Trump’s Goldman Sachs-Style Economic Populism

I know that we live in a post-factual political environment, but optics still matter. That’s why it didn’t make a ton of sense for the Trump administration to send out Gary Cohn, (until two weeks ago) the president and chief operating officer of Goldman Sachs, to explain that “President Donald Trump on Friday plans to sign an executive action to scale back the 2010 Dodd-Frank financial-overhaul law, in a sweeping plan to dismantle much of the regulatory system put in place after the financial crisis.” In his new job, Cohn serves as Trump’s chief economic advisor and the Director of the National Economic Council.

Hillary Clinton was pilloried for given paid speeches in the foxes’ den. Donald Trump unlocked the door and shoved the foxes in the henhouse. In addition to Cohn, he also tapped Goldman Sachs veteran Steve Mnuchin to run the Treasury Department. Mnuchin is best known for his post-Goldman career where he oversaw a scheme to foreclose on people without having the proper documentation, in some cases for being behind in their payments by less than a dollar. All told, during the financial crisis, Mnuchin was responsible for throwing roughly 35,000 people out of their homes.

Gutting the consumer friendly Dodd-Frank law isn’t the only thing on today’s agenda. Trump also plans to sign an executive order “aimed at rolling back a controversial regulation scheduled to take effect in April that critics have said would upend the retirement-account advisory business.” In this case, the optics are about as bad as they can get.

Mr. Trump will use a memorandum to ask the labor secretary to consider rescinding a rule set to go into effect in April that orders retirement advisers, overseeing about $3 trillion in assets, to act in the best interest of their clients, Mr. Cohn said in the White House interview. He said the rule limits consumer choice.

No organization in the country has a worse reputation for failing to act in the best interests of their clients than Goldman Sachs.

Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments, according to former Goldman employees with direct knowledge of the deals who asked not to be identified because they have confidentiality agreements with the firm.

Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance…

…Some securities packaged by Goldman and Tricadia ended up being so vulnerable that they soured within months of being created…

…Goldman and other firms eventually used the C.D.O.’s to place unusually large negative bets that were not mainly for hedging purposes, and investors and industry experts say that put the firms at odds with their own clients’ interests.

“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”

For Trump to hire the president and chief operating officer of Goldman Sachs as his chief economic adviser is bad enough, but to actually make him the man to announce the rollback of a regulation aimed at preventing investment advisers from betting against the investments that they recommend, that takes real chutzpah. And to cast the change as beneficial to consumers is beyond risible.

“‘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,’ White House National Economic Council Director Gary Cohn said in an interview with The Wall Street Journal. ‘The banks are going to be able to price product more efficiently and more effectively to consumers.’

There are a lot of people who voted for Trump specifically because they were wounded financially by the collapse of the housing market. I’m thinking of people like Teena Colebrook who was featured in an Associated Press article back in December.

When Donald Trump named his Treasury secretary, Teena Colebrook felt her heart sink.

She had voted for the president-elect on the belief that he would knock the moneyed elites from their perch in Washington. And she knew Trump’s pick for Treasury — Steven Mnuchin — all too well.

OneWest, a bank formerly owned by a group of investors headed by Mnuchin, had foreclosed on her Los Angeles-area home in the aftermath of the Great Recession, stripping her of the two units she rented as a primary source of income.

“I just wish that I had not voted,” said Colebrook, 59. “I have no faith in our government anymore at all. They all promise you the world at the end of a stick and take it away once they get in.”

It was supposed to be a giant tyrannical Kenyan/communist conspiracy every time President Obama attempted to get around an obstructive Congress by issuing executive orders, but it doesn’t seem to bother the Republicans that Trump is issuing a flood of executive orders even when he has a friendly Congress willing to do his bidding. Hypocrisy isn’t the only problem here, though, because these orders are (and should be perceived to be) violations of the trust a lot of working people put in him to look out for their interests.

The Dodd-Frank reforms are primarily designed to prevent another economic meltdown arising from widespread bank failures. The economic advisor regulation is aimed at preventing big investment banks from destroying people’s savings by recommending that brokers handling individual retirement and 401(k) accounts invest in products they are secretly betting will decline disastrously in value.

This is not economic populism in any sense. It’s every bit as lopsided to the interests of big banks as anything that Mitt Romney or any of Trump’s eleventy billion rivals for the Republican nomination would have devised.

When Trump flip-flopped from bashing Clinton for her cozy relationship with Wall Street to filling out his own economic team with some of the most guilty actors, that signaled there was a problem. But now we can see the details. It’s not just that we’re treating Goldman Sachs (sometimes unfairly) as a dirty word. We can see the actual consequences of having these folks in charge and how immediate and brutal the impact is for average American workers.

Maybe this will get lost (for now) in the flurry of more compelling news stories, but it will come back to bite Trump, and it will bite him because people are going to get screwed and they’re going to (rightly) blame him.

Martin Longman

Martin Longman is the web editor for the Washington Monthly and the main blogger at Booman Tribune.