by Bob Woodward
Cohn knew this was what Trump wanted to hear. Then the New York City Democrat told the president-elect something he did not want to hear. We’re a trade-based economy, he said. Free, fair and open trade was essential. Trump had campaigned against international trade deals.
Second, the United States is an immigration center to the world. “We’ve got to continue to have open borders,” Cohn said. The employment picture was so favorable that the United States would run out of workers soon. So immigration had to continue. “We have many jobs in this country that Americans won’t do.”
Next, Cohn repeated what everyone was saying: Interest rates were going to go up over the foreseeable future.
I agree, Trump said. “We should just go borrow a lot of money right now, hold it, and then sell it and make money.”
Cohn was astounded at Trump’s lack of basic understanding. He tried to explain. If you as the federal government borrow money through issuing bonds, you are increasing the U.S. deficit.
What do you mean? Trump asked. Just run the presses—print money.
You don’t get to do it that way, Cohn said. We have huge deficits and they matter. The government doesn’t keep a balance sheet like that. “If you want to do something that would be smart—and you actually do control this—I would add a 50-year and a 100-year bond from the U.S. Treasury.”
With interest rates going down in recent years, Treasury had brought the duration of bonds down to 10 years as much as possible. That was the right thing to do, Cohn said. With rates increasing, the insurance companies and the pensions will lend the government money for 50 years or 100 years. And you could probably do it at 3¾ percent. That would be really cheap money over the next 50 to 100 years.
“Wow!” Trump said. “That’s a great idea.” He turned to Mnuchin. “Can we do that?”
“Oh, sure,” the designated treasury secretary said. “We can absolutely do that.”
“Do you agree with him?” Trump asked.
“Yeah, I agree with him,” Mnuchin said.
“You’ve been working for me six months,” Trump said. “Why the hell have you never talked to me about this? Why’s he the first person to ever tell me that?”
There was nothing in the world that was then yielding 3¾ percent risk-free, Cohn said. There would be a run on these bonds and plenty of buyers. The 50-year corporate bond was selling all over the place. Investors wanted high, risk-free yield.
Turning to the Federal Reserve, Cohn noted that the U.S. had had an effective zero interest rate for years. There was only one way to go, interest rates would go up, for two reasons. The economy was getting much stronger and higher rates would tamp down inflation.
“So if I’m running the Fed, I’m going to raise rates,” he said.
Trump knew that presidents liked low rates to help the economy. He said, “Well, I’m not going to choose you to run the Fed ever.”
“That’s fine,” Cohn said. “It’s the worst job in America.”
Turning to taxes, Cohn said, “The 35 percent corporate tax rate has been great for my business for the last decade. We’ve been inverting companies to 10 percent tax jurisdictions and they pay us enormous fees.” He was speaking as a Goldman president. An inversion refers to relocating a corporation’s legal home to a low-tax country such as Ireland or Bermuda in the form of a new parent company while retaining operations and management as a subsidiary in the higher-tax country.
Goldman had facilitated dozens of companies’ moves abroad. The company’s leaders and boards had a responsibility to shareholders to maximize profits and moving, inverting, dramatically raised earnings. Nearly all the drugmakers and insurance companies had moved.
Cohn bragged, “Where else can I take a company doing X in business that does X tomorrow and has 20 percent more earnings just by changing their corporate headquarters?”
Arguing against Goldman’s self-interest, Cohn added, “We can’t allow that to happen. We’ve got to get our corporate tax in line with the average, which is about 21, 22 percent.”
Though there had been some restrictions imposed by Congress, there were ways to skirt the new laws. “We can’t allow companies to just keep inverting out of the United States. It’s just bad. It’s wrong for business. It’s wrong for jobs. I’m talking against my business. We made a ton of money.”
Trump returned to printing money. “We’ll just borrow,” he said, enamored with the idea of heading the federal government, which had the best credit rating in the world, so they could borrow at the lowest interest rate.
Cohn didn’t mention a report that had come out during the campaign which said the Trump Organization’s business credit score was a 19 out of 100, below the national average by 30 points, and that it could have difficulty borrowing money.
You just can’t print money, Cohn said.
“Why not? Why not?”
Congress had a debt ceiling which set a cap on how much money the federal government could borrow, and it was legally binding. It was clear that Trump did not understand the way the U.S. government debt cycle balance sheet worked.
Inflation would probably be steady. Automation was coming, Cohn said—artificial intelligence, machine learning, robotics. We’ll manage the labor supply more efficiently now than we ever did in the history of mankind. So look, you’re in the most precarious time in terms of job losses. We now can create labor with machines.
“If you’re here eight years, you’re going to deal with the automation of the automobile and truck. About 25 percent of the U.S. population makes a living driving something. Think about that.”
“What are you talking about?” Trump asked.
With the self-driving, autonomous vehicle, millions of people are going to have to reenter the workforce in different jobs. That would be a big change and possible large disruption.
“I want you to come to work for me,” Trump said.
“Doing what?”
Trump mentioned deputy secretary of defense.
“First of all, I don’t want to be deputy secretary of anything,” Cohn said.
How about director of national intelligence?
Cohn indicated no. He was not sure what the job did. He later learned it entailed overseeing the CIA and all the other intelligence agencies.
“You trade commodities,” Trump said. “Why don’t you think about being secretary of energy?”
No interest.
Trump tried to convince Cohn to become director of the Office of Management and Budget.
No. Cohn knew it was a horrible job.
“You know what?” Trump said at the end of what had become an hour-long meeting. “I hired the wrong guy for treasury secretary. You should be treasury secretary. You would be the best treasury secretary.”
Mnuchin, right there, didn’t say a thing or show any reaction.
“Come back and tell me what you want,” Trump said. “You’d be great to have on the team. It’d be fantastic.”
Five minutes later while Cohn was still in the building, he saw a television flash breaking news: President-elect Trump has selected Steve Mnuchin as treasury secretary.
“That’s crazy,” Jared said. “Mnuchin just put that out. You freaked him out so badly in the meeting.”
* * *
Cohn did some homework, and spoke with other former Goldman executives who had worked in government. Robert Rubin, who had been head of the White House National Economic Council (NEC) for Clinton and later secretary of the treasury, said that if Cohn could get the director of the National Economic Council job with a pledge he would be the chief economic czar, then he should take it. Being there in the West Wing was an enormous advantage if he had an agreement with the president.
Cohn’s wife, Lisa, said he should do it because he owed the country a great deal. “You’re too slow, you’re too fat and too old to serve your country any other way.”
Cohn returned to see Trump and expressed his interest in the NEC job, as long as any economic business ran through him. It
was the equivalent portfolio in economic matters to the national security adviser in foreign policy.
“Of course,” Trump said, “it’ll be however you want it to run. We’re going to do such great things.”
Priebus, who was in the meeting, worried about the on-the-spot hires. He later said to Trump, “We’re going to hire the guy, a Democrat who voted for Hillary Clinton, to run our economic council? Why? Shouldn’t we talk about this? I’m sure he’s really smart. Shouldn’t we have a conversation before we offer a job like this?”
“Oh,” Trump said, “we don’t need to talk about it.” Besides, the job had been offered and accepted. “He’s going to be great.”
* * *
The day after Christmas 2016 I reached Michael Flynn, Trump’s newly designated national security adviser, by telephone. He was on vacation in Florida visiting his grandchildren. Flynn, a controversial retired three-star general and intelligence specialist, had been by Trump’s side during the campaign as foreign policy adviser. At the Republican National Convention, he enthusiastically led the crowds in “Lock Her Up” chants about Hillary Clinton. He later apologized.
Obama had removed Flynn from head of the Defense Intelligence Agency in 2014 for management failures. And after the campaign Trump had ignored advice from Obama not to take Flynn as his national security adviser.
I called Flynn to get his take on Russia. Several intelligence and Pentagon officials had told me that Russia had moved in recent years to modernize and improve their nuclear capability with a new Submarine Launched Ballistic Missile and two new ICBMs.
“Yes, exactly,” Flynn said on the record. Under Putin’s direction in the last seven or eight years, he said, Russia had not “outmatched the United States but had outsmarted us.”
He said he had begun talking to Trump about the Russian buildup 18 months before in 2015 when they had first met. He said that they agreed that the United States had given up too much of its capability, training, readiness and modernization.
Putin, he said, had “in a systematic way” upgraded not only his nuclear forces but his tactical, conventional and Special Forces. “If Russia became an adversary and we went toe-to-toe with them, we’d face the reality of Putin using innovation, technology and sheer effort.”
Flynn then spoke openly about the possibility the United States might have to begin testing nuclear weapons. The last U.S. test had been in 1992. “We are going to have to decide if we test again,” he said. The computer tests might not be sufficient and it was important to see if the weapons worked.
“My counsel to the boss, I said we are going to have to devote time, energy and resources to this.” He said Trump’s plan was to talk and act tough—send “a shot across the bow” of Putin. He added, “We will be leaning on the Reagan playbook.” Be aggressive and then negotiate. “We have to make it clear at the same time that we’ll deal with Russia. You can’t just have one view of Russia.”
Flynn was being widely criticized for going to Russia to speak for $33,750 from the Russian state–owned television network in 2015. He said it was an opportunity and he got to meet Putin. “Anyone would go,” he said.
Flynn did a question-and-answer session in Moscow. He made a standard plea for better U.S. relations to defeat ISIS, the importance of defining the enemy, and not trying just to contain ISIS as Obama had done. Overall on foreign policy Flynn told me, “The president-elect is taking on this plate of shit throughout the world. The world is a mess. There’s lots of cleaning up to do.”
CHAPTER
8
After the election, President Obama directed his intelligence chiefs to produce a definitive, highly classified report on Russian election interference, with all the sources and details. It would be briefed to the Gang of Eight in Congress and to President-elect Trump.
An unclassified, scaled-back version with the same conclusions, but without identifying the sources, would be made public before Obama left office on January 20.
Director of National Intelligence James Clapper, CIA Director John Brennan, FBI Director James Comey and National Security Agency Director Mike Rogers met to work on talking points for the briefing to Trump. They knew he would see the report as challenging his win, casting doubt on the legitimacy of his election. They agreed they would have to speak with one voice.
“This is our story and we’re sticking to it,” Clapper said, encouraging solidarity. Clapper would be the main briefer. It was essential they speak with confidence. Clearly the briefing was going to stir the beast.
* * *
Earlier, in December, Brennan had called Clapper. He had received a copy of a 35-page dossier, a series of reports from former British MI6 senior officer Christopher Steele that detailed alleged efforts by Russia to interfere with and influence the presidential election—to cause chaos, damage Hillary Clinton and help Trump. The dossier also contained salacious claims about Trump, Russian prostitutes and “golden showers.”
“You should read this,” Brennan told Clapper. The FBI already had a top secret counterintelligence investigation under way to see if there was any collusion between the Trump campaign and Russia. “This will add substantiation to what we are doing.” It was not proof, but it seemed to be on the same trail.
Clapper consulted with the FBI. How should we handle it with Trump?
The FBI was familiar with the document. Steele had shared portions of the dossier with them, and on December 9 Senator John McCain had shared a copy with FBI director Comey.
Andrew McCabe, the FBI deputy, was concerned. He thought if they failed to tell President-elect Trump about the dossier when they briefed him about the intelligence community report on Russia, it would make the FBI look as if they were back in the old days of J. Edgar Hoover—as if to say, we have dirt on people, and we’re keeping it to ourselves. Comey agreed. The Hoover legacy still cast a shadow over the bureau.
Clapper wanted to make sure they developed a consistent tradecraft model as they merged their intelligence into one report. The FBI and CIA have different standards.
The FBI conducts criminal investigations in addition to gathering intelligence. The bureau tends to be more rigorous in their sourcing and verification. What began as a pure counterintelligence investigation might morph into a criminal investigation, with intelligence becoming evidence that must stand up in court.
The CIA’s mission is to gather intelligence and disseminate it to the White House and the rest of the federal government. It does not have to be as solid because normally it would not be used in a criminal trial.
Just as the FBI was haunted by Hoover, the CIA had its own ghost. In the run-up to the 2003 invasion of Iraq, the CIA made a huge mistake. In part as a result of lies told by a key source—amazingly code-named “Curveball”—who claimed he had worked in a mobile chemical weapons lab in Iraq, the CIA had concluded that Iraq had weapons of mass destruction (WMD). The case had been a “slam dunk,” according to a presentation CIA director George Tenet made to President George W. Bush. The alleged presence of WMD was the key justification for the Iraq invasion. No WMD were found, an acute embarrassment for the president and the CIA.
Clapper knew that mistake hung over much of what the CIA did and analyzed. One agency procedure was to polygraph sources as often as possible. While passing a lie detector test would never be considered complete proof, passing was a good barometer of truthfulness.
The sources that Steele used for his dossier had not been polygraphed, which made their information uncorroborated, and potentially suspect. But Brennan said the information was in line with their own sources, in which he had great confidence.
The dossier was in circulation among journalists, and Steele had given confidential off-the-record interviews to reporters. It had not yet been published.
On the second page it said: “According to Source D, where s/he had been present, TRUMP’s (perverted) conduct in Moscow included hiring the presidential suite of the Ritz Carlton Hotel, where he knew President and M
rs OBAMA (whom he hated) had stayed on one of their official trips to Russia, and defiling the bed where they had slept by employing a number of prostitutes to perform a ‘golden showers’ (urination) show in front of him. The hotel was known to be under FSB control with microphones and concealed cameras in all the main rooms to record anything they wanted to.”
This was designed to obtain “ ‘kompromat’ (compromising material) on him,” according to the dossier.
It was a spectacular allegation. There was no available indication who Source D might be.
Since the FBI had the dossier, Comey said, he ought to present it to Trump after their core presentation of the intelligence community assessment. It would be an annex, virtually a footnote.
The 35 pages were reduced to a one-and-three-quarter-page summary that focused on the allegation of coordination between the Russians and the campaign.
* * *
Trump’s response to the growing chorus of news reports saying that the intelligence services had concluded Russia had interfered with the election was belligerence.
On December 9, Trump said those sounding alarm in the intelligence community were “the same people that said Saddam Hussein had weapons of mass destruction.” He later told Fox News, “They have no idea if it’s Russia or China or somebody sitting in a bed some place.” He tweeted, “Unless you catch ‘hackers’ in the act, it is very hard to determine who was doing the hacking. Why wasn’t this brought up before the election?”
* * *
On January 5, the Senate Armed Services Committee held a hearing on Russian hacking. Clapper, who was to brief Trump the next day, testified. Angry at the criticism Trump was leveling at the intelligence community, he stated, “There’s a difference between skepticism and disparagement. Public trust and confidence in the intelligence community is crucial. And I’ve received many expressions of concern from foreign counterparts about . . . the disparagement of the U.S. intelligence community.”