Fear: Trump in the White House(21)

7




Jared Kushner invited Gary Cohn, the president of Goldman Sachs, to come talk to his father-in-law on November 30 about the economy. A meeting was arranged for Cohn at Trump Tower. Cohn was a legendary risk taker at the premier investment banking firm. He had an ego and sureness to match Trump’s. He was advised that Trump routinely kept meetings to 10 minutes.

In Trump’s office were Bannon, Priebus, Kushner and Steve Mnuchin, also a former Goldman banker and hedge fund manager who had been Trump’s chief fundraiser during the last six months of the campaign. Mnuchin had been rewarded with the cabinet post of treasury secretary though the appointment had not yet been announced.

The American economy overall is in okay shape, Cohn told Trump, but it was ready to experience a growth explosion if certain actions were taken. To achieve this, the economy needed tax reform and the removal of the shackles of overregulation.

Cohn knew this was what Trump wanted to hear. Then the New York City Democrat told the president-elect something he did not want to hear. We’re a trade-based economy, he said. Free, fair and open trade was essential. Trump had campaigned against international trade deals.

Second, the United States is an immigration center to the world. “We’ve got to continue to have open borders,” Cohn said. The employment picture was so favorable that the United States would run out of workers soon. So immigration had to continue. “We have many jobs in this country that Americans won’t do.”

Next, Cohn repeated what everyone was saying: Interest rates were going to go up over the foreseeable future.

I agree, Trump said. “We should just go borrow a lot of money right now, hold it, and then sell it and make money.”

Cohn was astounded at Trump’s lack of basic understanding. He tried to explain. If you as the federal government borrow money through issuing bonds, you are increasing the U.S. deficit.

What do you mean? Trump asked. Just run the presses—print money.

You don’t get to do it that way, Cohn said. We have huge deficits and they matter. The government doesn’t keep a balance sheet like that. “If you want to do something that would be smart—and you actually do control this—I would add a 50-year and a 100-year bond from the U.S. Treasury.”

With interest rates going down in recent years, Treasury had brought the duration of bonds down to 10 years as much as possible. That was the right thing to do, Cohn said. With rates increasing, the insurance companies and the pensions will lend the government money for 50 years or 100 years. And you could probably do it at 3? percent. That would be really cheap money over the next 50 to 100 years.

“Wow!” Trump said. “That’s a great idea.” He turned to Mnuchin. “Can we do that?”

“Oh, sure,” the designated treasury secretary said. “We can absolutely do that.”

“Do you agree with him?” Trump asked.

“Yeah, I agree with him,” Mnuchin said.

“You’ve been working for me six months,” Trump said. “Why the hell have you never talked to me about this? Why’s he the first person to ever tell me that?”

There was nothing in the world that was then yielding 3? percent risk-free, Cohn said. There would be a run on these bonds and plenty of buyers. The 50-year corporate bond was selling all over the place. Investors wanted high, risk-free yield.

Turning to the Federal Reserve, Cohn noted that the U.S. had had an effective zero interest rate for years. There was only one way to go, interest rates would go up, for two reasons. The economy was getting much stronger and higher rates would tamp down inflation.

“So if I’m running the Fed, I’m going to raise rates,” he said.

Trump knew that presidents liked low rates to help the economy. He said, “Well, I’m not going to choose you to run the Fed ever.”

“That’s fine,” Cohn said. “It’s the worst job in America.”

Turning to taxes, Cohn said, “The 35 percent corporate tax rate has been great for my business for the last decade. We’ve been inverting companies to 10 percent tax jurisdictions and they pay us enormous fees.” He was speaking as a Goldman president. An inversion refers to relocating a corporation’s legal home to a low-tax country such as Ireland or Bermuda in the form of a new parent company while retaining operations and management as a subsidiary in the higher-tax country.

Goldman had facilitated dozens of companies’ moves abroad. The company’s leaders and boards had a responsibility to shareholders to maximize profits and moving, inverting, dramatically raised earnings. Nearly all the drugmakers and insurance companies had moved.

Cohn bragged, “Where else can I take a company doing X in business that does X tomorrow and has 20 percent more earnings just by changing their corporate headquarters?”

Arguing against Goldman’s self-interest, Cohn added, “We can’t allow that to happen. We’ve got to get our corporate tax in line with the average, which is about 21, 22 percent.”

Though there had been some restrictions imposed by Congress, there were ways to skirt the new laws. “We can’t allow companies to just keep inverting out of the United States. It’s just bad. It’s wrong for business. It’s wrong for jobs. I’m talking against my business. We made a ton of money.”

Trump returned to printing money. “We’ll just borrow,” he said, enamored with the idea of heading the federal government, which had the best credit rating in the world, so they could borrow at the lowest interest rate.