Tag: Gary Cohn
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Gary Cohn says tariffs are an “important instrument” for a president, but warns of inflationary impact if approach isn’t “methodical”
IBM vice chairman Gary Cohn, who served as former President Trump’s chief economic adviser from 2017 to 2018 and was a director of the National Economic Council, said Sunday that tariffs such as the plan proposed by the former president can lead to inflation if the approach isn’t “methodical.”
The economy remains a top issue for voters as the Nov. 5 presidential election draws closer. The issue also held a front row seat at the Sept. 10 presidential debate as both Trump and Vice President Kamala Harris laid out their plans for the economy. Harris says she’d provide bigger tax benefits for families but would offset the costs by raising corporate taxes, while Trump has said he’d extend the tax cuts enacted in 2017.
Trump’s proposed economic plan also includes blanket tariffs on all imports into the United States, including a 60% tariff on imports from China and a 10% tariff on imports from other nations. The former president doubled down on these proposals last week during the presidential debate.
“Other countries are going to, finally, after 75 years, pay us back for all that we’ve done for the world,” he said.
CBS News
Republican vice-presidential nominee Sen. JD Vance also spoke to Trump’s tariff plan Sunday on Face the Nation.
“We want American workers to get tax cuts under President Trump’s policies, and we want to actually penalize companies that are shipping jobs overseas through tariffs,” Vance said. “We should not be allowing slave laborers to benefit from American markets. If you want access to our market, you’ve got to pay our workers fair wages.”
On paper, the proposed tariff hike could cover the cost of tax cuts, which are a cornerstone in Trump’s campaign pledge to end the “inflation nightmare.” But some experts have warned that Trump’s economic policies could stall, or even reverse, progress. They note that tariffs effectively act as a consumption tax, increasing the cost of imported goods into the U.S. which consumers usually feel the weight of on their receipts.
Cohn said Sunday that he finds it “completely reasonable” for the U.S. government to tariff Chinese imports on products the U.S. also produces, like electric vehicles, which the Biden administration announced plans for in May. But he also noted that he does not see the value of tariffs on imports of products that are not manufactured in the U.S.
“We import many products that we do not produce in this country. Those products are in high demand, and we need them. A lot of them are pharmaceuticals, many other products that we expect to have on our shelves when we go in the store,” Cohn said. “If we start tariffing those products, we will have inflation. To the extent that we want to produce those products in this country, we should start out on a very methodical path to do that.”
The former Trump adviser then cited the CHIPS and Science Act as a competitive approach that was “done pretty reasonably.” The CHIPS Act funds the domestic production of semiconductors, and was developed by the Trump administration before being signed into law by President Biden in 2023.
“So we can build chips here, and then we can become self-sufficient on chip manufacturing,” Cohn said. “Then we can tariff foreign chips from flooding our market at a discount price, but until we have the capacity to build them ourselves, putting a tariff on those chips would just be debilitating to our economy.”
As both presidential candidates continue to campaign their economic agendas, the United States Federal Reserve this week is expected to announce its first interest rate cut in over four years since 2020.
Economists told CBS News that Trump’s plans for tax cuts would act as an inflationary fiscal stimulus and that his plans for deporting immigrants could force employers to pay higher wages. In that case, the Fed could be forced to keep its benchmark rate higher for longer.
If consumers “are upset now, they will be hopping mad a year from now” regarding inflation if Trump wins and implements his policies, Mark Zandi, chief economist of Moody’s Analytics and co-author of a June report on the macroeconomic impacts of either a Trump or Biden win in November, told CBS News.
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Face The Nation: Cohn, Focus Group, D’Agata
Face The Nation: Cohn, Focus Group, D’Agata – CBS News
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Gary Cohn, former Goldman Sachs executive and Trump economic advisor, on the bank collapse
Gary Cohn, former Goldman Sachs executive and Trump economic advisor, on the bank collapse – CBS News
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Why Goldman’s consumer ambitions failed, and what it means for CEO David Solomon
David Solomon, chief executive officer of Goldman Sachs Group Inc., during an event on the sidelines on day three of the World Economic Forum (WEF) in Davos, Switzerland, on Thursday, Jan. 19, 2023.
Stefan Wermuth | Bloomberg | Getty Images
When David Solomon was chosen to succeed Lloyd Blankfein as Goldman Sachs CEO in early 2018, a spasm of fear ran through the bankers working on a modest enterprise known as Marcus.
The man who lost out to Solomon, Harvey Schwartz, was one of several original backers of the firm’s foray into consumer banking and was often seen pacing the floor in Goldman’s New York headquarters where it was being built. Would Solomon kill the nascent project?
The executives were elated when Solomon soon embraced the business.
Their relief was short-lived, however. That’s because many of the decisions Solomon made over the next four years — along with aspects of the firm’s hard-charging, ego-driven culture — ultimately led to the collapse of Goldman’s consumer ambitions, according to a dozen people with knowledge of the matter.
The idea behind Marcus — the transformation of a Wall Street powerhouse into a Main Street player that could take on giants such as Jamie Dimon’s JPMorgan Chase — captivated the financial world from the start. Within three years of its 2016 launch, Marcus — a nod to the first name of Goldman’s founder — attracted $50 billion in valuable deposits, had a growing lending business and had emerged victorious from intense competition among banks to issue a credit card to Apple’s many iPhone users.
Solomon at risk?
But as Marcus morphed from a side project to a focal point for investors hungry for a growth story, the business rapidly expanded and ultimately buckled under the weight of Solomon’s ambitions. Late last year, Solomon capitulated to demands to rein in the business, splitting it apart in a reorganization, killing its inaugural loan product and shelving an expensive checking account.
The episode comes at a sensitive time for Solomon. More than four years into his tenure, the CEO faces pressure from an unlikely source — disaffected partners of his own company, whose leaks to the press in the past year accelerated the bank’s strategy pivot and revealed simmering disdain for his high-profile DJ hobby.
Goldman shares have outperformed bank stock indexes during Solomon’s tenure, helped by the strong performance of its core trading and investment banking operations. But investors aren’t rewarding Solomon with a higher multiple on his earnings, while nemesis Morgan Stanley has opened up a wider lead in recent years, with a price to tangible book value ratio roughly double that of Goldman.
That adds to the stakes for Solomon’s second-ever investor day conference Tuesday, during which the CEO will provide details on his latest plan to build durable sources of revenue growth. Investors want an explanation of what went wrong at Marcus, which was touted at Goldman’s previous investor day in 2020, and evidence that management has learned lessons from the costly episode.
Origin story
“We’ve made a lot of progress, been flexible when needed, and we’re looking forward to updating our investors on that progress and the path ahead,” Goldman communications chief Tony Fratto said in a statement. “It’s clear that many innovations since our last investor day are paying off across our businesses and generating returns for shareholders.”
The architects of Marcus couldn’t have predicted its journey when the idea was birthed offsite in 2014 at the vacation home of then-Goldman president Gary Cohn. While Goldman is a leader in advising corporations, heads of state and the ultrawealthy, it didn’t have a presence in retail banking.
They gave it a distinct brand, in part to distance it from negative perceptions of Goldman after the 2008 crisis, but also because it would allow them to spin off the business as a standalone fintech player if they wanted to, according to people with knowledge of the matter.
“Like a lot of things that Goldman starts, it began not as some grand vision, but more like, ‘Here’s a way we can make some money,’” one of the people said.
Ironically, Cohn himself was against the retail push and told the bank’s board that he didn’t think it would succeed, according to people with knowledge of the matter. In that way, Cohn, who left in 2017 to join the Trump administration, was emblematic of many of the company’s old guard who believed that consumer finance simply wasn’t in Goldman’s DNA.
Cohn declined to comment.
Paradise lost
Once Solomon took over, in 2018, he began a series of corporate reorganizations that would influence the path of the embryonic business.
From its early days, Marcus, run by ex-Discover executive Harit Talwar and Goldman veteran Omer Ismail, had been purposefully sheltered from the rest of the company. Talwar was fond of telling reporters that Marcus had the advantages of being a nimble startup within a 150-year-old investment bank.
The first of Solomon’s reorganizations came early in his tenure, when he folded it into the firm’s investment management division. Ismail and others had argued against the move to Solomon, feeling that it would hinder the business.
Solomon’s rationale was that all of Goldman’s businesses catering to individuals should be in the same division, even if most Marcus customers had only a few thousand dollars in loans or savings, while the average private wealth client had $50 million in investments.
In the process, the Marcus leaders lost some of their ability to call their own shots on engineering, marketing and personnel matters, in part because of senior hires made by Solomon. Marcus engineering resources were pulled in different directions, including into a project to consolidate its technology stack with that of the broader firm, a step that Ismail and Talwar disagreed with.
“Marcus became a shiny object,” said one source. “At Goldman, everyone wants to leave their mark on the new shiny thing.”
‘Who the f— agreed to this?’
Besides the deposits business, which has attracted $100 billion so far and essentially prints money for the company, the biggest consumer success has been its rollout of the Apple Card.
What is less well-known is that Goldman won the Apple account in part because it agreed to terms that other, established card issuers wouldn’t. After a veteran of the credit-card industry named Scott Young joined Goldman in 2017, he was flabbergasted at one-sided elements of the Apple deal, according to people with knowledge of the matter.
“Who the f— agreed to this?” Young exclaimed in a meeting shortly after learning of the details of the deal, according to a person present.
Some of the customer servicing aspects of the deal ultimately added to Goldman’s unexpectedly high costs for the Apple partnership, the people said. Goldman executives were eager to seal the deal with the tech giant, which happened before Solomon became CEO, they added.
Young declined to comment about the outburst.
The rapid growth of the card, which was launched in 2019, is one reason the consumer division saw mounting financial losses. Heading into an economic downturn, Goldman had to set aside reserves for future losses, even if they don’t happen. The card ramp-up also brought regulatory scrutiny on the way it dealt with customer chargebacks, CNBC reported last year.
Pushing back against the boss
Beneath the smooth veneer of the bank’s fintech products, which were gaining traction at the time, there were growing tensions: disagreements with Solomon over products, acquisitions and branding, said the people, who declined to be identified speaking about internal Goldman matters.
Ismail, who was well-regarded internally and had the ability to push back against Solomon, lost some battles and held the line on others. For instance, Marcus officials had to entertain potential sponsorships with Rihanna, Reese Witherspoon and other celebrities, as well as study whether the Goldman brand should replace that of Marcus.
The CEO was said to be enamored of the rise of fast-growing digital players such as Chime and believed that Goldman needed to offer a checking account, while Marcus leaders didn’t think the bank had advantages there and should continue as a more focused player.
One of the final straws for Ismail came when Solomon, in his second reorganization, made his strategy chief, Stephanie Cohen, co-head of the consumer and wealth division in September 2020. Cohen, who is known as a tireless executive, would be even more hands-on than her predecessor, Eric Lane, and Ismail felt that he deserved the promotion.
Within months, Ismail left Goldman, sending shock waves through the consumer division and deeply angering Solomon. Ismail and Talwar declined to comment for this article.
Boom and bust
Ismail’s exit ushered in a new, ultimately disastrous era for Marcus, a dysfunctional period that included a steep ramp-up in hiring and expenses, blown product deadlines and waves of talent departures.
Now run by two former tech executives with scant retail experience, ex-Uber executive Peeyush Nahar and Swati Bhatia, formerly of payments giant Stripe, Marcus was, ironically, also cursed by Goldman’s success on Wall Street in 2021.
The pandemic-fueled boom in public listings, mergers and other deals meant that Goldman was en route to a banner year for investment banking, its most profitable ever. Goldman should plow some of those volatile earnings into more durable consumer banking revenues, the thinking went.
“People at the firm including David Solomon were like, ‘Go, go, go!’” said a person with knowledge of the period. “We have all these excess profits, you go create recurring revenues.”
‘Only the beginning’
In April 2022, the bank widened testing of its checking account to employees, telling staff that it was “only the beginning of what we hope will soon become the primary checking account for tens of millions of customers.”
But as 2022 ground on, it became clear that Goldman was facing a very different environment. The Federal Reserve ended a decade-plus era of cheap money by raising interest rates, casting a pall over capital markets. Among the six biggest American banks, Goldman Sachs was most hurt by the declines, and suddenly Solomon was pushing to cut expenses at Marcus and elsewhere.
Amid leaks that Marcus was hemorrhaging money, Solomon finally decided to pull back sharply on the effort that he had once championed to investors and the media. His checking account would be repurposed for wealth management clients, which would save money on marketing costs.
Now it is Ismail, who joined a Walmart-backed fintech called One in early 2021, who will be taking on the banking world with a direct-to-consumer digital startup. His former employer Goldman would largely content itself with being a behind-the-scenes player, providing its technology and balance sheet to established brands.
For a company with as much self-regard as Goldman, it would mark a sharp comedown from the vision held by Solomon only months earlier.
“David would say, ‘We’re building the business for the next 50 years, not for today,’” said one former Goldman insider. “He should’ve listened to his own sound bite.”
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Transcript: Gary Cohn on
The following is a transcript of an interview with Gary Cohn, the former top economic adviser in the Trump White House and now vice chairman of IBM, that aired Sunday, Feb. 5, 2023, on “Face the Nation.”
MARGARET BRENNAN: We’re joined by a former top economic adviser under the Trump administration, Gary Cohn, who is now the vice chairman of IBM. Good morning. Good to have you back here.
GARY COHN: Thanks for having me.
MARGARET BRENNAN: So 517,000 new jobs, but a lot of companies, particularly in tech, are announcing layoffs. So exactly where’s the economy headed?
MARGARET BRENNAN: So so it’s interesting. We did see the 500,000 plus new jobs, which was quite surprising, I think, to many of us. But I think what we’re actually seeing here is a renormalization of the new economy. A lot of the jobs that we saw were jobs in the service industry, the service, the industries coming back very strong because we’re starting to see the economy go back to what we historically think of the economy. For the first time, we’ve seen occupancy rates in offices in major cities over 50%. When you see occupancy rates go up, you need the service sector to work. Think about people going back into the office. They need parking attendants. They need people to work in the buildings. They need security. They need people to clean the buildings. People stop for coffee when they go into the buildings. They go out to lunch. They go to bars. For the- for that to happen, you need the service sectors to come back to work. So the 120,000 service sector employees that came back to work, that 100% correlates with people going back to what is the new normal. It may not be five days a week in the office, but it’s enough days in the week in the office where you need the service sector to come back to work. The interesting thing about last month’s unemployment numbers is we brought people back to work, but we did not have to entice them with pay. So the monthly, the month over month number in wage gains was 30 basis points. The prior month was 40 basis points. So we’re seeing we’re getting people back into the labor force for a lower wage than we were prior to this.
MARGARET BRENNAN: And that’s a little bit hopeful for you on the inflation front.
GARY COHN: Yeah, and I think this is natural. I think what we’ve seen is, after all the stimulus that was put in the system over the last three months, people are running out of the stimulus money. We saw that in the fourth quarter of last year. We saw consumer spending slow down. We saw debit balances on credit cards go up. We started to see delinquencies go up. And you know what happened? People actually did the right thing and they went back to work. They’re engaged and they reenter the workforce. And I think we saw a lot of that in the January numbers.
MARGARET BRENNAN: So these more positive signs have led Bank of America, for example, to say recession still in the cards, but not until after March. I wonder what your thoughts are on that. And as CEOs warned about borrowing costs going up as a result of the Fed hiking. They are tightening belts. So how far off is this recession?
GARY COHN: Well, we’ve got a couple of phenomena going on. Interest rates have been going up, so borrowing costs have been going up for companies. On the flip side, the dollar has been weakening. So the multinational corporations in the United States who repatriate earnings from offshore, those repatriated earnings have become more valuable. I think the people that have been really worried about a recession in the first and second quarter of this year, I think after what we’ve seen this week with both Chairman Powell’s announcements and the data in unemployment, I think that recession is off the table for Q and one in Q2 of this year. You know, we’re going to get another employment report before the next Fed meeting and we’ll see where the economy’s going. But it does feel like we’re in relatively good shape here. The question is going to be how does the Federal Reserve handle what’s going on in the economy? Are we going to continue to have to increase wages to draw people back in the labor force, or are people coming back in the labor force because they need to? And we’re not going to have wage inflation if that happens. The Federal Reserve is actually in a very good place.
MARGARET BRENNAN: Let me ask you about something the Fed chair said this week. He said Congress has to lift this debt ceiling. I’m throwing one of the things that could screw up your- your rosy prediction at you. He said no one should assume that the Fed can protect the economy from the consequences of failing to act in a timely manner. He’s warning he’s not making plans for a default. You’re on your own if it happens.
GARY COHN: Yes.
MARGARET BRENNAN: Should there be a plan for the Fed to step in? I mean, I know legally it’s in question here, but I talk to people on Capitol Hill who say Wall Street is not taking this seriously enough. The politics are really bad around the debt ceiling.
GARY COHN: The politics are very bad. You know, the one thing is every American, every American is holding the US government to raise the debt ceiling. The full faith and credit of the US dollar and the US dollar being the reserve currency is imperative to our economic well-being as a country. We ultimately have to get the debt ceiling raised. That said, what’s going on here is not something out of the ordinary. If you look at debt ceiling raises over the last 40 or 50 years, no matter which party is in the minority, about 50% of the time, debt ceiling raises come with some amendments attached- attached to them from the other party. So this is quite an. Normal, the process that we’re going through.
MARGARET BRENNAN: You don’t sound overly concerned.
GARY COHN: Like I’m always concerned when we’re dealing with debt ceiling, but I have a feeling that we will get there in the end when we have no other choice. You had this- you had the speaker here last week and he felt confident that we would get there when we had no other choice. The speaker met with the president of the United States this week. The two of them came out of the meeting relatively confident. I feel they both understand there is no choice. In the end of the day, we have to raise the debt ceiling. The question is, can the Republicans get something in the legislation, attach the debt ceiling legislation that they want that they feel like is a win and the Democrats are willing to give it to? Historically, that is what’s happened numerous times.
MARGARET BRENNAN: Yeah. And the risk there is real. I want to ask you as well about China. Mark Warner was here with us last week and he said technology competition with China is the biggest issue of our time. He’s worried about things that- like your company does IBM, in terms of quantum computing. Is enough being done to keep America competitive on that front?
GARY COHN: Well, we’re starting you know, if you look at where we’ve been this year, you know, we passed the CHIPS Act in the United States, which, you know, is- is- is something that’s not a normal motion for us in the United States for the federal government to pick and choose–
MARGARET BRENNAN: To subsidize.
GARY COHN: –an industry, and and to subsidize. It really is not a normal action- is an action that, you know, historically I probably not would have been have supportive. I was extremely supportive of the CHIPS Act, we at IBM was extremely supportive of the CHIPS Act. If we learned nothing else from the pandemic, we learned that there are certain goods that are necessity goods for this country to have, and we are overly reliant on places like China. And if we don’t find ways to change the manufacturing system in the supply chain and move it back to the United States where we can take care of ourselves, we have made a catastrophic miscalculation. Chips are one of those areas where we cannot depend on the rest of the world and run our manufacturing business and continue to grow our economy. Pharmaceuticals is another area where we really have to move that industry and that manufacturing back to the United States. So I think we really have to evaluate what are the most crucial and sensitive businesses or industries that we cannot live within the United States. And we’re going to have to make real investments in those here in this country.
MARGARET BRENNAN: And we’ll keep talking about it with legislators. Have to figure out how to pass some of those laws. We’re going to take a quick break. And when we come back, we’ll be talking with four members of the freshman class and the 118th Congress.
