Unfortunately for America, the track record of government officials coming out of Goldman Sachs to run the Treasury Department and the National Economic Council – two favorite haunts of the bank’s former bigwigs – mirrors the unsavory track record of the bank itself.
It’s not that Goldman Sachs people don’t know how to make money or run the most powerful bank or country in the world… it’s a matter of how they do it that should frighten you.
There’s a slippery track record of Goldman alums who snaked their way around when they held government positions – that’s how the phrase Government Sachs was born.
It’s in your best interest to understand this history that looks doomed to repeat itself.
How Big Banks Broke Into the White House
President Donald Trump just saddled us with former Goldman banker Steve Mnuchin as Secretary of the Treasury. He also chose Goldman’s just-retired president and COO, Gary Cohn, for the Director of the President’s National Economic Council.
I’ll touch on them in a moment.
But first, let me remind you of what happened the last few times these positions were held by Goldman people.
The National Economic Council (NEC) – not to be confused with the Council of Economic Advisors (CEA) – was first formed in 1993 by President Bill Clinton. The NEC dispenses economic policy advice to the President, coordinates policy-making for domestic and international economic issues with the President’s economic goals, and monitors implementation of the President’s economic agenda.
The director of the NEC has extraordinary access to the President with an office in the West Wing of the White House.
Robert Rubin retired as Goldman Sachs’ chief operating officer, co-chairman, and co-Senior Partner to become the first director of the NEC.
Two years later, Rubin became Clinton’s Treasury Secretary. From 1995 through 1999, the free-market advocate (as in ‘a free-for-all’, especially for his Goldman buddies and himself) worked behind the scenes to make sure there would be no regulation of exotic derivatives. These would later be the dynamite that blew up the mortgage market, imploded three investment banks, rendered all America’s big banks insolvent, and ushered in the Great Recession.
Rubin left the Treasury in 1999 to join Citigroup, which had been birthed from a merger of Citicorp and Travelers Group in 1998. It didn’t matter that the merger was illegal. The remaining remnants of the 1933 Glass-Steagall laws that prohibited the merger of a commercial bank (whose depositors are insured by the FDIC) and an investment bank (which Travelers owned in the form of Salomon Smith Barney) would be killed off by Treasury Secretary Rubin’s coup de grâce. The enactment of the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act of 1999, was passed to legalize these types of mergers on a permanent basis.
Robert Rubin walked from Citigroup with $126 million. That was after Citigroup had to be rescued from insolvency in 2008 by the New York Federal Reserve, whose Chairman was Steve Friedman (a Goldman Sachs director), and the Secretary of the Treasury at the time, Henry Paulson (who, not surprisingly, retired as the head of Goldman to become head of the Treasury).
Goldman Sachs itself became insolvent during the 2008 crisis, but that’s not what they’d have anyone believe. But in truth, they were sunk.
What saved Goldman Sachs? Government Sachs.
On a Sunday in September of 2008, Goldman Sachs was granted Bank Holding Company status, which allowed it to get billions of dollars on Monday morning from the Federal Reserve to stay technically solvent. It still wasn’t.
Then Goldman took $10 billion in TARP money and got their old CEO (now the Secretary of the Treasury) to use $190 billion of taxpayer money to bailout AIG… which would, in turn, give Goldman $12.9 billion of that for derivatives hedges Goldman had with AIG as its counterparty.
Without Government Sachs’ backing, Goldman Sachs would have gone the way of Bear Stearns and Lehman Brothers, or even Merrill Lynch, which had to be bought before they went belly-up.
There is so much more both Goldman and Government Sachs have to do with the 2008 crisis, it would make your head spin.
Our New Big Bank Overlords
The constant in the background here is that the new director of the National Economic Council, Gary Cohn, was Goldman’s president and co-COO during the crisis and helped save Goldman by leaning on his Government Sachs partners-in-crime.
Under Gary Cohn, Goldman…
- Hid Greece’s deficit with currency swaps so it could get admitted into the E.U. in 2001;
- Sold guaranteed-to-fail mortgage-backed securities to its clients;
- Bet against the pools of mortgages it made and sold;
- And did a lot of other underhanded, criminal things that it paid billions of dollars in fines to settle and got slapped on the wrist for by its Government Sachs cronies who collected government tolls from them while backstopping them to keep on doing what they do.
In his pitch before the election, Donald Trump used the image of Goldman’s Lloyd Blankfein in a TV ad to claim insiders had ruined Americans to enrich themselves. With Lloyd Blankfein’s face on screen, the voiceover stated, “It’s a global power structure that is responsible for the economic decisions that have robbed our working class, stripped our country of its wealth and put that money into the pockets of a handful of large corporations and political entities.”
Now, the man who was president and COO of Goldman during its most egregiously greedy crime spree is directing the President on deregulation, dismantling Dodd-Frank, undermining the Consumer Financial Protection Bureau, and “Making America Great Again” for his Goldman Sachs cronies… and himself, no doubt.
As far as Steve Mnuchin, that’s a whole other kettle of fish.
I want to back our president, but if the past is a prologue, he’s undoubtedly put the wrong people in at Treasury and the NEC.