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Why is Wall Street worried about Gary Cohn's exit?

Gary Cohn's decision to leave the White House has Wall Street worried. As President Trump's top economic adviser, Cohn was a proponent of free trade. Now investors are worried that Trump will carry out his protectionist policies. 

Posted: Mar 9, 2018 1:11 PM
Updated: Mar 9, 2018 1:28 PM

Most observers today, including myself, bemoan the reason that Gary Cohn is leaving the Trump White House. The President's top economic adviser lost the trade policy battle with Trump and the protectionists around him, as the President insists he will impose tariffs on steel and aluminum -- and stock markets are falling as a result.

Still, I will shed no tears to see the former president and chief operating officer of Goldman-Sachs head for the exit. The White House-Goldman Sachs revolving door has been costly for the nation.

The central role of Goldman Sachs in national policy-making has been evident for a quarter century. Bill Clinton married the Democratic Party with Wall Street by bringing on Goldman-Sachs' co-chairman Robert Rubin, first as his economic adviser and then as Treasury Secretary (1995-1999). George W. Bush had Goldman chairman and CEO Henry Paulson as his Treasury Secretary (2006-2009).

Barack Obama's White House was staffed to the gills with Rubin acolytes. And Trump brought in Gary Cohn, along with Treasury Secretary Steve Mnuchin and former political adviser Steve Bannon -- all Goldman-Sachs alumni.

So what has been the result of Goldman's extraordinary run of power? There are a few glimmers of light and public service, and huge dollops of hubris and self-interest followed by disaster. The company owes the United States a huge apology and a generation of penance -- far away from power, I hope.

Rubin gets reasonably high marks for his early years as Clinton's adviser and Treasury secretary. He persuaded Clinton to manage a responsible fiscal policy, raising taxes early on, despite cries of doom from the Republicans. This led to budget surpluses, falling debt-GDP ratios, and a boom economy in Clinton's second term.

Yet this positive record was tarnished by three blunders. Rubin mismanaged the 1997 Asian financial crisis, helping to turn a financial hiccup in Thailand into a deep macroeconomic downturn in Asia. Two years later, Clinton, Rubin, Treasury Secretary Larry Summers (1999-2001), and former Federal Reserve Chairman Alan Greenspan presided over the dotcom bubble, which they had negligently allowed to build to excess.

By far the worst step was the Clinton-Rubin play in 1999 to dismantle the Glass-Steagall barriers between investment and commercial banking, which led willy-nilly to the too-big-too-fail syndrome that culminated in the 2008 financial disaster.

After repealing Glass-Steagall, Rubin almost immediately took up a cushy job at Citigroup, a newly created financial firm he brought about while Treasury secretary, collecting more than $150 million in compensation between 1999 and 2008. Citibank was poorly governed, and ended up in disaster after the 2008 financial crisis, requiring a massive government bailout to stay in business.

Nonetheless, Rubin's policy errors pale in comparison with the disaster that his Goldman successor Paulson committed in 2008. Paulson's tenure as Treasury secretary may indeed go down in history as among the worst in the nation's history, with one especially horrible decision: to push Lehman Brothers into an explosive Chapter 11 bankruptcy on September 14, 2008.

Paulson had no idea what he was about to trigger: the worst global financial panic in decades, with catastrophic declines of tens of trillions of dollars in worldwide financial wealth in the aftermath of the Lehman failure. The financial panic was followed by vast sums given to Wall Street in federal bailouts and cheap loans -- of course, not least to Goldman-Sachs itself, which eventually had to pay out billions of dollars in fines in response to charges of financial wrongdoing.

Ironically, though not coincidentally, presidential candidate Barack Obama immediately turned to Robert Rubin in September 2008 for advice on how to handle the exploding financial crisis. As President, Obama staffed the White House and Treasury with Rubin's protégés -- Timothy Geithner, Lawrence Summers, and Peter Orszag. They helped to stabilize the economy but also coddled the banks.

The Obama economic team, among others in the administration, gave Wall Street's malefactors a free pass, bailed them out, turned a blind eye to a return of megasalaries, and quickly welcomed them back to White House state dinners.

Gary Cohn's brief tenure in the Trump administration will not be kindly remembered by others than the financial elite. Cohn did not create a financial crisis like his Goldman predecessors. Instead, he spent his time in power to help implement a tax cut for the rich that will be remembered in history as grossly unfair, ineffective, and unaffordable.

The tax cut is being hawked by Trump and the Republican Party as a great success that has boosted employment, wages, profits, and the stock market. It won't look that way in longer-term retrospect. It will be remembered as a budget-buster that grossly exacerbated inequality, drove up public debt, and failed to do much, if anything, to spark overall growth and jobs.

Today we note -- and applaud -- Cohn's defense of free trade in the midst of Trump's mindless, ignorant, and dangerous assault on the international trading system. Bravo. Yet in the larger context, Cohn will be remembered more for the tax cuts and for serving a President who is a lout, a liar, and a danger to international peace and cooperation.

Goldman-Sachs' hold on power, and indeed the ongoing tsunami of corporate lobbyists and revolving-door business leaders holding the top ranks of Washington power, will represent the classic tale of how a democracy can be strangled by corporate largesse and influence.

Corporate leaders today are steeped in a culture of self-interest and wealth maximization, not the public-mindedness needed to be virtuous stewards of the common good.

There have been exceptions, even from Goldman Sachs (John Whitehead, deputy secretary of state in the Reagan administration, and Robert Hormats, whose government service includes serving as under secretary of state for economic growth, energy, and the environment under Obama, both distinguished diplomats), but they are exceptions in an age of corporate greed.

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 751242

Reported Deaths: 13795
CountyCasesDeaths
Marion1032931788
Lake556911009
Allen41692692
St. Joseph36990565
Hamilton36588417
Elkhart29398461
Tippecanoe22901226
Vanderburgh22556400
Porter19356325
Johnson18471389
Hendricks17682317
Clark13226195
Madison13149344
Vigo12614253
LaPorte12419221
Monroe12207176
Delaware10966198
Howard10321225
Kosciusko9630121
Hancock8576146
Bartholomew8169157
Warrick7860156
Floyd7811180
Grant7242179
Wayne7162201
Boone6966103
Morgan6761141
Dubois6218118
Marshall6209116
Cass6016110
Henry5900110
Dearborn589878
Noble581488
Jackson509076
Shelby501496
Lawrence4742122
Gibson444894
Clinton442355
Harrison441875
DeKalb439885
Montgomery438090
Whitley406543
Huntington402681
Steuben400159
Miami395269
Jasper388054
Knox375991
Putnam372960
Wabash361983
Ripley347170
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Jefferson335886
White331953
Daviess3033100
Wells295281
Decatur289992
Greene286885
Fayette284864
Posey273835
LaGrange273072
Scott270156
Clay267148
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Randolph244783
Jennings235349
Spencer234531
Starke228058
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Sullivan214643
Owen211858
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Jay200932
Carroll193620
Orange188255
Perry187237
Rush175926
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Franklin170335
Tipton166246
Parke149416
Pike138234
Blackford136232
Pulaski120647
Newton113936
Brown104243
Crawford102516
Benton101714
Martin91715
Warren84015
Switzerland8148
Union72810
Ohio57911
Unassigned0420

Ohio Coronavirus Cases

Data is updated nightly.

Cases: 1108736

Reported Deaths: 20166
CountyCasesDeaths
Franklin1287201467
Cuyahoga1157922211
Hamilton813971250
Montgomery525481043
Summit484271001
Lucas43353820
Butler39013606
Stark33332929
Lorain25672505
Warren24591303
Mahoning22370603
Lake21207388
Clermont20117253
Delaware18852136
Licking16662222
Fairfield16574204
Trumbull16548482
Medina15610271
Greene15281248
Clark14237306
Wood13292200
Portage13251215
Allen11913239
Richland11605211
Miami10849225
Wayne9141223
Columbiana9032230
Muskingum8906135
Pickaway8663122
Tuscarawas8649250
Marion8642138
Erie8056165
Ashtabula7160179
Hancock6998132
Ross6944161
Geauga6838151
Scioto6534106
Belmont6157174
Union584549
Lawrence5731102
Jefferson5678158
Huron5546122
Sandusky5442126
Darke5420129
Seneca5348128
Washington5319109
Athens523960
Auglaize502187
Mercer487385
Shelby476895
Knox4571112
Madison444266
Ashland435797
Putnam4336103
Defiance432399
Fulton432074
Crawford4037110
Brown402461
Logan387677
Preble3855105
Clinton379166
Ottawa373681
Highland359665
Williams348278
Champaign344759
Guernsey324953
Jackson318254
Perry297350
Morrow291840
Fayette285450
Hardin275265
Henry273467
Holmes2701101
Coshocton269060
Van Wert247264
Adams243256
Pike242835
Gallia240650
Wyandot234556
Hocking220563
Carroll197348
Paulding176542
Meigs148440
Monroe136344
Noble136239
Harrison114138
Morgan109624
Vinton85517
Unassigned03
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