When Robert Rubin resigned as co-head of Goldman Sachs to join Bill Clinton’s White House in 1993, he found “a sort of rugby scrum to get up close to the president” in the Oval Office. Mr Rubin sat at a discreet distance: “I always liked to be away from the centre,” he wrote in his autobiography.
Gary Cohn, who has made the same move from Goldman to become director of Donald Trump’s National Economic Council, has no such reticence. He stood at Mr Trump’s shoulder as the president declared his determination to scythe back financial regulation and stimulate more lending by banks.
The stock market loved their promise to ditch the “over-regulation” of the Dodd-Frank Act. In case the message was not clear, Mr Cohn contested a supportive suggestion by Maria Bartiromo, the Fox Business presenter, that it was chiefly aimed at small banks. “Maria, I’m saying all banks have been shackled by these rules. Big banks, small banks, medium-sized banks.”
Goldman’s shares have risen by 37 per cent since Mr Trump’s election, reaching a record high this week. Investors expect it and other banks to return billions in capital to shareholders after the rollback - Morgan Stanley estimates that Goldman has $14bn in “excess capital”. But Mr Cohn has done nothing for Goldman’s reputation.
There is a long tradition of Goldman executives moving into government after earning their fortunes. Steven Mnuchin, a former Goldman partner, became US Treasury secretary this week, joining alumni such as Mr Rubin and Hank Paulson. Not for nothing is the investment bank sometimes known as “Government Sachs”.
The principle is supposed to be that they are wealthy enough to put aside worldly things and dedicate themselves to public service. The idea is not for them to transfer from making money to making it easier for Goldman to make money. That is not how it should work, nor how it should look.
In many ways, I hope that Mr Trump sticks with Mr Cohn since he is one of the least threatening figures in the administration. He is a pragmatic globalist who could temper the president’s inclination towards protectionism and conflict. I would take him in a heartbeat over Steve Bannon, the Goldman alumnus who is the president’s chief strategist and provocateur.
Mr Cohn honestly believes in regulatory reform and was the most senior economic figure in place before Mr Mnuchin’s confirmation (although that only reinforces Goldman’s presence). His sin is tactlessness, not corruption: unlike Mr Rubin, he is relentless, restless and happiest at the front.
It shows, though, how hard it is getting for Goldman to straddle the boundary between Wall Street and the White House. When Mr Rubin made the move, few people outside finance had heard of the bank, and he could remain obscure with relative ease. His first task as NEC director was to persuade Mr Clinton to reduce the fiscal deficit, not to curb financial regulation.
There were signs then of how changes in finance would alter politics. “Many people might have been surprised to see a group of Democrats sitting around a table in Arkansas talking about the international bond market,” Mr Rubin wrote. Capital markets were taking the place of bank lending and Wall Street was moving to centre stage.
Wall Street became Mr Paulson’s main challenge 15 years later: he was confronted by the 2008 crisis and found himself having to prop up investment banks. He was forced to gain a waiver from an ethics agreement he had signed on becoming Treasury secretary not to get involved in any transaction “particular to Goldman Sachs”.
The smooth functioning of capital markets is now vital and having someone at hand who knows them is crucial in the the world passed on by Mr Rubin, Mr Paulson and the presidents they served. This, as much as personality, led to Mr Cohn’s prominence.
Presidents have good reason to call on Goldman. They can get the boss - or second-in-command in Mr Cohn’s case - of a global financial institution to turn politics into economics. Mr Cohn holds sway because he was a tough, effective leader at Goldman: he is versed in what to do and how to get it done.
But it is becoming awkward for Goldman. Having former executives in governments and central banks around the world is useful, as is the prospect of looser regulation. Being visible at the helm is embarrassing, especially when executive power is clearly being used to Wall Street’s benefit.
Mr Trump exploited Goldman as a target for populist resentment in his campaign, railing that Hillary Clinton’s speeches for the bank showed the need to “drain the swamp” in Washington. He forgot it when elected, but the complaint worked and his conduct since lends it even sharper potential.
Goldman’s tradition of public service is not illusory: many former partners have governed impartially and some, including Gary Gensler, former chairman of the Commodity Futures Trading Commission, have been notably tough regulators. But appearances matter and Mr Cohn’s place by Mr Trump’s side did his old firm no favours.
John Gapper is a columnist with the Financial Times
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