Gary Cohn’s Glass-Steagall Support Is a Trickle-Down Trojan Horse

(Associated Press)

Gary Cohn, director of the U.S. National Economic Council, arrives to a swearing in ceremony of White House senior staff in the East Room of the White House in Washington, D.C.

Last week, reports surfaced that Gary Cohn—the White House’s top economic adviser, former president and chief operating officer of Goldman Sachs, and purported foil to Steve Bannon’s “economic” nationalism—said in a closed-door meeting with the Senate Banking Committee that he supports legislation that would cordon off Wall Street’s speculative investment from commercial banking operations. 

That is, he supports some form of reinstatement of Glass-Steagall, the landmark Depression-era financial regulation law that forbade commercial banks from engaging in risky speculative investments. Congress passed and Bill Clinton signed the repeal in 1999, a move that helped lay the groundwork for the Wall Street-fueled economic meltdown in 2008.  

Naturally, you might question whether Trump’s Wall Street landline truly wants to implement such dramatic financial reforms. On Bloomberg last week, Cohn was asked to clarify his position. 

Here’s a transcript of the exchange, which came after Cohn had outlined the White House’s trickle-down scheme to spur job growth and lending via deregulation.

BLOOMBERG: Within the last 48 hours there have been reports here that you are open to the possibility of reinstituting some form of Glass-Steagall—could you connect that sort of re-regulation up with what you just said?

COHN: Remember that the president during his campaign talked bout a modern, 21st-century Glass-Steagall. I was asked about that at the Senate Banking Committee, at a bipartisan committee meeting, and I talked about the president’s policy that he ran on about having a new, modern, 21st-century Glass-Steagall.

BLOOMBERG: Does that help get more lending being done to more small- and medium-sized companies? What would that accomplish?

COHN: Look, we would like to get banks lending again. What we’re worried about is this one-size-fits-all regulation. So right now we’ve got this massive set of regulation that’s built to regulate all banks as if they’re equal. If we come up with a 21st-century modern Glass-Steagall, we may be able to tailor regulations for different aspects of the financial markets and different aspects of the financial institutions and that would allow banks to get lending more aggressively to small- and medium-size companies.

There is a lot of debate about what, precisely, a new Glass-Steagall would look like. This gives Cohn plenty of latitude to use it as a convenient political prop. In this instance, Cohn seems to be hawking a “modern Glass-Steagall” as a Trojan horse for something more akin to the Republicans’ Financial CHOICE Act—a bill that would gut many of Dodd-Frank’s key provisions, that the GOP is currently preparing to reintroduce in coming weeks.

Under the guise of a “modern Glass-Steagall,” there’s plenty of room for Republicans to usher in sweeping Wall Street deregulation that could have a catastrophic impact on the economy.

“With the White House being referred to as ‘Goldman Sachs South,’ people need to be mindful that there are numerous ways that a Glass-Steagall-like change could be done that would increase systemic risk, create unregulated too big to fail firms and put taxpayers on the hook for much bigger bailouts in the future,” Dennis Kelleher, president of the pro-regulation Better Markets, warned in a statement. For instance, he said, “It could recreate the dangerously un- or under-regulated shadow banking system that existed before the crisis.  This could incentivize unacceptable risk taking and moral hazard because financiers would again have a ‘put’ on the taxpayers, knowing that, like 2008, even smaller institutions like pre-2008 investment banks Bear Stearns or Lehman Brothers won’t be allowed to fail in the future.”

If Cohn and the Trump administration were serious about reinstituting Glass-Steagall-style regulations, they’d get behind the bipartisan bill to enact a truly modern Glass-Steagall backed by Senators Elizabeth Warren and John McCain, which was promptly reintroduced after Cohn’s comments.

Don’t count on it. Instead, Cohn will likely continue to couch his vague comments about the need for a “21st-century modern Glass-Steagall” with dubious claims about how rolling back regulations and consumer protections will allow banks to provide loans to struggling small-business owners.

We’ve heard this song before. Cohn’s statements are not rooted in economics, but are merely a negotiating strategy to secure as much deregulation for his Wall Street comrades as possible. For that, Cohn is, once again, our Trickle Downer of the Week. 

Tax Cuts for the rich. Deregulation for the powerful. Wage suppression for everyone else. These are the tenets of trickle-down economics, the conservatives’ age-old strategy for advantaging the interests of the rich and powerful over those of the middle class and poor. The articles in Trickle-Downers are devoted, first, to exposing and refuting these lies, but equally, to reminding Americans that these claims aren’t made because they are true. Rather, they are made because they are the most effective way elites have found to bully, confuse and intimidate middle- and working-class voters. Trickle-down claims are not real economics. They are negotiating strategies. Here at the Prospect, we hope to help you win that negotiation.

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