During World War II, President Roosevelt selected Democrat Sidney J. Weinberg, the head of Goldman Sachs to be a leader in his administration.
Mr. Weinberg was famously known as the “body snatcher” according to a New Yorker profile written by Malcolm Gladwell.
Infusing Washington with Goldman alums isn’t exactly an original idea.
Three of the last four presidents have handed the wheel of the U.S. economy to former Goldman Sachs executives and their influence in Washington has been felt for over 9 decades.
Now comes Gary D. Cohn as a reported nominee for Chairman or the Federal Reserve.
If that happens, then three of the Earth’s major central banks will be run run by former Goldman Sachs executives.
This unholy trinity includes, Mark Carney from the Bank of England, Mario Draghi from the the European Central Bank, and now Gary D. Cohn as head of the Federal Reserve?
There have been hundreds of articles written about the “world’s most powerful investment bank,” or as journalist Matt Taibbi famously called it, the “great vampire squid.”
That squid is now about to wrap its tentacles around our world in a way previously not imagined by using the White House National Economic Council.
Let’s take a step into history to get the full story on why this matters more than you might even think.
In New York, circa 1932, then-Governor Franklin Roosevelt announced his bid for the presidency.
At the time, our nation was in the throes of the Great Depression.
Goldman Sachs had, in fact, been one of the banks at the core of the infamous crash of 1929 that crippled the financial system and nearly destroyed the entire country.
It was then run by the aforementioned figure, Sidney Weinberg, dubbed “The body snatcher” because of his smooth tongue.
Weinberg quickly grasped that, to have a chance of redeeming his firm’s reputation from the ashes of public opinion, he would need to aim high. So he made himself indispensable to Roosevelt’s campaign for the presidency, soon embedding himself on the Democratic National Campaign Executive Committee.
Once again, the same forces that were factors in the infamous great depression are back with the White House appointment of Democrat Gary D. Cohn.
Cohn was one of the partners who ran the Fixed Income, Currency and Commodity (FICC) division of Goldman. It was the one that benefited the most from leverage, trading, and the complexity of Wall Street’s financial concoctions like collateralized debt obligations (CDOs) stuffed with derivatives attached to subprime mortgages.
You could say, it was unfettered reckless leverage and speculating that helped propel Cohn up the Goldman food chain.
Now Cohn, currently head of the White House National Economic Council may be set to become the Chairman of the Federal Reserve.
CNBC says: “Turning to an ex-commodity trader to run the FED is like turning to a gambling addict to run a casino.”
Like FDR, the White House is about to pack the FED with registered Democratic Wall Streeters, a combination that could ultimately lead to much looser regulations and unstable markets.
And while the economist John Maynard Keynes said that in the long-run “we are all dead,” in my opinion there is no reason to speed that process along by having a derivative and commodity speculator running the Federal Reserve.
I say this with no personal animus, but here is what we know about him so far.
Cohn has donated heavily to Barack Obama and Hillary Clinton and is a loyalist supporter to Democratic causes according to a database from the Center for Responsive Politics.
In addition he is no fan of conservative capitalist controls like the “Volcker Rule.”
The “Volcker rule” restricts banks from proprietary trading and limited their ability to make speculative hedge fund investments in things like junk bonds and derivatives.
In other words, they have to stay away from the bad stuff and only bank in the good stuff.
“I’m not sitting here saying we want to go back to the good old days,” Cohn told the WSJ of the planned overhaul.
The most obvious question in all of this might be:
“Why would an extremely rich President of Goldman Sachs want to work without salary in Government service in the first place?”
Surprisingly, The New York Times may have the answer buried in a little-known article titled “Bring Back Glass-Steagall? Goldman Sachs Would Love That!”
“After the stock market crash of 1929, the so-called Glass-Steagall Act of 1933 gave banks a year to choose between commercial banking and investment banking.
For the next 66 years, the law more or less stood until Congress repealed it, making de facto what had long been de jure. (Many banks had been violating it for years without consequences.)”
Despite what many people believe, Glass-Steagall was not technically repealed in 1999 anyway.
Legislation was passed that year that allowed bank holding companies to engage in previously forbidden commercial activities, such as insurance (annuities) and investment banking (derivatives.)
In this instance, Cohn seems to be hawking a “modern Glass-Steagall” as a Trojan horse for something so dark and financially sinister even Janet Yellen couldn’t fathom it.
Under the guise of a “modern Glass-Steagall,” there’s plenty of room for Cohn to usher in sweeping Wall Street deregulation that could have a catastrophic impact on the economy and send us toward a new Great Depression.
Conservative Americans need to be mindful, there are numerous ways that a Glass-Steagall-like change could be done that would increase systemic risk, create unregulated too big to fail firms and put taxpayers on the hook for much bigger bailouts in the future,”
Dennis Kelleher, president of Better Markets, warned in a statement. “It could recreate the dangerous under-regulated shadow banking system that existed before the crisis. This could incentivize unacceptable risk taking and moral hazard…”
Glass-Steagall is not by any means anti-Wall Street. It is anti-competition for Goldman Sachs.
So while it would be a nightmare for Goldman Sachs’ big investment banking competitors, it would be a relative non-event for Goldman Sachs itself.
In competitive terms, it could be a huge boost.
Nobel laureate Joseph Stiglitz, has long seen the changes to Glass-Steagall as a major factor in the 2008 crash.
By bringing “investment and commercial banks together, the investment bank culture came out on top,” Stiglitz writes.
“There was a demand for the kind of high returns that could be obtained only through high leverage and big risk-taking.”
We’ve heard this song before.
Cohn’s statements are not rooted in economics or academia, but are merely a negotiating strategy to secure as much dangerous leveraging of any remaining carcass of a financial system left for his Wall Street comrades.
Next up, his sights are on the throne of quantitative easing and interest rate manipulation itself. The Federal Reserve.
Just imagine not too far in the distant future turning on the television and hearing “Gary D. Cohn Chairman of the Federal Reserve.”
Hearing before the Joint Economic Committee, “Financial Regulatory Reform: Protecting Taxpayers and the Economy,” Nov 19, 2009
Stiglitz, Joseph, “Capitalist Fools,” Vanity Fair, January 2009
Blinder, Alan, “It’s Broke, Let’s Fix It: Rethinking Financial Regulation,” Prepared for the Federal Reserve Bank of Boston, Oct. 23, 2009
Sens. Warren, McCain, Cantwell and King, “We Need to Rein In ‘Too Big To Fail’ Banks,” U.S. Senate documents, July 17, 2014
Phone interview with Karen Shaw Petrou, Federal Financial Analytics