Speaker 1: This is Master's in Business with Barry Ridholds on Bloomberg Radio.
Speaker 2: This week on the podcast what Can I Say? Gary
Speaker 2: Cohne with just a stellar career at Goldman Sachs, where
Speaker 2: he spent twenty five years, rising through the ranks commodities,
Speaker 2: trading fixed income currency, eventually running equity and soon after
Speaker 2: becoming president and chief operating officer at Goldman. Soon after,
Speaker 2: he's tapped by the White House to become Director of
Speaker 2: the National Economic Council and Chief Economic Advisor to President
Speaker 2: Trump starting at the beginning of the administration in twenty seventeen.
Speaker 2: Really a fascinating career, a really really interesting person. We
Speaker 2: dive deep into all sorts of things about running businesses,
Speaker 2: managing risk, and then when we began talking about his
Speaker 2: public sector service, we went deep into the Tax Cuts
Speaker 2: and Job Act of twenty seventeen. If you're at all
Speaker 2: interested in that, you will find this to be an
Speaker 2: absolutely masterclass in how legislation is assembled, how it shepherded
Speaker 2: through the House, through the Senate, through all the competing
Speaker 2: interest groups. I found this discussion just really to be
Speaker 2: absolutely fascinating, and I'm positive you will also, with no
Speaker 2: further ado from the White House and Goldman Sachs, Gary
Speaker 2: cohne Berry.
Speaker 1: It's great to be here, it's great to have you.
Speaker 2: So let's start out talking a little bit about your
Speaker 2: background in your career. I never would have guessed you
Speaker 2: began at US Steel. Tell us when was that and
Speaker 2: what'd you do there?
Speaker 1: So it was a very short career at US Steel.
Speaker 1: So you know, I graduated college in eighty two and
Speaker 1: I thought it was going to take a few months
Speaker 1: off and regroup. And my dad didn't think that was
Speaker 1: part of the agenda. So he woke me up my
Speaker 1: first Monday morning home at six am through the lights on,
Speaker 1: asked me what I was going to do with the
Speaker 1: rest of my life, and I think I made some
Speaker 1: wise crack and he's a few weeks I think I
Speaker 1: told him. I said, I think I told him, you're
Speaker 1: looking at it, and he said, yeah, not in my house.
Speaker 1: So I went out and tried to find a job locally.
Speaker 1: This is when I was still living in Cleveland, and
Speaker 1: I got a job with the home building Products division
Speaker 1: of United States Steel, which was a company the United
Speaker 1: States Steel had acquired in Cleveland called all Side. They
Speaker 1: sold replacement windows, vinyl siding, aluminum siding, gut her coil,
Speaker 1: things like that. I ended up starting there in the
Speaker 1: summer of eighty two, and by the fall of eighty
Speaker 1: two I was gone. Now, there was one really important
Speaker 1: part of that. As part of my job training, I
Speaker 1: was sent to the big sales offices to learn how
Speaker 1: the product was sold. One of the big sales offices
Speaker 1: was out in Long Island and Garden City. And so
Speaker 1: in my second week in the sales office and Garden City,
Speaker 1: I said to the gentleman I was working with, I said,
Speaker 1: you know, I think we're gonna work really hard Monday
Speaker 1: to Thursday, and I'm going to go in the city Friday.
Speaker 1: And he said, that's a really good idea. So I
Speaker 1: went in the city on Friday, and that's how I
Speaker 1: found my way down to the commodities exchange, the commodities floor,
Speaker 1: and that's where I got my job, and that's how
Speaker 1: I turned my career into a financial career.
Speaker 2: So I had a wildly incorrect assumption. I just pictured
Speaker 2: you working with the various input commodities to steal iron
Speaker 2: plus energy, plus manganese, nickel, chromium, carbon vanding, all those things,
Speaker 2: and said, hey, I could move to the commodities exchange
Speaker 2: and make a killing trading. Nothing like that, Nothing like that.
Speaker 2: How did you find your way to the comas?
Speaker 1: So two years earlier, and now we're going back in
Speaker 1: time the summer of eighty for those of you that
Speaker 1: remember the summer of eighty the Hunt brothers at that
Speaker 1: point where were exactly we're trying to corner the gold
Speaker 1: and silver market. I was doing an internship at a
Speaker 1: local brokerage office in Cleveland, Ohio, and I did the
Speaker 1: typical internship, you know, a week in the back office,
Speaker 1: a week in equities, a week in fixed income and
Speaker 1: weekend commodities, a week in bonds, and then four weeks
Speaker 1: wherever you'd like to go. And of course where I
Speaker 1: would like to go is where the guys are screaming
Speaker 1: and yelling in the back corner, which were the commodity guys.
Speaker 1: So I ended up being allowed to go sit with
Speaker 1: the commodity guys. And at the time they were doing
Speaker 1: the Chicago New York gold arbitrage, they had set up
Speaker 1: a gold arbitrage.
Speaker 2: Desk, meaning that the slight difference in prices between the
Speaker 2: two exchanges, they would help bring them into line and
Speaker 2: maybe pocket a few cents exactly.
Speaker 1: And at the time they weren't slight differences. Oh really,
Speaker 1: because the Hunt brothers when they came into the comex
Speaker 1: at the time, they were only buying one market. They
Speaker 1: were buying the Comex market. So the Comex market would move,
Speaker 1: you know, ten twenty thirty dollars, and the Chicago market
Speaker 1: would lag dramatically behind. Wow. So there were these five
Speaker 1: plus dollar disparities in the price of gold, and so
Speaker 1: they would sit there and trade. And so after a
Speaker 1: week there, I said to the guys on desk, hey,
Speaker 1: can I open an account and do this? And they said, hey,
Speaker 1: you know, how hard could it be? Yeah, You're allowed
Speaker 1: to open an account. So I opened an account and I
Speaker 1: sat there and I traded the the New York Chicago
Speaker 1: gold arbitrage for the next sort of close to month,
Speaker 1: and I said, Wow, this is the most amazing thing
Speaker 1: I've ever seen. They're just giving away free money.
Speaker 2: You were making cash in that.
Speaker 1: I was making cash while I was sitting there. So
Speaker 1: I decided a point. I said, oh, I got to
Speaker 1: go to the floor of the exchange. This is really interesting.
Speaker 1: This is a really interesting opportunity. And I really did
Speaker 1: not want to go back to college. You know. I
Speaker 1: had a long discussion with my dad. You know, I said, Dad,
Speaker 1: this is silly that I go back to college. There's
Speaker 1: this unique opportunity. I don't know how long it's going
Speaker 1: to last, and I'm going to sit here and trade
Speaker 1: this this gold arbitrage. And he said, no, no, you're
Speaker 1: going back to college. I don't care what you do.
Speaker 1: So I did the best thing I could do. I
Speaker 1: went back and did my next three years of school
Speaker 1: in two years. And then I got myself to the
Speaker 1: floor of the exchange by the end of eighty two.
Speaker 2: And then what were you doing on the What were
Speaker 2: you trading on the floor and how did you stay? Long?
Speaker 2: Did you stay as a floor trader?
Speaker 1: So in many respects, I got lucky in my first
Speaker 1: job offer because the COMEX had just started to trade
Speaker 1: options on futures. It was brand new. No one on
Speaker 1: the floor knew the options market. So one of the
Speaker 1: large firms there approached me and said, hey, do you
Speaker 1: know anything about options? Can you help us trade options?
Speaker 1: And I said, of course, even though I knew nothing about.
Speaker 2: Oppos but nobody knew anything about options on futures. They're
Speaker 2: brand spanking new.
Speaker 1: Right, no one had trade him on the floor. There
Speaker 1: were no option traders there. The big option trading firms
Speaker 1: from the other option trading exchange hadn't come down to
Speaker 1: the floor, They hadn't become members, they hadn't rented seats,
Speaker 1: so it was there was no real knowledge there. So literally,
Speaker 1: in the course of five days, I went out and
Speaker 1: tried to learn how to trade options, and I got
Speaker 1: lucky enough to get a job. I stood behind one
Speaker 1: of the brokers for one of large firms and I
Speaker 1: was literally saying, Okay, buy that call, sell that put,
Speaker 1: go sell those futures, and he goes, what I do? Well,
Speaker 1: you locked in, you know, four dollars an ounce. He goes,
Speaker 1: how'd I do that? I said, well, here's how you
Speaker 1: do that. How do I get out of it? I said, okay,
Speaker 1: we're going to work our way out of it. And
Speaker 1: I stood behind that person for the better part of
Speaker 1: a year. And then after a year, you know, I said,
Speaker 1: this is kind of silly. I'm sitting here telling this
Speaker 1: guy what to do. I got to figure out how
Speaker 1: to get my own seat and trade my own account.
Speaker 1: And so about a year into my experience on the floor,
Speaker 1: I went out and got a seat on the floor
Speaker 1: of the COMEX.
Speaker 2: Do you remember what they cost back then?
Speaker 1: About one hundred and fifty thousand.
Speaker 2: It was a real money.
Speaker 1: It was abstantial amount of mine. Now the good news
Speaker 1: is you could lease them. You could lease seats on
Speaker 1: a monthly basis. So I went and got a floor,
Speaker 1: and I opened up an account with a clearing member.
Speaker 1: When the clearing member guarantees your trades, and I started
Speaker 1: trading for my own account. And so I traded my
Speaker 1: own account from sort of the end of eighty three
Speaker 1: on till I left the floor in the exchange.
Speaker 2: And that was how much later.
Speaker 1: So I stayed on the floor till till basically nineteen ninety,
Speaker 1: and you know, ended up moving from trading options to
Speaker 1: trading more and more futures. You know, the futures markets
Speaker 1: were expanding, they were growing. It was an interesting time.
Speaker 1: But I, you know, I would trade almost anything that
Speaker 1: was bold all that day. And it was really an
Speaker 1: interesting experience learning how a fundamental terminal market works.
Speaker 2: So I'm glad you mentioned you shifted somewhat from options
Speaker 2: to futures options. Your risk is predefined. However much you're
Speaker 2: putting up, that's as much you can lose.
Speaker 1: Well unless you sell a naked call.
Speaker 2: Okay, fair enough.
Speaker 1: You sell a naked call, you right, it's no.
Speaker 2: But inherently in futures, a whole lot more leverage, a
Speaker 2: whole lot more risk. How fundamental was that to your
Speaker 2: learning about investing, trading, risk management starting with futures?
Speaker 1: So it was important where I found a real niche
Speaker 1: on the floor, and everyone finds their little niche on
Speaker 1: the floor, and being on the floor is an interesting
Speaker 1: environment because everyone's there for their own little specific reason.
Speaker 1: And where I found the niche is at that time,
Speaker 1: because things have changed dramatically. You know, the Futures Exchange
Speaker 1: is listed about twenty four months of future contracts. You know,
Speaker 1: the first and second delivery months traded ninety percent of
Speaker 1: the volume. But then you had people that wanted to
Speaker 1: trade the outdated months. You know, they wanted to trade
Speaker 1: the one year forward or the eighteen month forward. Where
Speaker 1: I really specialized, where I spent my time is figuring
Speaker 1: out how to price the one year forward or the
Speaker 1: eighteen month forward and making prices in those markets. There
Speaker 1: were only two or three of us on the floor
Speaker 1: that did that. So when any of the orders came
Speaker 1: in to buy the non active months. There were only
Speaker 1: two or three of us that would make a price,
Speaker 1: and so I carved out a unique opportunity with some
Speaker 1: other people. I wasn't the only one doing it on
Speaker 1: the floor, and it was a unique opportunity to really
Speaker 1: learn more of the fundamentals of the business. It also
Speaker 1: brought in your interest rates and interest rates expect because
Speaker 1: the forward curve is a function of interest rate.
Speaker 2: A lot of math in your head I'm doing.
Speaker 1: I'm doing an awful lot of math in my head
Speaker 1: on the fly. And to hedge your position, you know,
Speaker 1: how do you hedge you know, a long dated future
Speaker 1: versus a short data future. It's not one to one.
Speaker 1: There's mathematical formulas on how to hedge your book and
Speaker 1: count your months of exposure and look at your interest
Speaker 1: rate exposure, look at your underlying exposure, look at your
Speaker 1: present value of your future cash flows. It becomes much
Speaker 1: more interesting than just trading the spot month in and out.
Speaker 1: So that's where I really learned how to trade and
Speaker 1: how to think about cash flows and think about supply demand.
Speaker 2: It's a fairly obvious transition from the floor of the
Speaker 2: Comax to Goldman Sachs. How did you meet Goldman? How
Speaker 2: did that next step come about?
Speaker 1: So by the time I was sort of at the
Speaker 1: end of my career in eighty eighty nine ninety, you know,
Speaker 1: I'd become a fairly large trader on the floor. And
Speaker 1: when you're a fairly large trader on the floor, that
Speaker 1: means you're taking the other side of the institutional business flow.
Speaker 1: Titutional business flow at the time was probably the biggest
Speaker 1: player was Goldman, Sachs. It was Jay Aaron Goldman, Sachs,
Speaker 1: Morgan Stanley, a little bit of Aig, a little bit
Speaker 1: of JP Morgan, you know, and then a bunch of
Speaker 1: the funds. So I knew all of the Goldman traders
Speaker 1: because when they came in to move volume, I was
Speaker 1: there to make prices, and so we had a you know,
Speaker 1: we had a good relationship with each other.
Speaker 2: I'm going to assume you weren't taking the other side
Speaker 2: of the trade all that often with them, or.
Speaker 1: Oh I was taking the other side of trade all
Speaker 1: the time. Oh really, But remember we had completely different
Speaker 1: things we were trying to accomplish. Goldman had clients on
Speaker 1: the other side. They were trying to make their clients
Speaker 1: price and get hedged, and they were going to walk
Speaker 1: away from the trade. I was making a price and
Speaker 1: I may be out of it in thirty seconds or
Speaker 1: forty seconds or fifty seconds. I was trying to figure out,
Speaker 1: you know, what was the price I needed for the
Speaker 1: next five minutes to clear the volume and move it around.
Speaker 1: And if I traded something, where can I move it?
Speaker 1: What can I what can I buy or sell against it?
Speaker 1: To make myself is risk reducing as possible. So we
Speaker 1: had different motives, and so I was able to do
Speaker 1: my job. They were able to do their job. And
Speaker 1: that's what a terminal market does. It allows the different
Speaker 1: factors or the different people trying to get done what
Speaker 1: they need to get done, a place to meet. And
Speaker 1: so I had become closer and closer to the Goldman's
Speaker 1: acts people. I'd become closer to the AIG people. I'd
Speaker 1: become close to everyone. And in nineteen ninety Goldman had
Speaker 1: partner elections and the gentleman who was running the metals
Speaker 1: trading desk, you know, called me in the office one
Speaker 1: day and I just thought we were going to have
Speaker 1: a conversation about the markets. And you know what I
Speaker 1: was thinking, what he was thinking, and he said to me,
Speaker 1: he said, hey, look, you know I just became partner here.
Speaker 1: I think there's a great opportunity. I'm going to really
Speaker 1: continue to build this business. And instead of you taking
Speaker 1: the other side of our business all day long and
Speaker 1: fighting with us, why don't you come up here and
Speaker 1: join us. At the time, it was the farthest thing
Speaker 1: from my mind. But the more I thought about it,
Speaker 1: and the more I saw the trends of what was
Speaker 1: going on in the industry, and the industry had changed
Speaker 1: quite dramatically over the prior five years. It had gone
Speaker 1: from a fairly heavy retail business to a very institutional business.
Speaker 1: No individual was really trading commodity features. If you wanted
Speaker 1: that exposure, you were giving your money to a professional,
Speaker 1: a commodity trading advisor, or some hedge fund. So it
Speaker 1: was becoming very institutionalized. So it was harder and harder
Speaker 1: to make money, or I was taking more and more
Speaker 1: risk to make the same amount of money. So when
Speaker 1: this individual, Jim Riley, came to me, I said, you know,
Speaker 1: this is not the craziest thing I've ever heard of,
Speaker 1: And he and I came to an agreement that I
Speaker 1: could keep my seat. If I ever wanted to go back,
Speaker 1: I could do a few things to make sure that
Speaker 1: if the transition upstairs from the floor environment to the
Speaker 1: trading desk environment, that I felt like I had a
Speaker 1: safety net. Well, I never really needed that safety net,
Speaker 1: but it was nice to have that safety net.
Speaker 2: Huh. Really quite fascinating. You then spend what the next
Speaker 2: twenty five years at Goldman Sachs. You rose through the ranks,
Speaker 2: eventually becoming president and COO. Pretty good decision leaving the
Speaker 2: floor of the comments.
Speaker 1: I think was one of my great decisions in life, really,
Speaker 1: besides getting married and a few other things. I can't
Speaker 1: really just tell you what other better decisions.
Speaker 2: So you run commodities for a while at Goldman? What
Speaker 2: was that like? And do you still like, look at
Speaker 2: what's going on today and energy when you look around,
Speaker 2: do you get that itch? Do you feel like I
Speaker 2: want to I want to I want to do some
Speaker 2: futures trading or yeah.
Speaker 1: Look, once a commodities trader, always a commodity trader. So
Speaker 1: I look at prices and commodities every day, and I
Speaker 1: have views on the markets every day. I don't know
Speaker 1: if they're sophisticated enough that I would trade future, but
Speaker 1: you know, trading underlying equities and trading you know, equities
Speaker 1: that have high correlation to commodities is something I'm comfortable with.
Speaker 1: It was a unique opportunity at the time because if
Speaker 1: you go back to that early nineties period, you know,
Speaker 1: commodities were somewhat in a bull market. It was a
Speaker 1: it was a pretty bull market environment, and you know,
Speaker 1: there were a lot of hedge funds talking about how
Speaker 1: to how they were making twenty thirty forty returns and commodities, Well,
Speaker 1: the team at Goldman Sachs has figured out if you
Speaker 1: bought like one gold future contract for you, you would
Speaker 1: have made thirty percent. So you know, we we got
Speaker 1: involved and created a benchmark, a commodity indicy at the time.
Speaker 1: Uh so there was a way to judge yourself, did
Speaker 1: you actually outperform the market? You know, I had the
Speaker 1: interesting opportunity to be part of the team that built
Speaker 1: a commodity index. I once I got done building it,
Speaker 1: I was the one that traded that index. So I
Speaker 1: got exposure to eighteen eighteen markets, many of which I'd
Speaker 1: never traded in my life. So that was really unique.
Speaker 1: It allowed me to build some new a new business allowed.
Speaker 1: It allowed me and Goldman to expand into a lot
Speaker 1: of new markets where there was huge business opportunities for
Speaker 1: our clients.
Speaker 2: Really really intriguing. So let's talk a little bit about
Speaker 2: what makes Goldman Sachs so special. You spent most of
Speaker 2: your career there. Why is it so unique?
Speaker 1: So when I went to Goldman in nineteen ninety, it
Speaker 1: was a small private partnership. I mean, it was a
Speaker 1: really small private partnership looking back, five hundred partners oh less,
Speaker 1: substantially less. Really, Yeah. I think the most interesting document
Speaker 1: that I pull up from time to time is the
Speaker 1: s one from the public filing of Goldman Sachs, which
Speaker 1: was in the in the late nineties. If you look
Speaker 1: at the if you look at the filing and you
Speaker 1: look at the size of the company and the revenue,
Speaker 1: the entire yearly revenue numbers would be a bad quarter
Speaker 1: right now. It just tells you. And so there was
Speaker 1: so much growth going on in Goldman when I went
Speaker 1: there in the nineties, and I had a unique seat,
Speaker 1: you know, in the partners there provided me a unique seat,
Speaker 1: and they gave me enormous amount of latitude and responsibility
Speaker 1: to keep building businesses. So, as you said, I joined
Speaker 1: the firm as part of JERN. At that point, j
Speaker 1: Erin still was a quasi quasi standalone business. It was
Speaker 1: wholly owned by Goldman Sachs, but we hadn't quite integrated
Speaker 1: into the Goldman Sax culture. So the first thing that
Speaker 1: happened in my career there is, you know, JARN became
Speaker 1: part of fixed income, so we became we went from
Speaker 1: fixed income and JAR into fix fixed income currency and commodities.
Speaker 1: That was a big move, taking these you know, crazy
Speaker 1: commodity guys right and putting in with these very sophisticated
Speaker 1: fixed income guys. So part of that transition and that
Speaker 1: was that was a big move to create FICK and
Speaker 1: it didn't happen overnight. There was a lot of natural
Speaker 1: tension involved in that. And then even when we were
Speaker 1: combined by name alone, we still ran ourselves independently. So
Speaker 1: then I got the unique opportunity to be the I
Speaker 1: would call it guinea pig. I was the commodity guy
Speaker 1: they got put into running a fixed income business. I
Speaker 1: didn't lose my responsibilit running the quantity business, but we
Speaker 1: moved the emerging market business down to what used to
Speaker 1: be the jir And floor. On the jir And floor
Speaker 1: was the commodity businesses as well as the FX business.
Speaker 1: So we had the you know, the metals business, We
Speaker 1: had the oil business, we had the grain business, we
Speaker 1: had the coffee business. We had a coffee roasting room,
Speaker 1: we had a tasting room, and then we had the
Speaker 1: FX business. And in the middle we decided which made
Speaker 1: sense to put the emerging market debt business.
Speaker 2: Or related currency? Yeah, commodities and made.
Speaker 1: Sense, Yes, made sense at the time the Mexican at
Speaker 1: the Mexican restructuring they had they had Mexican bonds with
Speaker 1: an oil option embedded in them. You had a lot
Speaker 1: of currency forwards trading, which made sense. So we moved
Speaker 1: emerging markets down and I was asked to run the
Speaker 1: emerging markets business. So I was the first sort of
Speaker 1: guy that went from being a pure Jarran GUYE to
Speaker 1: making that crossover to commodities and a fixed income business.
Speaker 2: So prior to that, have you had any management experience
Speaker 2: or leadership experience. That's a big raucous floor. And I
Speaker 2: would imagine that desk was was a handful to deal with.
Speaker 2: What was it like stepping into that role?
Speaker 1: So I had been running the commodities business. So I
Speaker 1: had been managing the commodities business. We had built some
Speaker 1: new businesses. We had built our Golden Sex Commodity Index business,
Speaker 1: so I had had, you know, a lot of responsibility
Speaker 1: building a business in building it out quite well. I
Speaker 1: had spent four years in London building our commodity business there.
Speaker 1: So the management piece of it was not what was
Speaker 1: the challenge to me. The challenge to me was I
Speaker 1: had never been involved in a fixed income business, you know.
Speaker 1: To me, I remember the moment, you know where where
Speaker 1: I had to learn something new for the first time.
Speaker 1: I spent my whole life in supply demand. So this
Speaker 1: is supply, This is demand, you know, this is how
Speaker 1: you look at supply demand. And all of a sudden,
Speaker 1: I'm in this world where okay, we've got the you know,
Speaker 1: Mexico twenty three bond trading x y Z and it's
Speaker 1: one O two, one oh three, one oh four, Like
Speaker 1: this thing is undervalue. We should buy it. And the
Speaker 1: guys go, no, no, no, no, no, I go, why wouldn't we
Speaker 1: buy it? We got to own thing that go, they
Speaker 1: can turn around issue more tomorrow and like, oh man,
Speaker 1: like the whole supply demand fundamentals. I had to change
Speaker 1: my whole thinking.
Speaker 2: There's only so much gold and silver ran right, but bonds,
Speaker 2: how much.
Speaker 1: You want right bond that the Government of Mexican can
Speaker 1: turn around and reissue. You can open the issue or
Speaker 1: reissue a new bond tomorrow, so the amount of Mexican
Speaker 1: sovereign bonds can change tomorrow, which all of a sudden
Speaker 1: was a whole new way of thinking about the world.
Speaker 1: That the supply demand fundamentals of a commodities market are
Speaker 1: not the same as the supply demand fundamentals well fixed
Speaker 1: think of market. So you know, the opportunity to bring
Speaker 1: that emerging market's desk down into the jar and world
Speaker 1: worked out fairly well. I got the opportunity to go
Speaker 1: from the emerging markets world into the mortgage world. So
Speaker 1: they sent me to the next beast, which is the
Speaker 1: mortgage world.
Speaker 2: And I have to interrupt you and just point out
Speaker 2: nineteen ninety when you start think about the timing, you're
Speaker 2: halfway through an eighteen year equity bull market, which we'll
Speaker 2: talk about in a minute. You're a decade into what's
Speaker 2: going to end up being a four decade fixed income bullmarket.
Speaker 2: Mortgages are really starting to ramp up and becoming very tradable.
Speaker 2: Your timing couldn't have been been any better. When were
Speaker 2: you promoted to global cohad of equities and fixed income.
Speaker 1: So it when something like this. So I ended up
Speaker 1: going into the mortgage businesses end up building a big
Speaker 1: mortgage business. We end up becoming a very big trader
Speaker 1: and passed throughs. End up doing in mortgages what we've
Speaker 1: now done in all of our commodities business, what we've
Speaker 1: done in the emerging markets. We then really have a
Speaker 1: fixed income currency commodities business run as one business. So
Speaker 1: we managed to make that work. We managed to cross polinate,
Speaker 1: We run them as a business. We no longer have
Speaker 1: fixed income guys and commodity guys. We now have a
Speaker 1: division and it's working quite well. As you're right, we
Speaker 1: had some very good markets going on in the mortgage space.
Speaker 1: We had some very good markets going on in the
Speaker 1: commodity space, and we were able to capitalize on those things.
Speaker 1: In the early two thousands, after I would say the
Speaker 1: dot com bubble had burst, you know, I was asked
Speaker 1: to go over and run the equities business.
Speaker 2: So obviously somebody looked at you and said Hey, this
Speaker 2: guy's talented. He knows how to run a team, he
Speaker 2: knows how to manage risk, and he knows how to
Speaker 2: trade for a profit for a P and L. So
Speaker 2: clearly your background was well suited.
Speaker 1: Yeah, look, maybe lucky, maybe good. Most likely a combination
Speaker 1: of both.
Speaker 2: I always assume good is table stakes at a place
Speaker 2: like Goldman. Lucky never hurts.
Speaker 1: Look, always take I'll always accept the good luck. If
Speaker 1: you want to give me some, I'll take it. So look,
Speaker 1: I had had a very good track record of building
Speaker 1: businesses from rebuilding our commodities business, emerging markets business, mortgage business.
Speaker 1: You know, I had gone through business by business by business,
Speaker 1: and and it helped build and helped transition them into
Speaker 1: much more client facing, client friendly, bigger risk taking businesses,
Speaker 1: bigger client facilitation businesses where we had a brand and
Speaker 1: reputation on the street as the go to shop and
Speaker 1: fixing comcuracy and commodities. Our equities business was really good
Speaker 1: going into the dot com crisis, like it was a
Speaker 1: big business.
Speaker 2: We dominated, dominated, did a lot of syndicate, a lot
Speaker 2: of underwriting, a lot of IPOs we.
Speaker 1: Did, and then all of a sudden that world changed,
Speaker 1: and that world changed dramatically, and so I was asked
Speaker 1: the goer to the equities division. And you know, I
Speaker 1: went in knowing absolutely nothing about the equities world. But
Speaker 1: look I had done that. I knew nothing about emerging markets.
Speaker 1: I knew nothing about mortgages. I knew nothing about government bonds.
Speaker 1: I knew nothing about anything in that world. So I
Speaker 1: just said, look, it's another learning experience. I'm going to
Speaker 1: learn about it. And realized that like we had one
Speaker 1: of the most unbelievable capital markets syndicate shops, like we
Speaker 1: could place new issues better than anyone. The problem was
Speaker 1: the new issue market and calendar was gone, and we
Speaker 1: had to transition from a new issue capital market syndicate
Speaker 1: shop to a secondary trading facilitation one delta derivatives shop.
Speaker 1: And so I went into the equities and with some
Speaker 1: help of some some really smart people, we transitioned that
Speaker 1: business to look much more like what we had built
Speaker 1: in the fixed income, currencies and commodities business. And that
Speaker 1: was done in the early you know, the early two thousands.
Speaker 1: And then you know, as as as we had as
Speaker 1: I had done in other businesses, and we had done,
Speaker 1: you start realizing the synergies between different businesses, and all
Speaker 1: of a sudden you realize, like the one delta or
Speaker 1: the equities business their trading specific company names, but so
Speaker 1: are the corporate bond guys. The corporate bond guys are
Speaker 1: trading company names corporate names, and a lot of the
Speaker 1: underlying factors that are affecting corporate bond trading are affecting
Speaker 1: equity trading. So then we decided, look like, maybe we
Speaker 1: should put all of these businesses together and create a
Speaker 1: securities division, and the corporate bond people should sit on
Speaker 1: the same floor as the equities salespeople, and so they
Speaker 1: can talk about companies. You know, if you got something
Speaker 1: going on in company X, it's not just affecting the equity.
Speaker 1: It's affecting the converts, it's affecting the preferreds, it's affecting
Speaker 1: the corporate bonds. And those traders. When we started, they
Speaker 1: were in different buildings. They didn't even know who they were,
Speaker 1: and so should we put them all on one floor?
Speaker 1: Which we did, and that's how we created the securities division.
Speaker 2: That makes a lot of sense because you would imagine
Speaker 2: everybody is looking at the six blind men describing the elephant.
Speaker 2: Everybody's seeing a different part, and that in tell has
Speaker 2: to be useful for for the rest of the floor,
Speaker 2: whether it was preferred convertibles, corporate bonds, or equity.
Speaker 1: Absolutely. Yeah. So I remember the first time we were
Speaker 1: on the equity desk and you know, in equity is
Speaker 1: getting sold off hard, and I said, I picked up
Speaker 1: the phone and called you know, the guy over on
Speaker 1: the on the on the corporate desk desk, and said, hey,
Speaker 1: what's going on this name? And he said nothing, like
Speaker 1: you know, no, nothing. And then all of a sudden
Speaker 1: I sat there and thinking, Okay, what what we need
Speaker 1: to learn by this? We need to understand is this
Speaker 1: a liquidation of a big position, you know, should we
Speaker 1: should we be going out to the market and selling
Speaker 1: this and getting people into the name. We have to
Speaker 1: learn by the whole capital structure, because it is a
Speaker 1: capital structure.
Speaker 2: That's really intriguing. And you continue working your way up.
Speaker 2: You obviously did a pretty good job there. You continue
Speaker 2: working your way up, eventually in O six becoming appointed
Speaker 2: president and co chief operating officer. You end up as
Speaker 2: a member of the firm's Board of Directors, as well
Speaker 2: as chairman of the firm wide Client and Business Standards Committee.
Speaker 2: Tell us a little bit about what it was like
Speaker 2: to get kicked upstairs to the C suite.
Speaker 1: So that was two thousand and six. I you know,
Speaker 1: it had come after we'd put all the trading businesses together.
Speaker 1: We now had the securities business, so we had put
Speaker 1: everything together, which which made a lot of sense. We
Speaker 1: had done a very good job of that. Hank Paulson
Speaker 1: had left to go become Treasury Secretary, and all of
Speaker 1: a sudden, you know, I'm sitting in the executive office floor,
Speaker 1: and you go from sitting on a trading desk where
Speaker 1: you know exactly what's going on, or you think you
Speaker 1: know exactly what's going on in every market moment to moment,
Speaker 1: minute a minute, and all of a sudden, you're sitting
Speaker 1: in an isolated office trying to figure out how to
Speaker 1: run a big global firm that's not just a securities
Speaker 1: trading business. You've got a big asset management business that
Speaker 1: you care about. You've got a big banking business that
Speaker 1: you care about, and you've got a lot more aspects
Speaker 1: of the company that you care about. So you know,
Speaker 1: it became another moment in time where I sort of
Speaker 1: take a deep breath and say, Okay, how can I
Speaker 1: contribute most to Goldman Sachs. And I felt like there
Speaker 1: were a few different unique opportunities. At the time, we
Speaker 1: did not have the strongest West Coast banking presence, so
Speaker 1: you know, I saw what some of our competitors were doing.
Speaker 1: You know, be honest, Morgan Stanley had a really dominant
Speaker 1: banking presence in California and West Coast and Silicon Valley.
Speaker 2: Mary Meeker absolutely dominated.
Speaker 1: They had a dominant position. They really did, and it
Speaker 1: was hard to deny that. And you know, every time
Speaker 1: there was a big capital market steal or a big
Speaker 1: IPO coming out of there, we were, you know, begging
Speaker 1: to get to be the number three of a number four,
Speaker 1: number five, And I said, you know, to the team
Speaker 1: out there, I said, like, we've got to go build this.
Speaker 1: This is something I can take on. So, you know,
Speaker 1: I found niches where I felt like I could contribute
Speaker 1: to growing the firm, helping the people in the firm,
Speaker 1: while taking on my responsibilities to really manage the firm
Speaker 1: and operate the firm on a day to day basis.
Speaker 1: You know, my number one priority was operating the firm
Speaker 1: on a day to day basis. But I felt my
Speaker 1: my my importance to the firm and the way you
Speaker 1: create clout and the way you create the ability for
Speaker 1: people to listen to you and follow you. At Goldman,
Speaker 1: is you still have to be a revenue leader or
Speaker 1: near the revenue. I don't think you can get disconnected
Speaker 1: from revenue. You can't be a sit in your office
Speaker 1: manager at Goldman, at least in these times. So I
Speaker 1: wanted to be a valuable part of the revenue driving machine,
Speaker 1: which also made my ability to manage and drive the
Speaker 1: organization that much more impactful.
Speaker 2: So that's pretty unusual, isn't it. Typically when you're in
Speaker 2: the COO president slot, you have of subordinates reporting to
Speaker 2: you from different divisions. It's Is it unusual to roll
Speaker 2: up your sleeves and say, hey, I'm going to help
Speaker 2: build this out or did it just help you better
Speaker 2: understand what everybody else was doing in the company.
Speaker 1: I think it helped me better understand. So I spent
Speaker 1: enormous amount of time on the road. I spent an
Speaker 1: enormous amount of time with our coverage people. I was
Speaker 1: out seeing clients, you know, as many days of the
Speaker 1: year as I possibly could really without you know, without
Speaker 1: you know, sort of putting the firm in any peril
Speaker 1: or any jeopardy, making sure the firm was well run,
Speaker 1: dealing with all the bigger issues of the firm. But
Speaker 1: I felt the time I spent out of the office
Speaker 1: in other locations, in other offices, with our senior most
Speaker 1: people and with their clients was the most valuable thing
Speaker 1: I could do for the firm.
Speaker 2: You mentioned Hank Paulson, one of the few people who
Speaker 2: comes out of the financial crisis reputation intact. So you're
Speaker 2: you're president and COO and what to two and a
Speaker 2: half years later? Suddenly the world starts to unravel and
Speaker 2: everything goes to hell in the handbasket. Although I think
Speaker 2: Goldman held up better than most, What was that era
Speaker 2: like for you?
Speaker 1: You know, look, it was tough. You know, it was
Speaker 1: a tough period in time. You know, you could see
Speaker 1: to some extent what was going on. Even though you
Speaker 1: could see what was going on, there was certain things
Speaker 1: you couldn't avoid. You know. You you have certain structures,
Speaker 1: you have certain securities, you have certain assets on your
Speaker 1: balance sheet or that you've created, and you can't uncreate them.
Speaker 1: Even though you said, wow, what you know, I wish
Speaker 1: we hadn't done that well. When we did it six
Speaker 1: months or a year ago, different world, it seemed like
Speaker 1: a rational thing to do. And you're you're sitting there,
Speaker 1: You're watching you know, your your your fellow competitors, whether
Speaker 1: it be a Bear Stearns or Lehman Brothers, you know,
Speaker 1: get in trouble and you're watching what's going on, and
Speaker 1: you're understanding the fragility of an industry. You're understanding that, Look,
Speaker 1: you have a lot of the risks that they do.
Speaker 1: You know, funding a a institution or funding a bank
Speaker 1: is really important. As I always used to say to people,
Speaker 1: you know, these banks are these financial institutions. They don't
Speaker 1: run out of equity, they run out of liquidity. So
Speaker 1: liquidity becomes such a crucial part of the organization. How
Speaker 1: can you finance yourself, How can you fund yourself? How
Speaker 1: can you make sure that you have liquidity? And how
Speaker 1: can you reassure clients that you have liquidity? And so
Speaker 1: we at Goldman as a team, we spent enormous amount
Speaker 1: of time and we took our best and most important
Speaker 1: people and said, look, drop what you're doing, make sure
Speaker 1: that we are dealing with our own situation, and make
Speaker 1: sure that we are doing everything we possibly can can
Speaker 1: to make sure we have liquidity almost at any cost.
Speaker 2: What was the date on that, because for a little context,
Speaker 2: I want to say the market's peaked sometime October seven,
Speaker 2: something like that. But really it didn't feel like they
Speaker 2: were rolling over till first quarter of Wait when and
Speaker 2: lots of competitors were doing a slow bleed and not
Speaker 2: exactly publicizing it. When did you say, hey, this could
Speaker 2: get really bad. We need to we need to be proactive.
Speaker 1: Yeah, we went. I don't remember the dates exactly, but
Speaker 1: you know, we were watching the mortgage banks, the mortgage originators.
Speaker 1: You remember there were I think it's about thirty two
Speaker 1: mortgage banks, mortgage regions. They didn't make it through two
Speaker 1: thousand and eight. You know, we had done business with
Speaker 1: basically almost all of them. They originated mortgages, they sold
Speaker 1: them to us, We repackaged everybody sold them everyone Like
Speaker 1: we weren't unique, but you know, just watching what was
Speaker 1: going on on a day to day basis and having
Speaker 1: conversations with those organizations and seeing what was going on
Speaker 1: and understanding what was going on at the agencies and
Speaker 1: Fanny and Freddie and understanding what their positions were and
Speaker 1: understanding what was going on at AIG and understanding what
Speaker 1: was going on with some of our private equity credit clients.
Speaker 1: You know, I think there was a seminal moment. I
Speaker 1: think it was July fourth weekend. I remember getting a
Speaker 1: phone call at you know, like six o'clock at night
Speaker 1: from a very large private equity firm that also ran
Speaker 1: a big credit fund. And the credit fund had bought
Speaker 1: a debt security from one of their private equity's own
Speaker 1: deals and he was renegging on the deal. He was
Speaker 1: renegging on the debt deal because he couldn't get it
Speaker 1: funded in the secondary market. Wow, I said, you know,
Speaker 1: you're renegging on your own deal, like this is your
Speaker 1: paper from a company that you guys own. That was
Speaker 1: a seminal moment, right That was a moment where I said, oh,
Speaker 1: like the world is changing dramatically right now. When when
Speaker 1: when someone won't fund paper from a a an in
Speaker 1: house deal for a major private equi player. So there
Speaker 1: were there were moments along the line, you know, and
Speaker 1: then you get into disputes on what things are worth
Speaker 1: and certain you know, really major companies are disputing margin
Speaker 1: calls because they're disputing what a security is worth like,
Speaker 1: I never in my career had a major corporate disputed
Speaker 1: a margin call and what a security is worth, like
Speaker 1: it really didn't matter. It really was unprecedented. It was unprecedented.
Speaker 1: So there were there were a lot of signs along
Speaker 1: the way. The liquidity was getting tighter and tighter, and
Speaker 1: people were, you know, hoarding liquidy if they had it
Speaker 1: and protecting and if they didn't have it. And you know,
Speaker 1: we as a firm, we were conscientious of this to
Speaker 1: the point where we actually went out and issued a
Speaker 1: bunch of data inequity early on. Yeah, we went out
Speaker 1: and did that big Warren Buffet deal.
Speaker 2: So the Warren Buffet story could be my favorite story
Speaker 2: of the whole financial crisis, because as much as people said,
Speaker 2: what was it like a nine percent or eleven percent,
Speaker 2: it was a big note. Everybody kind of forgets. Buffett
Speaker 2: offered that to Dick Fold and Lehman months before, and
Speaker 2: Fold said, no, too expensive. Yeah, it could be the
Speaker 2: single biggest eerror of the entire crisis. They might still
Speaker 2: be around, who knows.
Speaker 1: Buffer offered it to us in the morning and said,
Speaker 1: you can let me know by five o'clock to night,
Speaker 1: and we and we said don't worry. We'll be back
Speaker 1: there and all we have to do is get our
Speaker 1: board together. We got our board together and we say done,
Speaker 1: and we did a big secondary equity raise.
Speaker 2: Around me following that.
Speaker 1: I remember, and the only conversation we had from people
Speaker 1: in the secondary raise is everyone said, well, I would
Speaker 1: have done the Buffett deal, and I said, the only
Speaker 1: problem is you're not Warren Buffett.
Speaker 2: That's right, That's exactly right. And it was one of
Speaker 2: those moments where God bless Warren Buffett. It really made
Speaker 2: a huge difference to everybody, even though there was more
Speaker 2: downside in the equity market. It's hey, we're not all
Speaker 2: going to go down the drums.
Speaker 1: Well, then a week or two later, I think it
Speaker 1: was within a week or two, that's when Treasury decided
Speaker 1: they were going to put tart money into all the banks,
Speaker 1: regardless of those that had raised Capper or not. But
Speaker 1: by the way, I don't disagree with the meaning. They
Speaker 1: were trying to infuse capital on the system and.
Speaker 2: Not single out any specific bank which would cause a run. Right,
Speaker 2: So yeah, really it was a it was you know,
Speaker 2: I'm always reminded of the scene from Apocalypse Now where
Speaker 2: they're surfing. Hey, one day, this war is going to end,
Speaker 2: and it's really when you were in that moment, it
Speaker 2: was really really one of a kind with all of
Speaker 2: which leads to the question, given the breath of that
Speaker 2: experience at Goldman threw everything from really the bull market
Speaker 2: and bonds and equities to the dot com implosion to
Speaker 2: the financial crisis, how did that experience set you up
Speaker 2: to become a leader in the public sector.
Speaker 1: So a lot of those skills are very transferable. You know,
Speaker 1: my job at Goldman Net when you boil it down,
Speaker 1: was dealing with crisis or opportunity every day, and by
Speaker 1: the way, most days I was dealing with both, you know,
Speaker 1: and some opportunities became crisises, and some crisises became opportunities.
Speaker 1: So I consider myself being the crisis management or opportunity
Speaker 1: management business. Because when you're running a very large balance
Speaker 1: sheet globally, with lots of people committing capital and lots
Speaker 1: of people making promises or commitments or underwritings, you're going
Speaker 1: to have problems. It's just the nature of the business.
Speaker 1: No matter how well intentioned people are, there's going to
Speaker 1: be mistakes and clients are going to get unhappy. And
Speaker 1: you just have to deal with them. So, you know,
Speaker 1: having spent the last almost eleven years of my life
Speaker 1: at Goldman and I'd done it before being a crisis manager,
Speaker 1: and that's really what I did. It was a crisis
Speaker 1: manager trying to look for opportunity. You know, I think
Speaker 1: it prepared me well to go into the government because
Speaker 1: I was always trying to figure out, how do we
Speaker 1: create a solution, how do we create something that works?
Speaker 1: What is the compromise? What is the way out of
Speaker 1: this situation? Is there? Because there's a way out of
Speaker 1: every situation. I never believed there wasn't a way out
Speaker 1: of a situation.
Speaker 2: So let's break that down before we spend a little
Speaker 2: time in the public sector. Let's stay with crisis management
Speaker 2: because I kind of get the sense reading your background
Speaker 2: you created a I don't want to say formulas is
Speaker 2: probably overstanding it, but you seem to have created a
Speaker 2: structure where every time there's a crisis, you followed a
Speaker 2: few specific steps. So crisis shows up on your desk.
Speaker 2: What is the Gary Cone three or five step response?
Speaker 2: What's the playbook?
Speaker 1: I don't know if there's a playbook, because they're all different,
Speaker 1: they're all different, but there's some themes that seem to
Speaker 1: be consistent. As I used to always say, is you know,
Speaker 1: we at Goldman, we're very creative in the problems we have.
Speaker 1: We'll never usually have the same problem twice because we're
Speaker 1: really good at fixing the last problem we had. We're
Speaker 1: not good at We're not as good as anticipating the
Speaker 1: next problem, but we're good at fixing the last problem.
Speaker 2: Okay, So in my I'm gonna interrupt you and say,
Speaker 2: in my research into you, one of the things in
Speaker 2: some of the people I spoke with Gariel owned the problem,
Speaker 2: apologize for it. Here's what we're gonna do to what
Speaker 2: took place, and here's how we're going to make sure
Speaker 2: this doesn't happen again. That's what I was referring to it.
Speaker 2: Did am I putting words in your mouth? No?
Speaker 1: No, you're not putting words in my mouth at all.
Speaker 1: So look, I always believe you have to own the problem.
Speaker 1: I mean, ownership is ninety percent of the battle. I
Speaker 1: never had a problem right where I would say it's
Speaker 1: not my problem, because if you're the chief operating officer,
Speaker 1: the president ome Sax, every problem is your problem. Yes
Speaker 1: it is it's my problem. It's my problem, and it's
Speaker 1: my job to make sure it gets solved. So A,
Speaker 1: I would always start with ownership. B. I would always
Speaker 1: need the facts. So, you know, if you really want
Speaker 1: to go through the chronology of a problem, you know, okay,
Speaker 1: problem arises number one, get all of the facts into
Speaker 1: the room. Try and agree upon the facts.
Speaker 2: You know.
Speaker 1: One of the hardest things sometimes is agree upon the facts.
Speaker 1: You know, and in my job was to if through
Speaker 1: the facts and say not just sift through the facts
Speaker 1: from my team's perspective. I needed to talk to the
Speaker 1: other side if there was an other side, you know,
Speaker 1: I need I needed both sides of the opinion. And
Speaker 1: I always trusted, you know, in the words of Ronald Reggae,
Speaker 1: trust but verify. You've got to trust but verify everything.
Speaker 1: So go through it. Understand the facts, Understand what what happened,
Speaker 1: own the problem, try and fix the problem, and be realistic.
Speaker 1: And I always said, if I go to the people
Speaker 1: and tell them exactly what happened, tell them the truth,
Speaker 1: tell them how we're going to rectify it, nine percent
Speaker 1: of the time it's going to solve the problem. Because
Speaker 1: really people understand there's going to be problems. They just
Speaker 1: want to understand what actually really happened.
Speaker 2: And everyone walks away happy.
Speaker 1: Yeah, look they walk away as happy as they can't, right,
Speaker 1: I don't. I don't want to sit here and tell you,
Speaker 1: Oh yeah, every time people walk away happy, they walk
Speaker 1: away as happy as they walk away. How about this,
Speaker 1: they walk away satisfied.
Speaker 2: Well, these are complex problems with big money involved, and
Speaker 2: occasionally people are going to argue about hey, who has
Speaker 2: this loss or who has this profit? And sometimes that
Speaker 2: leads to disputes.
Speaker 1: Yeah, if it's just a loss, if it's just money,
Speaker 1: sometimes those are easy to cure.
Speaker 2: It.
Speaker 1: I don't want to be cavalier, but if you know,
Speaker 1: if it's just a money problem, it's it's sometimes not
Speaker 1: a big deal. It's like a deal can't get done
Speaker 1: and someone blames someone for something. Okay, now we got
Speaker 1: a problem.
Speaker 2: Now you've got personality and ego and turf war.
Speaker 1: And why can't the deal get done? And now people
Speaker 1: are pointing fingers, Well, the deal can't get done because
Speaker 1: this happened. You didn't do this, or you did do this,
Speaker 1: or you shouldn't have done this. And now all of
Speaker 1: a sudden, it's like Okay, Now, I like money's not
Speaker 1: going to solve the problem. I've got to get people
Speaker 1: back to a position understand why the deal can't get done.
Speaker 1: Maybe the deal never could have gotten done. Maybe someone
Speaker 1: just never explained to the client. Maybe they tell the
Speaker 1: client things that they just wanted to hear, which is which. Again,
Speaker 1: I have to own that and say, like, my team
Speaker 1: didn't do a good job. My team should have told
Speaker 1: you six weeks ago this couldn't get done, or this
Speaker 1: wasn't gonna get done, or for this to get done,
Speaker 1: these five things had to happen. And none of these
Speaker 1: five things happened.
Speaker 2: So I don't really think of COO as a fixer.
Speaker 2: But really what you're saying is you're a free safety
Speaker 2: and anything that could go awry, you're on top.
Speaker 1: You have to be responsible for I think it affirm
Speaker 1: like Goldman Sachs, you have to. You have to when
Speaker 1: you're in a transactionally driven business where your clients are
Speaker 1: depending upon you for advice, capital, and really the future
Speaker 1: of their company in many respects, you have to as
Speaker 1: a senior person, you have to be there as the
Speaker 1: free safety and help make sure you guide these things
Speaker 1: to the to the softest landing you can if and
Speaker 1: when there's a problem. The good news is the vast
Speaker 1: majority of the time these things just run their course,
Speaker 1: and the teams are so good that they all happen
Speaker 1: by themselves.
Speaker 2: You're there for the ones that aren't self repairing.
Speaker 1: Exactly.
Speaker 2: Really intriguing. So let's talk a little bit about that period.
Speaker 2: Your chief Economic advisor to the President. You managed the
Speaker 2: administration's economic policy agenda, and you spearhead the Wage and
Speaker 2: Tax Reform Act, which was a substantial policy success in
Speaker 2: the Trump white House and a pretty substantial rejiggering of
Speaker 2: the tax code emphasizing small businesses. LLCs tell us a
Speaker 2: little bit about what was life like in the White House.
Speaker 1: Well, life in the White House is fascinating. It was probably,
Speaker 1: of all the things I've done in my career, the
Speaker 1: most fascinating experience I've had. And I'm very thankful that
Speaker 1: I had the opportunity, very thankful that I did it.
Speaker 1: You know, Wall Street is a good preparatory class for Washington.
Speaker 1: You know, it's it's long, arduous days, which you're used to.
Speaker 1: You know, my day was was pretty simple in many
Speaker 1: respects and pretty chaotic in other respects. But no different
Speaker 1: than a day at Goldman Sachs. You know, I used
Speaker 1: to say my days at Goldman Sachs is about twenty
Speaker 1: percent of it I have an idea what's going to happen.
Speaker 1: About eighty percent I have no idea, and I just
Speaker 1: hope and pray it's not too crazy. And I would
Speaker 1: say the White House was pretty similar. About twenty percent
Speaker 1: of the day I sort of had an idea what
Speaker 1: was going to happen, and the rest of the day
Speaker 1: we were going to deal with the issues or the
Speaker 1: problems or the opportunities of the day. You know, my
Speaker 1: days would start early in the morning with the Presidential
Speaker 1: Daily Brief CEEIA would come in in brief, and you know,
Speaker 1: you'd see.
Speaker 2: What CIA comes in in brief. That So I imagine
Speaker 2: at Goldman you have great business intel. What's it like
Speaker 2: getting briefed by by the spooks.
Speaker 1: It's it's pretty interesting. I mean, look, we've got a
Speaker 1: we've got a really interesting, you know, intelligence network around
Speaker 1: the world, and it's their job to make sure those
Speaker 1: of us discussing policy in the White House have the
Speaker 1: information we need and that we're all have the same information.
Speaker 1: And so there's a group of us that get the
Speaker 1: daily brief, and you can get it, you know, I
Speaker 1: think most of us got it fairly early in the morning,
Speaker 1: and you can get it when you want. And so
Speaker 1: I used to start my day with it early in
Speaker 1: the morning, and that was how I started. Then, you know,
Speaker 1: I would go from there to the Most of the
Speaker 1: chiefs of staff would have a staff meeting in the morning,
Speaker 1: So the senior White House people would get together in
Speaker 1: the morning around eight am or so seven thirty or eight,
Speaker 1: discuss the issues for the day, Discuss the opportunities for
Speaker 1: the day, discuss the messaging for the day. You know,
Speaker 1: you get done with that. Then I'd have my staff
Speaker 1: meeting around nine o'clock or whenever the senior staff meeting
Speaker 1: was over. You know, I relate to my staff with
Speaker 1: the messages for the day that we would discuss what
Speaker 1: problems we're working on, and then we would go into
Speaker 1: our more you know, day to day agenda, depending on
Speaker 1: what we were working on from a policy standpoint, we
Speaker 1: spent a lot of time up on Capitol Hill working
Speaker 1: with various members of different committees, both in the House
Speaker 1: and the Senate, because at the end of the day,
Speaker 1: you know, a lot of what we're trying to do
Speaker 1: is get legislation done. As we know, it takes sixty
Speaker 1: and sixty in the Senate to thirty five in the
Speaker 1: House and a presidential signature. There's ways around that during
Speaker 1: reconciliation for budget bills and things like that, but the
Speaker 1: overall legislation, you know, you're you're trying to do regular
Speaker 1: way or normal way, and you're working on trying to
Speaker 1: get legislation done. And you know, I think it's the
Speaker 1: job of the White House to drive normal way prosit
Speaker 1: says legislation. Working with either majority or minority leaders in
Speaker 1: the Senate or in the House, you have a really
Speaker 1: intricate working relationship with them on their agenda, and you
Speaker 1: know they have a pretty good idea who stands where
Speaker 1: on what peaches of the legislation. So we're attacking, you know,
Speaker 1: the various constituents on who needs time, who needs effort,
Speaker 1: who needs persuasion.
Speaker 2: In the head count, you know who to go to,
Speaker 2: who needs.
Speaker 1: Hand holding, who's solidly in your camp, who's solidly against you,
Speaker 1: who's on the fence, And you know that's sort of
Speaker 1: a typical day, but intertwined in there, you're at the
Speaker 1: beck and call of the President, and the President you know,
Speaker 1: can decide at any moment of the day. Basically, he
Speaker 1: wants you here the script, and he wants you in
Speaker 1: the oval office. He wants you some meeting, he wants
Speaker 1: you involved in something, and like you know, at a Goldman's,
Speaker 1: at your entire calendar, your entire schedule can get you know,
Speaker 1: blown up in thirty seconds or less. And that's that's
Speaker 1: what that's the way it works. And you know, one
Speaker 1: of my I think one of my important attributes is,
Speaker 1: you know, I made sure that I sat down with
Speaker 1: the president every day. You know, I sort of knew
Speaker 1: the times the day to go in and see him,
Speaker 1: and I try to spend you know, an hour or
Speaker 1: so a day alone when he wasn't distracted with other
Speaker 1: people coming in and out, and say, hey, look, this
Speaker 1: is what we're trying to get done. Here's where we are.
Speaker 1: What are your thoughts? You know, you okay with where
Speaker 1: we're going, because you know, you always want to be
Speaker 1: on the same page as the ultimate decision.
Speaker 2: Making, to say the least. So let's talk about probably
Speaker 2: the biggest economic legislative success of the entire administration. The
Speaker 2: TCJA tell Us a little bit about how this came together,
Speaker 2: how the parameters were formed, who was really driving the
Speaker 2: different aspects of that. It's really a fairly comprehensive package,
Speaker 2: and very different than previous tax cuts that were just hey,
Speaker 2: we're just going to play around with the different rates.
Speaker 1: So it's very comprehensive. We started on that plan in
Speaker 1: December of sixteen, so I had agreed to join the
Speaker 1: administration sort of beginning of December of sixteen, and by
Speaker 1: the middle of December, we're already starting to talk about taxes.
Speaker 1: We know that we want to get text don and like,
Speaker 1: one of the reasons I went into this job was taxes.
Speaker 1: I felt that we had a tax policy in the
Speaker 1: United States that was hindering growth and deterring US corporations
Speaker 1: from investing in the United States and penalizing them to
Speaker 1: do things that they actually wanted to do that were
Speaker 1: positive for the US economy and positive for US jobs.
Speaker 1: And to me, I felt this was a huge opportunity
Speaker 1: and there was an opportunity to fix this.
Speaker 2: And let me just remind every one of the timelines.
Speaker 2: So the election November twenty sixteen, December of that year,
Speaker 2: you're teeing it up President sworn in January twentieth, and
Speaker 2: you're hitting the ground running.
Speaker 1: We're hitting the ground running already in December, so by
Speaker 1: December me and other members of the team. At this point,
Speaker 1: it's a large team, you know, like everything, it's a
Speaker 1: large team because everyone wants to be involved.
Speaker 2: Did you bring people over from Goldman with you or no?
Speaker 1: I didn't bring it.
Speaker 2: Stood up a brand new t I didn't.
Speaker 1: I stood up a brand new team. I look, the
Speaker 1: first thing I did. Let me back up, because this
Speaker 1: is really important. The first thing I did when I
Speaker 1: accepted that that the neec Heade job is I went
Speaker 1: out and I hired a world class and I mean
Speaker 1: a world class team of experts. And I looked at
Speaker 1: it like, this is Goldman Sax, Like I need the
Speaker 1: best people in the world in each of the roles.
Speaker 1: And the NEC job is really interesting because it touches
Speaker 1: the broadest spectrum of economic policy.
Speaker 2: And feel free to name drop who'd you stand up
Speaker 2: with that group? No?
Speaker 1: Like, I went out and hire Jeremy Katz to be
Speaker 1: my deputy. You know, Jeremy was amazing. He'd worked in
Speaker 1: the White House before. He really knew the right people
Speaker 1: to go out and hire. He understood the roles. He
Speaker 1: understood what could get done and what couldn't get done.
Speaker 1: He knew that I really wanted to get taxes done.
Speaker 1: He told me, look, there's a woman by the name
Speaker 1: of Shahera Knight. You've got to go out and hire
Speaker 1: a Shahira if you want to get taxes done, like
Speaker 1: she here is your person. We went out, we got
Speaker 1: Shahera hired. You know, but then you've got to go
Speaker 1: out and hire people in the healthcare space. You've got
Speaker 1: to go out and hire people in the energy space.
Speaker 1: You've got to go hires people in the technology space.
Speaker 1: You've got to go out and hire people in the
Speaker 1: agrig cultural space. Jeremy knew all those people to hire.
Speaker 1: He went out, he brought me in the best people ever.
Speaker 1: And it was kind of interesting to me because it
Speaker 1: was interesting in really rewarding, because you know, Jeremy would
Speaker 1: bring these people in, he'd do the first and second
Speaker 1: round interviews, and then I'd meet him and Jeremy says, look,
Speaker 1: you got to meet these people. They want to meet
Speaker 1: you before they come to work for you. And I
Speaker 1: would sit down and talk to him and they were
Speaker 1: all amazing. They were amazingly talented. And I would sit
Speaker 1: there and go, guys, look, I desperately want you to
Speaker 1: come do this job. You're leaving a big, huge, high
Speaker 1: paying job. You know I can't offer you a whole lot.
Speaker 1: They used to laugh and they go, yeah, we know
Speaker 1: you can't. But look, we believe in you, we believe
Speaker 1: in the country. We want to serve. And it's amazing
Speaker 1: how many great people were willing to serve.
Speaker 2: And let me jump in here and just point out
Speaker 2: there have been criticisms about some Trump appointees and some
Speaker 2: of the process. The neec's reputation was really quite stellar.
Speaker 1: I had, I had a world class team. I'd put
Speaker 1: that team up against anyone, you know. I also had,
Speaker 1: you know, my chiefest staff, my chief of communications, actually Hicky.
Speaker 1: She was over the top amazing. I mean, she was
Speaker 1: one of the two assistants that sat outside of George
Speaker 1: Bush's office. She left there, she became a crisis communications expert.
Speaker 1: She worked on some of the most you know, known
Speaker 1: crisis communication issues. She also knew Washington in and out.
Speaker 1: She helped me go out and get all the right people.
Speaker 1: And because they knew the way the system worked, and
Speaker 1: I didn't. I was an outsider. They were able to
Speaker 1: guide me on who to hire, how to hire them,
Speaker 1: and how to have impact. Because you know, it's one
Speaker 1: of the most phenomenally interesting things we go through in
Speaker 1: the country that we don't really talk about. We talk
Speaker 1: about the peaceful transition of power, the peaceful transition of power,
Speaker 1: if you think about it. We don't have time to
Speaker 1: go through this. But at eleven fifty nine fifty nine,
Speaker 1: on January twentieth, the old administration walks out of the
Speaker 1: West Wing and walks out of the White House, and
Speaker 1: at twelve, at twelve o'clock on the dot, the new
Speaker 1: team can walk in. Much of the new team has
Speaker 1: never met each other. They've never seen each other, they
Speaker 1: don't know who they are. And we all walk into
Speaker 1: the West Wing or we walk into the old Executive
Speaker 1: office beyond, depending on where your office is, and we
Speaker 1: start working together as a team, not even knowing each
Speaker 1: other's name, not knowing what we do, not knowing our background.
Speaker 1: It's phenomenally interesting. So you have to know people, or
Speaker 1: you have to bring people on your team that can
Speaker 1: help you lead and without actually when they without Jeremy,
Speaker 1: I couldn't have got any of these things done. I mean,
Speaker 1: I really couldn't have. And most of the other people
Speaker 1: that they had me hire had been in the executive
Speaker 1: branch once before in their life. So I had a
Speaker 1: huge competitive advantage over a bunch of the other people
Speaker 1: that were in there.
Speaker 2: So let's talk about that advantage, and let's use the
Speaker 2: TCJA as our example. How does that come together? How
Speaker 2: did the different major policy posts come through? Does this
Speaker 2: start at the White House? Does it start with Poetus
Speaker 2: or do you go to the President and say, here's
Speaker 2: what we think we could get through Congress? Tell us
Speaker 2: how this begins and how does it get check?
Speaker 1: So tax is really unique. So the reason I'd accepted
Speaker 1: the job is because of tax reform and the President
Speaker 1: elect at the time we were starting this, and then
Speaker 1: the President knew that that was one of my big targets.
Speaker 1: So we had talked about it. Steve Minuchen and I
Speaker 1: had talked about it. But at the time we started
Speaker 1: down tax reform, the House was starting down tax reform.
Speaker 1: Paul Ryan was a big tax guy. So Brady and
Speaker 1: Ryan they were heading down their own path on what
Speaker 1: they thought tax reform should.
Speaker 2: Look like, but different. It was really Rachel if I
Speaker 2: remember right.
Speaker 1: No, No, So Brady and Ryan weren't a completely different
Speaker 1: place than we and the They were in a border
Speaker 1: adjusted tax. I mean, they wanted to do a border
Speaker 1: adjusted tax system. We and the White House did not
Speaker 1: want to do a border adjusted tax.
Speaker 2: And define that because I know you're very much a
Speaker 2: free trade advocacy, I'm a free trade advocate. Tell us
Speaker 2: how this conflict comes into play.
Speaker 1: Well, Basically, a border adjusted taxes you tax things at
Speaker 1: the border to equalize them. We felt that border adjustment
Speaker 1: tax had a really negative impact on sort of harder
Speaker 1: working middle class Americans, people that shop at the at
Speaker 1: the big box retailers, in the Walmarts, because they import
Speaker 1: a lot of their goods. Those goods would be taxed
Speaker 1: at the border.
Speaker 2: Walmart, Costco, Target exactly. Everything would be twenty everything would
Speaker 2: be twenty.
Speaker 1: They would put a twenty five percent border adjustment tax
Speaker 1: on the.
Speaker 2: It's a giant number.
Speaker 1: It's a giant number. We felt it was. It was
Speaker 1: really a progressive, progressive tax, I'm sorry, regressive tax. It was.
Speaker 1: It was a regressive tax. We did not see that
Speaker 1: is making sense to us. So our initial meetings were
Speaker 1: between you know, those of us coming into the White
Speaker 1: House and the House, and we went down every Monday
Speaker 1: night in December and January prior to the inauguration, and
Speaker 1: Speaker Ryan held a meeting in his conference room and
Speaker 1: we had you know, buffet dinners in there, and we
Speaker 1: were hashing out these these thoughts. Now, ultimately it came
Speaker 1: that the Senate was not going to do a border
Speaker 1: adjustment tax. Not surprising, so, but we had to get
Speaker 1: to the point where you know, the House and in
Speaker 1: in in Brady and Ryan, who were who were really
Speaker 1: too good tax experts, who spend an enormous amount of
Speaker 1: time on tax, had to give up on what they
Speaker 1: thought was their primary plan. I think by the time
Speaker 1: we got into inauguration in January, it was clear that
Speaker 1: border adjustment was not going to be the overall plan.
Speaker 1: So now we start going back to what can we
Speaker 1: all agree upon? And this to me is no different
Speaker 1: than any other deal I'd ever worked upon. Okay, let's
Speaker 1: not try and solve the hard issues. Let's try and
Speaker 1: figure out what we all can agree upon. And so
Speaker 1: issue by issue, we all started deciding what we are
Speaker 1: trying to achieve and what we were deciding we could
Speaker 1: agree upon and as with everything, when we started, a
Speaker 1: was pre inauguration, so people didn't have a lot to do.
Speaker 1: So there are lots of people in the room. As
Speaker 1: we got farther down the path, people I think to do.
Speaker 1: People realize this was gonna be a longer process, This
Speaker 1: was gonna be an arduous process. You know, less people
Speaker 1: started showing up to the meetings and we started getting
Speaker 1: to the real core group of people that knew what
Speaker 1: they were doing. We ended up with what they call
Speaker 1: the Group of Six, the group of six that was
Speaker 1: you know, two from the House, two from the Senate
Speaker 1: and Minutent, and I from the from the White House.
Speaker 1: So the Big Six became the Big six of we're
Speaker 1: going to sit down and we're going to hash out
Speaker 1: what we think tax policies should look like, and then
Speaker 1: we're going to work from there.
Speaker 2: So is this very typical to have this small group
Speaker 2: representing House, Senate, and White House, Because that's a lot
Speaker 2: of firepower in one room.
Speaker 1: It's it's not typical. And and you know, I give
Speaker 1: Brady and I give Ryan an enormous amount of credit
Speaker 1: for handling the Ways and Means Committee because technically tax
Speaker 1: legislation is supposed to start in the Ways and Means Committee.
Speaker 1: The Ways and Means Committe is a very large committee.
Speaker 2: We'll start I don't know if that's the right word,
Speaker 2: or or at least they get handed the football at as.
Speaker 1: Well technically in there in the real world, if you
Speaker 1: if you read the little definition, the Ways and Means
Speaker 1: Committee is where all tax legilacation needs to start. Now,
Speaker 1: ultimately we handed them the football. They made some minor
Speaker 1: changes and it progressed. So tax legislation has to start
Speaker 1: in the House. It has to start in the Ways community,
Speaker 1: the Ways and Means Committee. The six of us got
Speaker 1: to a place where we had enough agreement unwhere to
Speaker 1: go what we thought the basic fundamentals were that we
Speaker 1: then you know that Brady and Ryan could then handle
Speaker 1: the Ways and Means Committee. We could get the Ways
Speaker 1: and Means Committee involved, We got them actively involved, and
Speaker 1: ultimately we got a piece of legislation through the House. Now,
Speaker 1: I don't want to say this in the wrong way,
Speaker 1: but the House wasn't the tougher piece. You know, the
Speaker 1: Republicans had a House majority, they had a decent majority,
Speaker 1: and we thought that we would get to the requisite
Speaker 1: to our thirty five votes to get through the House
Speaker 1: a piece of tax legislation.
Speaker 2: Like herding cats.
Speaker 1: Though right now, Look, there were some controversial things in there.
Speaker 1: As we all know, the salt deduction was a issue
Speaker 1: that people on both sides of the aisle had a
Speaker 1: difficult time dealing with. If you're a northern New Jersey Republican,
Speaker 1: you weren't happy having to vote for that, or even
Speaker 1: if you're a New York State Republican from Westchester, it's
Speaker 1: a tough vote for you to make. There were a
Speaker 1: bunch of major corporate changes, the deemed repatriation, which was
Speaker 1: one of the things that I thought was really important,
Speaker 1: like the White House steam manage and I thought was
Speaker 1: really interestant.
Speaker 2: So to find that for listeners subscribe corporate repatriation.
Speaker 1: We had a because this was a very big deal,
Speaker 1: this huge, huge deal. So we had a tax system
Speaker 1: prior to JCT's where as a US based tax payer,
Speaker 1: if you were earning money offshore, as long as you
Speaker 1: left your money offshore, you did not pay US taxes.
Speaker 1: The minute you brought it back into the US you
Speaker 1: had to pay.
Speaker 2: Taxes, which by the way, is very different from you
Speaker 2: and I as individuals. Yes, if we're US citizens and
Speaker 2: I'm earning my money overseas, I'm still.
Speaker 1: Paying You're still paying tax. So it almost forced large
Speaker 1: US companies to bring to leave their money offshore. And
Speaker 1: when you're forcing US companies to leave their money offshore,
Speaker 1: you're actually forcing them to make capital investment off shore,
Speaker 1: build factories offshore, hire people offshore, which to me was
Speaker 1: the complete wrong incentive. We wanted people to bring their
Speaker 1: money back on shore.
Speaker 2: So we said, to clarify, bring it back here, build factories,
Speaker 2: hire people, invest here in the US. Correct, And what
Speaker 2: was the change in tax rate so versus had it
Speaker 2: been earned here in the US.
Speaker 1: So it was not necessarily a tax rate issue. Was
Speaker 1: just an avoidance of tax. If I never bring it back,
Speaker 1: I don't pay the tax.
Speaker 2: So how did this change?
Speaker 1: So what we do?
Speaker 2: What was the incentive to have them bring it back?
Speaker 1: So what we did is we said, Okay, you can
Speaker 1: leave your money offshore. We're going to just deem it
Speaker 1: to have been repatriated, so we don't care where you
Speaker 1: leave your money. We're gonna We're going to give you
Speaker 1: five years to pay the taxes on the offshore money.
Speaker 1: So over the next five years, you're going to have
Speaker 1: to pay all of the taxes that you would have paid,
Speaker 1: assuming you would have brought back all your money, and
Speaker 1: all your foreign earnings are going to to be taxed
Speaker 1: as if they were earned in the United States.
Speaker 2: So that's the stick. Tell us about the carrot.
Speaker 1: Well, we gave lots of carrots. We gave lots of carrots,
Speaker 1: We gave lots of credits, we gave lots of incentives,
Speaker 1: and we gave lots of different ways for people to
Speaker 1: move their money in a way, but the ways that
Speaker 1: we gave carrots was we wanted you to invest in
Speaker 1: the United States where possible, and we wanted you and
Speaker 1: we forced you to repatriate your earnings back to the
Speaker 1: United States. So we gave you huge R and D credits.
Speaker 1: We gave you huge credits to build factories in the
Speaker 1: United States, we gave you credits to hire people, We
Speaker 1: gave you credits for everything we could. But we deemed
Speaker 1: you to have your worldwide earnings come back to the
Speaker 1: United States.
Speaker 2: And approximately how much capital would you guess return to
Speaker 2: the US, Well, lots of it.
Speaker 1: I mean it was brilliant trillions. It measured in trillions,
Speaker 1: Like I don't want to call out companies by themselves.
Speaker 1: But look, Apple was very clear. Apple was one of
Speaker 1: the largest holders of offshore capital. Into Tim Cook's credit,
Speaker 1: he brought back money almost instantly, and he said, he said,
Speaker 1: why our legislation is. Look, if this legislation passes, I
Speaker 1: will just bring back my money. I will pay the taxes.
Speaker 1: I understand what you're doing this. We had pretty good
Speaker 1: support from the corporate community on repatriation, and so we
Speaker 1: we did things like that where we said, look, you
Speaker 1: can no longer just hide your money and in foreign countries,
Speaker 1: you're a US based company, you're a US taxpayer, gonna
Speaker 1: you're gonna have deemed to have brought your money back.
Speaker 1: We don't want you to incentivize to spend your money
Speaker 1: offshore and build property, plant and equipment offshore.
Speaker 2: So let's talk about two of the other big factors
Speaker 2: in the TCGA. One was the shifting of the rates
Speaker 2: and the other was the LLC pass throughs, which really
Speaker 2: was a huge structural change. Rates are pretty easy. Rates
Speaker 2: came down, the top rates came down. Everything else kind
Speaker 2: of got rej little bit.
Speaker 1: Top rates came down, But that that that that that helped.
Speaker 1: If you looked at the disu It helped the bottom
Speaker 1: two thirds of the distribution. Top rates came down for everyone.
Speaker 1: But the the the thing that we did to correct
Speaker 1: that is we got rid of the largest loophole that
Speaker 1: exists in the tax code, which was the salt deduction.
Speaker 1: So the wealthier people and the top tax rates, they
Speaker 1: were subtracting from their income. They were subtracting their state tax,
Speaker 1: they were subtracting their state income. They were staying their
Speaker 1: mortgage deduction, they were, they were subtracting the real estate
Speaker 1: taxes they were so they were lowering the amount of
Speaker 1: income that they taxed. So my basic premise, and I
Speaker 1: think this is good tax policy, is lower the rate,
Speaker 1: broaden the base. So we were trying to broaden the base.
Speaker 1: We were trying to say, look, we're going to stop
Speaker 1: having you deduct all these things from your income. We're
Speaker 1: gonna say your income is your income, but we're going
Speaker 1: to charge you a smaller rate on your income. We
Speaker 1: tried to simplify the whole tax return. If you remember,
Speaker 1: there was times when you know, the President said, it's
Speaker 1: so simple, you can do it on the back of
Speaker 1: an envelope.
Speaker 2: We can we can have a tax return the feeling.
Speaker 2: I have a feeling you're you don't file on the
Speaker 2: back of an enveluce.
Speaker 1: I do not need to do Yeah, I don't follow on.
Speaker 1: I can't even get on a sheet of paper.
Speaker 2: So let's talk about the other one, and I will admit.
Speaker 2: So at the time of the salt deduction going away,
Speaker 2: I cursed you, I cursed the president. And then I
Speaker 2: started reading about this LLC passed through right, and my
Speaker 2: business is an LLC, And I'm like, oh, so wait
Speaker 2: a second, let's talk about this. Who created that concept.
Speaker 2: That's a giant shift is the way we tax small businesses.
Speaker 1: So here's always a big debate when you get down
Speaker 1: to doing taxes in the United States. So we have
Speaker 1: a corporate rate and then we have a rate for
Speaker 1: ll Caesar pastors. Now, l season pass throughs can be
Speaker 1: very large companies that are not corporates. We have some
Speaker 1: very very large pass through companies and.
Speaker 2: Partnership law firms, accounting firms go down the list.
Speaker 1: We have some even larger major training companies, major retail
Speaker 1: companies that are LLC's are passed through companies. So you
Speaker 1: have this debate about the fairness between the corporate tax
Speaker 1: rate and the LLC or non corporate tax rate, and
Speaker 1: how do you make sure there's not an arbitrage in there?
Speaker 1: So you're an LLC. But if I lower the corporate
Speaker 1: tax rate low enough, you'll just become a corporation and
Speaker 1: you'll pay your corporate tax rate, and then you'll find
Speaker 1: that you'll find ways ultimately to run your business through
Speaker 1: a corporation because you'll tax and centivize. So we were
Speaker 1: trying to create a level playing field for LLC's or
Speaker 1: look it still is this day. The vast, vast majority
Speaker 1: of LLCs in this country are small, small family businesses
Speaker 1: and small businesses. So we wanted small businesses to be
Speaker 1: taxed at a favorable rate. We want to incentivized small businesses.
Speaker 1: We wanted small businesses to grow, We want them to
Speaker 1: hire more people. So we created ways for LLC income
Speaker 1: and different amounts of income and income below certain threshold
Speaker 1: to be taxed at a preferential rate to allow LLC's
Speaker 1: to be very competitive and more competitive than corporations if
Speaker 1: you were a small LLC. So we're telling you, if
Speaker 1: you're a small business person today, your LLC structure should
Speaker 1: be incentivizing for you to grow your business and stay
Speaker 1: in an l We'll see you don't need to become
Speaker 1: a corporation to take advantage of a tax code.
Speaker 2: And I have a vivid recollection of New York State
Speaker 2: reaching out to the IRS and saying, we want to
Speaker 2: clarify what our rules can be with LLC, and the
Speaker 2: IRS said, yes, you can do this, you can do that.
Speaker 2: And then New York State disseminated new information, and then
Speaker 2: California and then Illinois, and then it just cascaded and
Speaker 2: suddenly a lot of Blue states, or at least small
Speaker 2: business owners in Blue states that were complaining about the
Speaker 2: salt deduction the oly Way, suddenly like, hey, this is
Speaker 2: not the worst thing that happened here with this tax code.
Speaker 2: How long did it take before people realized this is
Speaker 2: a really substantial change to small business because the pushback
Speaker 2: on salt was pretty fierce.
Speaker 1: Yeah. Look, I don't know. The political rhetoric today is
Speaker 1: still pretty high on the jac that it was a
Speaker 1: tax cut for the rich. I think the data does
Speaker 1: not tell you that. And if you look at the
Speaker 1: tax revenues collected in absolute dollars, and you look at
Speaker 1: tax collected as a percentage of GDP, it would tell
Speaker 1: you that the code actually worked pretty well and has
Speaker 1: done well to incentivize people to grow businesses, hire people,
Speaker 1: and pay taxes. I don't see it as a tax
Speaker 1: cut on the rich. You and I were talking before.
Speaker 1: Most of our friends are probably paying more taxes today
Speaker 1: than they were because they lost their large deductions by
Speaker 1: living in New York City, New York State, by living
Speaker 1: in New Jersey. Anyone lives in California, it's clearly not
Speaker 1: a tax cut for them.
Speaker 2: It really changes from industry to industry. The biggest issue
Speaker 2: is normally, so you pass something in twenty seventeen, it
Speaker 2: goes into effect twenty eighteen, and then you get five
Speaker 2: years of data and say, let's look at how this worked.
Speaker 2: We had that little snaff, we have SATA, we have
Speaker 2: screw so it's still a little difficult to conclusively say
Speaker 2: where this was. But there's some sense of the trend
Speaker 2: this was moving in.
Speaker 1: We have some screwy data, But even with the screwy data,
Speaker 1: I would agree with you the trend is the tax
Speaker 1: receipts and tax revenue have far exceeded all of the
Speaker 1: forecasted assumptions and all of the the the views that
Speaker 1: were stated when we were passing the legislation. All of
Speaker 1: the scare mongering that went on when we were passing
Speaker 1: the legislation, how this was a tax cut for the
Speaker 1: rich and tax receipts are going down dramatically has been unfounded.
Speaker 1: And many states that follow the federal government and get
Speaker 1: rid of the assault tax deduction, many of those states
Speaker 1: have found themselves in a huge surplus situation and they
Speaker 1: have lowered their tax rates because they have ample supply
Speaker 1: of tax revenue coming in by getting rid of the deduction.
Speaker 1: So I think, you know, it's going to be impossible
Speaker 1: to say for sure because of what happened in COVID,
Speaker 1: but I think the overwhelming data has been that the JCTA,
Speaker 1: THEA has done exactly what we said it would.
Speaker 2: Do, and this is going to come up for renewal
Speaker 2: in a couple of years, the end.
Speaker 1: Of twenty five. So now not the corporate side, the
Speaker 1: personal side comes up at the end of twenty fus.
Speaker 2: So here's the question. I mean, it's impossible to forecast
Speaker 2: this sort of thing. Do we think that this is
Speaker 2: likely to be renewed or is there something else coming?
Speaker 2: And really the answer to that question is what happens
Speaker 2: in twenty twenty four.
Speaker 1: I think it's a bit what happens in twenty twenty four.
Speaker 1: But if you put a gun to my head today,
Speaker 1: I would think that ninety five percent of that tax
Speaker 1: code is getting renewed.
Speaker 2: Really, yeah, that's quite fascinating. So we've spent a lot
Speaker 2: of time.
Speaker 1: It's actually worked too large.
Speaker 2: Unfortunately, by the way, I know, I'm going to get
Speaker 2: pushed back on the data. Well, the tax code showed this,
Speaker 2: and if you look at it this way, then the
Speaker 2: master that. So there's still some debate on the numbers,
Speaker 2: but by and large, you're satisfied with the results of it.
Speaker 2: I'm satisfied with this, And you think it had a
Speaker 2: positive impact on the economy.
Speaker 1: I think it's had a positive impact on the economy.
Speaker 1: I think has a positive impact on having the money repatriated.
Speaker 1: When you talk about people are talking about people building
Speaker 1: plants in the United States, people are talking about US
Speaker 1: redomiciling our supply chain and doctors. A lot of this
Speaker 1: is happening because companies were they weren't forced, but they
Speaker 1: got taxed on the money off shore anyways, so when
Speaker 1: they brought it back, it was easy for them to
Speaker 1: spend it back in the United States. So a lot
Speaker 1: of the effect people are seeing they have to understand
Speaker 1: the cause. The cause was okay, that money had to
Speaker 1: come back. It didn't have to come back. That money
Speaker 1: was being taxed anyways. So once it's being taxed and
Speaker 1: I'm bringing it back on shore, well, I can't spend
Speaker 1: it to build a factory in the United States. I
Speaker 1: can't spend it to modernize these things. So I think
Speaker 1: when we look back at this with enough years of data,
Speaker 1: with the COVID blip being a blip, not that it's
Speaker 1: a blitz a blip, and.
Speaker 2: Tax a couple of years in tax time, Yeah, for sure.
Speaker 1: I think that we'll say, hey, this tax plan worked
Speaker 1: pretty well.
Speaker 2: Safe to say this is your most satisfying accomplishment in
Speaker 2: the public servants space.
Speaker 1: Absolutely absolutely, it was one hundred. It basically occupied I
Speaker 1: would say, the vast, vast majority of my time for
Speaker 1: about three hundred and sixty five days, so really two thirds.
Speaker 1: We signed it December twenty second at twelve noon and
Speaker 1: seventeen and I started working on it in December sixth team,
Speaker 1: so literally for about three hundred and sixty five days straight,
Speaker 1: my mind was thinking tax code, tax code, tax code,
Speaker 1: tax code.
Speaker 2: Let's talk a little bit about what's going on in
Speaker 2: the world today. I want to talk about technology, but
Speaker 2: first we have to talk about what's arguably the most
Speaker 2: aggressive tightening cycle in Federal Reserve history. What's going on
Speaker 2: in the world of interest rates and FED funds.
Speaker 1: Well, I think you just said it. We're going to
Speaker 1: the most aggressive tightening cycle we've seen, you know. I
Speaker 1: think unfortunately the FED was late to the game. But
Speaker 1: aren't they always Yeah, and they're going to stay too long.
Speaker 1: You know, it's always they come late to the party,
Speaker 1: and they the last ones to come in, the first
Speaker 1: and the last ones to leave. I guess that's what
Speaker 1: they are. But the question to me is it's more
Speaker 1: broad than that. Right now, you know, the FED is
Speaker 1: tightened in gustrates quite considerably, and we all know there's
Speaker 1: a lag effector you know, and so the first raises
Speaker 1: they have, now we're a year or so into that
Speaker 1: cycle in.
Speaker 2: March twenty twenty two, we're eighteen months out.
Speaker 1: We're a year plus the into that cycle. We don't
Speaker 1: know what the full impact of these raises is. So
Speaker 1: that's number one. So for the FED to keep going
Speaker 1: I would be concerned. Now, I think we all believe
Speaker 1: that the FED maybe has one more twenty five. I
Speaker 1: would potentially hope they'd have no more twenty fives, because
Speaker 1: with you, I'm not even sure what the effect is
Speaker 1: of the raising the rates and a longer discussion about
Speaker 1: FED policy and how effective it's been over the last
Speaker 1: two decades, but I'm not going to go there right now.
Speaker 1: What's more interesting, in my opinion, is what the FED
Speaker 1: been trying to do by raising rates and slowing down
Speaker 1: the economy, slowing down employment growth. So far, we have
Speaker 1: not seen that. We really have seen. We've seen a
Speaker 1: little bit of job creations slow down if you look
Speaker 1: at the Jolts data, but we really we've seen a
Speaker 1: little bit of a tiny, minuscule pickup in unemployment, but
Speaker 1: that seems more like it's people coming back to the
Speaker 1: job market because savings is starting to dry.
Speaker 2: Up, wage gains are slowing, real estate still still having
Speaker 2: a little issue, still having.
Speaker 1: A little issue, but we're still pretty much at full employment.
Speaker 1: We're still having wage gains overall. And I think what
Speaker 1: we're seeing in I think what we all have to
Speaker 1: figure in here is we've never gone through a cycle
Speaker 1: where the federal reserve is tightening with one hand and
Speaker 1: the federal government is spending with the other hand. And
Speaker 1: so as much as the federal reserve is tiding, the
Speaker 1: federal government continues to spend. They continue to have money
Speaker 1: to spend on infrastructure, They continue to have money to
Speaker 1: spend on the Inflation Reduction Act, they continue to have
Speaker 1: money to spend on chips. They keep rewarding big contracts.
Speaker 1: These big contracts are going to continue to put demands
Speaker 1: into the labor market. So I'm not sure we're slowing
Speaker 1: the labor market down anytime soon. What we're probably slowing
Speaker 1: down is a housing market. So if we slow down
Speaker 1: housing market because it becomes expensive to borrow money, are
Speaker 1: we just keeping housing inflation high. I don't really know.
Speaker 1: But we're at a different time in our history where
Speaker 1: the real impacts, even if they're lagged, I'm not sure
Speaker 1: they're as meaningful as they once were.
Speaker 2: And to put a little flesh on the environment that
Speaker 2: the Chips Act, the Inflation Act, and the Infrastructure Act
Speaker 2: came into the first CARES Act two point two trillion,
Speaker 2: the Second Cares Act eight hundred or nine hundred billion,
Speaker 2: the third CARES Act, this one under Biden another eight
Speaker 2: or nine hundred billion, so that pig is barely through
Speaker 2: the python before all of these ten year programs really
Speaker 2: hit the ground. So there's going to be an ongoing
Speaker 2: fiscal stimulus even as the monetary stimulus comes off. Yeah.
Speaker 1: Look, the most obvious way to look at this is
Speaker 1: we're coming up on the end of the fiscal year.
Speaker 1: We're going to have a two trillion dollar deficit for
Speaker 1: the year, you know, And it wasn't that receipts were
Speaker 1: that much lower this year. Now they were a little
Speaker 1: bit lower. Stock market performed poorly last year, so you
Speaker 1: didn't see the capital gains. But the government just continues
Speaker 1: to spend. It continues to spend on all these programs.
Speaker 1: The government's continuing to spend, and the government's continuing to
Speaker 1: spend on things that need human capital. It doesn't matter
Speaker 1: in many respects how tight monetary policy becomes. We're going
Speaker 1: to continue to hire people. We're just gonna continue to
Speaker 1: pay more to get the people. And so I would
Speaker 1: like the federal reserve to stop. I would like the
Speaker 1: Federal Reserve to take a deep breath. You know. Right
Speaker 1: now in the tightening cycle, we've almost seen more damage
Speaker 1: in the regional banks than we have seen help for
Speaker 1: the US economy.
Speaker 2: To say the very least, we saw a huge disruption,
Speaker 2: whether it was Silver Lake or Silicon Valley Bank, or
Speaker 2: going down the list of regional banks that got disrupted,
Speaker 2: to say nothing of the healthy banks that people got
Speaker 2: nervous and moved to big money centers.
Speaker 1: And not only that, because of what happened in the
Speaker 1: regional banks, we now have a federal reserve that thinks
Speaker 1: that banks need more capital. So we're gonna put more
Speaker 1: capital into the biggest banks. The g cifies and the cities.
Speaker 1: They don't need more capital. But the knee jerk reaction
Speaker 1: to anything negative that ever happens in the banking sectors,
Speaker 1: Oh we need more capital. But by the way, capital
Speaker 1: doesn't prevent a bank run. You can have all the
Speaker 1: capital in the world, you can have it all. If
Speaker 1: there's a bank run. Capital doesn't provide your depositors liquidity.
Speaker 2: Does it do anything to raise rates on the one
Speaker 2: hand and then flood the system with capital on the
Speaker 2: other Are aren't these sort of competing monetary functions?
Speaker 1: Well, it competes because as banks have to raise more capital,
Speaker 1: it just means they're gonna lend out less money. They're
Speaker 1: gonna take the balance sheet they have right now, and
Speaker 1: they're gonna hold more capital and they're gonna lend out less.
Speaker 1: So they're not gonna go raise additional capital per se.
Speaker 1: They're gonna take the money that they have on their
Speaker 1: accounts and they're gonna say, Okay, this is now capital
Speaker 1: sitting in my capitol account. I'm no longer going to
Speaker 1: use it as as a way to fund growth to
Speaker 1: my to my clients where they do.
Speaker 2: So that will slow that'll slow the economy. Even so,
Speaker 2: if you are gonna have lunch with Jerome Powell, what
Speaker 2: would you say.
Speaker 1: To I would say, I think you've done enough. I
Speaker 1: think we've got a set of unique circumstances that your
Speaker 1: historical economists and your historical textbooks don't really account for.
Speaker 1: I think you need to let this work through the system.
Speaker 1: The federal government has already more or less appropriated these funds.
Speaker 1: They need to go out and spend them. They're going
Speaker 1: to go out and spend them. They're going to continue
Speaker 1: to keep demanding labor, whether it's labored to be bridges
Speaker 1: and tunnels or power grids or charging stations. There's so
Speaker 1: many things where we're gonna need labor to build that.
Speaker 1: No matter how high you take interest rates, it's not
Speaker 1: going to stop that infrastructure build. It's just going to
Speaker 1: make it more expensive. Let the system normalize and see
Speaker 1: where we end up. Now, your higher rates are going
Speaker 1: to have some effect. They're going to have some unintended consequences.
Speaker 1: We've seen them already. I would say, look, it's time
Speaker 1: to take a deep breath. You know, inflation is going
Speaker 1: to be where it is. When inflation was zero and
Speaker 1: you went to zero interest rates and you went to QE,
Speaker 1: you couldn't affect it there either't.
Speaker 2: So this idea target, this idea.
Speaker 1: That you're gonna zero it in on your two percent target,
Speaker 1: I just don't think you can do it. I think
Speaker 1: you're gonna have to take much longer looks and you're
Speaker 1: gonna have to look at wider windows of evaluation. So
Speaker 1: and Jerome pal said this, like I give him credit.
Speaker 1: He said, we're gonna try and get two percent through
Speaker 1: the cycle. Well, maybe the cycle has to be a
Speaker 1: much longer cycle. So if we're if we're six percent
Speaker 1: for a while and we're zero percent for a while,
Speaker 1: you know, maybe we're averaging three.
Speaker 2: Hum. Really interesting. You mentioned something that really struck a
Speaker 2: chord with me, and I have to ask about it. Uh.
Speaker 2: The cost of financing everything now, whether it's corporate projects
Speaker 2: or the federal debt is much higher. Did we miss
Speaker 2: a once in a lifetime opportunity to refinance federal debt
Speaker 2: with long term bonds in the mid twenty tens? I mean,
Speaker 2: when rates were nothing, there was a lot of appetite
Speaker 2: for thirty or even fifty year treasuries. How and I
Speaker 2: was told at the time that'll just encourage more spending.
Speaker 2: But was the trader in you was that a great
Speaker 2: opportunity or what?
Speaker 1: In the first conversation I already had with then president
Speaker 1: like Trump, when I was going through my views of
Speaker 1: the economy, I said, look, my number one concern would
Speaker 1: be the dollar and the debt. And if I were you,
Speaker 1: I would go out and replace all of our debt
Speaker 1: with fifteen hundred yeard debt, fifteen hundred fifty and one
Speaker 1: hundred years fifty fifty one hundred year debt.
Speaker 2: Uh huh. And what was the response to that?
Speaker 1: He said, that's a great idea. Can we do that? Why?
Speaker 1: I said, sure, I said, treasure can. I said, treasure
Speaker 1: can issue whatever they want to issue. I said, I
Speaker 1: would extend maturities on forever. I said the same thing
Speaker 1: I would tell a corporate client if they could do it,
Speaker 1: go go, go issue fifteen hundred your debt now.
Speaker 2: And by the way, most of the American corporations did
Speaker 2: exactly that. Well, they went as long as they could
Speaker 2: extend maturities.
Speaker 1: When you're in when you're in a very low interest
Speaker 1: rate cycle and you know you're going to need it.
Speaker 2: Why did that not get off the ground. It's such
Speaker 2: a brilliant thing to do.
Speaker 1: And today we're thirty three trillion dollars of debt as
Speaker 1: of I think Monday.
Speaker 2: So so why did that go nowhere?
Speaker 1: I don't know.
Speaker 2: All right, that's that's unfair.
Speaker 1: You just you push these things as far as you
Speaker 1: can push them, and you just go.
Speaker 2: I mean, to me, as a trader, it's the obvious
Speaker 2: thing to do, But Washington doesn't necessarily think like traders.
Speaker 1: Look, I'm not blaming anyone for this, Like these things
Speaker 1: just happened. But at the end of the day, the
Speaker 1: White House doesn't borrow the money, right, it's delegated out
Speaker 1: to Treasury and Congress Treasury Borrowing Committee. You had lots
Speaker 1: of people smarter than me putting an inputs on how
Speaker 1: to do it, and you know, they they decide what
Speaker 1: maturities to go to and they tend to do what
Speaker 1: they've been doing for the last two hundred years.
Speaker 2: All right, So let's talk a little bit about technology.
Speaker 2: You've become a fairly big investor across things like cybersecurity, blockchain,
Speaker 2: infrastructure AI. Tell us what you're seeing in the world
Speaker 2: of technology and what it's going to mean to both
Speaker 2: the government and big companies like Goldman.
Speaker 1: Look, I think we're on another technological wave. And with
Speaker 1: every technological wave, there's really good parts of it and
Speaker 1: there's bad parts of it. So when I look at
Speaker 1: the whole AI wave that we're going through, which has
Speaker 1: been going on for a lot longer than people understand,
Speaker 1: I think it's just become in forefront of people's minds
Speaker 1: since we've seen retail products this year. So we've seen
Speaker 1: the chat gbts and we've seen the bar and everyone
Speaker 1: understands what AI is on the retail basis. On the
Speaker 1: enterprise basis, there's been there's been AI products for a
Speaker 1: longer period of time. But with those products, you see
Speaker 1: the vulnerabilities. You have to understand the cybersecurity and and
Speaker 1: how vulnerable we are. You know, you've seen what happened
Speaker 1: to some casinos recently. You see all the vulnerabilities we have.
Speaker 1: So as we continue to grow out our infrastructure, we
Speaker 1: continue to grow out data centers, and we continue to
Speaker 1: grow out you know, access to data, access to computing.
Speaker 1: I think we equally have to build out you know, protection,
Speaker 1: cybersecurity make our infrastructure harder and harder. You know, the
Speaker 1: White House saw this earlier in the year they put
Speaker 1: out zero Trust Zone executive orders. So there's things that
Speaker 1: we need to do in this country. We need to
Speaker 1: harden our borders, we need to harden our edges, We
Speaker 1: need to harden our technology.
Speaker 2: Electrical grid is very vola.
Speaker 1: Everything is vulner what we look. We've seen pipelines, We've
Speaker 1: seen lots of cyber attacks on lots of infrastructure that
Speaker 1: none of us think is really infrastructure, whether it's hotel keys,
Speaker 1: or whether it's pipelines, whether it's slot machines. You know,
Speaker 1: we can go through all the different cyber attacks. Those
Speaker 1: are ones we know about. There's plenty more going on.
Speaker 1: That we don't know about. So I think we're underinvested
Speaker 1: as a country on cyber I think we're underinvested in
Speaker 1: protecting ourselves. I think AI is a whole nother leg
Speaker 1: of huge opportunity, but another leg of huge vulnerabilities. As
Speaker 1: we put more and more data, you know, the system,
Speaker 1: we create more and more data, we've got more and
Speaker 1: more vulnerabilities, and we have to understand how AI can
Speaker 1: help us, how it can be useful to us. I
Speaker 1: think that's really important to us and the blockchain. To me,
Speaker 1: it's the future of settlement, it's the future of doing business.
Speaker 1: You know, we still have many many arcane processes. Now
Speaker 1: we've quase modernized them. If you think of something as
Speaker 1: simple as stock settlement, you know, we've gone from you know,
Speaker 1: moving physical certificates to now digitally trans transacting and settling.
Speaker 1: But why are we having T plus two or settlement?
Speaker 1: Why aren't we Why are we Like we have commodity
Speaker 1: markets that that they cleared real time. We need to
Speaker 1: modernize all of this infrastructure so we can get all
Speaker 1: of the vulnerabilities and all of the risks out of
Speaker 1: the system. We have the technology, we just have to
Speaker 1: adapt this technology but when you adapt the technology, you
Speaker 1: have to put the profile eactics around it and make
Speaker 1: sure it's secure.
Speaker 2: You know, we talk about blockchain and so many people
Speaker 2: I hear saying, what what are we going to do
Speaker 2: with it? What purpose does it serve? Go back to
Speaker 2: the financial crisis. If we had those mortgages on something
Speaker 2: like a blockchain, who owned what house? All all that confusion,
Speaker 2: it all tracks and settles automatically, and there's a permanent
Speaker 2: public register of that.
Speaker 1: Well even simpler, if you had the mortgages on a blockchain,
Speaker 1: you had house titles on a blockchain, we could transact
Speaker 1: houses daily. You know the idea that you buy a
Speaker 1: house on Monday and you do a title search, and
Speaker 1: then you go get a mortgage, and then you sell
Speaker 1: it to me on Tuesday, and I have to do
Speaker 1: it and I can't close for thirty days because I
Speaker 1: have to go do another title search and I have
Speaker 1: to do all the same work. If it was done once,
Speaker 1: put it in the blockchain and we transfer it with
Speaker 1: all the all the documentation, these things become the fungibility
Speaker 1: of them becomes much greater. It's a win for everyone.
Speaker 1: You have much better collaterally, you've got much better ability
Speaker 1: to securitize, you've got much better ability to close and transact.
Speaker 1: You know, we are going to get there. You know,
Speaker 1: there's lots of natural antibodies to get there. There's lots
Speaker 1: of natural businesses that gets disintermediated. But we've been disintermediating
Speaker 1: business is for the last two hundred years, and every
Speaker 1: time we do it, we become a stronger and bigger,
Speaker 1: most importantly, a bigger economy.
Speaker 2: So let's talk about AI a minute. And I use
Speaker 2: a really fascinating app called Perplexity, And I know you're
Speaker 2: an investor in various AI companies, so I ask Perplexity,
Speaker 2: tell me about Gary Cones's history at Golmen Sachs. And
Speaker 2: then I did the same thing, tell me about Gary
Speaker 2: cones history at the White House, and I sent it
Speaker 2: to your assistant and the Goldman stuff perfect, The White
Speaker 2: House stuff just a run of correction crossthroughs. And it
Speaker 2: kind of is fascinating. And by the way, this aspect
Speaker 2: of AI two months ago couldn't have done any of this.
Speaker 2: It's amazing how it just gets better and better and
Speaker 2: better over time. What do you see AI doing? Is
Speaker 2: this going to disintermediate a lot of people. The fear
Speaker 2: is people can be thrown out of or is this
Speaker 2: something that's gonna, like the internet, create a whole bunch
Speaker 2: of new jobs.
Speaker 1: I think it's the latter. So we've lived through these
Speaker 1: seismic revolutions, right from the cotton gin to the combustion
Speaker 1: engine to the personal computer. When we lived through each
Speaker 1: of these, we've always worried about the jobs we're going
Speaker 1: to lose, Like, oh my god, the person that prints
Speaker 1: the memo and delivers the memo to everyone in the
Speaker 1: office when we have email, what's that person going to do? Well?
Speaker 1: All those companies put that person to work doing something
Speaker 1: much more productive and much more profitable and actually much
Speaker 1: more fulfilling for the individual. So as I look at
Speaker 1: each of these seismic evolutions and companies, every company I
Speaker 1: know has gotten bigger and dramatically bigger. Whether it's the
Speaker 1: personal computer, the cell phone, the internet. You look at these,
Speaker 1: every company has gotten dramatically bigger. Like, AIS displace some people,
Speaker 1: but I think you're going to take those people that
Speaker 1: are probably the least satisfying jobs and be able to
Speaker 1: retrain them into much more satisfying, much more fulfilling jobs.
Speaker 1: And allow these companies to become much bigger and more
Speaker 1: efficient and cover clients more effectively, and they will grow
Speaker 1: into those jobs. Just like the person that used to
Speaker 1: print the memo and deliver the memo to everyone's mailbox
Speaker 1: in the office. Remember when we used to have little
Speaker 1: cubbies in the office. I'm old enough to remember that,
Speaker 1: pick up your mail in the morning. Like no one
Speaker 1: has a mailbox in an office anymore. That person is
Speaker 1: now doing something much more productive and the AI is
Speaker 1: going to help that. And on the flip side, think
Speaker 1: of the productivity gains or think of the things we're
Speaker 1: going to be able to change in the regulatory environment
Speaker 1: where you're gonna be able to really monitor things that
Speaker 1: you've never been able to monitor. The regulatory environment's always
Speaker 1: been after the fact? Can AI now monitor human behavior
Speaker 1: real time? Now?
Speaker 2: When you say regulatory from our perspective in this business securities, trading, crypto,
Speaker 2: what what is potential in the space?
Speaker 1: So look at human behavior? You know, human behavior to
Speaker 1: me is regulatory behavior. You know in a bank, are
Speaker 1: you are your employees doing the right thing? You know?
Speaker 1: Can can you create AI? An AI overface and over
Speaker 1: something that sits on top of your organization that makes
Speaker 1: sure your employees are doing the right things or are
Speaker 1: they doing something wrong. Like it's not going to be
Speaker 1: full proof, but it's going to help you manage your
Speaker 1: organization in a way that makes management teams smarter and say, hey,
Speaker 1: look here, there might be something bad going on.
Speaker 2: No more bearings bank sort of hidden lawsuit.
Speaker 1: Exactly, you know. So it's it's the old adage. And
Speaker 1: I was pretty good at this, but I wasn't full proof.
Speaker 1: Like every day at five o'clock I got an email.
Speaker 1: I was supposed to get it by five o'clock from
Speaker 1: every risk based desk. And if I didn't get it
Speaker 1: by five o'clock, you know, I didn't think about it.
Speaker 1: By five fifteen, something's wrong. By five point thirty there
Speaker 1: was a problem, like because I didn't get it because
Speaker 1: something really good happened. Because if something really good happened,
Speaker 1: they'd called me already. So I didn't get it because
Speaker 1: something bad had happened. So I'd stay with almost one
Speaker 1: hundred percent accuracy unless literally it was oh I forgot
Speaker 1: to hit send. If I would call that desk and say, hey,
Speaker 1: I didn't get your end of day email, it's like, oh,
Speaker 1: I need to tell you something, but I would remember
Speaker 1: to do that. Now, there are certain days I probably
Speaker 1: forget if I had an AI machine that said, hey,
Speaker 1: you didn't get all your end of day emails or
Speaker 1: you didn't get an end of day email from this desk.
Speaker 2: And an alert it's an alert, and you can even
Speaker 2: have it reach out and tag the person. Hey, give
Speaker 2: Gary a call, right, and there's your you know exactly
Speaker 2: who's on the game.
Speaker 1: All I'm doing is monitoring human behavior, you know. And look,
Speaker 1: I'm investing in a company that monitors is going to
Speaker 1: monitor human behavior and tell you employees are acting, you know,
Speaker 1: they're doing stuff they're supposed to do, they're doing stuff
Speaker 1: they're not supposed to do. And by the way, it
Speaker 1: may be fine, or they're doing something today that they've
Speaker 1: always done, or they're doing something that they've never done.
Speaker 2: And it's just going to alert you to things that
Speaker 2: you're not going to see on your.
Speaker 1: Like it's a look over here. It may not be
Speaker 1: a problem. It's like, hey, this is different today.
Speaker 2: So let's talk a little bit about IBM. You were
Speaker 2: vice chairman there. I kind of think of IBM and
Speaker 2: AI with them playing Jeopardy and participating there. What's the
Speaker 2: future of AI at IBM?
Speaker 1: Now, well, I'm glad you asked the question that way.
Speaker 1: So IBM has been involved in AI for fifty years.
Speaker 2: That's amazing.
Speaker 1: Yeah, and you sort of said it, you know, in
Speaker 1: twenty eleven Watson won a Jeopardy twenty twelve Watson Big
Speaker 1: Cast Profit Chess. So IBM has been involved in the
Speaker 1: machine learning, the AI business now for decades. We've been
Speaker 1: serving our enterprise clients and building AI products for them
Speaker 1: for the last years. What's become really prevalent recently, and
Speaker 1: the reason we're all talking about AI today is there's
Speaker 1: finally retail products out. IBM does not have a retail product,
Speaker 1: and we're not going to have a retail product. It's
Speaker 1: not our business. Our business is to be the AI
Speaker 1: inside of companies that you may face on the retail side.
Speaker 1: So a good example is a CVS during COVID, IBM
Speaker 1: was operating the CVS call center for the millions of
Speaker 1: calls a day for COVID. How do I get my
Speaker 1: COVID vaccine? Where do I go? How do I schedule appointment?
Speaker 1: That was all IBMAI managing that, and so we are involved.
Speaker 1: We are doing a lot, but we're doing it on
Speaker 1: an enterprise solution basis. For our clients, We've got AI
Speaker 1: and software that allows people to manage their physical building,
Speaker 1: allows them to manage what their carbon footprint, allows them
Speaker 1: to manage, you know, how efficiently their buildings running. You
Speaker 1: know what what compressors should be running, what motors should
Speaker 1: be running, what light should be turned off? How do
Speaker 1: I turn them on? When do we replace them? There's
Speaker 1: an enormous amount of technology going on in the space,
Speaker 1: but it's done on an enterprise level. So IBM is
Speaker 1: a big AI player and we continue to build out
Speaker 1: more and more opportunities for our clients to use our
Speaker 1: enterprise AI. So it's a really interesting crossroads in the
Speaker 1: companies here.
Speaker 2: So let's tie that together with our prior discussion on cybercrime.
Speaker 2: Can we use AI to monitor systems and alert us
Speaker 2: when their intrusions or hacks or other cyber problem?
Speaker 1: Absolutely? Absolutely. So. You know, IBM has a a big
Speaker 1: presence at the US Open a couple weeks ago, and
Speaker 1: we did this big presentation on everything we were doing there,
Speaker 1: and we've got software and AI that was talking about
Speaker 1: all the cyber hacks going on in the US Open
Speaker 1: and how you prioritize the hacks like this is an
Speaker 1: irrelevant hack, this is an important hack. We're going to
Speaker 1: be able to use AI to monitor the bad and
Speaker 1: the good, and it's going to be equally effective to
Speaker 1: make sure we're using it both in monitoring what's going
Speaker 1: on and well in the world and where we need
Speaker 1: to watch things and where we need to prioritize. If
Speaker 1: you're getting hacked millions of times a day, you've got
Speaker 1: to figure out what are the important hacks like You
Speaker 1: can't get distracted by the ones that don't matter. You've
Speaker 1: got to spend your time on the hacks that are
Speaker 1: really relevant, and AI can be helpful in allowing you
Speaker 1: to do that.
Speaker 2: Let me throw you a curveball question. When I was
Speaker 2: a kid, I had before we were diagnosing everybody with ADHD,
Speaker 2: I had ADHD with just a little bit of dyslexia
Speaker 2: thrown in, and with me it was spelling and I
Speaker 2: you know, before I had a wedding ring on, I
Speaker 2: didn't know left from right. I could tell you a
Speaker 2: story about taking my driver's test, and every time the
Speaker 2: guy says make a left, make a right, I would
Speaker 2: flash my index and thumb because I could recognize the
Speaker 2: L and what the hell are you doing? I don't
Speaker 2: know left from right. You've been very public about having
Speaker 2: pretty severe dyslexia growing up and said it taught you.
Speaker 2: I'm gonna put quote you back to you. Hey, I
Speaker 2: learned about failure and thought of the world as that's
Speaker 2: the default and it's all upside from there. Tell us
Speaker 2: how your dyslexia affected you personally and your career.
Speaker 1: Well, you said it, so I characterized myself as one
Speaker 1: of the world's greatest failures. You know, I knew how
Speaker 1: to fail at everything at a young age. You know,
Speaker 1: school to me was impossible. I never thought I could
Speaker 1: get out of elementary school.
Speaker 2: There was a story about a meeting with your parents
Speaker 2: where they got some vocational advice. Would you would you
Speaker 2: share that?
Speaker 1: Well, I you know I was in the I wasn't
Speaker 1: supposed to hear it, but I remember very clearly one
Speaker 1: of the teachers pulling my mom aside and saying, no,
Speaker 1: my mom, look, you'll be lucky if your son grows
Speaker 1: up and you can drive a truck.
Speaker 2: That's just what a kid wants to hear. Well.
Speaker 1: No, by the way, it was motivational. Yeah, it was motivational.
Speaker 1: Like I heard it and I said to my mom,
Speaker 1: I said, well, it's gonna be a nice truck, you
Speaker 1: know when I drive it. But in my mind, though
Speaker 1: I knew I wasn't going to drive a truck, Like
Speaker 1: I knew that I could figure certain things out that
Speaker 1: other people couldn't figure out. So you could talk to
Speaker 1: me and explain to me something, I could come up
Speaker 1: with the answer. So I was smart enough to understand
Speaker 1: that I just couldn't sit there when they handed me
Speaker 1: a piece of paper and you know, I'll say, read
Speaker 1: this and like, okay, who won the race? When it said,
Speaker 1: you know, two people raced and so and so on
Speaker 1: in first grade, I, you know, to see if you
Speaker 1: had basic reading skills, I go, I don't know. It
Speaker 1: was there race? Like my answer to what race? My
Speaker 1: answer would have been what race?
Speaker 2: So, given your career, both on the corporate side and
Speaker 2: the public service side, are there any residual effects from this?
Speaker 2: I'm assuming your reading skills have improved since then?
Speaker 1: Yeah, yes, so I have become a decent technical reader.
Speaker 1: If you give me a contract, I'll be I'm pretty
Speaker 1: damn good at reading contract. So but a contract to
Speaker 1: me has total logical. You know, I know section one,
Speaker 1: what's gonna bean section one. I know it's gonna be
Speaker 1: in section two. I know it's gonna be in section three.
Speaker 1: I know it's gonna be in section four. I'm really
Speaker 1: good at reading contract. If you give me something that
Speaker 1: I don't know what the order of it is, it's
Speaker 1: going to be difficult for me because I'm working so
Speaker 1: hard at words that it's hard for me to process
Speaker 1: where it's growing.
Speaker 2: So technical reading much easier than books and things like that.
Speaker 1: I don't read a lot of books, like a lot
Speaker 1: would maybe round up to zero.
Speaker 2: Wow, that's fascinating.
Speaker 1: I get to listen to books on tape, right, So
Speaker 1: do you enjoy that experience? Yeah, a little bit. It's
Speaker 1: still hard for me. You know, I didn't grow up
Speaker 1: as a reader, so my brain's not that condition to that,
Speaker 1: so you know, it's it's not a natural for me.
Speaker 1: But look, do I read? Do I try and read
Speaker 1: the newspapers every day? Do I try and you know,
Speaker 1: read the editor Do I read a lot of editorial pages?
Speaker 1: Do I read a lot of news? I do read
Speaker 1: a lot of news and editorial page But you know,
Speaker 1: like there're hundreds of they're measuring hundreds.
Speaker 2: Of right, all right, so let's jump to our favorite questions,
Speaker 2: starting with what are you streaming? If you're not reading,
Speaker 2: what do you what are you watching?
Speaker 1: So again, I watch a lot of sort of factual stuff,
Speaker 1: and lately I've been going through sort of the Netflix
Speaker 1: library of Sports Actuals shows Full Swing, Breakpoint, the Swamp,
Speaker 1: Drive to Survive. I've been going through all the Sports.
Speaker 2: To Survive was great. The did you see I haven't
Speaker 2: seen the one. I'm assuming you saw the one on
Speaker 2: the Chicago Bulls of Michael Jordan's.
Speaker 1: I actually haven't. Oh oh no, I saw that one
Speaker 1: during COVID, right, but I haven't seen the Nike one yet.
Speaker 2: It's an interesting movie. There's also one about Steph Curry.
Speaker 2: I think that's on Apple TV. And then there's another
Speaker 2: one about Magic Johnson and the LA Lakers. But that's interesting.
Speaker 2: That that that's what gets you interested, very competitive, very
Speaker 2: interesting things.
Speaker 1: It's look, it's a it's a little bit about wedding, right,
Speaker 1: maybe tells you something about me, but it's about winning.
Speaker 2: I picked that up. How about mentors who helped shape
Speaker 2: your career?
Speaker 1: I think there's two big matches my grandfather for one, Oh,
Speaker 1: really what was wrong big time. So you know, as
Speaker 1: we discussed, I was highly dislikes it going up, and
Speaker 1: you know, my parents didn't know what to do with me. So,
Speaker 1: like I don't blame they were young parents, and my
Speaker 1: grandfather was convinced, like, there's nothing wrong with my grandson.
Speaker 1: He's really smart. He's gonna be fine. You don't need
Speaker 1: to send him off, you don't need to panic. And
Speaker 1: so my grandfather really sort of put me under his
Speaker 1: wing and said, like you're gonna be fine, just just
Speaker 1: do what you need to do. And so we had
Speaker 1: a very very close relationship, and so he really got
Speaker 1: me through sort of my early childhood years all the
Speaker 1: way through high school, like he was there for me.
Speaker 1: And then you know the guy by the name of
Speaker 1: it and I mentioned before Jim Riley, who when I
Speaker 1: went to Goldman, he was he became partner in nineteen
Speaker 1: ninety He was the one that hired me into Goldman.
Speaker 1: And you know, I became partner ninety four. And I'd
Speaker 1: become partner by sort of doing everything, sort of being
Speaker 1: the guy that everyone could go to, being the guy
Speaker 1: could fix everything. And when I became partner. I was
Speaker 1: trying to do everything, and you know, it was one
Speaker 1: of those stories where I was trying to manage a
Speaker 1: big business. I was trying to trade a big book.
Speaker 1: I was trying to deal with clients, and I was
Speaker 1: doing a really bad job of it, like and my
Speaker 1: trading book showed it, like I was having problem in
Speaker 1: the worst trading streak of my life.
Speaker 2: I was.
Speaker 1: I was losing money every day, and I didn't know
Speaker 1: how to lose money every day. And I was living
Speaker 1: at London at the time, and you know, after like
Speaker 1: a week of not sleeping, you know, I waited till
Speaker 1: like seven o'clock in the morning, New York time, because
Speaker 1: I knew he'd be driving in he lived in the Island,
Speaker 1: be driving in the office, or be in the office.
Speaker 1: I called Jimmy up and I sort of gave him
Speaker 1: the woe is Me story, like me, I'm working so hard.
Speaker 1: I've never worked this hard in my life. Like I'm
Speaker 1: I'm seeing ten clients a day, I'm dealing with the
Speaker 1: sales desk, I'm dealing with this, I'm trying to trade.
Speaker 1: My trading's horrible. I can't make money. What should I do?
Speaker 1: And he basically said, figure it out and hung up
Speaker 1: the phone.
Speaker 2: Not even prioritized.
Speaker 1: Just figure it figured it out, figure it out.
Speaker 2: Click, wow, And how'd you figure it out?
Speaker 1: No, he basically said, I got the message like, you're idiot,
Speaker 1: you can't do everything right. Like So literally five minutes later,
Speaker 1: I am call over to my office. I said, guys,
Speaker 1: I'm done trading, and I gave my trading book away
Speaker 1: and I said I'm here to see clients. I'm here
Speaker 1: to deal with problems. Come see me. And the guy
Speaker 1: took her on my trading book and said thank you
Speaker 1: very much. And the salespeople said, oh my god, you're
Speaker 1: human again. And everything was fine.
Speaker 2: Really good decision. Our final two questions, what sort of
Speaker 2: advice would you give to a recent college grad who
Speaker 2: is interested in a career in the world of investing
Speaker 2: in finance?
Speaker 1: So, look, a, I think it's a great place to
Speaker 1: start your career in your life, no matter where you
Speaker 1: end up, because the fundamentals of understanding finance and understanding
Speaker 1: markets and understanding a balance sheet is really important skill
Speaker 1: and it doesn't matter what you do with your life.
Speaker 1: So I'd encourage anyone who's got an interest to go
Speaker 1: into the to go into the industry. It's a tough
Speaker 1: way you to go. It's like the first couple of
Speaker 1: years of going into financial services, it's boot camp. You know,
Speaker 1: you're working twenty four hours a day, seven days a week,
Speaker 1: you're on call. It's not fun. So I'll warn you
Speaker 1: of that. But you should do it. You should get
Speaker 1: the experience, and then you should take some risk in
Speaker 1: your career. You know, after you've learned the fundamentals. You know,
Speaker 1: after a couple of years, just because you went into
Speaker 1: sales and trading program or just because you went in
Speaker 1: an investment banking program doesn't mean that's what you should do.
Speaker 1: And what I see so many young kids do is
Speaker 1: they get hired into X job and they stay an
Speaker 1: ex job for the next twenty or thirty years. Figure
Speaker 1: out what you really like, and then go figure out
Speaker 1: how to get there. So, if you're hired as an
Speaker 1: investment banker, but you really want to be on a trader,
Speaker 1: go try and figure how to be a trader. You're
Speaker 1: hired as a trader and you really want to be
Speaker 1: a salesperson, go be a salesperson. You hire a salesperson,
Speaker 1: want to go be a vague baker? Figure how to
Speaker 1: be a banker. Don't just get stuck where you got hired.
Speaker 2: Into really good advice. And our final question, what do
Speaker 2: you know about the world of investing or public service
Speaker 2: today that would have been useful to know forty or
Speaker 2: so years ago when you first landed at US Steel.
Speaker 1: I knew nothing forty years ago, honestly so. And by
Speaker 1: the way, I learn new things every day. If you
Speaker 1: don't think you're going to learn something new in the
Speaker 1: corporate world or the investing world, you're wrong, because every
Speaker 1: day is a new day.
Speaker 2: You know.
Speaker 1: It's like we were talking about what the Fed's going
Speaker 1: through now, this whole set of circumstances with FED tightening
Speaker 1: and government spending. It's a whole set of new circumstances
Speaker 1: that has to be reevaluated. You know. I learned new
Speaker 1: things every day, and I think it's important that you
Speaker 1: just understand that what was true last year may not
Speaker 1: be true this year, and what you believe to be
Speaker 1: true may not be true tomorrow. And I think that's
Speaker 1: really important.
Speaker 2: Really amazing stuff. Gary, thank you for being so generous
Speaker 2: with your time. We have been speaking with Gary Cohne,
Speaker 2: former director of the National Economic Council in the White
Speaker 2: House under President Trump. Prior to that, he was president
Speaker 2: and chief operating officer at Goldman Sachs, where he spent
Speaker 2: most of his career. If you enjoyed this conversation, well
Speaker 2: be sure and check out any of the previous five
Speaker 2: hundred or so we've done over the past nine years.
Speaker 2: Can find those at iTunes, Spotify, YouTube, wherever you find
Speaker 2: your favorite podcasts. Sign up for my daily reading list
Speaker 2: at rit Holts dot com. Follow me on Twitter at
Speaker 2: Barry Underscore Ritolts. Follow all of the Bloomberg family of
Speaker 2: podcasts on Twitter at podcast I would be remiss if
Speaker 2: I did not thank the crack team of experts who
Speaker 2: helped me put these conversations together each week. My producer
Speaker 2: for this episode was Rob Bragg, my audio engineer with
Speaker 2: Sarah Livesey. Attika of albron is our project manager. Sean
Speaker 2: Russo is my researcher. I'm Barry Ridholts. You've been listening
Speaker 2: to Masters and Business on Bloomberg Radio. Yeah,