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PAUL JAY: Welcome to The Real News Network. I’m Paul Jay. Well, as we look at the Secretaries of various departments that are being appointed by President-Elect Donald Trump, one of the big ones coming will be Treasury and the whole relationship of this new Trump Administration to Wall Street is going to be very closely watched. Trump ran speaking to sections of the working class and talking about how the system was rigged and, of course, for most people, big banks are a big part of that rigging. Will Donald Trump follow through on some of the promises he’s made or some of the rhetoric and what will his appointments look like in the area of finance? One of the key people behind Donald Trump is a guy named Robert Mercer, who is the Co-CEO of a company called Renaissance Technologies, which is one of the most wildly successful hedge funds — high frequency, quantitative trading, if I understand it correctly. A lot of money thrown at small variations in the stock market, generating amazing profits at Renaissance Technologies, apparently as high as 71% in a year and sometimes even higher. A big gang of mathematicians that have worked out how to game the market, some people might suggest. Mercer is a funder of many far right-wing causes including climate denial. He funds organizations that fight against the IRS and many other such. And the IRS is an understandable one for him to want to fight, given that his company, Renaissance Technologies has a big fight with the IRS over a $6.8-billion tax bill. They’ve stated their profits in a way the IRS does not agree with. So, he went out and got himself a President. Now, joining us to talk about money and politics and the Trump Administration is Rob Johnson. Rob is the President of the Institute for New Economic Thinking. He served on the U.N. Commission of Experts on Finance and International Monetary Reform. Rob was formerly Chief Economist of the U.S. Senate Banking Committee and at one point he was the Managing Director of the Soros Fund Management in the 1990s. Thanks for joining us, Rob. ROB JOHNSON: My pleasure. PAUL JAY: So, Donald Trump, clearly, if you look at the money behind him, his own family and real estate empire and such, he’s very much a part of the billionaire class and now he’s aligned himself with this particular billionaire, Mercer. But these things don’t jive very well. You’re going to help the poor and the dispossessed sections of the working class and have some fidelity to who you are and who your allies are. What do you make of how all of this is being played out? ROB JOHNSON: Well, first of all, I think there’s a simple bumper sticker that would go into my space capsule for the history of Earth related to the 2016 election. It’s a simple phrase: “The System Was Rigged”. And what Trump had to be in order to say the system is rigged was largely self-financing. He has other skills related to social media and so forth, but he could not have depended on raising a billion dollars to run for President and been so critical of those rigging the system. So, the fact that he himself is a billionaire made it possible for him to say in the old adage, “It takes a thief to catch a thief.” He could testify to the public, “The system’s rigged. I played rough in it and I’m calling it out now. And I don’t need their money in order to run for President.” But what’s troubled is he can diagnose that the system is rigged but he will have to confront a constellation of very powerful interests in order to unrig or fix that system on behalf of the people who elected him. And it appears that from the early constellation of people that he’s considering, not only are they quite hawkish on foreign policy, but they represent what you might call the constellation of people who rigged the system, or the constellation of people who will benefit from supporting the politics more than just ideologically but potentially financially. PAUL JAY: Right. It should be said that although he increased the vote amongst the poor working class and lower-paid working class, from what I’ve seen of exit polls, he didn’t win those segments. And still the majority of his vote actually was a traditional Republican vote. He was in the final analysis, able to maintain the normal Republican vote which is mostly well-to-do, and the unifying theme that attracts those people to the Republican Party is “pay lower taxes”. This issue of not wanting to pay taxes has always been a driving force for the Republican Party. And, in spite of all the rhetoric, looks like it’s going to be a very big driving force of the Trump Administration. ROB JOHNSON: Well it’s not just not wanting to pay taxes. It’s not having faith in government. So, you think your tax contributions are essentially going down the sewer. And there is a great deal of distrust in government which was increased at the time of the great financial crisis, with the bailouts and the spawning of the Tea Party and Occupy Wall Street and others. And, much to the chagrin of many people who were left of center, we might call traditional Keynesians, who didn’t trust in the unfettered free market. They expected that the sobriety of that financial crisis would be restored — that he financial crisis would restore the sobriety and the need for regulation and enforcement of regulation. And that didn’t happen. People have completely lost confidence in government. And so, Trump offers, obviously, windfalls to upper income people if he cuts taxes markedly and windfalls to corporations, particularly ones that are based in America, or do the same thing. But I think at another, I would say, deeper level what happens to those working class people? And you might be right that on average the Republican Coalition supported, but at the margin what surprised people was the industrial swing states and it’s what people talk about. People with less than college education, particularly, white males, what used to be referred to as the Reagan Democrats, seemed to have pivoted, while others who were traditionally Democratic Party stayed home. PAUL JAY: Right. This segment we’re talking about, the traditional Republican vote which is the majority Republican vote, for low taxes and they say they don’t have faith in government. But they’ve just elected a guy who’s promising a massive investment in the military and is rebuilding the military. And if that ain’t government, what is? I mean it’s very selective when they say they don’t like government, they mean they don’t like government programs that benefit the poor and people of color. ROB JOHNSON: Uh huh. Well, I would say that every government agency, whether it has a broad mandate or a narrow mandate, which you can argue about, should be properly stocked and supported with a budget just like you’d support the Navy Seals that went after Bin Laden. But that doesn’t seem to be the prevailing ethic among a lot of leading Republicans. PAUL JAY: The other thing about this administration — and it’s a critical one at this time, maybe the most critical — is that they’re essentially all climate change deniers. Except some of them may accept there’s global warming but they don’t accept that it has anything to do with human activity and they certainly don’t want regulations or anything that will hurt the fossil fuel industry. They don’t want the kind of government intervention that’s likely — not likely, is going to have to take place — if any of the targets the scientists are saying have to be met. What is behind people like Mercer who is, again, the guy that put Bannon and Kellyanne Conway in charge, these are both Mercer people, and essentially came in with Bannon and Kellyanne Conway and saved the Trump campaign. What do you think drives people like this to be so absolutely adamant on the climate issue? ROB JOHNSON: Well, I don’t know Mercer, so I can only speak generically. But the idea, I believe, relates to the work that Naomi Klein has done in recent years. The title of her most recent book, I believe, is This Changes Everything. And what she meant was if an unfettered free market does not produce the results that ensure society’s prosperity and well-being in the case of climate change and government has to intervene there, it raises the question that government might have to intervene to improve well-being across a much broader spectrum of activities and would therefore be, you might call, legitimate in putting constraints or resistance to unfettered profit-making activities. PAUL JAY: Jamie Dimon’s name is being bandied about as a possible Secretary of the Treasury. What do you make of that and it sounds like if it isn’t going to be him, it might be someone else from Wall Street. But his name is the most common one we’re hearing. ROB JOHNSON: My understanding was that the most frequent visitor to the White House during the first Obama Administration was Jamie Dimon. And so, it’s kind of ironic that he might be the Republican Treasury Secretary or some leading role there. PAUL JAY: For viewers that don’t know, give us a quick little bio of Jamie Dimon and why that’s significant. ROB JOHNSON: Well, I think he’s the chief executive of one of the largest and most powerful financial institutions on Wall Street, J.P. Morgan & Company. He has been known to be very artful and skillful in the realm of lobbying. I believe that when Freddie and Fannie, the two federal housing agencies in Washington were shut down, many of their lobbyists who had been extremely effective in working for that agency within the government were absorbed by J.P. Morgan & Company. J.P. Morgan is also the company that purchased and assumed Bear Stearns at the outset of the crisis, about six months before the Lehman episode. And during that time, people wondered why they were being paid twenty-some million dollars to do that when essentially they were buying in, in large part, with their own losses. I mean, their exposures to Bear Stearns were quite substantial, because they were a very close counterpart. But, Jamie Dimon aside, generically, when you take a leading financier and you make him the Treasury Secretary after you’ve told people the system was rigged, that brings forth a contradiction. In his last ad, Trump’s argument for America, he portrayed Lloyd Blankfein speaking with the Clinton Global Initiative, and he talked about the vested interests who have trillions of dollars at stake. It would be very, very hard to demonize Lloyd Blankfein and pretend that Jamie Dimon was not also a member of that group that he was promising the American people that he would, we might call, remove from the halls of power, or neutralize. PAUL JAY: One assumes they will. I don’t see any reason to think otherwise — they’d gut or overturned Dodd-Frank, get rid of any kind of regulation, more or less, is what they’re talking about on Wall Street. What might that lead to? ROB JOHNSON: Well, I think that management of the Wall Street banks now are not quite cavalier as they were in the period between 2000 and 2007, which we called the Great Moderation. But aside from that, removing restrictions, removing controls, removes any need to accurately price whether it’s your derivative instruments on your book or other things, when you’re being assessed for solvency and for profitability. It’s tantamount to tolerating fraud or tolerating recklessness and it runs the risk of another financial crisis. Currently, I don’t think the United States is in a place where a financial crisis here is on the, how you say, on the hot burner. It’s not a particular danger. I think that danger is much more located in Europe, particularly in Italy. But, nonetheless, when you take away the rules and you take away the restraints, cumulatively, you encourage, how do you say, a system which is much more prone to disaster. PAUL JAY: The stock markets are hitting historic highs. Why such glee amongst people buying stocks? ROB JOHNSON: Well, my sense is that earnings are up and the idea that Trump will engage in both tax-cutting and infrastructure spending, which boosts the growth rate, at least transitorily, the next two to three years promises higher earnings. And this probably at some point will be contradicted a little bit in the traded good sectors by a stronger exchange rate, which would be depressing for U.S. companies that export and by higher interest rates. Interest rates tend to retard the value of future earnings in the eyes of the investing public. But, at the outset, I think before that exchange rate change comes the burst to activity, what’s called operating leverage, and profitability. But I don’t think that the markets are incorrect for a two- to three-year horizon in increasing valuations for a short period. PAUL JAY: And what does all that mean for ordinary working people? ROB JOHNSON: It, possibly, depending on the structure of the stimulus, depending on the structure of the tax cuts, could mean a slightly tighter labor market and, therefore, some upward pressure on wages. But it’s not really getting, what you might call, the most bang for the buck for that coalition of people by any means. Because cutting taxes for wealthy people who have a large propensity to save doesn’t transmit purchasing power into the markets like cutting taxes for lower income people, who spend almost everything that they receive in that tax cut. PAUL JAY: Alright, thanks very much for joining us, Rob. ROB JOHNSON: My pleasure. PAUL JAY: And thank you for watching The Real News Network.


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Rob Johnson is President of the Institute for New Economic Thinking. He was previously Director of the Economic Policy Initiative at the Franklin and Eleanor Roosevelt Institute and is a regular contributor to the Institute's blog NewDeal 2.0. He serves on the UN Commission of Experts on Finance and International Monetary Reform.

Dr. Johnson was also a Managing Director at Soros Fund Management where he managed a global currency, bond and equity portfolio specializing in emerging markets. He was also a Managing Director at the Bankers Trust Company. Dr. Johnson has served as Chief Economist of the US Senate Banking Committee under the leadership of Chairman William Proxmire and was Senior Economist of the US Senate Budget Committee under the leadership of Chairman Pete Domenici. Dr. Johnson was an Executive Producer of Taxi to the Dark Side, an Oscar Winning documentary produced and directed by Alex Gibney.