There’s a Pile of Dirty Linen Behind Morgan Stanley’s Removal of Vanguard Funds

By Pam Martens: May 11, 2017

Martin Smith, Frontline Producer, Drills Down for Answers  in "The Untouchables"

Martin Smith, Frontline Producer

For as long as we have been observing Wall Street sleaze (three decades and counting) we have been reading about illegal sales contests and mutual fund abuses at Morgan Stanley and its 1997 merger partner, the retail brokerage firm Dean Witter. Given that history, when we read last week that Morgan Stanley was going to gut one of the all-time best families of mutual funds from its client offerings (Vanguard Funds), we felt our readers deserved a fuller understanding of the facts than they were getting from corporate media.

Incredibly, a number of corporate media outlets tried to pass this off as Morgan Stanley attempting to “close out under-performing and less popular funds.” Before we get to the nitty-gritty of why Morgan Stanley is freaking out about the respected Vanguard Funds, some necessary background is in order.

Our earliest recollection of the mutual fund outrages at Dean Witter came courtesy of BusinessWeek reporters Leah Nathans Spiro and Michael Schroeder in a February 1995 article. (Bloomberg L.P. purchased BusinessWeek from McGraw-Hill in 2009. The Bloomberg brand now shows on the online article.)

Nathans Spiro and Schroeder explain in the article why Dean Witter was pushing its own internal mutual funds on its brokers and the brokers were not pushing back. The authors write:

“But the greatest incentives are usually for selling investments created by the firm. The reason for favoring its own products, especially mutual funds, is simple: much higher profit margins. The firm reaps a fee for managing its own funds. It gets no management fee for an outside fund…

“The firm that’s most vulnerable on this issue is Dean Witter. It says that more than 75% of the mutual funds it sells are the house brand, probably the highest ratio in the industry. Customers who invest in Dean Witter funds pay a sales load that ostensibly compensates the broker for unbiased advice in helping them pick the best fund. Yet three times out of four, clients are simply ushered into Dean Witter funds. One reason: Brokers receive 5% to 15% more for selling Dean Witter funds than for outside funds. ‘It’s like calling yourself a car consultant when you sell Fords,’ says Don Phillips, publisher of Morningstar Mutual Funds.”

Seven months after the BusinessWeek article appeared, the Washington Post stunned Wall Street by publishing an insider’s allegations against Dean Witter. Les Silverstone was a respected, retired broker from Dean Witter. He blew the whistle on the lavish prizes brokers were getting for selling select products. The Washington Post reported:

“Over the last few years, Silverstone said, Dean Witter has given brokers televisions, home computers, stereo systems, clothing, sports and lottery tickets and other prizes for selling selected financial products during contests. Investors are unaware that many brokers’ recommendations are influenced by contests, Silverstone said…

“Silverstone said Dean Witter also has sponsored holiday contests. In one Dean Witter Valentine’s Day contest, brokers were encouraged to submit their ‘sweetheart’s name and address’ when they phoned in orders so the firm could send flowers and Godiva chocolate…

“Silverstone said contests distort the advice that brokers give customers. ‘Would you want to go to a doctor who was trying to win a contest by writing certain prescriptions? The contests create a certain culture and it is detrimental to the consumer. What you need from your broker — his best thinking about how to achieve your long-run financial goals — is exactly what the contest is forcing the broker not to give you.’ ”

By 2000, long after Dean Witter had merged with Morgan Stanley, the brokerage firm was still running afoul of regulators. In November 2000, the National Association of Securities Dealers’ regulatory arm charged Dean Witter with selling over $2 billion of Term Trusts to more than 100,000 customers by using an internal marketing campaign that characterized the investments as safe and low-risk. The NASD Regulation complaint said that Dean Witter targeted “certificate of deposit holders and other conservative investors, many of whom were elderly with moderate, fixed incomes…” The risky Term Trusts at one point had lost over 30 percent of their value and were forced to reduce their dividends by nearly a third.

The NASD Regulation complaint noted that “Dean Witter’s marketing effort for the Term Trusts also included high-pressure sales efforts at the regional and branch levels, include the use of sales contests and sales quotas.”

In 2003, Morgan Stanley was fined $50 million by the Securities and Exchange Commission for improper mutual fund sales practices. The SEC said the firm had set up a “Partners Program” in which a “select group of mutual fund complexes paid Morgan Stanley substantial fees for preferred marketing of their funds.” The firm further incentivized its brokers to recommend the purchase of the “preferred” funds by paying them increased compensation. The SEC said Morgan Stanley also failed to disclose the higher fees imposed on Class B shares of its proprietary funds versus sales of Class A shares.

While Morgan Stanley now sells a broad range of outside mutual funds to clients, it continues to sell its own proprietary mutual funds as well. Last year a former participant in its 401(k) Plan for employees filed a $150 million lawsuit against the firm for including in the $8 billion 401(k) Plan Morgan Stanley’s own proprietary mutual funds that were “tainted either by poor relative performance, high relative fees, or both,” according to the lawsuit.

Against this backdrop comes the news that Morgan Stanley is eliminating the ability of its brokers to continue to sell the low-fee, passively managed and widely respected funds offered by the Vanguard Group.

Wall Street On Parade took a hard look at Vanguard after Frontline correspondent Martin Smith stunned PBS viewers in a 2013 bombshell report, explaining what mutual fund fees were doing to the average worker’s 401(k) plan. We reported the following at the time and confirmed the math:

“If you work for 50 years and receive the typical long-term return of 7 percent on your 401(k) plan and your fees are 2 percent, almost two-thirds of your account will go to Wall Street.”

This is how we double-checked the math:

“Take an account with a $100,000 balance and compound it at 7 percent for 50 years. That gives you a return of $3,278,041.36. Now change the calculation to a 5 percent return (reduced by the 2 percent annual fee) for the same $100,000 over the same 50 years. That delivers a return of $1,211,938.32. That’s a difference of  $2,066,103.04 – the same 63 percent reduction in value that Smith’s example showed.”

There is likely one more insidious aspect to this story. On April 16 New York Times reporter Landon Thomas dropped his own bombshell on Wall Street. Thomas reported the following:

“In the last three calendar years, investors sank $823 billion into Vanguard funds, the company says. The scale of that inflow becomes clear when it is compared with the rest of the mutual fund industry — more than 4,000 firms in total. All of them combined took in just a net $97 billion during that period, Morningstar data shows. Vanguard, in other words, scooped up about 8.5 times as much money as all of its competitors.”

Big Wall Street banks have a problem when somebody else eats their lunch. Passive investing in indexed mutual funds like Vanguard’s popular 500 Index Fund poses not only the risk of sucking fees away from the big Wall Street banks’ asset management operations but it further poses the risk of making their controversial practice of putting out buy and hold recommendations on individual stocks an unproductive exercise. Morgan Stanley has a retail broker force of approximately 15,800. (That force grew dramatically with Morgan Stanley merging the brokers formerly with Citigroup’s Smith Barney.)

There was a time when Morgan Stanley’s equity research department, along with its Wall Street peers, could start a broker stampede and levitate a stock by issuing a new buy rating. But as Vanguard mutual funds and passive index investing consume more and more investment dollars, when Wall Street speaks fewer ears are listening.

FBI Director Comey Fired as Investigators Convened Grand Jury

By Pam Martens and Russ Martens: May 10, 2017

FBI Director, James Comey, Delivering Report on Hillary Clinton's Emails, July 5, 2016

FBI Director, James Comey, July 5, 2016

Both CNN and CBS News have now confirmed that a grand jury had been convened as part of the investigation into Trump campaign associates’ ties to Russia prior to President Donald Trump firing FBI Director James Comey. CNN first reported the news last evening that the U.S. Attorney’s office in Alexandria, Virginia had issued grand jury subpoenas in recent weeks to associates of former National Security Advisor Michael Flynn seeking business records.

CBS News confirmed the report this morning, adding that “the probe has been going forward aggressively.” The convening of a grand jury is typically associated with a belief that criminal activity may have occurred.

President Trump has come under withering criticism last night and today for firing the head of the FBI while the agency was conducting an active investigation of people close to the President.

Why the President decided to fire Comey at this moment in time has been the source of much speculation by major media outlets. The fact that the investigation had moved into more serious territory has become a growing narrative. Receiving less media attention is the testimony that Comey delivered before the Senate Judiciary Committee last Wednesday. That testimony may have set off alarm bells in the White House.

In one exchange with Senator Richard Blumenthal, Comey refused to clarify that President Trump was not a target of the investigation. The exchange was as follows:

Blumenthal: But as a former prosecutor, you know that when there’s an investigation into several potentially culpable individuals, the evidence from those individuals and the investigation can lead to others. Correct?

Comey: Correct. We’re always open-minded about — and we follow the evidence wherever it takes us.

Blumenthal: So potentially, the President of the United States could be a target of your ongoing investigation into the Trump campaign’s involvement with Russian interference in our election. Correct?

Comey: I just worry — I don’t want to answer that. That seems to be unfair speculation. We will follow the evidence. We’ll try and find as much as we can and we’ll follow the evidence wherever it leads.

In another exchange with Senator Amy Klocuchar, Comey let it slip that specific members of Congress already knew the identities of the Trump campaign individuals who were targets of his Russian investigation. Senator Klocuchar asked Comey to commit to providing a “full and timely briefing” to the relevant Congressional committee on the investigation’s findings. In response, Comey said the following:

“…I need Department of Justice approval to brief on particular people that we’re investigating. We’ve briefed the Chairs and the Rankings, including of this committee on who we have cases open on and exactly what we’re doing and how we’re using various sources of information. I don’t know whether the department will approve that for the entire intelligence committees, but I’ll lean as far forward as I can.”

The Trump White House has been obsessed with leaks. The possibility that Comey might brief the entirety of the intelligence committees, effectively ensuring more leaks, likely sent the Trump administration into a frenzy.

Senator Al Franken threw more gasoline on the fire in his exchange with Comey. Franken alluded to multiple ties between Trump and Russia and forced Comey to leave open the question as to whether Comey has seen Trump’s tax returns. The exchange went as follow:

Franken: Yes. Well, in order for us to know for certain whether President Trump would be vulnerable to that type of exploitation, we would have to understand his financial situation. We’d have to know whether or not he has money tied up in Russia, or obligations to Russian entities. Do you agree?

Comey: That you would need to understand that to evaluate that question? I don’t know.

Franken: Well, it seems to me that there is reason to believe such connections exist. For example, the President’s son, Donald Trump Jr., told real estate developers in 2008 that quote, “Russians make up a pretty disproportionate cross section of a lot of our assets.” He said quote, “we see a lot of money pouring in Russia.” This is a report on the family business.

In 2013 President Trump held the Ms. Universe pageant in Moscow. And the pageant was financed by a Russian billionaire who is close to Putin. And President Trump sold a Palm Beach mansion to a Russian oligarch for $95 million in 2008. That’s $54 million more than he paid for it just four years prior. Those are three financial ties that we know of and they’re big ones.

Director Comey, the Russians have a history of using financial investments to gain leverage over influential people and then later calling in favors. We know that. We know that the Russians interfered in our election and they did it to benefit President Trump. The intelligence agencies confirmed that.

But what I want to know is why they favored President Trump. And it seems to me that in order to answer that question, any investigation into whether the Trump campaign or Trump operation colluded with Russian operatives would require a full appreciation of the President’s financial dealings.

Director Comey, would President Trump’s tax returns be material to such an investigation?

Comey: That’s not something Senator that I’m going to answer.

Franken: Does the investigation have access to President Trump’s tax returns?

Comey: I’m going to have to give you the same answer. Again, I hope people don’t over interpret my answers, but I just don’t want to start talking about anything — what we’re looking at and how.

Less than a week later, Comey was out of a job.

IMF Report: U.S. Corporate Debt Could Be Trump’s Waterloo

IMF Warns on Risks In U.S. Corporate Debt Market

IMF Warns on Risks In U.S. Corporate Debt Market

By Pam Martens and Russ Martens: May 9, 2017

As U.S. equity markets continue to price to perfection a grab bag of promised corporate giveaways from their Best Forever Friend, President Donald Trump, a group of researchers at the International Monetary Fund (IMF) had the temerity to ask last month – what could possibly go wrong.

In their April 2017 “Global Financial Stability Report,” IMF researchers methodically pare back the rosy lenses of the U.S. equity market and focus on the warning signs in the U.S. corporate debt market. Two particular findings have the power to potentially jolt the equity markets out of their euphoric stupor. The researchers note:

“The [U.S.] corporate sector has tended to favor debt financing, with $7.8 trillion in debt and other liabilities added since 2010…” [Italics added.]

“The number of [U.S.] firms with very low interest coverage ratios—a common signal of distress—is already high: currently, firms accounting for 10 percent of corporate assets appear unable to meet interest expenses out of current earnings. This figure doubles to 20 percent of corporate assets when considering firms that have slightly higher earnings cover for interest payments, and rises to 22 percent under the assumed interest rate rise. The stark rise in the number of challenged firms has been mostly concentrated in the energy sector, partly as a result of oil price volatility over the past few years. But the proportion of challenged firms has broadened across such other industries as real estate and utilities. Together, these three industries currently account for about half of firms struggling to meet debt service obligations and higher borrowing costs.”

The report acknowledges that equity markets “have taken a relatively benign view” of the downside risks and warns that there could be a “swift repricing of risks in the event of policy disappointment.”

As for the windfall from President Trump’s promised slashing of the corporate tax rate, the IMF researchers have this to say:

“While positive effects of tax stimulus on cash flow could be considerable, they would be insufficient for firms in a number of cash-constrained sectors to finance increased capital spending. These sectors— energy, utilities, and real estate—are particularly important as they have contributed to nearly half of overall capital spending among S&P 500 firms over the past few years. The cash flow boost from a cut to the statutory tax rate may be insufficient to spur the nearly $140 billion needed to boost capital expenditure to the level prevailing before 2000. Adding in changes to tax treatments of interest expense and capital expenditures, along with repatriation, would attenuate—but likely not eliminate—financing needs for these sectors.”

The researchers also express the very legitimate concern that the President’s tax reforms may result in greater financial risk taking that could lead to financial instability. The researchers note:

“Perhaps more important, cash flow from tax reforms may accrue mainly to sectors that have engaged in substantial financial risk taking. Such risk taking is associated with intermittent large destabilizing swings in the financial system over the past few decades. It has averaged $940 billion a year over the past three years for S&P 500 firms, or more than half of free corporate cash flow. At the sectoral level, such spending has been strongest in the health care and information technology sectors—where purchases of financial assets, mergers and acquisitions, and net payouts have been capturing more than half of free resources since 2012—amounting collectively to nearly $500 billion a year.”

This would come at a very inopportune time. The IMF notes the following existing conditions in the U.S.:

“Corporate credit fundamentals have started to weaken, creating conditions that have historically preceded a credit cycle downturn. Asset quality—measured, for example, by the share of deals with weaker covenants—has deteriorated. At the same time, a rising share of rating downgrades suggests rising credit risks in a number of industries, including energy and related firms in the context of oil price adjustments and also in capital goods and health care. Also consistent with this late stage in the credit cycle, corporate sector leverage has risen to elevated levels.”

Another concern according to the IMF is that the average interest coverage ratio, which measures the ability for a corporation’s current earnings to cover its interest expenses – has shown a sharp drop over the past two years. The researchers write that “earnings have dropped to less than six times interest expense, close to the weakest multiple since the onset of the global financial crisis.” The report notes further that, historically, “deterioration of the interest coverage ratio corresponds with eventual widening in credit spreads for risky corporate debt.”

The prudent and common sense concerns and warnings expressed in the IMF report stand in contrast to what happened yesterday in U.S. markets. The Chicago Board Option Exchange Volatility Index (VIX), known as the “fear gauge,” closed at a 23-year low yesterday.

The persistent goldilocks readings from the VIX have caused some market veterans to question if the Index is broken or skewed by various market players. Should that be the case and there is a “swift repricing of risks” as the IMF cautions could happen, President Trump may find his job a lot harder than he ever imagined – even with all those Goldman Sachs guys in tow.

What Was Really Behind Warren Buffett’s Big Stake in IBM?

By Pam Martens and Russ Martens: May 8, 2017

Warren Buffett, CEO, Berkshire Hathaway

Warren Buffett, CEO, Berkshire Hathaway

On Thursday of last week, legendary investor Warren Buffett, CEO of Berkshire Hathaway, told CNBC that his company had sold about one-third of its big stake in IBM during the first and second quarters of 2017. From a position of approximately 81 million shares of IBM, Berkshire’s stake is now believed to be in the 50 million share range. Buffett said he no longer values IBM the same way he did in 2011 when he began acquiring his large position.

The big puzzle for Buffett watchers is why he ever bought IBM. A simple glance at the stock’s long-term chart shows the company has been an underperformer for a very long time.

Back in 2013, Wall Street On Parade compared the performance of IBM, a tech company, to that of Procter and Gamble, a presumably less-sexy household products company. We found the following:

“After 30 years, $1000 invested in Procter and Gamble grew by 2,168 percent to $22,684 – not including the cash it was paying you in dividends for 30 years. The same $1000 (actually $976) invested on the same date 30 years ago in IBM, grew to a measly $8,467 or 767 percent – and that’s with the dividend reinvested…”

Both Procter and Gamble and IBM provide the public with stock performance calculators on their web sites. You can do the math yourself, selecting various start dates. This morning, we put in a start date of May 5, 1987 at IBM’s calculator – 30 years from this past Friday’s close. It showed a return of 519.59% and that’s with dividends reinvested. Procter and Gamble has delivered more than four times that return with dividends reinvested.

We’re a bit skeptical of Buffett’s foray into IBM because of his past White Knight adventures into downtrodden stocks. Back in 1987 Buffett took a $700 million stake in Salomon Brothers’ convertible preferred stock, giving him an approximate 12 percent stake in the company. A short four years later, top executives were under investigation for concealing efforts by traders to rig the U.S. Treasury auction. Buffett stepped in as Interim Chairman of Salomon to save the company.

This is how Linda Grant, writing for the Los Angeles Times, described the situation on August 16, 1991:

“ ‘Salomon was like an airplane that had suddenly lost all its forward motion. Everything stopped,’ recalls then co-head of investment banking Deryck C. Maughan. Chairman John H. Gutfreund and President Thomas W. Strauss had resigned earlier that day. Vice Chairman John W. Meriwether was under a cloud of suspicion that would lead to his resignation two days later. The stock had been suspended from trading, after losing a market value of $1.3 billion in one week. Jittery bankers were threatening to cut back loans. Investors were boycotting Salomon’s commercial paper. Prestigious customers, primarily public institutions such as the World Bank and the California Public Employees Retirement System, had suspended certain business dealings. The Justice Department’s antitrust division and the Securities and Exchange Commission had launched investigations.”

Buffett’s White Knight strategy worked. Six years later, Salomon Brothers was sold to Sanford Weill’s Travelers Group in a $9 billion stock swap.

Then there was Buffett’s confidence-boosting foray into Goldman Sachs at the height of the financial crisis in September 2008 as iconic Wall Street brands were in meltdown. Buffett’s Berkshire Hathaway took a $5 billion preferred share stake in Goldman with an eye-popping dividend of 10 percent at a time when Goldman Sachs’ share price was in a precipitous descent. Berkshire also received five-year warrants to purchase $5 billion of Goldman’s common stock with a strike price of $115 per share.

To put the best face on his Goldman rescue, Buffett released the following statement:

“Goldman Sachs is an exceptional institution. It has an unrivaled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance.”

Goldman bought back the preferred shares from Buffett in 2011. In a revised deal, Berkshire executed its warrants with Goldman in 2013.

IBM is one of the 30 stocks that make up the Dow Jones Industrial Average. Goldman Sachs is likewise one of the Dow 30. What is good for the Dow 30 is good for Warren Buffett’s Berkshire Hathaway. Maybe that’s a key influence in how Buffett thinks about his investment strategy.

Editor’s Note: Past performance is no guarantee of future results. The Martens hold long term positions in Procter and Gamble stock. The information that appears on this site cannot, and does not, take into account your particular investment goals, your unique financial situation or income needs and is not intended to be recommendations appropriate for you. When it comes to making your own investment decisions, you should always consult in advance with your financial advisor and accountant.

GAO: Biggest Fiscal Threat to U.S. Is Interest on Treasury Debt – Not Social Welfare Programs

By Pam Martens and Russ Martens: May 5, 2017

Dollar Sign GraphicOn Wednesday, the General Accountability Office (GAO), the bipartisan congressional watchdog, released an in-depth report on the U.S. government’s challenging fiscal outlook. Despite its surprising revelations, the study received little to no coverage by major media outlets.

While most Americans have been led by political rhetoric to believe that government programs like Medicare and Medicaid are the biggest threats to the future U.S. fiscal picture, the GAO study found the following:

“While health care spending is a key programmatic and policy driver of the long-term outlook on the spending side of the budget, eventually, spending on net interest becomes the largest category of spending in both the 2016 Financial Report’s long-term fiscal projections and GAO’s simulations.”

The GAO cited a simulation that showed net interest payments on U.S. debt increasing “from $248 billion in fiscal year 2016 to $1.4 trillion in fiscal year 2045 in 2016 dollars.”

Another measurement of government debt is its percentage ratio to Gross Domestic Product – a means of evaluating how much of a drag it’s inflicting on the overall economy. The GAO study found the following:

“Debt held by the public rose as a share of gross domestic product (GDP), from 74 percent at the end of fiscal year 2015 to 77 percent at the end of fiscal year 2016. This compares to an average of 44 percent of GDP since 1946.”

The report further noted that both the Congressional Budget Office (CBO), and GAO’s own projections indicate that the federal government’s current fiscal path is unsustainable and policy changes must occur.

Key concerns raised by these findings include the fact that federal resources that could be deployed into key priorities like rebuilding the nation’s roads and bridges are being diverted to interest on debt.

Another concern expressed by the GAO is the upward rise in interest rates. While the GAO does not directly mention the Federal Reserve’s recent rate hikes, it does note the following:

“In recent years interest rates on Treasury securities have remained low, lowering interest costs. However, CBO and others project those interest rates will rise in the long term, increasing the net interest costs on the debt. Marketable U.S. Treasury securities consist of bills, notes, and bonds. Treasury seeks to accomplish ‘lowest cost financing over time’ in the way it manages debt issuance.

“Net interest costs will depend in part on the outstanding mix of Treasury securities. Treasury issues securities in a wide range of maturities to appeal to the broadest range of investors. Longer-term securities typically carry higher interest rates but offer the government the ability to ‘lock in’ fixed interest payments over a longer period and reduce the amount of debt that Treasury needs to refinance in the short term. In contrast, shorter-term securities generally carry lower interest rates. They also play an important role in financial markets. For example, investors use Treasury bills to meet requirements to buy financial assets maturing in a year or less. However, shorter-term securities add uncertainty to the government’s interest costs and require Treasury to conduct more frequent auctions to refinance maturing debt.”

A potential headwind is facing the U.S. because of the concentration of its debt that is coming due by 2020. The GAO study indicates that 58 percent of Treasury securities held by the public will be maturing over the next four years.  Should short-term interest rates spike over that period, Federal outlays on debt interest could pose a further drag on the economy and U.S. budget.

Given these valid and serious concerns on the non sustainability of growing U.S. debt, one has to question the Trump administration’s plan for tax cuts. According to the Committee for a Responsible Federal Budget, the plan could result in $5.5 trillion in revenue losses over a decade. Their analysis suggests the tax plan could increase U.S. debt to 111 percent of GDP by 2027. The group notes that this “would be higher than any time in U.S. history and no achievable amount of economic growth could finance it.”

The GAO study also stresses the importance of “preserving confidence in the full faith and credit of the United States,” by avoiding Congressional impasse on the debt limit. The report notes: “During the 2013 impasse, investors reported taking the unprecedented action of systematically avoiding certain Treasury securities —(i.e., those that would mature around the dates when Treasury projected it would exhaust the extraordinary actions it used to manage debt as it approached the debt limit). For these securities, the actions resulted in both a dramatic increase in interest rates and a decline in liquidity in the secondary market where securities are traded among investors.”

On the same day that the GAO released its report this week, stressing the importance of maintaining confidence in the U.S. Treasury market, the New York Post reported that Goldman Sachs is under investigation by the U.S. Department of Justice for potentially engaging in the rigging of the Treasury market. The article, by reporter Kevin Dugan, notes: “At the center of the case are chats and emails believed to show Goldman traders sharing sensitive price information with traders at other banks — a sign of possible price fixing and collusion, according to sources familiar with the investigation.”

Two days earlier, Bloomberg News reported that three foreign banks, UBS, BNP Paribas, and Royal Bank of Scotland Group have received subpoenas related to the Treasury probe along with the U.S. investment bank and brokerage firm, Morgan Stanley.

The investigation of Goldman is raising eyebrows across Wall Street. Goldman’s former bankers and outside lawyers have taken an outsized role in the Trump administration. Trump’s Treasury Secretary, Steven Mnuchin, is a former 17-year veteran of Goldman Sachs. The controversial Stephen Bannon, another former Goldman Sachs banker, is Trump’s Chief Strategist in the White House. The immediate past President of Goldman Sachs, Gary Cohn, is Trump’s Director of the National Economic Council. In a move that stunned even Wall Street, Trump named a Goldman Sachs outside lawyer, Jay Clayton of Sullivan & Cromwell, to serve as Wall Street’s top cop as Chairman of the Securities and Exchange Commission. (Adding to the outrage, Clayton’s wife was a Vice President at Goldman Sachs.)