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6 Feb, 2017 07:22

Washington needs people who actually understand how markets work – Wall St. veteran

In his bid for office, Donald Trump promised to take on Wall Street, reign in big corporations, and blasted the Clintons for their ties to big banks. But now that he’s in the White House, he’s filled his cabinet with Goldman Sachs officials, spurring fiery debate. How much power will Wall Street’s elite have over decision-making in the new Administration? And is that really a bad thing? We ask a former Chase and Merrill Lynch Wall Street banker, the bestselling author of Money and Power and the Price of Silence – William D. Cohan.

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Sophie Shevardnadze: William Cohan, Wall St. veteran, welcome to the show, it's great to have you with us. So, William, in less than a month since his inauguration Trump has been meeting with business leaders of all kinds of industries, digging into what they need and what they have to say - will this approach to policy, stemming from business interests first and foremost, be ultimately good for the U.S.?

William D. Cohan: God is in the details, I guess, so, so far we've heard a lot of, what I would refer to as sort of "photo-opportunities" with CEOs and it's not clear exactly what his policies are going to be. I think, on the one hand, we went from 8 years when businessmen were persona-non-grata in Washington to complete change in that picture where businessmen seem to have more welcoming opportunity in Washington, they seem to be invited - every other day - to meet with  President Trump. So, I think, that pertains good things for job growth, increased profitability for companies, and general increase in people's wealth and well-being. It has the potential to be very positive, but we'll just have to wait and see what the details are.

SS: Trump promised to take on Wall Street, blasted the Clinton’s for having ties to big banks but now that he’s in office, he has filled his cabinet with Goldman Sachs officials - the Treasury secretary, his top economic adviser and other top jobs went out to Goldman Sachs elites. You wrote articles defending Wall Street alumni in government, so do you feel these appointments are a good move by Trump?

WC: To exclude anybody from any government service just because of where they happen to work is ridiculous. Capital markets are very complicated. Having people in Washington who understand how capital market works, who understand how Washington works, who understand the business of finance, who can talk that language, who can talk to CEOs of companies about finance and Wall St., understand how markets work, understand how Federal Reserve works, understand how international markets work - all that is very-very positive. Unfortunately, for 8 years we had people in government trying to exclude people from Wall St. from serving, and my view is: you need their expertise, you need their insights in government, in Washington, helping lawmakers understand how Wall St. works, and if you're willing to walk away from your high-paying job and you can make it through the Senate confirmation process - then absolutely, you should be welcomed in Washington. You want to serve your nation after making a lot of money on Wall St.? Absolutely, you should be welcomed in Washington, and to exclude people like that, is, to me, a discrimination, so I'm happy to see that. Again, we have to wait and see what they do, but on principle, I'm very happy that people who worked in Washington are welcomed again in Washington.

SS: Yeah, but it's not just this administration. The National Economic Council was created in the first year of the Clinton Administration and has had several Goldman officials at its helm from the start - Rubin, Friedman. How come a private company like Goldman Sachs ends up having so much influence in the public realm?

WC: Well, again, just because you worked in Goldman Sachs and now you have a job in government - and I don't want to be naive about it - but it doesn't mean that Goldman Sachs has  undue influence in Washington. When you work in Goldman Sachs, you work for Goldman Sachs, when you work for Bill Clinton or Donald Trump, you work for Bill Clinton or Donald Trump, you don't continue to work for Goldman Sachs just because you happened to work there. Now, does that mean that you don't know people who work in Goldman Sachs, or it might not be to the benefit of not just Goldman Sachs but Wall St. generally to have smart people in Washington who understand how financial markets work and how capital markets work - I think that is on balance a good thing. We could debate this for hours, but I would say that having  the former CEO of Goldman Sachs to be the Treasury Secretary - Henry Paulson was the Treasury Secretary during financial crisis and was very beneficial to the American people and frankly to the world economy. So having somebody who understood Wall St. and was from Wall St., in that particular moment turned out to be very positive thing. I don't think that Goldman Sachs has some undue influence, Goldman Sachs just is a good recruiting ground for government officials who need to fill government positions and cabinet positions in a hurry. It's like a personnel office for Donald Trump and he is smart to do that.

SS: Let me explain it to you from the point of view of people, who've never worked on Wall St., or never been in the government, but when they see Wall St.alumni being part of the government, and even if they have the necessary expertise to manage markets , as you say, governing is just more than that. So, a person who has had a taste of money, and who knows how good it is, how do you imagine those people, that person taxing themselves, regulating themselves, tackling income inequality at their own expense? Can they be trusted to do what is good for the American and the world economy, not just for the economic elite?

WC: A lot of people who worked in Goldman Sachs and made a lot of money in Goldman Sachs have worked their way up from nothing, from either low-economic status or middle-class status. Goldman Sachs is not just a breeding ground for the elite, and I don't like being put in the position to defend Goldman Sachs, but on balance, it depends on the person. If you're not an empathetic person, if you have no interest in helping people less fortunate than you - then it doesn't matter where you are, whether in government or in Goldman Sachs, or whether you are driving a bus, you're not going to have any empathy  - but if you are that kind of person and now you're in the position to help people, well, I think that, on balance, could be a great thing, because you understand what it takes, how hard you have to work and how opportunities need to be structured  for people to get a chance to have the things that you did and you understand the policies that you need to put in place to make sure that Wall St. can do the job that it's designed to do.

SS: All we've heard about during the presidential race, “Wall Street is Evil” - Sanders, Trump, even Clinton was talking about going after Wall Street. I'm going to be really naive. You're saying not everyone on Wall St is evil and it depends from person to person, how do you tell the evil Wall St. ties from the good ones, and are trump's picks the good ones?

WC: I have a new book coming out at the end of February, called "Why Wall St. Matters", which is my effort to try and remind American people and anybody who can read English language, why Wall St. is important. I've been very critical of Wall St. for what it did in 2007 and 2006, leading up to the financial crisis. There needs to be accountability to that bad behaviour on Wall St., and there wasn't accountability and I think that's the big problem. But just because the Justice Department in the U.S. failed to hold people accountable for what they did wrong on Wall St., doesn't mean that everybody on Wall St. is evil and that everything Wall. St does is evil. It's not right for Elizabeth Warren or Bernie Sanders and Hillary Clinton and even Donald Trump to say that people on Wall St. are evil. Most people on Wall St. want to do the right thing. They want to help companies grow, they want to help people create more wealth for themselves, they want to lift people out of the impoverished classes and into the middle class and then to become wealthy people. They want to create companies like Apple to allow products like like iPhone, or iPad, or the computers - whatever it is - that have made our lives better. To vilify an entire group of people just because they happen to work on Wall St.? - I'm sorry, that's not acceptable to me and that's discrimination and that should be stopped. Even though I'm not particularly wild about Donald Trump, the President, I happen to think that his policies of stopping vilifying Wall St. - are a good thing.

SS: If the American people need Wall St. types in Cabinet, how come the long-term economic situation is getting worse even though they’ve been there for a long time now? I mean, declining long-term job security, labour rights, income inequality, housing affordability, etc.

WC: Yes, some people have missed out on the Information Revolution, some people have jobs that have gone away and they're not coming back and they're unable to be re-trained. But, on balance, I think, people not only in the U.S. but around the world, are better off now than they were, well, 50 years ago, 25 years ago, 75 years ago. If you want to go back to the Middle Ages and live in caves, then we can continue the policies of vilifying Wall St. and making Wall St. into a bad guy and over-regulating Wall St. to death so that Wall St. can't do its job, important job of providing capital to people who need it all around the globe. Economies around the world are stronger. Yes, they are not faultless, yes, there are problems that need to be addressed , but I think, Wall St. can be part of the solution, not part of the problem, and I think, in the last 10 years Wall St. has been vilified and made to be considered a chief villain for every problem in the world, and that's just ridiculous.

SS: Trump’s cabinet members - Steve Mnuchin and Wilbur Ross are known to have made a fortune out of vulture investments - what does that mean for the Treasury and Commerce policy, is it going to be cold-blooded, profit-oriented?

WC: Again, we don't know because...

SS:What's your guess?

WC: I don't know what policies... Well, look, I think that both Steve Mnuchin and Wilbur Ross are very smart people and you're right, they've made a lot of money from the distressed-investing and from other people's sorrows and misfortune - they've made a lot of money. They've probably taken a lot of personal and professional and financial risk to do that , and, you know, they came up winners. Good for them. However, I don't think they're the right choices to lead the Treasury Department or the Commerce Department. I think that they are deal guys, they have been in charge of small partnerships, small either private equity funds or hedge funds, whatever it is - 25, 30, 40, 50 people... You know, the Treasury is a 100,000-person bureaucracy. Where in the world does Steve Mnuchin get the skills or the knowledge to navigate himself around a bureaucracy like that? How does he know how to play well in a sandbox with others? That's not what he is used to, that is not what Wilbur Ross is used to. They are used to sort of getting their own way, doing deals and, hopefully, choosing wisely. By the way, they did a lot of good deals and they did a lot of bad deals. I think those are the wrong choices for those positions, because you need someone with diplomatic skills, you need someone who can navigate a bureaucracy, you need someone who understands policy and what you have to do to get... you know, getting a law passed, getting policies implemented in our country is very complicated and requires a lot of skill. You can't just decide, snap your fingers: "I want to do it" and then have it done... I don't really really see that Steve Mnuchin or Wilbur Ross have the skills.

SS: Yeah, but the Wall St. people who are used to  quick deals are now going to be stuck in the bureaucracy of big government and establishment machine - but won’t this also prevent rash, risky decisions, make the deal-cutters in charge of the economy less dangerous?

WC: Yes, exactly. They will get caught up in the bureaucracy and they will not be able to do what they're used to doing, which is making snap decisions and getting their own way. They're going to have to figure out how to... what policies they are trying to implement, and then build a broad coalition of support for those policies. I'm just saying, that is not the skillset that these two individuals possess and have no evidence of showing that they posses it. Maybe, they are fast-learners, maybe they will learn how to do it, maybe they will have a #2 Guy who knows how to do all that. I just don't see any evidence. They're smart guys, they were loyal to Donald Trump, and he rewarded them with these powerful position. I don't think that's a smart policy, but... I'm just one guy.

SS: He's also considering  repealing the Dodd-Frank Act that is supposed to protect consumers against another financial crash - is this the counsel that his Wall Street advisors are giving him, do you think, or is it his own initiative?

WC: He's been talking about this for a while, he talked about this on his campaign trail, before he had any Wall St. advisors. Don't forget, most people on Wall St. didn't want anything to do with Donald Trump, and most people on Wall St. don't do any business with Donald Trump, most people on Wall St. wish Donald Trump was not the President, but now that he is - they've got to deal with him, and he was probably smart in assuaging Wall St.'s fears by bringing in these guys from Goldman Sachs. Now, he's talking about repealing Dodd-Frank - look, on balance, I think that Dodd-Frank has been a negative to economic growth, it is way too bureaucratic, it is way too costly - I mean, it's 2500 pages of law, nobody really knows what its requirements are. It's a bureaucratic nightmare, it adds immeasurably to the costs that individual banks have to bear, the burden that they have to bear to comply with these regulations, that are constantly being drafted. Now you have one person hired on Wall St. to watch what are the other four are doing all day long! That is ridiculous. There are other better ways to have people regulate their behaviour more intelligently on Wall St. than Dodd-Frank. So, by and large, I think Dodd-Frank should be repealed. I thought it was overly-burdensome piece of legislation for a long time now. There are some aspects of it that probably worth retaining: requirements to have higher capital rate, requirements is probably, a good thing. Putting derivatives, which are sophisticated financial instruments on an Exchange so that they can be traded openly and we can determine their price more easily - that's probably a good thing. The Consumer Protection Financial Bureau, on balance, I suppose, is a good thing. But it shouldn't be under the auspices of the Fed, it should be regulated like any other agency of government, the oversight should be part of other agencies in government. So, there are some things about Dodd-Frank that are worth keeping, but I think that by and large, most of it is ready for the junk heap of history. That doesn't mean that Wall St. doesn't need to be accountable. Wall St. needs seatbelts, Wall St. needs carburetors on its behaviour , and there has to be substitutes to Dodd-Frank. You can't just get rid of Dodd-Frank and it's a Wild West on Wall St. again. We know how that turns out, that turns out very badly. You need to have people on Wall St. have full accountability again for their actions so that they don't have the kind of bad behaviour on Wall St. that we see all too often, that happened in 2006 and 2007 and led to the financial crisis of 2008.

SS: Following the Muslim travel ban, investors had their worst day in months. if this kind of decision is causing so much disruption on Wall Street, will big finance firms fight it?

WC: They are treading lightly, they've put out these anodyne statements about how they "welcome people from all countries and immigration is an important part of the American experience". If this would happen after Dodd-Frank had been repealed, and some new regulatory regime that they care about were in place or if corporate tax rates have been lowered or personal tax rates have been lowered, or if the repatriation of profits from overseas have taken place already - I think you would have seen Wall St. CEOs being much more outspoken against this immigration ban that Donald Trump has tried to implement. It goes against American values, American culture - that's why there has been so much protests. It's not right, it's heartless and it's not right and it's doesn't make us safer, it just really irritates a lot of people in this country and a lot of people from around the world. I think Wall St. CEOs should be much more outspoken about is. Corporate CEOs generally should be much more outspoken about this, but they haven't been because they are concerned that Donald Trump might Tweet at them, or he might decide on a whim not to repeal some of the regulations that they don't like or... Who knows what he'll do? And they don't want to take chance of pissing him off and seeing what he might do. So, I think they've been a little too low-key for my taste, and I wish they were more outspoken, and I hope that they are, but I wouldn't count on it until we get further along here.

SS:Trump's ideological opposite centre, Bernie Sanders, has welcomed the President's move to pull out of TPP and TTIP negotiations,  as well as the $1 trillion infrastructure plan. Despite the emotions running high and the moment, do you think his ideas of Trump will actually help bridge the partisan divide?

WC: No. I don't. I think that maybe one off policy that Bernie Sanders doesn't like... the infrastructure proposals - again, we have not seen any details about that, we don't know how he's going to implement that, we don't know what the nature of that is going to be. I think Donald Trump is an extremely polarising figure. You've seen that in the last two weeks since his inauguration , and I don't really see that changing anytime soon, because Bernie Sanders happens to agree that TPP was a trade agreement he didn't like as well. Personally, I think, we live in a hugely interconnected world and we need to have open trade policies with every nation, and this is a carefully-negotiated agreement, and I, frankly, don't understand why they would just reject it out of hand because of some amorphous political gain he hopes to get, but... He didn't consult with me and I don't expect him to consult with me, but I don't think having Bernie Sanders agreement on this one issue is going to bridge how polarising a figure Donald Trump has quickly become.

SS: Head of the National Trade Council Peter Navarro called the euro “an implicit Deutsch Mark”. He accused Germany of using the undervalued, weak euro to gain unfair trade advantage over the U.S. What do you think about this, is America being played? Are we going to see currency wars between U.S. and Europe under this Administration?

WC: My view of these things is, if you're going to be confrontational  on issues of currency, if you're going to be confrontational on issues of trade, if you're going to be confrontational on issues of building an idiotic wall on our Southern Border, if you're going to be confrontational with China in the South China Sea - I just don't understand that approach. I'm not a confrontational person, my personal style would be not to be confrontational,  it would be to be more diplomatic and figure out a way for us all to get along. I mean, I would say that probably the one good thing that Donald Trump has done so far, in my opinion - at least on the surface, anyway - is to appear to be getting along better with the people in your country, and I think that's very important, and I think Americans should get along with Russians and Americans should get along with Chinese and South Koreans and Filipinos and Mexicans. We live in a very inter-connected world. America is a land built on immigrants, on immigration and welcoming people to our shores, who have so much to add in ways that you don't even know how they will respond to our soil for the first time. So, to be confrontational about all that - I just think, sends a very negative message and people don't like to be backed into corners. Humans notoriously get frustrated very quickly by that and start getting defensive themselves and then you sort of have this crazy bidding war and escalation of bad behaviour. And I just don't think that's sensible, so that would not be my approach - but again, Donald Trump didn't bother to consult with me on his approach to these things.

SS: Thanks a lot for this interview. We were talking to Will Cohan, prolific business-writer, former Wall St. banker, discussing the influence of America's big finance on the new Presidential Administration. That's it for this edition of SophieCo, I will see you next time.