner and soon-to-be Treasury Secretary Steven Mnuchin and
incoming top economic adviser and National Economic Council Chair Gary Cohn,
former president and "number two" at Goldman. (The Council he will head has
been responsible for "policy-making for domestic and international economic
issues.")
Now, let's take a step into history to get the full Monty on why this
matters more than you might imagine. In New York, circa 1932, then-Governor
Franklin Delano Roosevelt announced his bid for the presidency. At the time,
our nation was in the throes of the Great Depression. Goldman Sachs had, in
fact, been one of the banks at the core of the infamous crash of 1929 that
crippled the financial system and nearly destroyed the economy. It was then
run by a dynamic figure, Sidney Weinberg, dubbed "the Politician" by
Roosevelt because of his smooth tongue and "Mr. Wall Street" by the New York
Times because of his range of connections there. Weinberg quickly grasped
that, to have a chance of redeeming his firm's reputation from the ashes of
public opinion, he would need to aim high indeed. So he made himself
indispensable to Roosevelt's campaign for the presidency, soon embedding
himself on the Democratic National Campaign Executive Committee.
After victory, he was not forgotten. FDR named him to the Business Advisory
Council of the Department of Commerce, even as he continued to run Goldman
Sachs. He would, in fact, go on to serve as an advisor to five more
presidents, while Goldman would be transformed from a boutique banking
operation into a global leviathan with a direct phone line to whichever
president held office and a permanent seat at the table in political and
financial Washington.
Now, let's jump forward to the 1990s when Robert Rubin, co-chairman of
Goldman Sachs, took a page from Weinberg's playbook. He recognized the
potential in a young, charismatic governor from Arkansas with a favorable
attitude toward banks. Since Bill Clinton was far less well known than FDR
had been, Rubin didn't actually cozy up to him from the get-go. It was
another Goldman Sachs executive, Ken Brody, who introduced them, but Rubin
would eventually help Clinton gain Wall Street cred and the kind of funding
that would make his successful 1992 run for the presidency possible. Those
were favors that the new president wouldn't forget. As a reward, and because
he felt comfortable with Rubin's economic philosophy, Clinton created a
special post just for him: first chair of the new National Economic Council.
http://www.amazon.com/dp/1568584792/ref=nosim/?tag=tomdispatch-20
http://www.amazon.com/dp/1568584792/ref=nosim/?tag=tomdispatch-20It was then
only a matter of time until he was elevated to Treasury Secretary. In that
position, he would accomplish something Ronald Reagan -- the first president
to appoint a Treasury Secretary directly from Wall Street (former CEO of
Merrill Lynch Donald Regan) -- and George H.W. Bush failed to do. He would
get the Glass-Steagall Act of 1933 repealed by hustling President Clinton
into backing such a move. FDR had signed the act in order to separate
investment banks from commercial banks, ensuring that risky and speculative
banking practices would not be funded with the deposits of hard-working
Americans. The act did what it was intended to do. It inoculated the nation
against the previously reckless behavior of its biggest banks.
Rubin, who had left government service six months earlier, wasn't even in
Washington when, on November 12, 1999, Clinton signed the Gramm-Leach-Bliley
Act that repealed Glass-Steagall. He had, however, become a board member of
Citigroup, one of the key beneficiaries of that repeal, about two weeks
earlier.
As Treasury Secretary, Rubin also helped craft the North American Free Trade
Agreement (NAFTA). He subsequently convinced both President Clinton and
Congress to raid U.S. taxpayer coffers to "help" Mexico when its banking
system and peso crashed thanks to NAFTA. In reality, of course, he was
lending a hand to American banks with exposure in Mexico. The subsequent $25
billion bailout would protect Goldman Sachs, as well as other big Wall
Street banks, from losing boatloads of money. Think of it as a test run for
the great bailout of 2008.
A World Made by and for Goldman Sachs
Moving on to more recent history, consider a moment when yet another
Goldmanite was at the helm of the economy. From 1970 to 1973, Henry ("Hank")
Paulson had worked in various positions in the Nixon administration. In
1974, he joined Goldman Sachs, becoming its chairman and CEO in 1999. I was
at Goldman at the time. (I left in 2002.) I remember the constant internal
chatter about whether an investment bank like Goldman could continue to
compete against the super banks that the Glass-Steagall repeal had created.
The buzz was that if Goldman and similar investment banks were allowed to
borrow more against their assets ("leverage themselves" in banking-speak),
they wouldn't need to use individual deposits as collateral for their
riskier deals.
In 2004, Paulson helped convince the Securities and Exchange Commission
(SEC) to change its regulations so that investment banks could operate as if
they had the kind of collateral or backing for their trades that goliaths
like Citigroup and JPMorgan Chase had. As a result, Goldman Sachs, Lehman
Brothers, and Bear Stearns, to name three that would become notorious in the
economic meltdown only four years later (and all ones for which I once
worked) promptly leveraged themselves to the hilt. As they were doing so,
George W. Bush made Paulson his third and final Treasury Secretary. In that
capacity, Paulson managed to completely ignore the crisis brewing as a
direct result of the repeal of Glass-Steagall, the one I predicted was
coming in Other People's Money, the book I wrote when I left Goldman.
In 2006, Paulson was questioned on his obvious conflicts of interest and
responded, "Conflicts are a fact of life in many, if not most, institutions,
ranging from the political arena and government to media and industry. The
key is how we manage them." At the time, I wrote, "The question isn't how
it's a conflict of interest for Paulson to preside over our country's
economy but how it's not?" For men like Paulson, after all, such conflicts
don't just involve their business holdings. They also involve the ideology
associated with those holdings, which for him at that time came down to a
deep belief in pursuing the full-scale deregulation of banking.
Paulson was, of course, Treasury Secretary for the period in which the 2008
financial crisis was brewing and then erupted. When it happened, he was the
one who got to decide which banks survived and which died. Under his
ministrations, Lehman Brothers died; Bear Stearns was given to JPMorgan
Chase (along with plenty of government financial support); and you won't be
surprised to learn that Goldman Sachs thrived. While designing that outcome
under the pressure of the moment, Paulson pled with Nancy Pelosi to press
the Democrats in the House of Representatives to support a staggering $700
billion bailout. All those taxpayer dollars went with the 2008 Emergency
Financial Stability Act that would save the banking system (under the
auspices of saving the economy) and leave it resplendently triumphant,
bonuses included), even as foreclosures rose by 21% the following year.
Once again, it was a world made by and for Goldman Sachs.
Goldman Back in the (White) House
Running for office as an outsider is one thing. Instantly inviting Wall
Street into that office once you arrive is another. Now, it seems that
Donald Trump is bringing us the newest chapter in the long-running White
House-Goldman Sachs saga. And count on Steven Mnuchin and Gary Cohn to offer
a few fresh wrinkles on that old alliance.
Cohn was one of the partners who ran the Fixed Income, Currency and
Commodity (FICC) division of Goldman. It was the one that benefited the most
from leverage, trading, and the complexity of Wall Street's financial
concoctions like collateralized debt obligations (CDOs) stuffed with
derivatives attached to subprime mortgages. You could say, it was leverage
that helped propel Cohn up the Goldman food chain.
Steven Mnuchin has proven particularly adept at understanding such
concoctions. He left Goldman in 2002. In 2004, with two other ex-Goldman
partners, he formed the hedge fund Dune Capital Management. In the wake of
the 2008 financial crisis, Dune went shopping, as Wall Street likes to do,
for cheap buys it could convert into big profits. Mnuchin and his pals found
the perfect prey in a Pasadena-based bank, IndyMac, that had failed in July
2008 before the financial crisis kicked into high gear, and had been seized
by the Federal Deposit Insurance Corporation (FDIC). They would pick up its
assets on the cheap.
At his confirmation hearings, Mnuchin downplayed his role in throwing
homeowners (including members of the military) out of their heavily
mortgaged homes as a result of that purchase. He cast himself instead as a
genuine hero, the guy who convened a cadre of financial sharks to help, not
harm, the bank's customers who, without their benevolence, would have fared
so much worse. He looked deeply earnest as he spoke of his role as the
savior of the common -- or perhaps in the age of Trump "forgotten" -- man
and woman. Maybe he even believed it.
But the philosophy of swooping in, attacking an IndyMac-like target of
opportunity and converting it into a fortune for himself (and problems for
everyone else), has been a hallmark of his career. To transfer this version
of over-amped 1% opportunism to the halls of political power is certainly a
new definition of, in Trumpian terms, giving the government back to "the
people." Perhaps what our new president meant was "the people at Goldman
Sachs." Think of it, in any case, as the supercharging of a vulture
mentality in a designer suit, the very attitude that once fueled the rise to
power of Goldman Sachs.
Mnuchin repeatedly blamed the FDIC and other government agencies for not
helping him help homeowners. "In the press it has been said that I ran a
'foreclosure machine,'" he said, "On the contrary, I was committed to loan
modifications intended to stop foreclosures. I ran a 'Loan Modification
Machine.' Whenever we could do loan modifications we did them, but many
times, the FDIC, FNMA, FHLMC, and bank trustees imposed strict rules
governing the processing of these loans." Nothing, that is, was or ever is
his fault -- reflecting his inability to take the slightest responsibility
for his undeniable role in kicking people out of their homes when they could
have remained. It's undoubtedly the perfect trait for a Treasury secretary
in a government of the 1% of the 1%.
Mnuchin also blamed the Federal Reserve for suggesting that the Volcker Rule
-- part of the Dodd-Frank Act of 2010 designed to limit risky trading
activities -- was harming bank liquidity and could be a problem. The way he
did that was typically slick. He claimed to support the Volcker Rule, even
as he underscored the Fed's concern with it. In this way, he managed both to
make himself look squeaky clean and very publicly open the door to a
possible Trumpian "revision" of that rule that would be aimed at weakening
its intent and once again deregulating bank trading activities.
Similarly, at those confirmation hearings he said (as Trump had previously)
that we needed to help community banks compete against the bigger ones
through less onerous regulations. Even though this may indeed be true, it is
also guaranteed to be another bait-and-switch move likely to lead to the
deregulation of the big banks, too, ultimately rendering them even bigger
and more dangerous not just to those community banks but to all of us.
Indeed, any proposition to reduce the size of big banks was sidestepped.
Although Mnuchin did say that four monster banks shouldn't run the country,
he didn't say that they should be broken up. He won't. Nor will Cohn. In
response to a question from Democratic Senator Maria Cantwell, he added,
"No, I don't support going back to Glass-Steagall as is. What we've talked
about with the president-elect is that perhaps we need a
twenty-first-century Glass-Steagall. But, no I don't support taking a very
old law and saying we should adhere to it as is."
So, although the reinstatement of Glass-Steagall was part of the 2016
Republican election platform, it's likely to prove just another of Trump's
many tactics to gain votes -- in this case, from Bernie Sanders supporters
and libertarians who see too-big-to-fail institutions and a big-bank bailout
policy as wrong and dangerous. Rest assured, though, Mnuchin and his Goldman
Sachs pals will allow the largest Wall Street players to remain as virulent
and parasitic as they are now, if not more so.
Goldman itself just announced that it was the world's top merger and
acquisitions adviser for the sixth consecutive year. In other words, the
real deal-maker isn't the former ruler of The Celebrity Apprentice, but
Goldman Sachs. The government might change, but Goldman stays the same. And
the traffic pile up of Goldman personalities in Trump's corner made their
fortunes doing deals -- and not the kind that benefited the public either.
A former Goldman colleague recently asked me whether it was just possible
that Mnuchin was a good person. I can't answer that. It's something only he
knows for sure. But no matter how earnest or sympathetic to the little guy
he tried to be before that Senate confirmation committee, I do know one
thing: he's also a shark. And sharks do what they're best at and what's best
for them. They smell blood in the water and go in for the kill. Think of it
as the Goldman Sachs effect. In the waters of the Trump-Goldman era, don't
doubt for a second that the blood will be our own.
Nomi Prins, a TomDispatch regular, is the author of six books. Her most
recent is All the Presidents' Bankers: The Hidden Alliances That Drive
American Power (Nation Books). She is a former Wall Street executive.
Special thanks go to researcher Craig Wilson for his superb work on this
piece.
Follow TomDispatch on Twitter and join us on Facebook. Check out the newest
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Copyright 2017 Nomi Prins
C 2017 TomDispatch. All rights reserved.
View this story online at: http://www.tomdispatch.com/blog/176236