According to today’s Wall Street Journal, former Goldman Sachs President Gary Cohn, who President Trump has tapped to be White House National Economic Council director, says he is going to dismantle the Dodd-Frank Act. This law was enacted in 2010 in reaction to the massive, systematic cheating that Wall Street and mortgage underwriters such as Countrywide engaged in during the sub-prime loan crisis.
Cohn’s announcement is part of a pattern of behavior at Goldman, which has the least ethical culture of any major financial institution. President Lloyd Blankfein a.k.a. Blankenstein told the New York Times recently that Goldman people like to serve in government because after they make all that money at Goldman, they want to engage in high-minded civic duties. That’s why there are no fewer than three former Goldman people serving in key positions in the Trump Administration, he said.
Hogwash, says I. People who go from Goldman into the federal government take actions that benefit Goldman. It was Treasury Secretary Henry Paulson, after all, who made key decisions that resulted in the crash of Bear Stearns, a key Goldman rival, in 2008. Other financial institutions were saved but not Bear. That helped precipitate a severe financial crisis. And earlier during the Clinton Administration, Robert Rubin, a 28-year veteran of Goldman, fiercely resisted any regulation of derivatives and other exotic financial instruments. In 1999, he helped persuade President Clinton to repeal significant portions of the Glass-Steagall Act, a Depression-era law that aimed to keep investment banks out of the commercial banking business and vice versa. There was a Chinese wall, so to speak, between investment banks and commercial banks. Goldman Sachs reaped enormous gains from all this high-minded help from its alumni.
Now comes Cohn saying he is going to gut Dodd-Frank and he’s doing it to benefit all Americans. I almost lost my breakfast roll when I read that. “Americans are going to have better choices and Americans are going to have better products because we’re not going to burden the banks with literally hundreds of billions of dollars of regulatory costs every year,” he was quoted as saying.
The way this really works is that all of Cohn’s pals at Goldman now will be able to make more money because the rules are going to be dramatically loosened. Cohn himself may not benefit directly because he had to sell his shares to join the government. But many of his best friends will cash in on what he is doing. He’ll be the favored guest at all the most elegant soirees out in the Hamptons. Then after a decent interval, he’ll leave the government job and rejoin the private sector, where he will cash in on his knowledge of the Trump Administration’s decision-making process. Mark my words. That’s how Goldman Sachs plays the game.