On Wednesday, November 30, President-elect Trump announced, and Steven Mnuchin confirmed to CNBC and various media outlets, that Mr. Mnuchin will be President-elect Trump’s nominee to be the Treasury Secretary, a development that is being very well-received by Wall Street and the business community who view Mnuchin as a free market advocate with a strong business background and deep-seated knowledge of the financial markets.
In contrast, Mr. Mnuchin’s expected nomination has been criticized by several key Democratic Senators and Representatives, including Senator Elizabeth Warren (MA) and Congresswoman Maxine Waters (D-CA), along with certain community advocacy organizations opposed to predatory lending and to home foreclosures, who call him a “Wall Street insider” who got rich off the foreclosure crisis and they promise a vigorous effort in opposition to his nomination. They also argue that Mnuchin’s selection contrasts sharply with, and calls into question the sincerity of, Mr. Trump’s attacks on the financial industry during the campaign.
Previewing the fight to come, in a statement late on November 29, Senator Warren said: “Steve Mnuchin is the Forrest Gump of the financial crisis — he managed to participate in all the worst practices on Wall Street.” Similarly, Senator Ron Wyden (OR), the Finance Committee Ranking Member, stated: “Given Mr. Mnuchin’s history of profiting off the victims of predatory lending, I look forward to asking him how his Treasury Department would work for Americans who are still waiting for the economic recovery to show up in their communities.”
Mnuchin, a hedge fund investor who served as the Trump campaign’s Finance Chairman, worked for 17 years at Goldman Sachs where he became a partner and eventually the firm’s Chief Information Officer (CIO). Subsequently, he led a group of investors who purchased and reorganized the failed mortgage lender IndyMac that later became One West Bank, which in turn was sold to CIT Group in 2015. Mr. Mnuchin serves on the CIT Group board and is the Chairman and CEO of Dune Capital Management, a private investment firm. He worked for two years for the well-known investor George Soros and also, for a number of years, had a career as a successful movie executive producer and financier of such blockbuster films as “The Devil Wears Prada,” the “X-Men” franchise and “Avatar”.
While Mnuchin’s career path and achievements have been somewhat diverse, Mr. Mnuchin has never served in government and his business experience is exclusively within the private sector. In his private capacity, he has not frequently commented publicly on financial services issues, taxes or the overall economy. As a result, he does not have the sort of comprehensive record that one would customarily find from a Treasury Secretary nominee with government experience and his views on many of the public policy issues that will confront him after his anticipated confirmation by the Senate are not yet known or, in other cases, not yet fully articulated. Nonetheless, Mnuchin’s few publicly available comments, including those he made in interviews today with CNBC and Fox Business Network, are instructive.
While Mr. Mnuchin’s comments generally have been quite guarded, perhaps simply reflecting the caution of a person who has yet even to be formally nominated, it is noteworthy that, in several instances, Mnuchin’s remarks have been far less sweeping and categorical than those of President-elect Trump. For example, in a July CNBC interview, Mnuchin said that the Dodd-Frank Act “needs to be looked at”; in an August 2016 Bloomberg profile, he said that the Act had “good and bad aspects”; and today, in a CNBC interview, he said that Dodd-Frank is “way too complicated” and that the Trump administration wants to” strip back parts… that prevent banks from lending” — positions that fall well short of President-elect Trump’s campaign promises to dismantle Dodd-Frank. Several commentators are suggesting that this means President-elect Trump will look to Financial Services Committee Chairman Jeb Hensarling of Texas, who had been one of the finalists to become Treasury Secretary, and the Republican Congress, to take the lead on financial services reform with the administration taking more of a supportive position.
Similarly, in his CNBC interview this morning, Mr. Mnuchin said that no decision has been made to label China a currency manipulator, despite President-elect Trump’s repeated campaign promises to do so, a step that has not been taken against any country since 1994 when China was last named a currency manipulator.
At the same time, however, Mr. Mnuchin did make important news with several of his statements today. He declared the economy to be the incoming administration’s number one priority and said that getting back to three to four percent economic growth is “very sustainable”. Responding to a question about how to get companies to repatriate their earnings to the United States, Mnuchin promised early tax reform including what he called the “most significant middle income tax cut since Reagan” and indicated that lowering corporate taxes would “make US companies the most competitive in the world, making sure we repatriate trillions of dollars back to the United States.”
Finally, in an unexpected statement this morning on Fox Business Network that offered fresh hope to those investors who own shares in Fannie Mae and Freddie Mac but receive no return on that investment because of the so-called “net worth sweep” agreement between the Treasury Department and the Federal Housing Finance Agency as conservator for the GSEs (FHFA) that requires Fannie and Freddie to funnel the net proceeds from their operations to the federal government, and promising to “get it done reasonably fast”, Mr. Mnuchin said:
“We’ve got to get Fannie and Freddie out of government ownership. It makes no sense that these are owned by the government and have been controlled by the government for as long as they have. In many cases this displaces private lending in the mortgage markets and we need these entities that will be safe. So let me just be clear, we’ll make sure that when they’re restructured they’ll be safer and they don’t get taken over again but we got to get them out of government control.”
Mr. Mnuchin’s November 30th comments prompted Fannie Mae’s common shares to spike upward almost 46% today from $3.08 to $4.49 per share.
