Can Wall Street Save Trump From Himself?

During his presidential campaign, Donald Trump was highly critical of Goldman Sachs, the powerful Wall Street investment bank. Bashing Goldman gave Trump a way to establish his populist bona fides—not an easy thing to do for a billionaire who lived in an onyx-and-marble triplex high above Fifth Avenue and flew in his own 757. Fairly or not, no institution has come to better symbolize Wall Street greed and amorality in the years leading up to the 2008 financial crisis than Goldman Sachs. Trump understood this symbolism and, ever the showman, used it to his political advantage. A few days before the election, Lloyd Blankfein, the Goldman Sachs CEO, was featured in an anti-global-establishment advertisement that Trump aired, one that some commentators suggested was anti-Semitic.

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Trump also made a point of calling out his various political opponents’ relationships with the firm, and of putting those relationships in the worst possible light. For instance, during a rally in February 2016, when he was still trying to fend off Senator Ted Cruz for the Republican nomination, Trump said, “I know the guys at Goldman Sachs. They have total, total, total control over him. Just like they have total control over Hillary Clinton.” Cruz’s wife, Heidi, is a managing director at the bank, and Goldman had lent him as much as $500,000, which he had used to help fund his successful 2012 Senate campaign. Cruz had not been fully transparent about the Goldman loan, and Trump delighted in highlighting it. Clinton, for her part, had famously participated in three Q&A sessions with Goldman employees in 2013; the bank had paid her a total of $675,000 for her trouble.

If Trump held the bank in any real disdain, it seems safe to say the feeling was mutual. For years, Goldman had kept Donald Trump the businessman at bay. Other than a loan made to a building that Trump holds a minority stake in, Goldman does not appear to have ever made a loan to Trump, or to his real-estate or country-club projects. It has never underwritten any of the debt or equity offerings of his casinos, many of which have gone bankrupt. According to The New York Times and my own sources, incoming recruits were instructed, in orientation sessions, to stay away from Trump and clients like him. (Goldman denies this.) One former vice president at the firm, who used to provide financing to other New York City real-estate developers, told me in 2013 that he knew better than to mention the name Donald Trump while on the job. “I did not look at anything for Trump when I was at Goldman,” he said, “but suffice it to say I didn’t attempt to.” Staying away from Trump was good risk management.

Goldman was not unique on Wall Street in shunning Trump. Aside from Deutsche Bank, nearly every firm avoided Trump and what was commonly known on Wall Street as “Donald risk.” And for good reason: His companies’ multiple bankruptcies cost investors and creditors billions.

Still, Goldman’s unease with Trump seemed especially palpable. Hillary Clinton received the most money from Goldman employees and affiliated pacs—more than $340,000—during the 2016 election cycle; contributions to Trump’s campaign, by contrast, totaled less than $5,000, according to the nonpartisan Center for Responsive Politics.

My goodness, though—what a difference an Electoral College victory makes. Now, it seems, Donald Trump cannot get enough of Goldman Sachs, and vice versa. As has been well documented, Goldman alumni have poured into the new administration. Trump tapped Gary Cohn, Blankfein’s longtime heir apparent, to lead the National Economic Council. Cohn, a registered Democrat, is said to be close to Jared Kushner, Trump’s son-in-law. Since Cohn was appointed, on December 12, he has had regular access to Trump, and is reportedly among the president’s most influential advisers.

For Treasury secretary, Trump chose Steven Mnuchin, a former Goldman partner whose father was also a Goldman partner. Mnuchin, who left the firm after 17 years in 2002 and later started a hedge fund, served as the Trump campaign’s finance chairman. Many people thought it was crazy for Mnuchin to tie himself to Trump. “Nobody’s going to be like, ‘Well, why did he do this?’ if I end up in the administration,” Mnuchin told Bloomberg last summer. Anthony Scaramucci, who did two tours of duty at Goldman before starting SkyBridge Capital, a hedge fund, moved to sell the business a few days before Trump’s inauguration, with the expectation of working in the White House’s public-engagement office. That appointment was derailed, but Scaramucci still hopes to get a role in the administration. Dina Habib Powell, another Goldman partner, has been appointed “senior counselor for economic initiatives” in the White House. Powell is close to Ivanka Trump and will likely be an advocate for her interests in the West Wing. Trump also nominated Jay Clayton, a partner at Sullivan & Cromwell, Goldman Sachs’s longtime law firm, to be the chairman of the Securities and Exchange Commission; Clayton’s wife is a vice president at Goldman. Steve Bannon spent almost five years at Goldman beginning in 1985, although his position as chief strategist owes more to his nationalism than to his banking background.

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Even Blankfein caught Trump fever, at least for a time. Two days after the election, he left a voicemail for Goldman employees observing that “the president-elect’s commitment to infrastructure spending, government reform, and tax reform—among other things—will be good for growth and, therefore, will be good for our clients and for our firm.”

The bankers’ motivation isn’t hard to discern. Power always attracts, and Goldman has long encouraged its employees to enter public service after their tenure at the bank, likely for both selfless and self-interested reasons. And it doesn’t hurt that these ex-bankers, who are legally required to sell off any asset that could create a conflict of interest, will be able to park the money in Treasuries or diversified funds, deferring any capital-gains tax payments until they sell.

But what accounts for Trump’s volte-face? He hasn’t said anything about it publicly. But he may have been motivated into action by a feeling of exclusion before: In 1985, he bought Mar-a-Lago, and a decade later turned it into a private club—after, it was rumored in Vanity Fair, the blue bloods in Palm Beach didn’t invite him to join the tony Bath and Tennis Club. (Trump dismissed these rumors as “utter bullshit!”) What better way for Trump to cement his status as the most alpha of alpha males than through the continuous genuflection before him of a whole host of Goldman alumni?

More-practical reasons also suggest themselves: By virtue of its long-held position as the most prestigious firm on Wall Street—and despite what Senators Elizabeth Warren and Bernie Sanders would have us believe—Goldman is highly credible to financial markets and to investors around the globe. There is no quicker and easier way for Trump to show the capital markets that he is not as unstable as he often seems than by surrounding himself with Goldman Sachs bankers, traders, and executives.

And indeed, the domestic stock market rallied after Trump’s election and inauguration, although the bond market—about double the size—tanked, on fears of higher inflation and an increase in the federal debt.

Is the return of Goldman Sachs to the halls of power a cause for concern or celebration? Only time will tell, of course. One thing you can say for sure about Cohn; Mnuchin; the billionaire Wilbur Ross, Trump’s pick for commerce secretary (and an alumnus of the Rothschild investment bank); and Carl Icahn, the billionaire hedge-fund manager whom Trump asked to serve as a special adviser on regulatory reform, is that they have a keen understanding of capital markets and the circumstances under which businesspeople and big investors are willing to put capital at risk—providing necessary grease to the wheels of commerce. Since Trump’s knowledge of these markets is not nearly what he would have the public believe, the presence of those people around him might very well help the country maintain or increase economic growth.

There is also an element of genuine corrective in the shift. By the end of the Obama administration, anti–Wall Street sentiment had swung far beyond rational judgment. The idea—which has had great currency in Washington lately—that anyone who has ever worked on Wall Street should automatically be disqualified from government service is self-defeating and absurd.*

Yet overcorrection now appears quite likely. While Dodd-Frank has its downsides, some of what it mandates (for instance, minimum capital requirements for financial institutions and greater transparency in the derivatives markets) has clearly been beneficial. No sane person would ever argue that speed limits should be removed from roads just because once upon a time there were none. Speed limits, it is widely acknowledged, have saved lives. The same analogy applies to Wall Street. Although Trump will need Congress’s help to unwind Dodd-Frank—it’s a law, after all—his executive order about his “core principles” for regulating the financial system signals that he intends to do just that. Good luck to us if he succeeds. The last time Wall Street had free rein—a period spanning Bill Clinton’s and George W. Bush’s administrations—the U.S. ended up with the second-worst financial crisis in its history.

That’s frightening, obviously, but then again, many scary possibilities are emanating from Washington these days. Wall Street is often criticized for its short-term thinking, for discounting future risks in favor of a quick payoff. And yet, here we are at the outset of a presidency in which attention to immediate risk—of every kind—needs to be a priority. The president’s first weeks in the Oval Office provided a taste of what an unconstrained Donald Trump is only too happy to do on issues ranging from immigration to the treatment of long-standing American allies. One can only imagine what impact his economic instincts will have—on the prevailing liberal trade order, government debt, corporate favoritism, inflation and the independence of the Fed.

If the Wall Street bankers surrounding Trump—those experts in risk management—can help reduce the “Donald risk” writ large, then perhaps we will look back at their newfound influence as a mixed blessing, even though we may pay dearly for it further down the road.

* This article originally stated that Senator Elizabeth Warren in particular espoused the view that anyone who has worked on Wall Street should be disqualified from government service. In fact, Warren has voted to confirm nominees to the federal government with some Wall Street experience, including Stanley Fischer and Jack Lew. We regret the error.