Finance Brief: Gary Cohn to Resign as Trump’s Top Economic Adviser

Top Stories

  • National Economic Council Director Gary Cohn said he plans to step down from his White House post in the coming weeks. Cohn, one of the Trump administration’s most prominent supporters of open trade, recently clashed with some of President Donald Trump’s more economically nationalist advisers over a plan to impose tariffs on steel and aluminum imports. (The New York Times)
  • New York State announced that Royal Bank of Scotland agreed to pay $500 million in a settlement over residential mortgage-backed securities sales practices from the lead-up to the 2008 financial crisis. The settlement is expected to be followed by a related agreement with the U.S. Justice Department that’s likely to total billions of dollars, and RBS has put aside $4.4 billion to handle mortgage securities-related claims in the United States. (Financial Times)
  • The Securities and Exchange Commission said it fined the New York Stock Exchange $14 million over trading stoppages and other administrative deficiencies, some of which violated a 2014 settlement with the SEC. The NYSE did not admit or deny the findings, and the SEC said the violations took place at both the NYSE and two specialized exchanges: NYSE Arca and NYSE American. (MarketWatch)

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Events Calendar (All Times Local)

RegTech Data Summit 9 a.m.
House Appropriations subcommittee hearing with CFTC’s Giancarlo 10 a.m.
House Financial Services subcommittee hearing on state insurance regulation 10 a.m.
Joint Economic Committee hearing with CEA’s Hassett 2 p.m.
House Financial Services subcommittee hearing on data security 2 p.m.
Wilson Center event on TPP 2 p.m.
Managed Funds Association Legal & Compliance Conference 7:50 a.m.
Politico event with Mark Calabria of Vice President Pence’s office 8:30 a.m.
SEC Investor Advisory Committee quarterly meeting 9:30 a.m.
No events scheduled

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Gary Cohn to Resign as Trump’s Top Economic Adviser
Kate Kelly et al., The New York Times

Gary D. Cohn, President Trump’s top economic adviser, said on Tuesday that he would resign, becoming the latest in a series of high-profile departures from the Trump administration. White House officials insisted that there was no single factor behind the departure of Mr. Cohn, who heads the National Economic Council.

‘It means disaster’: White House aides fear more policy chaos after Cohn departure
Andrew Restuccia and Nancy Cook, Politico

For many longtime Republican policy wonks and senior aides on Capitol Hill, Gary Cohn served as a touchstone. He was seen as the rare Trump administration official who did a good job of navigating substantive policy questions as well as the sometimes opaque decision-making process in President Donald Trump’s White House.

Remember Bush’s 2002 steel tariffs? His chief of staff warns Trump not to do the same.
Heather Long, The Washington Post

President Trump wants to tax steel coming into the United States. He isn’t the first president to try this. George W. Bush put tariffs on a lot of steel imports in March 2002.

Senate Republicans float legislation to reverse Trump tariffs
Jordain Carney, The Hill

Senate Republicans are weighing how to respond to President Trump’s floated tariffs, including potentially passing new legislation to rein him in if he moves forward with the plan. Sen. Jeff Flake (R-Ariz.) on Tuesday said Congress should look at trying to “box in” what tariffs a president can impose on imported materials.

Global Stocks Drop on Trade Gloom; Bonds Advance: Markets Wrap
Todd White, Bloomberg

The prospect of escalating protectionism depressed European and Asian stock markets on Wednesday as President Donald Trump’s plans to punish foreign imports appeared to gather force. U.S. equity futures slumped, while most government bonds climbed. Futures on the S&P 500 Index sank 1 percent.


Warren vows fight as U.S. Senate begins debate on Dodd-Frank rewrite
Pete Schroeder, Reuters

Democratic Senator Elizabeth Warren promised to fight a U.S. Senate bill easing bank rules introduced following the 2007-2009 global financial crisis as the chamber moved on Tuesday to begin debating the draft bipartisan legislation. Warren, long a consumer advocate, warned customer protections would be eroded as the Senate moved closer to passing the first rewrite of the 2010 Dodd-Frank financial reform law.

House passes bill requiring more frequent reviews of financial regulations
Lydia Wheeler, The Hill

The House on Tuesday easily approved a bipartisan bill requiring financial regulators to more frequently conduct comprehensive reviews of their banking regulations. Rep. Barry Loudermilk’s (R-Ga.) Comprehensive Regulatory Review Act passed by a 264-143 vote, which included the support of 38 Democrats.

Goldman Sachs CEO ‘disappointed’ by Gary Cohn’s resignation
Brett Samuels, The Hill

Goldman Sachs CEO Lloyd Blankfein said Tuesday he’s disappointed that his former colleague, Gary Cohn, resigned as the White House’s chief economic adviser. “Gary Cohn deserves credit for serving his country in a first class way. I’m sure I join many others who are disappointed to see him leave,” Blankfein tweeted.

Wells Fargo Is the Go-To Bank for Gunmakers and the NRA
Shahien Nasiripour et al., Bloomberg

Wells Fargo & Co. has emerged as the preferred financier for the U.S. gun industry. Since the killing of 20 children and six adults at the Sandy Hook Elementary School in December 2012, Wells Fargo has helped two of the biggest U.S. gun and ammunition companies access $431.1 million in loans and bonds, according to data compiled by Bloomberg.

Financial Products and Investments

New York Stock Exchange fined by SEC over outages, repeat violations
Steve Goldstein, MarketWatch

The New York Stock Exchange and two of its more specialized exchanges on Tuesday were fined by the Securities and Exchange Commission, for allegedly making up rules as they went along in the face of market volatility. The $14 million fine in part was the result of being a recidivist after previous violations were settled in 2014, the SEC said.

LJM sued by its broker Wells Fargo over missed payments
Jonathan Stempel and Trevor Hunnicutt, Reuters

A Chicago fund manager that is closing after near-total losses in last month’s U.S. stock market plunge was sued on Tuesday for $16.4 million by Wells Fargo Securities for having allegedly missed required margin payments. In a complaint filed in Manhattan federal court, the Wells Fargo & Co (WFC.N) unit said it sued LJM Partners Ltd and its commodity pool after being required, in its role as clearing broker, to cover the company’s margin and losses with the Chicago Mercantile Exchange.

Sen. Warren introduces bill targeting unpaid Finra arbitration awards
Mark Schoeff Jr., InvestmentNews

Sen. Elizabeth Warren, D-Mass., introduced legislation Tuesday that would require Finra to create a fund to cover unpaid arbitration awards. Under Ms. Warren’s bill, the broker-dealer self-regulator would draw from the fines it assesses on member firms for violating Finra rules to establish a pool of money to cover arbitration shortfalls.

Under Trump, payday lenders and consumer protection agency exhibit cozier relationship
The Associated Press

Under Mick Mulvaney, Trump’s budget director and acting director of the CFPB, the bureau has taken a decidedly friendlier approach to the financial industry including cutting down on enforcement and dropping investigations or lawsuits against payday lenders and other companies. It has also proposed to revise or rescind many rules put into place by Richard Cordray, the first permanent director of the agency, including some that would have put additional restrictions on payday lenders.

The New ID Theft: Millions of Credit Applicants Who Don’t Exist
Peter Rudegeair and AnnaMaria Andriotis, The Wall Street Journal

In a twist on ID theft, criminals are deploying figments of their imaginations, in what is often called synthetic-identity fraud. It’s one of the fastest growing forms of identity crimes, the Justice Department says, and among the hardest to combat.

Stock Bulls in Trump Country Are Freaking Out Their Brokers
Michelle Davis, Bloomberg

As 2017’s roaring bull market gives way to a markedly choppier 2018, the buzz among Wall Street stock touts is that the best of the Trump Trade has passed. Sure, more gains could be wrung out, and probably will be, but nothing like the 30 percent burst over the past 16 months.

Housing and GSEs

RBS in $500m mis-selling settlement with New York State
Kadhim Shubber and Laura Noonan, Financial Times

Royal Bank of Scotland on Tuesday agreed a $500m settlement with New York State over mis-selling residential mortgage-backed securities in the run-up to the financial crisis. It comes ahead of an anticipated separate agreement with the US Department of Justice, which is expected to run into billions of dollars and which has weighed on the bank’s shares.


Rich Americans Have Found Yet Another Tax Loophole
Lynnley Browning, Bloomberg

Highly paid professionals including investment managers, doctors and lawyers are eyeing a loophole in what’s supposed to be a mom-and-pop benefit of the new tax law as a way to supersize their savings. The loophole lies in the law’s 20 percent deduction for owners of small businesses run as partnerships, limited liability companies and the like.

Financial Technology

Virtual currencies are commodities, U.S. judge rules
Brendan Pierson, Reuters

Virtual currencies like bitcoin can be regulated as commodities by the U.S. Commodity Futures Trading Commission, a federal judge ruled Tuesday. U.S. District Judge Jack Weinstein in Brooklyn ruled that the CFTC had standing to bring a fraud lawsuit against New York resident Patrick McDonnell and his company Coin Drop Markets, allowing the case to go forward.

Initial Coin Offerings Likely Need to Follow Bank Secrecy Rules
Olga Kharif, Bloomberg

Issuers and investors in initial coin offerings for digital coins appear to have something else to worry about besides the increased scrutiny of U.S. regulators. Some startups that accept digital or fiat currencies in exchange for their newly issued tokens are money transmitters, which must be in compliance with bank secrecy and know-your-customer guidelines, according to a newly released letter from the Department of the Treasury.

Coinbase’s bitcoin cash trading rollout cost investors $5 million, lawsuit says
Kate Rooney, CNBC

Coinbase’s botched roll-out of bitcoin cash trading cost investors more than $5 million, a lawsuit alleges. Coinbase is the leading U.S. marketplace for buying major cryptocurrencies such as bitcoin.

Opinions, Editorials and Perspectives

The Cohn Departure
The Editorial Board, The Wall Street Journal

The resignation of Gary Cohn is a significant blow to Donald Trump’s Presidency, and recovering from it will be a significant challenge. Departures are normal after a President’s second year, but the circumstances of Mr. Cohn’s leave-taking as top economic advisor are anything but normal after only 14 months.

Gary Cohn’s Exit Won’t Make This Administration Any Better
The Editorial Board, The New York Times

In an administration filled with people with dubious ideas, limited experience and loads of ethical baggage, Gary Cohn, the former Goldman Sachs executive who became the top economics official in the Trump White House, was supposed to be among the sensible adults in the room. Now, he is leaving after failing repeatedly to be the stabilizing influence that the Trump administration sorely needed.

The real risk to Trump’s tariffs? American jobs.
Megan McArdle, The Washington Post

Forget Campbell’s soup and Coca-Cola cans. However silly Commerce Secretary Wilbur Ross looked waving them around on television, he was right: Steel and aluminum tariffs are not going to devastate household budgets.

Trump’s Tax on America
J. Bradford DeLong, Project Syndicate

After a year of serving as a useful idiot for congressional Republicans and their wealthy donors to push through tax cuts and deregulation, US President Donald Trump is now following through on his protectionist promises. Sooner or later, Republicans might realize that inept kleptocracy is not the best form of government after all.

Research Reports

Taxing Hidden Wealth: The Consequences of U.S. Enforcement Initiatives on Evasive Foreign Accounts
Niels Johannesen et al., The National Bureau of Economic Research

In 2008, the IRS initiated efforts to curb the use of offshore accounts to evade taxes. This paper uses administrative microdata to examine the impact of the enforcement efforts on taxpayers’ reporting of offshore accounts and income.