The transcript from this week’s, MiB: Gary Cohn, Director of the National Economic Council, President of Goldman Sachs, is below.
You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.
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This is Masters in Business with Barry Ritholtz on Bloomberg Radio
[Barry Ritholtz] 00:00:07 This week on the podcast, what can I say? Gary Cohen with just a stellar career at Goldman Sachs, where he spent 25 years rising through the ranks, commodities trading, fixed income currency, eventually running equity, and soon after becoming President and Chief operating officer at Goldman, soon after he’s tapped by the White House to become director of the National Economic Council and Chief Economic Advisor to President Trump. Starting at the beginning of the administration in 2017. Really a fascinating career, a really, really interesting person. We dive deep into all sorts of things about running businesses, managing risk, and then when we began talking about his public sector service, we went deep into the Tax Cuts and Job Act of 2017. If you’re at all interested in that, you’ll find this to be an absolutely masterclass in how legislation is assembled, how it’s shepherded through the house, through the senate, through all the competing interest groups. I found this discussion just really to be absolutely fascinating, and I’m positive you will also, with no further ado from the White House and Goldman Sachs, Gary Cohen,
[Gary Cohn] 00:01:34 Barry, it’s great to be here.
[Barry Ritholtz] 00:01:36 It’s great to have you. So let’s start out talking a little bit about your background and your career. I never would’ve guessed you began at US Steel. Tell us when was that and, and what’d you do there?
[Gary Cohn] 00:01:47 So, it was a very short career at US Steel. So, you know, I I, I, I graduated college in 82 and I, I thought I was gonna take a, a few months off and regroup, and my dad didn’t think that was part of the agenda. So he, you know, woke me up my first Monday morning home at 6:00 AM through the lights on, asked me what I was gonna do with the rest of my life, and I think I made some wise crack. And he said, go
[Barry Ritholtz] 00:02:13 To Europe, gonna spend a few weeks
[Gary Cohn] 00:02:14 Away. Yeah, I, I, I think I told him, I, I, I said, I think I told him you’re looking at it. And he said, yeah, not in my house. So I went out and tried to find a job locally. This is when I was still living in Cleveland, and I got a job with the home building Products division of United States Steel, which was a company that United States Steel had acquired in Cleveland, called All Side. They sold replacement windows, vinyl siding, aluminum siding, gutter coil, things like that. I ended up starting there in the summer of 82, and by the fall of 82, I was gone. Now, there was one really important part of, of that as part of my job training, I was sent to the big sales offices to learn how the product was sold. One of the big sales offices was out in Long Island in Garden City. And so in my second week in the sales office in Garden City, I said to the, the gentleman I was working with, I said, you know, I think we’re gonna work really hard Monday to Thursday, and I’m gonna go in the city Friday. And he said, that’s a really good idea. So I went in the city on Friday, and that’s how I found my way down to the commodities exchange, the commodities floor. And that’s where I got my job, and that’s how I turned my career into a financial career.
[Barry Ritholtz] 00:03:33 So I had a wildly incorrect assumption. I just pictured you working with the various input commodities to steal iron plus energy, plus manganese, nickel, chromium, carbon all those things, and said, Hey, I could move to the commodities exchange and, and make a killing trading. Nothing like that happened.
[Gary Cohn] 00:03:52 Nothing like that.
[Barry Ritholtz] 00:03:53 How did you find your way to the Comex?
[Gary Cohn] 00:03:56 So two years earlier, and now we’re going back in time, the summer of 80, for those of you that remember the summer of 80, the Hunt brothers at that point were silver, were exactly, were trying to corner the gold and silver market. I was doing an internship at a local brokerage office in Cleveland, Ohio, and I did the typical internship, you know, a week in the back office, a week in equities, a weak in fixed income and weak in commodities, a weak in bonds, and then four weeks, wherever you’d like to go. And of course, where I would like to go is where the guys are screaming and yelling in the back corner, which were the commodity guys. So I ended up being allowed to go sit with the commodity guys. And at the time they were doing the Chicago, New York gold arbitrage. They had sent, set up a gold arbitrage desk, meaning
[Barry Ritholtz] 00:04:46 That the slight difference in prices between the two exchanges, they would help bring ’em into line and maybe pocket a few cents on each exchange.
[Gary Cohn] 00:04:54 Exactly. And at the time, they weren’t slight differences. Oh, really? Yeah, because it, the, the, the Hunt brothers, when they came into the Comex at the time, they were only buying one market. They were buying the, the Comex market. So the Comex market would move, you know, 10, 20, $30, and the Chicago market would lag dramatically behind. Wow. So there were these five plus dollar disparities in the price of gold. And so they would sit there and trade. And so after a week there, I, I said to the guys on desk, Hey, can I open an account and do this? And they said, you know
[Barry Ritholtz] 00:05:27 Hey, how hard could it be?
[Gary Cohn] 00:05:28 Be? Yeah, you’re, you’re, you’re allowed to open an account. So I opened an account and I sat there and I traded the, the New York Chicago Gold arbitrage for the next sort of close to month. And I said, wow, this is the most amazing thing I’ve ever seen. They’re just giving away free money. I was making cash while I was sitting there. So I decided that point. I said, oh, I, I, I, I gotta go to the floor of the exchange. This is really interesting. This is a really interesting opportunity. And I really did not want to go back to college. You know, I had a, a long discussion with my dad, you know, I said, dad, this is silly that I go back to college. There’s this unique opportunity. I don’t know how long it’s gonna last, and I’m gonna sit here and trade this. There’s gold arbitrage. And he said, no, no, you’re going back to college. I don’t care what you do. So I did the best thing I could do. I went back and did my next three years of school in two years, and then I got myself to the floor of the exchange by the end of 82.
[Barry Ritholtz] 00:06:26 And then what were you doing on the, what were you trading on the floor and how did you stay long? Did you stay as, as a floor trader?
[Gary Cohn] 00:06:32 So, in, in many respects, I got lucky in my first job offer because the Comex had just started to trade options on futures. It was brand new. No one on the floor knew the options market. So one of the large firms there approached me and said, Hey, do you know anything about options? Can you help us trade options? And I said, of course, even though I knew nothing about options,
[Barry Ritholtz] 00:06:59 But nobody knew anything about Options on Futures. They, their brand spanking knew,
[Gary Cohn] 00:07:03 Right? No one, no one had traded ’em on the floor. There were no option traders there. The big option, trading firms from the other option, trading Exchange hadn’t come down to the floor. They hadn’t become members, they hadn’t rented seats. So it was, there was no real knowledge there. So literally in the course of five days, I went out and tried to learn how to trade options, and I got lucky enough to get a job. I stood behind one of the brokers for one of the large firms, and I was literally saying, okay, buy that call, sell that, put, go sell those futures. And he goes, what’d I do? Well, you locked in, you know, $4 an ounce. He goes, how how’d I do that? I said, well, here’s how you do that. How do I get out of it? I said, okay, we’re gonna work our way out of it. And I stood behind that person for the better part of a year. And then after a year, you know, I, I, I said, this is kind of silly. I’m sitting here telling this guy what to do, right? I gotta figure out how to get my own seat and trade my own account. And so, about a year into my experience on the floor, I went out and, and got a seat on the floor of the Comex.
[Barry Ritholtz] 00:08:04 What do you remember what they cost back then?
[Gary Cohn] 00:08:06 About 150,000 bucks. Okay. It was a, it was a 00:08:09
[Barry Ritholtz] Real money in ’82.
[Gary Cohn] 00:08:10 It was a substantial amount of money. Now, the good news is you could lease ’em, you could lease seats on a, on a monthly basis. So I went and got a floor, and I, and I opened up a, an account with a clearing member when the clearing member guarantees your trades. Right. And I started trading for my own account. And so I traded my own account from sort of the end of 83 until I left the floor of the exchange.
[Barry Ritholtz] 00:08:32 And that was how much later.
[Gary Cohn] 00:08:33 So I, I stayed on the floor till, till basically 1990. And, you know, ended up moving from trading options to trading more and more futures, you know, the futures markets were, were expanding, they were growing. It was a interesting time, right. But I, I, you know, I would trade almost anything that was volatile that day. And it was an inter, it was really an interesting experience learning how a fundamental terminal market works.
[Barry Ritholtz] 00:09:00 So I’m glad you mentioned you shifted somewhat from options to futures options. Your risk is predefined. However much you’re putting up, that’s as much you can lose. Well,
[Gary Cohn] 00:09:10 Unless you, unless you sell a naked call, oh, 00:09:12 Okay, fair enough. You sell a naked call, you
[Barry Ritholtz] Right. It’s, it’s no different But, but inherently in futures, a whole lot more leverage, a whole lot more risk. How fundamental was that to your learning about investing, trading risk management, starting with futures? So,
[Gary Cohn] 00:09:29 It, it was important where I found a real niche on the floor, and everyone finds their little niche on the floor and, and being on the floor. It’s an interesting environment because everyone’s there for their own little specific reason. And where I found the niche is at that time, because things have changed dramatically. You know, the, the futures exchange is listed about 24 months of futures contracts. You know, the, the first and second delivery months traded 90% of the volume. But then you had people that wanted to trade the outdated months, you know, they wanted to trade the one year forward or the 18 month forward. Where I really specialized and where I spent my time is figuring out how to price the one year forward or the 18 month forward, and making prices in those markets. There were only two or three of us on the floor that did that. So when any of the orders came in to buy the non-active months, there were only two or three of us that would make a price. And so I carved out a, a, a unique opportunity. There was some other people, I wasn’t the only one doing it on the floor. And, and it was a unique opportunity to really learn more of the fundamentals of the business. It also brought in, you know, interest rates and interest rates expect, because the forward curve is a function of interest rates
[Gary Cohn] 00:10:52 . You’re doing a lot of math in your head on the Fly. I’m doing, I’m doing an awful lot of math in my head on the fly. And to hedge your position, you know, how do you hedge, you know, a a long dated future versus a short dated future? It’s not one-to-one. There’s mathematical formulas on to, on how to hedge your book and count your months of exposure and look at your interest rate exposure, look at your underlying exposure, look at your present value of your future cash flows. It becomes much more interesting than just trading the spot month in and out. So that’s where I really learned how to trade and how to think about cash flows and think about supply demand.
[Barry Ritholtz] 00:11:28 It’s a fairly obvious transition from the floor of the Comex to Goldman Sachs. How, how did you meet Goldman? What, how did, how did that next step come about? So,
[Gary Cohn] 00:11:40 By the time I was sort of at the end of my career in 80, 89, 90, you know, I’d become a fairly large trader on the floor. And when you’re a fairly large trader on the floor, that means you’re taking the other side of the institutional business flow. The institutional business flow at the time was probably the biggest player was, was, was Goldman Sachs. It was j Aaron, Goldman Sachs, Morgan Stanley, a little bit of a I g a little bit of JP Morgan, you know, and then a bunch of the, the funds. So I knew all of the Goldman traders because when they came in to move volume, I was there to, to, to make prices. And, and, and so we had a, you know, we had a a, a good relationship with each other.
00:12:26 [Speaker Changed] I’m gonna assume you weren’t taking the other side of the trade all that often with them, or,
00:12:30 [Speaker Changed] Oh, I was taking the other side of the trade all the time. Oh, really? Okay. But remember, we, we had completely different things we were trying to accomplish. Goldman had clients on the other side. They were trying to make their clients a ahead price and get hedged, and they were gonna walk away from the trade. I was making a price, and I may be out of it in 30 seconds or 40 seconds or 50 seconds. I was trying to figure out, you know, what was the price I needed for the next five minutes to clear the volume, got it, and move it around. And if I traded something, where could I move it? What could I, what could I, what could I buy or sell against it to make myself as, as risk reducing as possible? So we had different motives and, and so I was able to do my job.
00:13:13 They were able to do their job. And that’s what a, a terminal market does. It allows the different factors or the different people trying to get done what they need to get done, a place to meet. And, and, and so I had become closer and closer to the Goldman Sachs people. I’d become closer to the a i g people. I’d become close to everyone in, in, in, in 1990, Goldman had partner elections, and the, the gentleman who was running the medals trading desk, you know, called me in the office one day. And I just thought we were gonna have a conversation about the markets. And you know, what, what I was thinking, what he was thinking. And he said to me, he said, Hey, look, you know, I just became partner here. I think there’s a great opportunity. I’m gonna really continue to build this business.
00:13:56 And instead of you just taking the other side of our business all day long and fighting with us, why don’t you come up here and join us? At the time, it was the farthest thing from my mind. But the more I thought about it, and the more I saw the trends of what was going on in the industry, and the industry had changed quite dramatically over the prior five years. It had gone from a fairly, fairly heavy retail business to a very institutional business. No, no individual was really trading commodity features. If you wanted that exposure, you were giving your money to a professional, a commodity trading advisor, or some hedge fund. So it was becoming very institutionalized. So it was harder and harder to make money, or I was taking more and more risk to make the same amount of money. So when this individual, Jim Riley came to me, I said, you know, this is, this is not the craziest thing I’ve ever heard of. And he and I came to an agreement that I could keep my seat, if I ever wanted to go back, I could do a few things to make sure that if the transition upstairs from the floor environment to the trading desk environment didn’t work, that I felt like I had a safety net. Well, I never really needed that safety net, but it was nice to have that safety net. Huh.
00:15:04 [Speaker Changed] Really quite fascinating. You, you then spend what the next 25 years at, at Goldman Sachs. You rose through the ranks, eventually becoming president and c o o pretty good decision leaving the floor of the comics.
00:15:19 [Speaker Changed] I think it was one of my great decisions in life, really. So besides, besides getting married and a few other things, I, I, I, I can’t really just tell tell you what other better decisions.
00:15:28 [Speaker Changed] So you run commodities for a while at Goldman. What was that like? And do you still like, look at what’s going on today in energy when you look around? Do you get that itch? Do you feel like, I wanna, I wanna, I wanna do some futures trading, or Yeah.
00:15:43 [Speaker Changed] Look, once a trader, always a commodity trader, right? So I look at prices of commodities every day, and I have views on the markets every day. I don’t know if they’re sophisticated enough that I would trade futures, but, you know, trading underlying equities and trading, you know, equities that have high correlation to commodities is something I, I’m comfortable with. It was a unique opportunity at the time, because if you go back to that early nineties period, you know, commodities were somewhat in a bull market. It was a, it was a pretty bull market environment. And, you know, there were a lot of hedge funds talking about how to, how they were making 20, 30, 40% returns in commodities. Well, the team at Goldman Sachs had figured out if you bought like one gold future contract for the year, you would’ve made 30%. So, you know, we, we, we got involved and created a benchmark, a commodity indices at the time.
00:16:40 So there was a way to judge yourself. Did you actually outperform the market? You know, I had the interesting opportunity to be part of the team that built a commodity index. I, once I got done building it, I, I was the one that traded that index. So I got exposure to 18, 18 markets, many of which I’d never traded in my life. So that was really unique. It allowed me to build some new, a new business allowed, it allowed me and Goldman to expand into a lot of new markets where there was huge business opportunities for our clients. Hmm. Really,
00:17:12 [Speaker Changed] Really intriguing. So let’s talk a little bit about what makes Goldman Sachs so special. You spent most of your career there. Why is it so unique?
00:17:24 [Speaker Changed] So, when I went to Goldman in, in, in 1990, it was a small private partnership. I mean, it was a really small private partnership. Looking back,
00:17:35 [Speaker Changed] 500 partners,
00:17:37 [Speaker Changed] Oh, less, substantially less, really? Yeah. I, I think the most interesting document that I pull up from time to time is the SS one from the public filing of Goldman Sachs, which was in the, in the late nineties. If you look at the, if you look at the filing and you look at the size of the company and the revenue, the entire yearly revenue numbers would be a bad quarter right? Now. That’s unbelievable. It just tells you. And, and so there was so much growth going on in Goldman when I went there in the nineties, and I had a unique seat, you know, in, in, in, and the partners there provided me a unique seat, and they gave me enormous amount of latitude and responsibility to keep building businesses. So a as you said, I I, I, I joined the firm as part of j Aaron.
00:18:35 At that point, J Aaron still was a quasi quasi standalone business. It was wholly owned by Goldman Sachs, but we hadn’t quite integrated into the Goldman Sachs culture. So the first thing that happened in my career there is, you know, j Aaron became part of fixed income. So we, we became, we went from fixed income and j Aaron to thick fixed income currency and commodities. That was a big move, taking these, you know, crazy commodity guys, right? And putting ’em in with these very sophisticated fixed income guys. So part of that transition, and that was, that was a big move to create thick. And, and it didn’t happen overnight. There was a lot of natural tension in involved in that. And then even when we were combined by name alone, we still ran ourselves independently. So then I got the unique opportunity to be the, i, I would call it Guinea pig.
00:19:34 I was the, the, the commodity guy. The got put into running a fixed income business. I didn’t lose my responsibility of running the commodity business, but we moved the emerging market business down to what used to be the j Aaron floor. On the j Aaron floor was the commodity businesses as well as the FX business. So we had the, you know, the metals business, we had the oil business, we had the grain business, we had the coffee business, we had a coffee roasting room. We had a tasting room, and then we had the FX business. And in the middle, we decided, which made sense to put the emerging market debt business, all, all
00:20:12 [Speaker Changed] Related currency. Yeah, commodities and EmTech
00:20:15 [Speaker Changed] Made sense to us. Yes. Made sense. At the time, the Mexican, after the Mexican restructuring, they had, they had Mexican bonds with an oil option embedded in them. You had a lot of currency forwards trading, which made se made sense. So we moved emerging markets down, and I was asked to run the emerging markets business. So I was the first sort of guy that went from being a pure j Aaron Guy to making that crossover to commodities and a fixed income business.
00:20:43 [Speaker Changed] So prior to that, have you had any management experience or leadership experience that’s a big raucous floor, and I would imagine that desk was, was a handful to deal with. What, what was it like stepping into that role?
00:20:57 [Speaker Changed] So I had been running the commodities business. So I had been managing the commodities business. We had built some new businesses. We had built our, our Goldman Sachs commodity index business. So, so I had had, you know, a lot of responsibility building a business and, and, and, and building it out quite well. I had spent four years in London building our commodity business there. So the management piece of it was not what was the challenge to me, the challenge to me was I had never been involved in a fixed income business. You know, to me, I remember the moment, you know, where, where, where, where I had to learn something new for the first time I had, I spent my whole life in supply demand. So this is supply, this is demand, you know, this is how you look at supply demand. And all of a sudden I am in this world where, okay, we’ve got the, you know, Mexico 23 bond trading X, y, Z, and it’s 1 0 2, 1 0 3, 1 0 4. Like this thing is under value, we should buy it. And the guys go, no, no, no, no, no. I go, why won’t we buy it? We gotta own this thing. They go, they can turn around and issue more tomorrow. And I go, oh man. Like the whole supply demand fundamentals, right? I had to change my whole thinking.
00:22:06 [Speaker Changed] There’s on, there’s only so much gold and silver around, right? But bonds how much you want, right? Bonds, you got
00:22:11 [Speaker Changed] All you, we can call, you want bond, you know, the government of Mexico can turn around and reissue can, can open the issue or reissue a new bond tomorrow. So the amount of Mexican sovereign bonds can change tomorrow, which all of a sudden was a whole new way of thinking about the world. That the supply demand fundamentals of a commodities market are not the same as the supply demand fundamentals of a fixed income market. So, you know, the, the, the opportunity to bring that emerging markets desk down to into the j Aaron world worked out fairly well. I got the opportunity to go from the emerging markets world into the mortgage world. So they, they, they, they sent me into the next beast, which is the mortgage world. And,
00:22:50 [Speaker Changed] And I have to interrupt you and just point out, 1990, when you start, think about the timing. You’re halfway through an 18 year equity bull market, which we’ll talk about in a minute. You’re a decade into what’s gonna end up being a four decade fixed income bull market mortgages are really starting to ramp up and becoming very tradable. Your timing couldn’t have been been any better when were you promoted to global co-head of equities and fixed income.
00:23:21 [Speaker Changed] So it went something like this. So I end up going into the mortgage businesses, end up building a big mortgage business. We ended up becoming a very big trader and pass throughs end up, end up doing in mortgages. What we’ve now done in all of our commodities business, what we’ve done in the emerging markets, we then really have a fixed income currency, commodities business run as one business. So we, we managed to make that work. We managed to crosspollinate. We, we run ’em as a business. We no longer have fixed income guys and commodity guys. We now have a, a, a division and, and, and it’s working quite well as you’re right. We, we had some very good markets going on in, in the mortgage space. We had some very good markets going on in the commodity space, and we were able to capitalize on those things in the early two thousands after I would say the.com bubble had burst, you know, I was asked to go over and run the equities business.
00:24:23 [Speaker Changed] So obviously somebody looked at you and said, Hey, this guy’s talented. He knows how to run a team. He knows how to manage risk, and he knows how to trade for a profit for a p and l. So clearly your background was well suited. Yeah.
00:24:37 [Speaker Changed] Look, may maybe lucky, maybe good, most likely a combination of both. Right. Never
00:24:43 [Speaker Changed] Hurts. I had, I I always assume good is table stakes at a place like Goldman. Lucky never hurts.
00:24:49 [Speaker Changed] Yeah. I look always take, I I I’ll always accept the good luck. If you want to give me some, I’ll take it. So look, I, I had had a very good track record of building businesses from rebuilding our commodities business, emerging markets business, mortgage business. You know, I had gone through business by business, by business and, and, and, and, and helped build and helped transition them into much more client facing, client friendly, bigger risk taking businesses, bigger client facilitation businesses where we had a brand and reputation on the street as the go-to shop in fixed income currency, commodities, our equities business was really good going into the.com crisis, like it was a big business. We dominated, dominated,
00:25:29 [Speaker Changed] Did a lot of syndicate, a lot of underwriting, a lot of IPOs we did.
00:25:32 [Speaker Changed] And then all of a sudden that world changed and that world changed dramatically. And so I was asked to go over to the equities division and you know, I I, I went in knowing absolutely nothing about the equities world. But look, I had done that. I knew nothing about emerging markets. I knew nothing about mortgages. I knew nothing about government bonds. I knew nothing about anything in that world. So I just said, look, it’s another learning experience. I’m gonna learn about it. And realized that, look, we had one of the most unbelievable capital markets syndicate shops. Like we could place new issues better than anyone. The problem was the new issue, market and calendar was gone, right? And we had to transition from a new issue, capital market syndicate shop, to a secondary trading facilitation, one delta derivatives shop. And so I, I went into the equities and with some help of some, some really smart people, we transitioned that business to look much more like we, what we had built in the fixed income currencies and commodities business.
00:26:37 And that was done in the early, you know, the early two thousands. And then, you know, as, as as we had, as I had done in other businesses, and we had done, you start realizing the synergies between different businesses and all of a sudden you realize like the, the one delta or the equities business, their trading specific company names, but so are the corporate bond guys, the corporate bond guys are trading company names, corporate names. And a lot of the underlying factors that are affecting corporate bond trading are affecting equity trading. So then we decided, look, look, maybe we should put all of these businesses together and create a securities division. And the corporate bond people should sit on the same floor as the equities salespeople. And so they can talk about companies, you know, if you, if if you got something going on in company X, it’s not just affecting the equity, it’s affecting the converts, it’s affecting the preferreds, it’s affecting the corporate bonds. And those traders, it, when we started, they were in different buildings. They didn’t even know who they were. Wow. And so should we put them all on one floor, which we did. And that’s how we created the securities division.
00:27:48 [Speaker Changed] That, that makes a lot of sense. ’cause you would imagine everybody is looking at a, the six blind men describing the elephant. Everybody’s seeing a different part. And that intel has to be useful for, for the rest of the floor, whether it was preferred convertibles, corporate bonds, or, or equity.
00:28:04 [Speaker Changed] Absolutely. Yeah. So I, I remember the first time we were on the equity desk and, you know, and equity was getting sold off hard. And I said, I picked up the phone and called, you know, the guy over on the, on the, on the corporate desk desk and said, Hey, what’s going on this name? And he said, nothing like, you know, no, no nothing. And all of a sudden I sat there think, okay, what, what we, we need to learn by this. We need to understand is this a liquidation of a big position? Right? You know, should we, should we be going out to the market and selling this and getting people into the name? We have to learn by the whole capital structure because it is a capital structure.
00:28:38 [Speaker Changed] Hmm. That’s really intriguing. And you continue working your way up. You obviously did a, a pretty good job there. You continue working your way up eventually in oh six, becoming appointed president and co-Chief Operating officer, you end up as a member of the firm’s board of directors as well as chairman of the firm-wide client and business standards committee. Tell us a little bit about what it was like to get kicked upstairs to the C-suite.
00:29:06 [Speaker Changed] So that was 2006. I had, you know, it, it had come after we’d put all the trading businesses together. We now had the securities business. So we had put everything together, which, which made a lot of sense. We, we had, had, had done a, a very good job of that. Hank Paulson had left to go become treasury secretary. Right? And all of a sudden, you know, we’re, we’re, I’m sitting in the executive office floor and you go from sitting on a trading desk where you know exactly what’s going on, or you think you know exactly what’s going on in every market moment to moment, minute to minute. And all of a sudden you’re sitting in an isolated office trying to figure out how to run a big global firm that’s not just a, a, a securities trading business. You’ve got a big asset management business that you care about.
00:29:57 You’ve got a big banking business that you care about, and you’ve got a lot more aspects of the company that you care about. So, you know, it, it, it, it became another moment in time where I sort of take a deep breath and say, okay, how can I contribute most to Goldman Sachs? And I felt like there were a few different unique opportunities at the time. We did not have the strongest West Coast banking presence. So, you know, I saw what some of our competitors were doing. You know, I’ll be honest, Morgan Stanley had a really dominant banking presence in, in California, in West Coast and Silicon Valley,
00:30:37 [Speaker Changed] Mary Meeker Yeah. Absolutely dominated that
00:30:39 [Speaker Changed] Space. Yeah. They had a dominant position. They really did. And it was hard to deny that. And, you know, every time there was a, a, a big capital markets deal, or a big I p o coming outta there, we were, you know, begging to get to be the number three of a number four and number five. And I said, you know, to the team out there, I said, look, we’ve gotta go build this. This is something I can take on. So, you know, I found niches where I felt like I could contribute to growing the firm, helping the people in the firm while taking on my responsibilities to really manage the firm and operate the firm on a day-to-day basis. You know, my, my number one priority was to operating the firm on a day-to-day basis. But I felt my, my, my importance to the firm and the way you create clout and the way you create the ability for people to listen to you and follow you at Goldman is you still have to be a revenue leader or near the revenue. I don’t think you can get disconnected from revenue. You can’t be a sit in your office manager at Goldman, at least in these times. So I wanted to be a valuable part of the revenue driving machine, which also made my ability to manage and drive the organization that much more impactful. So
00:31:51 [Speaker Changed] That, that’s pretty unusual, isn’t it? Typically when you’re in the C O O President slot, you have subordinates reporting to you from different divisions. It’s un is it unusual to roll up your sleeves and say, Hey, I’m gonna help build this out? Or did it just help you better understand what everybody else was doing in the company?
00:32:11 [Speaker Changed] I think it helped me better understand. So I spent enormous amount of time on the road. I spent enormous amount of time with our coverage people. I was out seeing clients, you know, as many days of the years I possibly could really without, you know, without, you know, sort of putting the firm in, in, in any apparel or any jeopardy, making sure the firm was well run, dealing with all the bigger issues of the firm. But I felt the time I spent outta the office in other locations, in other offices with our senior most people and with their clients, was the most valuable thing I could do for the firm.
00:32:47 [Speaker Changed] You mentioned Hank Paulson, one of the few people who comes outta the financial crisis reputation intact. So you’re, you’re president and c o o and what, two, two and a half years later, suddenly the world starts to unravel and everything goes to hell in the hand basket. Although I think Goldman held up better than most. What was that era like for you?
00:33:11 [Speaker Changed] You know, look, it was tough. You know, it, it was a tough period in time. You know, you, you could see to some extent what was going on, even though you could see what was going on. There were certain things you couldn’t avoid. You know, you, you have certain structures, you have certain securities, you have certain assets on your balance sheet or that you’ve created. And you can’t un-create them, even though you said, wow, what, you know, I wish we hadn’t done that. Well when we did it six months or a year ago, different world. It seemed like a rational thing to do. And you’re, you’re sitting there, you’re watching, you know, you’re, you, your fellow competitors, whether it be a Bear Stearns or a Lehman Brothers, you know, get in trouble and, and, and you’re watching what’s going on and you’re understanding the fragility of an industry.
00:34:03 You’re understanding that, look, you have a lot of the risks that they do. You know, funding a, a a a a institution or funding a bank is really important. As I, as I always used to say to people, you know, these banks or these financial institutions, they don’t run outta equity. They run outta liquidity. So liquidity becomes such a crucial part of the organization. How can you finance yourself? How can you fund yourself? How can you make sure that you have liquidity? And how can you reassure clients that you have liquidity? And so we at Goldman as, as a team, we spent enormous amount of time and we took our best and most important people and said, look, drop what you’re doing. Make sure that we are dealing with our own situation and make sure that we are doing everything we possibly can to make sure we have liquidity almost at any cost. What,
00:35:01 [Speaker Changed] What was the date on that? Because for a little context, I want to say the markets peaked sometime October oh seven, something like that. But really it didn’t feel like they were rolling over till first quarter of, of oh eight when, and, and lots of competitors were doing a slow bleed Yep. And not exactly publicizing it. When did you say, Hey, this could get really bad. We need to, we need to be proactive. You
00:35:28 [Speaker Changed] Know, we went, I don’t remember the dates exactly, but, you know, we were watching the, the mortgage banks, the mortgage originators, right? And remember there were, I think it’s about 32 mortgage banks, mortgage origins. They didn’t make it through 2008. You know, we had done business with basically almost all of them. They originated mortgages, they sold them to us, we repack them, sold to everybody, right. Sold ’em to everyone. Like we weren’t, we weren’t unique. But, you know, just watching what was going on on a day-to-day basis and having conversations with those organizations and, and, and seeing what was going on, and understanding what was going on at the agencies that Fannie and Freddy, and understanding what their positions were, and understanding what was going on at a i g and, and, and understanding what was going on with some of our private equity credit clients. You know, I, I think there was a seminal moment. I think it was July 4th weekend.
00:36:31 I remember getting a phone call at, you know, like six o’clock at night from a very large private equity firm that, that also ran a big credit fund. And the credit fund had bought a debt security from one of the, their private equity’s own deals. Oh. And he was reneging on the deal to himself. He was reneging on the, the debt deal. ’cause he couldn’t get it funded in the secondary market. Wow. I said, you know, you’re reneging on your own deal. Like this is your paper from a company that you guys own. That was a seminal moment. Right. I can imagine that was a moment where I said, oh, like the world is changing dramatically right now. When, when, when someone won’t fund paper from a a, an in-house deal for a major private equity player. So there were, there were moments along the line, you know, and then you get into disputes on what things are worth.
00:37:27 And certain, you know, really major companies are disputing margin calls because they’re disputing what a security is worth. Like I never in my career had a major corporate disputed a margin call on what a security is worth. Like, it, it, it really didn’t ma it really was unprecedented. It was unprecedented. Right. It was unprecedented. So there were, there were a lot of signs along the way that liquidity was getting tighter and tighter and people were, you know, hoarding liquidity if they had it and protecting it if they didn’t have it. And, and, and, you know, we as a firm, we were conscientious of this to the point where we actually went out and issued a bunch of debt and equity early on. Yeah. We went out and did that big Warren Buffet deal. Yeah.
00:38:19 [Speaker Changed] So the, the Warren Buffet story could be my favorite story of the whole financial crisis because as much as people said, what, what was it like a 9% or 11%? It was a big note. Everybody kind of forgets Buffet offered that to Dick fold and Lehman months before and fold said, no, too expensive. Yeah. It could be the single biggest error of the entire crisis. Yeah. They might still be around, who knows. Buffet
00:38:46 [Speaker Changed] Offered it to us in the morning and said, you can let me know by five o’clock tonight. And we, and and we said, don’t worry, we’ll be back to you and all we have to do is get our board together. We got our board together. And we said, done. And we did a big secondary equity raise around
00:39:01 [Speaker Changed] It following that. I remember
00:39:02 [Speaker Changed] That. You know, and, and the only conversation we had from people in the secondary raise is everyone said, well, I would’ve done the buffet deal. And I said, the only problem is you’re not Warren Buffett. That’s
00:39:10 [Speaker Changed] Right. That’s exactly right. And, and it was one of those moments where God bless Warren Buffett. Yeah. It, it really made a huge difference to everybody. Even though there was more downside in the equity market, it’s, Hey, we’re not all gonna go down the drain. Well
00:39:25 [Speaker Changed] Then, then a week or two later, I think it was within a week or two, that’s when treasury decided they were gonna put tarp money into all the banks, regardless of those that had raised capital or not. And but by the way, I don’t disagree with them either. They, they, they were trying to infuse capital in the system and,
00:39:41 [Speaker Changed] And not single out any specific bank which would cause a run. Right. So yeah, really it was a, it was, you know, I I’m always reminded of the scene from, from Apocalypse Now where they’re surfing, Hey, one day this war’s gonna end. And it’s, it’s really when you were in that moment, it was really, really one of a kind, which all of which leads to the question, given the breadth of that experience at Goldman through everything from really the bull market and bonds and equities to the dotcom implosion to the financial crisis, how did that experience set you up to become a leader in the public sector?
00:40:23 [Speaker Changed] So a lot of those skills are very transferable. You know, my job at goldman net net, when you boil it down, was dealing with crisis or opportunity e every day. And by the way, most days I was dealing with both, you know, and, and, and some opportunities became crises and some crisis became opportunities. So I I, I consider myself being the crisis management or opportunity management business because when you’re running a very large balance sheet globally with lots of people committing capital and lots of people making promises or commitments or underwritings, you’re gonna have problems. It’s just the nature of the business. No matter how well intentioned people are, there’s gonna be mistakes and clients are gonna get unhappy and, and and, and you just have to deal with them. So, you know, having spent the last almost 11 years of my life at Goldman, and I’d done it before being a, a crisis manager, and that’s really what I did. It was a crisis manager trying to look for opportunity. You know, I think it prepare, prepared me well to go into the government because I, I was always trying to figure out how do we create a solution? How do we create something that works? What is the compromise? What is the way out of this situation? Is there, there, because there’s a way out of every situation. So, you know, I never believe there wasn’t way out of a situation. So, so
00:41:47 [Speaker Changed] Let’s break that down before we spend a little time in the public sector. Let’s stay with crisis management. ’cause I kind of get the sense reading your background, you created a, I don’t wanna say formulas to is probably overstating it, but you seem to have created a structure where every time there’s a crisis, you followed a few specific steps. So crisis shows up on your desk. What, what is the Gary Cohh three or five step response? What’s the playbook
00:42:19 [Speaker Changed] Be? I i, I don’t know if there’s a playbook ’cause they’re
00:42:21 [Speaker Changed] All different. They’re all different.
00:42:23 [Speaker Changed] I, but
00:42:23 [Speaker Changed] There’s some themes that seem to be consistent
00:42:25 [Speaker Changed] Is, as I used to always say, is, you know, we at Goldman, we’re, we’re very creative in the problems we have. We’ll never usually have the same problem twice because we’re, we’re, we’re really good at fixing the last problem we had. We’re not good at, we’re, we’re not as good as anticipating the next problem, but we’re good at fixing the last problem.
00:42:43 [Speaker Changed] Okay. So in, in my, I’m gonna interrupt you and say in my research into you, one of the things, and some of the speak people I spoke with, Gary will own the problem. Yeah. Apologized for it. Yeah. Here’s what we’re gonna do to fix what took place and here’s how we’re gonna make sure this doesn’t happen again. That’s what I was referring to. Okay. Did I putting words in your mouth or is that
00:43:05 [Speaker Changed] Not fair? Yeah. No, no, you’re not, you’re not putting words in my mouth at all. So look, I always believe you have to own the problem. I mean, ownership is, is 90% of the battle. You know, I, I never had a problem where I did where I would say, it’s not my problem. Because if you’re the chief operating officer, the president of Goldman Sachs, every problem is your problem. Yes it is. It’s, it’s my problem. It’s my problem. And it’s, and and, and it’s my job to make sure it gets solved. So a I would always start with ownership. B I would always need the facts. So, you know, if you really wanna go through the chronology of a, of a problem, you know, okay, problem arises, number one, get all of the facts into the room. Try and agree upon the facts. You know, one of the hardest things sometimes is agree upon the facts.
00:43:54 You know? And, and, and, and my job was to sift through the facts and sit, not just sift through the facts from my, my team’s perspective. I needed to talk to the other side. If there wasn’t other side, you know, I need, I needed both sides of the opinion. And, and I always trusted, you know, in, in the words of Ronald Reagan, trust, but verify. You’ve gotta trust but verify everything. So go through it, understand the facts, understand what, what happened. Own the problem. Try and fix the problem. And, and, and be realistic. And, and, and I always thought, if I go to the people and tell ’em exactly what happened, tell ’em the truth. Tell ’em how we’re gonna rectify it. 95% of the time it’s gonna solve the problem. ’cause really people understand there’s gonna be problems. They just want to understand what actually really happened.
00:44:47 [Speaker Changed] And everybody walks away happy after that.
00:44:49 [Speaker Changed] Yeah. Look, they, they walk away as happy as they can be. Right. I don’t, I don’t wanna sit here and tell you, oh yeah, every time people walked away happy, they walk away as happy as they, they walk away. How about this? They walk away
00:44:58 [Speaker Changed] Satisfied. Right? Well, these are complex problems with big money involved. And occasionally people are gonna argue about, Hey, who has this loss? Or who has this profit? And sometimes that leads to disputes. Yeah.
00:45:10 [Speaker Changed] If it, if it’s just a loss, if it’s just money, sometimes those are easy to cure, right? I, I don’t wanna be cavalier, but if it, you know, if it’s just a money problem, it’s, it’s sometimes not a big deal. It’s like a deal can’t get done and someone blames someone for something. Okay, now we got a problem.
00:45:28 [Speaker Changed] Now you got personality and ego, right? And turf wars and everything else.
00:45:32 [Speaker Changed] And, and, and why can’t the deal get done? And now people are, are pointing fingers, well, the deal can’t get done because this happened. You didn’t do this or you did do this, or you shouldn’t have done this. And now all of a sudden it’s like, okay, now I, like money’s not gonna solve the problem. I’ve gotta get people back to a position, understand why the deal can’t get done. Maybe the deal never could have gotten done. Maybe someone just never explained to the client. Maybe, maybe, maybe they told the client things that they just wanted to hear. Which is, which again, I have to own that and say, look, my team didn’t do a good job. My team should have told you six weeks ago this couldn’t get done or this wasn’t gonna get done, or for this to get done, these five things had to happen and none of these five things happened.
00:46:12 [Speaker Changed] So I don’t really think of c o o as a fixer, but really what you’re saying is you are a free safety and anything that could go awry, you’re on top. You have to be responsible for,
00:46:24 [Speaker Changed] I think in a firm like Goldman Sachs, you have to, you have to, when you’re in a transactionally driven business where your clients are depending upon you for advice, capital and, and really the future of their company, in many respects, you have to, as, as, as a senior person, you have to, you know, be there as the free safety and help make sure you guide these things to, to the, to the softest landing. You can if, if and when there’s a problem. Now the, the good news is the vast majority of the time these things just run their course. And the teams are so good that they all happen by themselves.
00:47:01 [Speaker Changed] You, you are there for the, for the ones that, that aren’t self-repairing. Exactly. Really intriguing. So let’s talk a little bit about that period. Your chief economic advisor to the president. You managed the administration’s economic policy agenda and you spearhead the Wage and Tax Reform Act, which was a, a substantial policy success in the Trump White House and a pretty substantial rejiggering of the tax code emphasizing small businesses, LLCs, tell us a little bit about what was life like in the White House?
00:47:40 [Speaker Changed] Well, life in the White House is fascinating. It was probably of, of all the things I’ve done in my career, the most fascinating experience I’ve had. And, and, and I’m very thankful that I had the opportunity, very thankful that I did it. You know, wall Street is a, is a good preparatory class for Washington. You know, it’s, it’s long arduous days, which are, which you’re used to. You know, my my day was, was was pretty simple in many respects and pretty chaotic in other respects. But no different than a day at at Goldman Sachs. You know, I used to say my days at Goldman Sachs is about 20% of it. I have an idea what’s gonna happen about 80%, I have no idea. And I just hope and pray it’s not too crazy. And I would say the White House was pretty similar. About 20% of the day, I sort of had an idea of what was gonna happen. And the rest of the day we were gonna deal with the issues or the problems or the opportunities of the day. You know, my days would start early in the morning with the presidential daily brief. C i a would come in and brief and, you know, you’d see what
00:48:46 [Speaker Changed] C i a comes in and briefs that, that. So I imagine at Goman you have great business intel. What’s it like getting briefed by by the spooks?
00:48:54 [Speaker Changed] It’s, it’s pretty interesting. Yeah. I mean, look, we’ve, we’ve, we’ve got a, we’ve got a really interesting, you know, intelligence network around the world and it’s their job to make sure those of us discussing policy in the White House have the information we need and that we’re all have the same information. And so there’s a, a group of us that get the, the, the daily brief and, you know, you can get it, you know, I think most of us got it fairly early in the morning and you can get it when you want. And so I used to start my day with it early in the morning, and that was how I started then, you know, I would go from there to the, most of the chiefs of staff would have a staff meeting in the morning. So the, the, the senior White House people would get together in the morning around 8:00 AM or so, seven 30 or eight, discuss the issues for the day, discuss the opportunities for the day, discuss the messaging for the day, you know, you’d get done with that.
00:49:55 Then I’d have my staff meeting around nine o’clock or whenever the senior staff meeting was over, you know, I relay to my staff what the messages for the day that we would discuss what problems we’re working on. And, and then we would go into our more, you know, day to day agenda depending on what we were working on from a policy standpoint. We spent a lot of time up on Capitol Hill working with various members of different committees, both in the House and the Senate. ’cause at the end of the day, you know, a lot of what we’re trying to do is get legislation done, which as, as we know, it takes 60 and 60 in the Senate, 2 35 in the house and a presidential signature. There’s ways around that during reconciliation for budget bills and things like that. But the overall legislation, you know, you’re, you’re trying to do regular way or normal way and, and you’re working on trying to get legislation done. And, you know, I think it’s the, the, the job of the White House to drive normal way process legislation working with either majority or minority leaders in the Senate or, or, or, or in the house. You have a really intricate working relationship with them on their agenda. And, you know, they have a pretty good idea who stands where on what pizza of legislation. So we’re attacking, you know, the, the, the various constituents on on who needs time, who needs effort, who needs persuasion, who they
00:51:26 [Speaker Changed] Have the headcount, you know, who to go to,
00:51:28 [Speaker Changed] Who needs handholding, who who, who’s solidly in your camp, who’s solidly against you, who’s on the fence. And you know, that’s sort of a typical day, but intertwined in there. You’re at the beck and call of the president, and the president, you know, can decide at any moment of the day, basically, he wants you tear
00:51:48 [Speaker Changed] Up the script and go this way.
00:51:50 [Speaker Changed] Yeah. He wants you in the Oval Office, he wants you some meeting, he wants you involved in something. And like, you know, at a Goldman Sachs, your entire calendar, your entire schedule can get, you know, blown up in 30 seconds or less. And that’s, that’s what, that’s the way it works. And you know, one of my, I I think one of my important attributes is, you know, I made sure that I sat down with the president every day, you know, I sort of knew the times the day to go in and see him. And I tried to spend, you know, an hour or so, a day alone when he wasn’t distracted with other people coming in and out, right. And say, Hey, look, this is what we’re trying to get done. Here’s where we are. What are your thoughts? You know, you okay with where we’re where we’re going? ’cause you know, you always want to be on the same page as the ultimate decision maker
00:52:40 [Speaker Changed] To, to say the least. So let’s talk about probably the biggest economic legislative success of the entire administration, the, the T C J A. Yep. Tell us a little bit about how this came together, how the parameters were formed, who was really driving the different aspects of that? It, it, it’s really a fairly comprehensive package and very different than previous tax cuts that were just, Hey, we’re just gonna play around with the different rates.
00:53:11 [Speaker Changed] So it, it’s very comprehensive. We started on that plan in December of 16. So I had agreed to join the administration sort of beginning of December of 16. And by the middle of December we’re already starting to talk about taxes. We know that we want to get tax done. And look, one of the reasons I went into this job was taxes. I felt that we had a tax policy in the United States that was hindering growth and deterring US corporations from investing in the United States and penalizing them to do things that they actually wanted to do that were positive for the US economy and positive for US jobs. And to me, I felt this was a huge opportunity and there was an opportunity to fix this.
00:54:10 [Speaker Changed] And, and let me just remind everyone of the timeline. So the election, November, 2016, December of that year, you’re teeing it up, president’s sworn in January 20th and you’re hitting the ground running.
00:54:23 [Speaker Changed] We’re hitting the ground running already in December. Wow. So by December, me and, and other members of the team at this point, it’s a large team, you know, like, like everything. It’s a large team. ’cause everyone wants to be involved.
00:54:37 [Speaker Changed] Did you bring people over from Goldman with you or was 00:54:39 [Speaker Changed] No, I didn’t bring any, just
00:54:40 [Speaker Changed] Stood up a brand new team.
00:54:41 [Speaker Changed] I didn’t, I stood up a brand new team. I look, the first thing I did, let, let me back up ’cause this is really important. The first thing I did when I accepted the, the, the N E C hijab is I went out and I hired a world class and I mean a world class team of experts. And, and, and I looked at it like, this is Goldman Sachs. Like, I need the best people in the world in each of the roles. And the n e C job is really interesting because it touches the broadest spectrum of economic policy.
00:55:11 [Speaker Changed] And, and feel free to name drop who, who’d you, who’d you stand up with that group? No.
00:55:15 [Speaker Changed] Like, like I went out and hired Jeremy Katz to be my deputy. You know, Jeremy was amazing. He had worked in the White House before. He really knew the right people to go out and hire. He understood the roles, he understood what could get done and what couldn’t get done. He knew that I really wanted to get taxes done. He told me, look, there’s a woman by the name of Shahir Knight, you’ve gotta go out and hire Shahira if you want to get taxes done. Like Shahir is your person. We went out, we got Shahir hired, you know, but then you’ve gotta go out and hire people in the healthcare space. You’ve gotta go out and hire people in the energy space. You’ve gotta go hire people in the technology space. You’ve gotta go out and hire people in the agricultural space. Jeremy knew all those people to hire.
00:56:01 He went out, he brought me in the best people ever. And it was, it was kind of interesting to me because it, it was interesting and really rewarding because, you know, Jeremy would bring these people in. He’d do the first and second round interviews, and then I’d meet ’em and Jeremy says, look, you gotta meet these people. They wanna meet you before they come to work for you. And I would sit down and talk to ’em and, and they were all amazing. They were amazingly talented. And I would sit there and go, guys, look, I desperately want you to come do this job. You’re leaving a big, huge, high paying job. You know, I can’t offer you a whole lot. They used to laugh. And they go, yeah, we, we, we know you can’t, but look, we believe in you. We believe in the country we want to serve. And it’s amazing how many great people we’re willing to serve.
00:56:44 [Speaker Changed] And let me jump in here and just point out, there have been criticisms about some Trump appointees and, and some of the process. The N E C’S reputation was really quite stellar. I
00:56:57 [Speaker Changed] Had, I had a world class team. I’d put that team up against anyone. You know, I also had, you know, my, my chief of staff, my chief of communications, Ashley Hickeys, she, she was over the top amazing. I mean, she was one of the two assistants that sat outside of George Bush’s office. She left there, she became a crisis communications expert. She worked on some of the most, you know, known crisis communication issues. She also knew Washington in and out. She helped me go out and get all the right people. And, and because they knew the way the system worked and I didn’t, I was an outsider. They were able to guide me on who to hire, how to hire them, and how to have impact. Because, you know, it, it, it, it’s one of the most phenomenally interesting things we go through in the country that we don’t really talk about.
00:57:47 We talk about the peaceful transition of power, the peaceful transition of power. If you think about it, we don’t have time to go through this, but at 11 59, 59 on January 20th, the old administration walks out of the West wing and walks outta the White House. And at 12, at 12 o’clock on the dot, the new team can walk in much. The new team has never met each other. They’ve never seen each other. They don’t know who they are. And we all walk into the West Wing, or we walk into the old executive office beyond, depending on where your office is. And we start working together as a team, not even knowing each other’s name, not knowing what we do, not knowing our background. It’s phenomenally interesting. So you have to know people or you have to bring people on your team that can help you lead. And without Ashley, without Jeremy, I couldn’t have got any of these things done. I mean, I really couldn’t have. And, and most of the other people that they had me hire had been in the executive branch once before in their life. So I had a huge competitive advantage over a bunch of the other people that, that were in there.
00:58:57 [Speaker Changed] So, so let’s talk about that advantage and let’s use the T C J A as as our example. How does that come together? How did the different major policy posts come through? Does this start at the White House? Does it start with potus or do you go to the president and say, here’s what we think we could get through Congress. Te tell us how this begins and how does it get Shepherd?
00:59:20 [Speaker Changed] So, so tax is really unique. So the reason I’d accepted the job is because of tax reform. And, and, and the president elect at the time we were starting this, and then the president knew that that was one of my big targets. So we had talked about it. Steve Mnuchin and I had talked about it, but at the time we started down tax reform, the house was starting down tax reform. Paul Ryan was a big tax guy. So Brady and Ryan, they were heading down their own path on what they thought tax reform should look like,
00:59:57 [Speaker Changed] But very different. It was really great. Focused different, if I remember right.
01:00:00 [Speaker Changed] Completely, completely. No, no. So Brady and Ryan were in a completely different place than we in the, they were in a border adjusted tax. I mean, they wanted to do a border adjusted tax system. We, in the White House did not want to do a border adjusted taxes
01:00:17 [Speaker Changed] And define that. ’cause I know you’re very much a free trade advocate. I am a free trade advocate. Tell us how this conflict comes into play. Well,
01:00:24 [Speaker Changed] Basically a border adjusted taxes, you tax things at the border to, to equalize them. We felt that Border Adjustment tax had a really negative impact on sort of harder working middle class Americans. People that shop at the, at the big box retailers, the Walmarts, ’cause they import a lot of their goods. Those goods would be taxed at the border.
01:00:50 [Speaker Changed] Walmart, Costco, target. Yeah, exactly. Everything would be 25% more. To me,
01:00:54 [Speaker Changed] Everything would be 20. They would put a 25% border adjustment tax on them. It’s
01:00:58 [Speaker Changed] A giant number.
01:00:59 [Speaker Changed] It’s a giant number. We felt it was, it was really a progress. A progressive tax. A I’m sorry, a regressive tax regressive. It was, it was a regressive tax. We did not see that is, is making sense to us. So our initial meetings were between, you know, those of us coming into the White House and the house and, and, and, and we went down every Monday night in December and January prior to inauguration. And Speaker Ryan held a meeting in his conference room. And we had, you know, buffet dinners in there and we were hashing out these, these thoughts. Now, ultimately it came that the Senate was not going to do a border adjustment tax.
01:01:43 [Speaker Changed] Not surprising. So,
01:01:45 [Speaker Changed] But we had to get to the point where, you know, the house and, and, and, and, and Brady and, and Ryan who were, who were really two good tax experts, who spent enormous amount of time on tax, had to give up on what they thought was their primary plan. I think by the time we got into inauguration in January, it was clear that border Adjustment was not going to be the overall plan. So now we start going back to what can we all agree upon? And this to me is no different than any other deal I’d ever worked upon. Okay, let’s not try and solve the hard issues. Let’s try and figure out what we all can agree upon. And so, issue by issue, we all started deciding what we are trying to achieve and what we were deciding to we could agree upon. And you, as with everything, when we started a, it was pre inauguration, so people didn’t have a lot to do.
01:02:51 So there were lots of people in the room. As we got farther down the path, people had things to do, people realized this was gonna be a longer process. This was gonna be an arduous process, you know, less people started showing up to the meetings and we started getting to the real core group of people that knew what they were doing. We ended up with what they call the, the group of six. The group of six that was, you know, two from the house, two from the Senate, Emma Mnuchin and I from the, from the White House. So the Big six became the big six of, of, we’re gonna sit down and we’re gonna hash out what we think tax policies should look like, and then we’re gonna work from there.
01:03:32 [Speaker Changed] So is this very typical to have this smaller group representing House, Senate and White House? ’cause that’s a lot of firepower in one room.
01:03:41 [Speaker Changed] It, it’s, it’s not typical. And, and you know, I give Brady and I give Ryan enormous amount of credit for handling the Ways and Means committee. ’cause technically, tax legislation’s supposed to start in the Ways and Means Committee. The Ways and Means Committee is a very large committee. Well
01:04:00 [Speaker Changed] Start, I don’t know if that’s the right word. Or or at least they get handed the football at a certain, well,
01:04:07 [Speaker Changed] The technically in the, in the real world, if you, if you read the little definition, the Ways and Means committee is where all tax legislation needs to start. Now, ultimately, we handed them the football, they made some minor changes and it progressed. So tax legislation has to start in the house. It has to start in the ways, communi ways and means community. The six of us got to a place where we had enough agreement on where to go, what we thought the basic fundamentals were that we then, you know, that, that Brady and Ryan could then handle the Ways and Means committee, we could get the ways and means committee involved. We got them actively involved. And ultimately we got a piece of legislation through the house. Now, I don’t wanna say this in the wrong way, but the House wasn’t the, the, the tougher piece. You know, the, the Republicans had a house majority, they had a decent majority. And we thought that we would get to the requisite 235 votes to get through the house. A piece of tax legislation now,
01:05:16 [Speaker Changed] Like, like herding cats though, right? Herding
01:05:18 [Speaker Changed] Cats. Now look, there were some controversial things in there, as we all know. The, the, the, the salt deduction for sure was a issue that people on both sides of the aisle had a difficult time dealing with. If you’re a northern New Jersey Republican feels
01:05:38 [Speaker Changed] Punitive,
01:05:38 [Speaker Changed] You weren’t happy Yeah. Having to vote for that. Or even if you’re a a, a New York State Republican from Westchester, it’s a tough vote for you to make. There were a bunch of major corporate changes, the deemed repatriation, which was one of the things that I thought was really important, like the White House Steve Uch and I thought was really important.
01:06:03 [Speaker Changed] So define that for listeners. So describe corporate repatriation. We had a, because this was a very big deal, a huge, huge
01:06:09 [Speaker Changed] Deal. So we, we had a tax system prior to JCTs where as a US-based taxpayer, if you were earning money offshore, as long as you left your money offshore, you did not pay us taxes. The minute you brought it back into the US you had to pay taxes.
01:06:31 [Speaker Changed] Which, which by the way is very different from you and I as individuals. Yes. If we’re US citizens and I’m earning my money overseas, I’m still paying taxes
01:06:38 [Speaker Changed] On, you’re still paying taxes. So it almost forced large US companies to bring to leave their money offshore. It it, and when you’re forcing US companies to leave their money offshore, you’re actually forcing them to make capital investment offshore. Right. Build factories offshore, hire people offshore, which to me was the complete wrong incentive. We wanted people to bring their money back on shore. So we said in so
01:07:09 [Speaker Changed] To, to clarify, bring it back here, build factories, hire people, invest here in the us Correct. And, and what was the change in tax rates? So versus had it been earned here in the us So
01:07:21 [Speaker Changed] It it was not necessarily a tax rate issue, it was just an avoidance of tax. If I never bring it back, right, I don’t pay the tax.
01:07:28 [Speaker Changed] So how did this change? So what we did, what was the incentive to have them bring it back? So what
01:07:32 [Speaker Changed] We did is we said, okay, you can leave your money offshore. We’re gonna just deem it to have been repatriated. So we don’t care where you leave your money. We’re going to, we’re gonna give you five years to pay the taxes on the offshore money. So over the next five years, you are gonna have to pay all of the taxes that you would’ve paid, assuming you would’ve brought back all your money and all your foreign earnings are gonna be taxed as if they were earned in the United States.
01:08:00 [Speaker Changed] So that’s the stick. Tell us about the carrot.
01:08:03 [Speaker Changed] Well, we gave lots of carrots. We gave lots of carrots, we gave lots of credits, we gave lots of incentives and we gave lots of different ways for people to, to move their money in a way. But the ways that we gave carrots was we wanted you to invest in the United States where possible, and we wanted you and we forced you to repatriate your earnings back to the United States. So we gave you huge r and d credits. We gave you huge credits to build factories in the United States. We gave you credits to hire people. We gave you credits for everything we could, but we deemed you to have your worldwide earnings come back to the United States.
01:08:42 [Speaker Changed] And approximately how much capital would you guess returned to the us? Well,
01:08:47 [Speaker Changed] Lots of it. I mean, it, it trillions, trillions measured in trillions. Like, I don’t want to call out companies by themselves, but look, apple was very clear. Apple was one of the largest holders of offshore capital. And to Tim Cook’s credit, he brought back money almost instantly. And he said, he said, why are legislations, look, if this legislation passes, I will just bring back my money. I will pay the taxes. I understand what you’re doing. This, you know, makes sense. We had pretty good support from the corporate community on, on repatriation. And so we, we, we did things like that where we said, look, you can no longer just hide your money in, in overseas, in foreign countries. Right? You’re a US based company. You’re a US taxpayer. You’re gonna, you’re gonna have deemed to have brought your money back. We don’t want you to incentivize to, to spend your money offshore and, and build property platinum equipment offshore.
01:09:37 [Speaker Changed] So let’s talk about two of the other big factors in the T C G A. One was the shifting of the rates and the other was the L L C pass throughs, which really was a huge structural change. Rates are pretty easy. Rates came down, the top rates came down. Everything else kind of got rejiggered a little bit to
01:09:58 [Speaker Changed] Top rates came down. But that, that, that, that, that helped. If you looked at the distribution, it helped the bottom two thirds of the distribution top rates came down for everyone. But the, the, the thing that we did to correct that is we got rid of the largest loophole that exists in the tax code, which is, which was the salt deduction. So the wealthier people in the top tax rates, they were subtracting from their income, they were subtracting their state tax, right? They were subtracting their state income tax mortgage deduction. They were their, their mortgage deduction. They were, they were subtracting real estate taxes. They were sub, so they were lowering the amount of income that they taxed. So my basic premise, and I think this is good tax policy is lower the rate broader than the base. So we were trying to broaden the base. We were trying to say, look, we’re gonna stop having you deduct all these things from your income. We’re gonna say your income is your income, but we’re gonna charge you a smaller rate on your income. That’s the channel. We tried to simplify the whole tax return. If you remember, there was times when, you know, the president said, it’s so simple, you can do it on the back of an envelope. We can, we can have a tax return that you can do on
01:11:11 [Speaker Changed] Have on a card. I have a feeling, I have a feeling you are, you don’t file on the back of an
01:11:15 [Speaker Changed] Envelope. I do not file. Neither do I. Yeah, I I don’t follow on. I can’t even get on a sheet of paper.
01:11:20 [Speaker Changed] So, so let’s talk about the other one. And I will admit, so, so at the time of the salt deduction going away, I cursed you, I cursed the president and then I started reading about this L L C pass through, right? And my business is an L L C and I’m like, oh, so wait a second. Let’s talk about this. Who created that concept? That’s a giant shift in the way we tax small businesses. So
01:11:44 [Speaker Changed] Here’s always a big debate when you get down to doing taxes in the United States. So we have a corporate rate and then we have a rate for LLCs or pass throughs and LLCs and pass throughs can be very large companies that are not corporates. We have some very, very large pass through companies in,
01:12:08 [Speaker Changed] In the United States. Partnerships, law firms, accounting firms go down the list. Venture capital
01:12:11 [Speaker Changed] Firms, we have some, some even larger major training companies, major retail companies that are LLCs are pass through companies. So you have this debate about the fairness between the corporate tax rate and the L L C or non-corporate tax rate and how do you make sure there’s not an arbitrage in there. So you’re an L L C, but if I lower the corporate tax rate low enough, you’ll just become a corporation, right? And you’ll pay your corporate tax rate and then you’ll find that you’ll find ways ultimately to, to run your business through a corporation because you’ll tax incentivize. So we were trying to create a level playing field for LLCs or, or, and, and look, it still is to this day, the vast, vast majority of LLCs in this country are small, small family businesses and, and small businesses. So we wanted small businesses to be taxed at a favorable rate.
01:13:22 We want to incentivize small businesses. We wanted small businesses to grow. We want ’em to hire more people. So we created ways for L L C income and different amounts of income and income below certain threshold to be taxed at a preferential rate to allow LLCs to be very competitive and more competitive than corporations if you were a small L L C. So we’re telling you, if if you’re a small business person today, your L L C structure should be incentivizing for you to grow your business and stay in an LLC. You don’t need to become a corporation to take advantage of a tax code.
01:14:02 [Speaker Changed] And I, I have a vivid recollection of New York state reaching out to the I R S S and saying, we want to clarify what our rules can be with L L C. And the I R S said, yes, you can do this, you can do that. And then New York state disseminated new information and then California and then Illinois and then it just cascaded. And suddenly a lot of blue states, or at least small business owners in blue states that were complaining about the salt deduction going away suddenly like, Hey, this is not the worst thing that happened here with this tax code. How long did it take before people realized this is a, a really substantial change to small business? ’cause the pushback on salt was pretty fierce.
01:14:47 [Speaker Changed] Yeah. Look, I I, I don’t know, the political rhetoric today is still pretty high on the J C T A, that it was a tax cut for the rich. I think the data does not tell you that. And if you look at the, the tax revenues collected in absolute dollars and you look at tax revenue collected as a percentage of G D P, it would tell you that the, the the code actually worked pretty well and has done well to incentivize people to grow businesses, hire people, and pay taxes. I don’t see it as a tax cut on the rich, you and I were talking before, most of our friends are probably paying more taxes today than they were because they lost their large deductions by living in New York City, New York state by living in New Jersey. Anyone who lives in California, it’s clearly not a tax cut for them.
01:15:47 [Speaker Changed] It it, it really changes from industry to industry. The biggest issue is normally, so you pass something in 2017, it goes into effect 2018, and then you get five years of data and say, let’s look at how this worked. We had that little snafu in in 2020 that, yeah,
01:16:04 [Speaker Changed] We have some screwy data, we have some
01:16:05 [Speaker Changed] Screwy data. So it’s, it’s still a little difficult to conclusively say where this was, but there’s some sense of, of the trend this was moving in. We have
01:16:14 [Speaker Changed] Some screwy data, but even with the screwy data, I would agree with you, the trend is that tax receipts and tax revenue have far exceeded all of the forecasted assumptions. And all of the, the, the views that were were, were, were stated when we were passing the legislation, all of the scaremongering that went on when we were passing the legislation, how this was a tax cut for the rich and tax receipts are going down dramatically has been unfounded. And many states that follow the federal government and get rid of the salt tax deduction, many of those states have found themselves in a huge surplus situation. And they have lowered their tax rates because they have, they have ample supply of tax revenue coming in by getting rid of the deduction. So I think, you know, it’s gonna be impossible to say for sure because of, of what happened in Covid. But I think the overwhelming data has been that the J C T A T A has done exactly what we said it would do.
01:17:21 [Speaker Changed] And this is gonna come up for renewal in a couple of years, 01:17:26 [Speaker Changed] The end of 25.
01:17:27 [Speaker Changed] So, so
01:17:28 [Speaker Changed] Now the, not not the corporate side, the personal side comes up at the end of 25.
01:17:33 [Speaker Changed] So here’s the question. I mean, it’s impossible to forecast this sort of thing. Do we think that this is likely to be renewed or is there something else coming? And really the answer to that question is what happens in 2024?
01:17:49 [Speaker Changed] I I think there the, it’s a bit what happens in 2024, but if you put a gun to my head today, I would think that 95% of that tax code is getting renewed.
01:18:01 [Speaker Changed] Really? Yeah. That, that’s quite fascinating. So I, we’ve spent a lot of time,
01:18:05 [Speaker Changed] It’s, it’s actually worked to,
01:18:08 [Speaker Changed] To a large degree un
01:18:09 [Speaker Changed] Unfortunately,
01:18:09 [Speaker Changed] By the way, I know I’m gonna get pushback on the data. Well, the tax code showed this. And if you look at it this way, the numbers are that, so there’s still some debate on the numbers, but by and large, you are satisfied with, with the results of it.
01:18:23 [Speaker Changed] I’m satisfied with the
01:18:23 [Speaker Changed] Results. And you think it had a positive impact on the economy?
01:18:26 [Speaker Changed] I think it’s had a positive impact on the economy. I think it has a positive impact on having the money repatriated. When you talk about, people are talking about people building plants in the United States, people are talking about us red domicile, our supply chain,
01:18:42 [Speaker Changed] Semiconductors, healthcare.
01:18:43 [Speaker Changed] A lot of this is happening because companies were, they weren’t forced, but they got taxed on the money offshore anyways. So when they brought it back right, it was easy for them to spend it back in the United States. So a lot of the effect people are seeing, they have to understand the cause. The cause was okay, that money had to come back, it didn’t have to come back, that money was being taxed anyways. So once it’s being taxed and I’m bringing it back on shore, well I can spend it to build a factory in the United States. I can spend it to modernize these things. So I think when we look back at this with enough years of data with the covid blip being a blip, not, not that it’s a blip, it’s a blip in tax terms,
01:19:21 [Speaker Changed] It was a couple of years in tax terms for sure.
01:19:23 [Speaker Changed] I i I think that we’ll say, Hey, this tax plan worked pretty well.
01:19:29 [Speaker Changed] Safe to say this is your most satisfying accomplishment in, in the public servants space.
01:19:36 [Speaker Changed] Absolutely. Huh. Absolutely. It was it was a hundred, it basically occupied, I would say the vast, vast majority of my time for about 365 days.
01:19:48 [Speaker Changed] So really two thirds.
01:19:49 [Speaker Changed] We, we signed it December 22nd at 12 noon on and, and, and seven 17. And I started working on it in December of 16. So, so literally for about 365 days straight, my mind was thinking tax code, tax code, tax code, tax code. Huh.
01:20:08 [Speaker Changed] Let’s talk a little bit about what’s going on in the world today. I wanna talk about technology, but first we, we have to talk about what’s arguably the most aggressive tightening cycle in Federal Reserve history. What, what’s going on in the world of interest rates and fed funds?
01:20:25 [Speaker Changed] Well, I, I think you just said it. We’re going through the most aggressive tightening cycle we’ve seen, you know, I I I think unfortunately the Fed was late to the game, but
01:20:35 [Speaker Changed] They but aren’t they always? Yeah,
01:20:37 [Speaker Changed] And they’re gonna stay too long. You know, it’s always, they come late to the party and they, they’re the last ones to come in the first and, and, and the last ones to leave. I guess that’s what they are. But, but the question to me is, is more broad than that right now, you know, the Fed has, has, has tightened interest rates quite considerably, and we all know there’s a lag effect, you know, and so the first raises they have now we’re, we’re a year or so into that cycle,
01:21:06 [Speaker Changed] Year plus March, 2022. Yeah. So we’re, we’re 18 months out. Yeah,
01:21:09 [Speaker Changed] We’re a year plus into, into that cycle. We don’t know what the full impact of these raises is. So that’s number one. So for the Fed to keep going, I would be concerned. Now, I, I I think we all believe that the Fed maybe has one more 25. I would potentially hope they’d have no more 20 fives, because I’m with you. I’m not even sure what the effect is of the raising the rates and a longer discussion about Fed policy and how effective it’s been over the last two decades. But I’m not gonna go there right now. What’s more interesting in, in, in my opinion, is what the Fed been trying to do by raising rates and slowing down the economy, slowing down employment growth. So far we have not seen that. We really have seen, we’ve seen a little bit of job creation slow down if you look at the Jolts data. But we really, we’ve seen a little bit of a tiny minuscule pickup in unemployment. But that seems more like it’s people coming back to the job market because savings is starting to dry up
01:22:24 [Speaker Changed] A lot of right. Wage gains are slowing real estate still still having a little issue, still
01:22:29 [Speaker Changed] Having a little issue. But we’re still pretty much at full employment, we’re still having wage gains overall. And I think what we’re seeing in, in, in, and I think what we all have to figure in here is we’ve never gone through a cycle where the Federal Reserve is tightening with one hand and the federal government is spending with the other hand, right? And so, as much as the Federal Reserve is tightening, the federal government continues to spend, they continue to have money to spend on infrastructure, they continue to have money to spend on the inflation reduction Act. They continue to have money to spend on chips. They keep rewarding big contracts. These big contracts are gonna continue to put demands into the labor market. So I’m not sure we’re slowing the labor market down anytime soon. What we’re probably slowing down is the housing market. So if we slow down housing market because it becomes expensive to borrow money, are we just keeping housing inflation high? I don’t really know. But we’re at a different time in our history where the real impacts, even if they’re lagged, I’m not sure they’re as meaningful as they once were.
01:23:49 [Speaker Changed] And, and to put a little flesh on the environment that the CHIPS act, the inflation act and the Infrastructure Act came into the first CARES Act 2.2 trillion. The second caress Act 800 or 900 billion, the third cares act, this one under Biden, another eight or 900 billion. So that pig is barely through the Python before all of these 10 year programs really hit the ground. So there’s gonna be an ongoing fiscal stimulus even as the monetary stimulus comes off. Yeah.
01:24:21 [Speaker Changed] Look, the, the most obvious way to look at this is we’re coming up on the end of the fiscal year, we’re gonna have a a $2 trillion deficit for the year. You know, and it wasn’t that receipts were that much lower this year. Now they were a little bit lower stock market performed poorly last year. So you didn’t see the capital gains. But the government just continues to spend, it continues to spend on all these programs. If the government’s continuing to spend and the government’s continuing to spend on things that need human capital, it doesn’t matter in many respects, how tight monetary policy becomes, we’re gonna continue to hire people, we’re just gonna continue to pay more to get the people. And so I I, I would like the Federal Reserve to stop. I would like the Federal Reserve to take a deep breath. You know, right now in the tightening cycle, we’ve almost seen more damage in the regional banks than we have seen help for the US economy
01:25:18 [Speaker Changed] To, to say the very least, we saw a huge disruption, whether it was Silver Lake or Silicon Valley Bank, or go down the list of regional banks that got disrupted to say nothing of the healthy banks. That people got nervous and moved to big money centers. Well,
01:25:34 [Speaker Changed] And not only that, because of what happened in the regional banks, we now have a federal reserve that thinks that banks need more capital. So we’re gonna put more capital into the, the biggest banks, the, the G CFIs and the C, they don’t need more capital. But the knee jerk reaction to anything negative that ever happens in the banking sector is, oh, we need more capital. But by the way, capital doesn’t prevent a bank run. You can have all the capital in the world. You, you, you, you can have it all. If there’s a bank run, capital doesn’t provide your deposit’s liquidity. Does,
01:26:07 [Speaker Changed] Does it do anything to raise rates on the one hand and then flood the system with capital on the other? Aren’t, aren’t these sort of competing monetary functions? Well,
01:26:18 [Speaker Changed] It, it competes because as banks have to raise more capital, it just means they’re gonna lend out less money. They’re gonna take the balance sheet they have right now and they’re gonna hold more capital and they’re gonna lend out less. So it it, they’re not gonna go raise additional capital per se. They’re gonna take the money that they have in on their accounts and they’re gonna say, okay, this is now capital sitting in my capital account. I’m no longer gonna use it as, as a way to fund growth to my, to my clients, whether they be,
01:26:50 [Speaker Changed] So that’ll slow, that’ll slow the economy even more. Well slow the economy. So if you are gonna have lunch with Jerome Powell, what would you say to him?
[Gary Cohn] 01:26:58 [Speaker Changed] I would say, I think you’ve done enough. I I, I think we’ve got a set of unique circumstances that your historical economists and your historical textbooks don’t really account for. I think you need to let this work through the system. The federal government has already more or less appropriated these funds. They need to go out and spend them. They’re gonna go out and spend them. They’re gonna continue to keep demanding labor, whether it’s labor to be bridges and tunnels or, or power grids or charging stations. There’s so many things where we’re gonna need labor to build that No matter how high, high you take interest rates, it’s not gonna stop that infrastructure build. It’s just gonna make it more expensive. Let the system normalize and see where we end up. Now your higher rates are going to have some effect. They’re gonna have some unintended consequences. We’ve seen ’em already. I, I would say, look, it’s, it’s time to take a deep breath. You know, inflation is going to be where it is. When inflation was zero and you went to zero interest rates and you went to qe, you couldn’t affect it there either. Right?
01:28:10 [Speaker Changed] Couldn’t hit that
01:28:11 [Speaker Changed] 2% target. So this idea, this idea that you’re gonna zero it in on your 2% target, I just don’t think you can do it. I think you’re gonna have to take much longer looks and you’re gonna have to look at wider windows of evaluation. So, and, and, and, and J Powell said this, like I give him credit. He said, look, we’re gonna try and get 2% through the cycle. Well, maybe the cycle has to be a much longer cycle. So if we’re, if we’re 6% for a while and we’re 0% for a while, you know, maybe we’re averaging three.
[Barry Ritholtz] 01:28:42 Huh. Really interesting. You mentioned something that really struck a chord with me and I have to ask about it. The cost of financing everything is higher now, whether it’s corporate projects or the federal debt.
Did we miss a once-in-a-lifetime opportunity to refinance federal debt with long-term bonds in the mid-2010s? I mean, when rates were nothing, there was a lot of appetite for 30 or even 50-year treasuries. How, and I was told at the time, that’ll just encourage more spending. But was the traitor in you, was that a great opportunity or, or what
[Gary Cohn] 01:29:22 In the first conversation I ever had with then president-elect Trump, when I was going through my views of the economy, I said, look, my number one concern would be the dollar and the debt. And if I were you, I would go out and replace all of our debt with 50 year debt, and a hundred year debt.
[Barry Ritholtz] 01:29:44 And what was the response to that?
[Gary Cohn] 01:29:45 He said, that’s a great idea. Can can we do that? Why not? I said, sure. I said, treasury can. I said, treasury can issue whatever they want to issue. I said I would, I would extend maturities on forever. I said, same thing. I would tell a corporate client if they could do it. Absolute go, go. Absolutely. Go, go issue 50 and hundred your debt now.
[Barry Ritholtz ] 01:30:01 And by the way, most of the American corporations did exactly that. Yeah. They went as long as they could
[Gary Cohn] 01:30:06 When you’re in a, when you’re in a very low interest rate cycle and you know you’re gonna need it, why not extend maturities.
[Barry Ritholtz] 01:30:12 Did that not get off the ground? It’s such a brilliant thing to do
[Gary Cohn] 01:30:17 To accompany and today we’re a country $33 trillion of debt as of I think Monday.
[Barry Ritholtz] 01:30:22 So, so why did that go nowhere?
01:30:26 [Speaker Changed] I don’t know. Alright.
01:30:27 [Speaker Changed] That’s, that’s a fair,
01:30:28 [Speaker Changed] You just, you push these things as far as you can push ’em and, and, and you just
01:30:32 [Speaker Changed] Go, I mean, to me as a trader, the, it’s the obvious thing to do, but Washington doesn’t necessarily think like traders.
01:30:39 [Speaker Changed] Look, I I, I’m not blaming anyone for this. Like these things just happen. But, you know, at the end of the day, the White House doesn’t borrow the money. Right. It’s delegated out to, to treasury and,
01:30:49 [Speaker Changed] And Congress has to
01:30:50 [Speaker Changed] Offer con treasury borrowing committee. You got lots of people smarter than me putting in inputs on, on, on how to do it. And, you know, they, they decide what maturities to go to and they tend to do what they’ve been doing for the last 200 years. Right.
01:31:04 [Speaker Changed] All right. So let’s talk a little bit about technology. You’ve become a fairly big investor across things like cybersecurity, blockchain, infrastructure, ai. Tell us what you’re seeing in the world of technology and what it’s gonna mean to both the government and big companies like Goldman.
01:31:24 [Speaker Changed] Look, I, I think we’re on another technological wave and with every technological wave, there’s really good parts of it and there’s bad parts of it. So when I look at the, the whole AI wave that we’re going through, which has been going on for a lot longer than people understand, I think it’s just become in the forefront of people’s minds since we’ve seen retail products this year. So we’ve seen the chat GBTs and we’ve seen the bard. Everyone understands what AI is on the retail basis, on the enterprise basis. There’s been, there’s been AI products for a longer period of time. But with those products, you see the vulnerabilities. You have to understand the cybersecurity and, and how vulnerable we are. You know, you’ve seen what happened in some, some casinos recently. Yeah. And you see all the vulnerabilities we have. So as we continue to grow out our infrastructure, we continue to grow out data centers and we continue to grow out, you know, access to data, access to computing. I think we equally have to build out, you know, protection, cybersecurity, make our infrastructure harder and harder. You know, the White House saw this earlier in the year. They put out zero trust zone executive orders. So there’s things that we need to do in this country. We need to harden our borders. We need to harden our edges. We need to harden our technology.
01:32:55 [Speaker Changed] Electrical grid is very vulnerable.
01:32:56 [Speaker Changed] I, I, every, everything is vulnerable. What, what we’ve look, we’ve seen pipelines, we’ve seen lots of cyber attacks on lots of infrastructure that none of us think is really infrastructure, whether it’s hotel keys, right? Or whether it’s pipelines, whether it’s slot machines. You know, we can go through all the different cyber attacks. Those are ones we know about. There’s plenty more going on that we don’t know about. So I, I think we’re under invested as a country on cyber. I think we’re under invested at, at, in protecting ourselves. I think AI is a whole nother leg of huge opportunity, but another leg of huge vulnerabilities. Yeah. As we put more and more data into the system, we create more and more data. We’ve got more and more vulnerabilities, and we have to understand how AI can help us, how it can be useful to us. I think that’s really important to us. And the blockchain, to me, it’s the future of settlement. It’s the future of doing business. You know, we, we still have many, many arcane processes now. We’ve, we’ve quasi modernized them. If you think of something as simple as stock settlement, right? You know, we’ve gone from, you know, moving physical certificates to now digitally trans transacting and settling. But why are we having t plus two or settlement? Why aren’t we
01:34:16 [Speaker Changed] Instant t why aren’t,
01:34:17 [Speaker Changed] Like we have commodity markets that, that, that, that, that they clear real time. We need to modernize all of this infrastructure so we can get all of the vulnerabilities and all of the risks out of the system. We have the technology, we just have to adapt this technology. But when you adapt the technology, you have to put the prophylactics around it and make sure it’s secure.
01:34:38 [Speaker Changed] You know, we, we talk about blockchain and so many people, oh, I hear saying, what, what are we gonna do with it? It, what purpose does it serve? Go back to the financial crisis. If we had those mortgages on something like a blockchain Yeah. Who owned what house? All that, all that confusion. It, it all tracks and settles automatically. And, and there’s a permanent public register of that. Well,
01:35:00 [Speaker Changed] E even even simpler if, if you had the mortgages on a blockchain, you had house titles on a blockchain, we could transact houses daily. You know the idea that you buy a house on Monday and you do a title search, and then you go get a mortgage and then you sell it to me on Tuesday and I have to do a ti and I can’t close, same thing for 30 days, right? ’cause I have to go do another title search, right? And I have to do all the same work if it was done once, put in the blockchain and we transfer it with all the, all the documentation, the, these things become, the fungibility of ’em becomes much greater. It’s a win for everyone. You, you have much better collateral, you’ve got much better ability to securitize, you’ve got much better ability to close and transact. You know, we are going to get there, you know, there’s lots of natural antibodies to get there. There’s lots of natural businesses that gets disintermediated. But we’ve been disintermediating businesses for the last 200 years and every time we do it, we become a stronger and bigger, most importantly, a bigger economy. So
01:36:05 [Speaker Changed] Let’s talk about AI a minute. And, and I use a, a really fascinating app called Perplexity. And I know you’re an investor in various I AI companies. So I asked perplexity, tell me about Gary Cohen’s history at Goldman Sachs. And then I did the same thing. Tell me about Gary Cohen’s history at the White House and I sent it to your assistant and the Goldman stuff. Perfect. The White House stuff. Just a run of corrections and cross throughs. And it kind of is fascinating. And by the way, this aspect of AI two months ago couldn’t have done any of this, right? It’s, it’s amazing how it just gets better and better and better over time. What do you see AI doing? Is this gonna disintermediate a lot of people? The fear is people gonna be thrown out of work? Or is this something that’s gonna like the internet create a whole bunch of new jobs?
01:37:03 [Speaker Changed] I think it’s the latter. So look, we’ve lived through these seismic revolutions, right? From the cotton gin to the combustion engine to the personal computer. When we live through each of these, we’ve always worried about the jobs we’re going to lose. Like, oh my God, the person that prints the memo and delivers the memo to everyone in the office when we have email, what’s that person going to do? Well, all those companies put that person to work doing something much more pro productive and much more profitable and actually much more fulfilling for the individual. So as I look at each of these seismic evolutions in companies, every company I know has gotten bigger and dramatically bigger. Whether it’s the personal computer, the cell phone, the internet, you look at these, every company has gotten dramatically bigger. Look, AI’s gonna displace some people, but I think you’re gonna take those people that are in probably the least satisfying jobs and be able to retrain them into much more satisfying, much more fulfilling jobs and allow these companies to become much bigger and more efficient and cover clients more effectively.
01:38:17 And they will, they, they will grow into those jobs just like the person that used to print the memo and deliver the memo to everyone’s mailbox in the office. Remember when we used to have little cubbies in the office, right? I’m old enough to remember that, right? Pick up your mail in the morning like no one has a mailbox in an office anymore. The, the, that person is, is now doing something much more productive. And the AI is AI’s gonna help that. And, and on the flip side, think of the, the, the productivity gains or think of the things we’re gonna be able to change and the regulatory environment where you’re gonna be able to really monitor things that you’ve never been able to monitor. Like the regulatory environment’s always been after the fact. Can AI now monitor human behavior real time?
01:39:00 [Speaker Changed] Now, when you say regulatory, from our perspective in this business, securities trading crypto, how, what, what is potential in this space?
01:39:10 [Speaker Changed] So look at human behavior. You know, human behavior to me is regulatory behavior. You know, in, in, in a bank are your, are your employees doing the right thing? You know, can, can you create ai, an AI over face, an over something that sits on top of your organization that makes sure your employees are doing the right things? Or are they doing something wrong? Like it’s not gonna be foolproof, but it’s gonna help you manage your organization in a way that makes management team smarter and say, Hey, look here, there might be something bad going on.
01:39:46 [Speaker Changed] No more bearings, bank sort of hidden losses type
01:39:49 [Speaker Changed] Of thing. E exactly. You know, so, so it’s, it’s the old adage, and, and I was pretty good at this, but I wasn’t foolproof. Like every day at five o’clock I got an email. I was supposed to get it by five o’clock from every risk-based desk. And if I didn’t get it by five o’clock, you know, I didn’t think about it by five 15, something’s wrong. By five 30 there was a problem. Like, because I didn’t get it because something really good happened. ’cause if something really good happened, they’d called me already, right? So I didn’t get it ’cause something bad had happened. So I’d stay with almost a hundred percent accuracy, unless literally it was, oh, I forgot to hit send. If I would call that desk and say, Hey, I didn’t get your end of day email, it’s like, oh, need need to tell you something. Oh. Like, but I would remember to do that. Now, certain days I probably forget if I had an AI machine that said, Hey, you didn’t get all your end of day emails, or you didn’t get end of day email from this desk,
01:40:51 [Speaker Changed] And you get an alert, it tells you, I get an alert and you can even have it reach out and, and tag the person, Hey, give Gary a call. Right? And there’s your, you know exactly who’s like these on the game. All
01:41:00 [Speaker Changed] I’m doing is monitoring human behavior, you know? And, and look, I’m invested in a company that monitors is gonna monitor human behavior and tell you employees are acting, you know, they’re, they’re doing stuff they’re supposed to do, they’re doing stuff they’re not supposed to do. And by the way, it may be fine. Or they’re, they’re doing something today that they’ve always done, or they’re doing something today they’ve never done.
01:41:17 [Speaker Changed] And it’s just gonna alert you to things that you’re not gonna see on your own. Yeah.
01:41:20 [Speaker Changed] Like, it, it, it’s a look over here, it may not be a problem. It’s like, hey, this is different today.
01:41:25 [Speaker Changed] So let’s talk a little bit about I b m. You were vice chairman there. I kind of think of I B M and AI with them playing Jeopardy and, and participating there. What’s the future of AI at I B M now?
01:41:40 [Speaker Changed] Well, I’m glad you asked the question that way. So IBM’s been involved in AI for 50 years.
01:41:46 [Speaker Changed] That’s amazing. Yeah.
01:41:47 [Speaker Changed] And, and, and you sort of said it, you know, in 2011, Watson won at Jeopardy. 2012 Watson beat Casper off at chess. So I b m has been involved in the machine learning the AI business. Now for decades. We’ve been serving our enterprise clients in building AI products for them for the last years. What’s become really prevalent recently, and the reason we’re all talking about AI today is there’s finally retail products out. I B M does not have a retail product, and we’re not gonna have a retail product. It’s not our business. Our business is to be the AI inside of companies that you may face on the retail side. So a good example is a c a CVS during covid I B M was, was, was operating the C V SS call center for the millions of calls a day for Covid. How do I get my, my covid vaccine?
01:42:46 Where do I go? How do I schedule appointment? That was all I B m AI managing that. And, and so you, we are involved, we are doing a lot, but we’re doing it on an enterprise solution basis for our clients. We’ve got AI and software that allows people to manage their physical building, allows them to manage what their carbon footprint allows them to manage, you know, how efficiently their building’s running, you know, what, what, what compressors should be running, what motors should be running, what lights should be turned off, how do I turn ’em on, when to replace the, there’s enormous amount of technology going on in this space, but it’s done on a, on an enterprise level. So I B M is a big AI player and, and, and we continue to build out more and more opportunities for our clients to use our enterprise ai. So it’s, it, it’s a really interesting crossroads in the company’s here.
01:43:40 [Speaker Changed] So let’s tie that together with our prior discussion on cyber crime. Can, can we use AI to monitor systems and alert us when there are intrusions or hacks or other cyber hack problems?
01:43:54 [Speaker Changed] A a, absolutely. Absolutely. So, you know, I B M has a, had a big presence at the US Open a couple weeks ago, and we did this big presentation on everything we were doing there. And we’ve got software and AI that was talking about all this cyber hacks going on in the US Open and how you prioritize the hacks. Like this is an irrelevant hack, this is an important hack. We’re gonna be able to use AI to monitor the bad and the good, and we’re, and it’s gonna be equally effective to make sure we’re using it both in monitoring what’s going on well in the world and where we need to watch things and where we need to prioritize. If you’re getting hacked millions of times a day, you’ve gotta figure out what are the important hacks. Like you can’t get distracted by the ones that don’t matter. You’ve gotta spend your time on the hacks that are really relevant. Hmm. And AI can be helpful and, and, and, and allowing you to do that.
[Barry Ritholtz] 01:44:42 [Speaker Changed] Let me, let me throw you a, a curve ball question. When I was a kid, I had, before we were diagnosing everybody with a D H D, I had a D H D with just a little bit of dyslexia thrown in. And with me it was spelling and I, you know, before I had a wedding ring on, I didn’t know left from right. I could tell you a story about taking my driver’s test and every time the guy says, make a left, make a right, I would flash my index and thumb because I could recognize the l and he is, what the hell are you doing? I don’t know left from right. You’ve been very public about having pretty severe dyslexia growing up and said it taught you, I’m gonna put quote you back to you. Hey, I learned about failure and thought of the world as that’s the default and it’s all upside from there. Tell us how your dyslexia affected you personally and, and your career.
[Gary Cohn] 01:45:41 [Speaker Changed] Well, you said it. So I I I characterize myself as one of the world’s greatest failures. You know, I knew how to fail at everything at a young age, you know, school to me was, you know, impossible. I never thought I could get out of elementary school.
[Barry Ritholtz] 01:45:57 [Speaker Changed] And there, there was a story about a meeting with your parents where they got some vocational advice. Would, would you share that?
[Gary Cohn] 01:46:04 [Speaker Changed] Well, I, you know, I was in the, I wasn’t supposed to hear it, but I remember very clearly one of the teachers pulling my mom aside and saying, no, my mom, look, you’ll be lucky if your son grows up and can drive a truck.
[Barry Ritholtz] 01:46:18 [Speaker Changed] That’s just what a kid wants to hear, right? Yeah.
[Gary Cohn] 01:46:20 [Speaker Changed] Well, no, by the way, it was motivational. Yeah, it was motivational. Like I, I heard it and I said to my mom, I said, well, it’s gonna be a nice truck, you know, when I drive it, In my mind though, I knew I wasn’t gonna drive a truck. Like, I knew that I could figure certain things out that other people couldn’t figure out. So if you could talk to me and explain to me something, I could come up with the answer. So I was smart enough to understand that I just couldn’t sit there when they handed me a piece of paper and, you know, say, read this. And like, okay, who won the race when it said, you know, two people raced and so-and-so won and first grade, I, you know, to see if you had basic reading skills. I go, I don’t know, was there a race? Like my answer was like, what race? My answer would’ve been what race.
[Barry Ritholtz] 01:47:12 [Speaker Changed] So given your career both on the corporate side and the public service side, are, are there any residual effects for, from this? I’m assuming your, your reading skills have improved since then.
[Gary Cohn] 01:47:25 [Speaker Changed] Yeah. Yes. So I have become a decent technical reader. If you give me a contract, I’ll be, I’m pretty damn good at reading contract. So, but a contract to me has total logical, you know, I know section one, what’s gonna be in section one. I know it’s gonna be in section two. I know it’s gonna be in section three. I know it’s gonna be in section four. I’m really good at reading a contract. If you give me something that I don’t know what the order of it is, it’s gonna be difficult for me because I’m working so hard at the words that it’s hard for me to process where, where it’s growing.
[Barry Ritholtz] 01:48:02 [Speaker Changed] So, so technical reading much easier than books and things like that.
[Gary Cohn] 01:48:06 [Speaker Changed] Yeah, I don’t read a lot of books. Like a lot would maybe round up to zero.
[Barry Ritholtz] 01:48:11 [Speaker Changed] Wow, that’s fascinating. You’ve been,
[Gary Cohn] 01:48:12 [Speaker Changed] Now I, I get to listen to books on tape. Right. So
[Barry Ritholtz] 01:48:15 [Speaker Changed] Do you enjoy that experience?
[Gary Cohn] 01:48:17 [Speaker Changed] Yeah, a little bit. It’s, it, it’s still hard for me. You know, I didn’t grow up as a reader, so my brain’s not that conditioned to that. So, you know, it’s, it, it, it’s not a natural for me. But look, do I read, do I try and read the newspapers every day? Do I try and, you know, read the editorial? Do I read a lot of editorial pages? Do I read a lot of news? I do read a lot of news and editorial pages, but you know, like they’re hundreds, they’re measured in hundreds of words, right?
[Barry Ritholtz] 01:48:46 [Speaker Changed] Yeah. All right, so let’s jump to our favorite questions, starting with what are you streaming? If you’re not reading, what are you, what are you watching? So
[Gary Cohn] 01:48:54 [Speaker Changed] Again, I I, I watch a lot of sort of factual stuff and lately I’ve been going through sort of the Netflix library of sports actuals shows Full swing Break point, the swamp drive to survive. I’ve been going through all the sports stuff.
[Barry Ritholtz] 01:49:13 [Speaker Changed] Drive to Survive was great. They did. You see, I haven’t seen the one, I’m assuming you saw the one on the Chicago Bulls of Michael Jordan. I,
[Gary Cohn] 01:49:21 [Speaker Changed] I actually haven’t. And I got, it’s amazing. Oh, oh no, I saw that one. Dur during Covid. Right. So that one’s amazing. But I haven’t seen the Nike one yet. There’s, which everyone tells me. I gotta see.
[Barry Ritholtz] 01:49:29 [Speaker Changed] It’s an interesting movie. There’s also one about Steph Curry. Yeah. I think that’s on Apple tv. And then there’s another one about Magic Johnson and the La Lakers. But that’s interesting that, that that’s what gets you interested, you know, very competitive, very interesting things.
[Gary Cohn] 01:49:46 [Speaker Changed] It’s, it’s, look, it’s a, it’s a little bit about winning. Right. Which maybe tells you something about me. Yeah. But it’s about winning.
[Barry Ritholtz] 01:49:52 [Speaker Changed] I, I, I picked that up. How about mentors who helped shape your career?
[Gary Cohn] 01:49:56 [Speaker Changed] I think there’s two big mentors. My grandfather for one.
[Barry Ritholtz] 01:50:00 [Speaker Changed] What was his role?
[Gary Cohn] 01:50:01 [Speaker Changed] Big time. So, you know, as we discussed, I was highly dyslexic going up. And, you know, my parents, you know, didn’t know what to do with me. So like, I don’t blame them. They were young parents. And my grandfather was convinced, like, there’s nothing wrong with, with, with my grandson. He’s really smart. He’s gonna be fine. You don’t need to send them off. You don’t need to panic. And so my grandfather really sort of put me under his wing and said like, you’re gonna be fine. Just, just do what you need to do. And so we, we had a very, very close relationship.
And, and, and so he really got me through sort of my early childhood years all the way through high school. Like he was there for me. And then, you know, there’s a guy by the name of, and I mentioned before, Jim Reilly, who when I went to Goldman, he was the, he, he became partner in 1990. He was the one that hired me into Goldman. And, you know, I became partner in 94 and I’d become partner by sort of doing everything, sort of being the guy that everyone could go to, being the guy could fix everything. And when I became partner, I was trying to do everything. And you know, it was one of those stories where I was trying to manage a big business. I was trying to trade a big book. I was trying to deal with clients and I was doing a really bad job of, of, of it.
01:51:26 Like, and, and my trading book showed it. Like, I, I was having probably the worst trading streak of my life. I was, I was losing money every day. And I didn’t, I didn’t know how to lose money every day. And I was living at London at the time, and, you know, after like a week of not sleeping, you know, I waited till like seven o’clock in the morning New York time. ’cause I, I knew he’d be driving in. He lived in the island. He’d be driving in the office or he’d be in the office. I called Jimmy up and I sort of gave him the woe is me story. Like, Jamie, I’m working so hard. I’ve never worked this hard in my life. Like I’m, I’m seeing 10 clients a day. I’m dealing with the sales desk, I’m dealing with this. I’m trying to trade my trading’s horrible. I can’t make money. What should I do? And he basically said, figure it out. And hung up the phone.
[Barry Ritholtz] 01:52:18 Not even prioritize.
[Gary Cohn] 01:52:20 [Speaker Changed] Nope. Just figure it out, Just like, figure it out. Figure it out. Click.
[Barry Ritholtz] 01:52:22 [Speaker Changed] Wow. And how’d you figure it out?
[Gary Cohn] 01:52:24 [Speaker Changed] No, he basically said, I got the message like, you idiot, you can’t do everything right. Like, so literally five minutes later I called everyone in my office. I said, guys, I’m done trading. And I gave my trading book away and I said, I’m here to see clients. I’m here to deal with problems. Come see me. And the guy took over my trading book and said, thank you very much. And the, the the salespeople said, oh my God, you’re human again. And everything was fine. Great.
[Barry Ritholtz] 01:52:55 [Speaker Changed] Really good decision. Yeah. Our final two questions. What sort of advice would you give to a recent college grad who is interested in a career in the world of investing in finance?
[Gary Cohn] 01:53:06 [Speaker Changed] So, look, I a I think it’s a great place to start your career and your life no matter where you end up. ’cause the fundamentals of understanding finance and understanding markets and understanding a balance sheet is really an important skill. And it doesn’t matter what you do with your life. So, so I’d encourage anyone in who’s got an interest to go into the, in, to go into the industry. It’s a tough where you to go. It’s like the first couple years of going into financial services, it’s boot bootcamp. You know, you’re working 24 hours a day, seven days a week, you’re on call. It’s not fun. So I, I, I’ll I’ll warn you of that, but you should do it. You should get the experience and then you should take some risk in your career. You know, after you’ve learned the fundamentals, you know, after a couple years, just because you went into a sales and trading program, or just because you went into investment banking program, doesn’t mean that’s what you should do.
[Gary Cohn] 01:54:00 And, and what I see so many young kids do is they get hired into X job and they stay in X job for the next 20 or 30 years. Figure out what you really like and then go figure out how to get there. So if you, you’re hired as an investment banker, but you really want to be on a, a trader, go try and figure out how to be a trader. You were hired as a trader and you really wanna be a salesperson, go be a salesperson. You hired a salesperson, wanna go be in banker, figure out how to be a banker. Don’t just get stuck where you got hired into. Hmm. Really
[Barry Ritholtz] 01:54:29 [Speaker Changed] Good advice. And our final question, what do you know about the world of investing or public service today that would’ve been useful to know 40 or so years ago when you first landed at US Steel?
[Gary Cohn] 01:54:43 [Speaker Changed] I knew nothing 40 years ago, honestly. So, and, and, and, and by the way, I learned new things every day. If you don’t think you’re gonna learn something new in the corporate world or the investing world, you’re wrong. Because every day’s a new day. You know, it it, it’s like we were talking about what the Fed’s going through now. This whole set of circumstances with fed tightening and government spending, it’s a whole set of new circumstances that has to be reevaluated. You know, I I I, I learn new things every day and I think it’s important that you just understand that what was true last year may not be true this year. And what you believe to be true may not be true tomorrow. And I think that’s really important, really
[Barry Ritholtz] 01:55:28 [Speaker Changed] Amazing stuff. Gary, thank you for being so generous with your time. We have been speaking with Gary Cohen, former director of the National Economic Council in the White House under President Trump. Prior to that, he was president and chief operating officer at Goldman Sachs, where he spent most of his career. If you enjoy this conversation, well be sure and check out any of the previous 500 or so we’ve done over the past nine years. You can find those at iTunes, Spotify, YouTube, wherever you find your favorite podcasts. Sign up for my daily reading list@riol.com. Follow me on Twitter at Barry ritholtz. Follow all of the Bloomberg Family of podcasts on Twitter at podcast. I would be remiss if I did not thank the crack team of experts who helped me put these conversations together each week. My producer for this episode was Rob Bragg. My audio engineer was Sarah Ey A of Verun is our project manager. Sean Russo is my researcher. I’m Barry Ri. You’ve been listening to Masters in Business on Bloomberg Radio.
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