The Trump administration has now officially failed to deliver on its most clarion policy initiative.
That fact alone would be troubling for any six-month old presidency, but unfortunately for this one "Repeal and Replace" imploded after months of hamfisted political self-harm and a seeming compulsion to posture inside of blatant falsehoods that alienated this White House from even its own party. After watching the GOP fail to do the one thing it said it would do upon Trump's election, it is now impossible to ignore that the new president and his team are willfully useless neophytes inside a Washington DC body politic that appears dead set on rejecting this White House like an infected organ transplant.
So why wouldn't Goldman Sachs be bullish on Trump's prospects of nailing down tax reform?
From a Goldman macro note passed around this morning:
Despite the various legislative delays and setbacks, we continue to expect tax legislation to become law in early 2018. Over the next several weeks, the “big six” negotiators—House Speaker Ryan, Senate Majority Leader McConnell, House Ways and Means Committee Chairman Brady, Senate Finance Committee Chairman Hatch, Treasury Secretary Mnuchin and National Economic Council Director Cohn—hope to reach an agreement on a basic shared framework for tax reform which can be turned into a formal legislative proposal by September. Our expectation is that this process is likely to take somewhat longer, and that the formal release of a detailed tax proposal is more likely to occur in October, after the deadlines noted above have passed.
To be fair, Goldman Sachs is not alone in its optimism that tax reform is going to happen, and it is being very clear that the current situation in Trumpland is inscrutable at best. That said, Goldman Sachs is very much alone as the one place that should absolutely know better.
Let's break down the logic in the paragraph above.
Right off the bat we're faced with the possibility that the "various legislative delays and setbacks" are really just the logical outcome of a fractured dysfunctional congress working alongside the carnival freak show of borderline personalities that is currently staffing the West Wing.
Which dovetails nicely into our major point here: Goldman Sachs should be more leery of tax reform getting done because Goldman Sachs knows these people.
We can do away with the fiction that Ryan, McConnell and Kevin Brady are capable of working together on anything at this moment in time (we're just going to ignore Orrin Hatch entirely because it's not 20 years ago) and look at the last two names on that "big six" list; Mnuchin and Cohn.
Hey, Goldman Sachs, you ever heard of these knuckleheads?
Relying on Goldman guys to get the job done is a comforting and borderline traditional posture in modern Washington. Assuming that samurai from Wall Street's most disciplined and lethal dojo are more capable than simple politicians is an excusable thesis for most people, but not for anyone working at Goldman Sachs.
We've beaten this point to death but Steve Mnuchin is not and never has been one of Goldman's "best and brightest." The man running the Treasury Department is the opposite reality of that time Hank Paulson drafted Neel Kashkari out of 85 Broad Street to shore up an economy on the brink of implosion. Mnuchin is a Goldman dropout who successfully Zelig-ed through the Badlands of modern American finance and now seems shocked to find himself begging Congress for a higher debt ceiling so his boss - a man notorious for not paying his bills - can pay America's bills. And every time he appears in public to tout Trump's mystery tax reform package he ends up mouth-breathing under a pair of Transition Shades, speaking a lot but saying very little.
Then there's Gary. While he was indeed the number two man inside 200 West Street, it's something of an open secret that his defection to the Trump White House raised the average understanding of macroeconomics in both places simultaneously. Recent rumors that Cohn is already looking to abandon his White House gig for a chance to replace Janet Yellen as Fed Chairman are indicative that he is already done with the feckless Trump administration...and also that the current President does not know literally one bona fide economist. We have zero doubts that an honest poll of Goldman Sachs rank-and-file would reveal that people inside Goldman Sachs would much prefer to wake up with David Solomon whispering in POTUS' ear, which speaks volumes considering that we now know the only person Solomon really wants to work under is Skrillex.
Goldman Sachs knows these guys and it knows that they are somehow both reporting to a cabal of senior advisors that somehow includes Steve Bannon, a guy so incapable of hacking it inside Goldman Sachs that he consciously made it part of his supervillain origin tale. But, yeah, things are looking...up?
Even if Gary and Steve are able to pull this thing together and make Congress eat it, a narrative will almost certainly emerge in which they get credit for doing it. And while that might work well from a logical standpoint, how will that play in the Oval Office when Trump finds out that he is not receiving total acclaim for an idea he never had and work that he never did? Yeah...exactly.
It also stands to reason that Goldman Sachs is acutely aware that tax reform is going to be where Trump really draws in a rogues gallery of private sector "wise men" to whom he will pledge to "listen." That, we are sure Goldman can foresee, will create a reality in which Steve and Gary are left to shout above Steve Schwarzman, Carl Icahn, John Paulson and Larry Kudlow (and you try shouting above the uniquely shrill pitch of Kudlow sinking his caps teeth into a rant on how taxes are too high). Even if Goldman actually trusts Mnuchin and Cohn to drive the bus of tax reform through the pile of fiery trash cans that is our political reality (which....c'mon), it's hard to fathom that it would happen with any kind of rational expediency. In today's Washington, October is yesterday.
We get that optimism is the last vestige of sanity under the reign of #MAGAnomics, but Goldman Sachs is nothing if not the American temple of flinty-eyed capitalism. We know things are scary out there, and that trading this batshit market is getting harder and harder, but just tell it to us straight, Goldman Sachs, that's why we begrudgingly love you.