A Government Of, By, And For Plutocrats

by Nomi Prins, Daily Reckoning:

Treasury Secretary Steven Mnuchin doesn’t exactly come across as the guy you’d want in your corner in a playground tussle. In the Trump administration, he’s been more like the kid trying to cop favor with the school bully. That, at least, is the role he seems to have taken in the Trump White House. When he isn’t circling the Sunday shows stooging for the president, he regularly plays the willing fall guy for tax policies guaranteed to stoke further inequality in America and for legislation that will remove just about any consumer protections against Wall Street.

Mnuchin, a former Goldman Sachs partner, arrived in Washington with a distinct reputation.  Back in 2009, he had corralled a bundle of rich financiers to take over California’s IndyMac bank, shut down amid the 2008 foreclosure crisis by the Federal Deposit Insurance Corporation (FDIC).  Bought for $13.9 billion (but only $1.3 billion in actual cash), Mnuchin turned it into a genuine foreclosure machine, in the process sealing his own fate when it came to his future reputation. At the time, he didn’t appear concerned about public approval. Something far more valuable was at stake: the $200 million that, according to Bloomberg News, he raked in personally, thanks to the deal.

No such luck, of course, for the bank’s ordinary borrowers. During Mnuchin’s reign, IndyMac carried out more than 36,000 foreclosures, tossing former homeowners (including active duty military servicemen and women) onto the street without hesitation or pity by any means necessary. According to a memo obtained by investigative reporter David Dayen, OneWest, the new name that Mnuchin and his billionaire posse coined for Indybank, of which Mnuchin was now CEO and chairman, “rushed delinquent homeowners out of their homes by violating notice and waiting period statutes, illegally backdated key documents, and effectively gamed foreclosure auctions.”

Now, Mnuchin remains bitter and frustrated that he can’t kick the reputation he got in those days.  As he told a House Financial Services Committee Congressional hearing this July, “I take great offense to anybody who calls me the foreclosure king.”  Such indignation would ring truer if, in May, one of Mnuchin’s banking units, a company called Financial Freedom, hadn’t agreed to pay a more than $89 million settlement to the government for taking unreasonable advantage of thousands of seniors through reverse mortgages which convert equity in a home into a loan. (A few months later, in August, a watchdog group, Campaign for Accountabilitycalled upon the Justice Department to investigate Mnuchin for allegedly making false statements under oath to Congress about his actions at OneWest between 2009 and 2015.)

Like Donald Trump, Mnuchin is a man intent on making the rich richer and to hell with everyone else. Continually channeling Trump’s ego, whatever his smoldering resentments may be, he soldiers on — and in the context of the Trump White House successfully indeed. After all, this administration has lost 14 key people in less than a year, including an FBI director, a national security adviser, a White House chief of staff, and a White House communications director. Through it all, Mnuchin has remained in place, one of the relatively few members of The Donald’s original team not related by blood or marriage who is seemingly thriving. (Admittedly, he and the president were linked in what CNN once called a “business capacity” even before he became Trump’s campaign finance director in May 2016.)

Hamilton, Trump, and a Playbill for the Economy

There’s a history of Treasury secretaries having a special rapport with presidents that snakes back to the founding of the Republic. Alexander Hamilton, the first of them, had the full confidence of the first president, George Washington. With such backing, he established federal taxes and came up with plans for real economic development. He understood federal taxes to be essential to building America. In contrast, Mnuchin thinks the stock market is the ultimate arbiter of economic health and appears to consider taxation without representation (by the wealthy) the order of the day.

Since Mnuchin bagged one of the most influential economic positions on the planet, he’s been remarkably consistent on just one thing: making sure he lends a helping hand to the world of big finance, his former universe. He has, for instance, pushed hard for more bank deregulation by claiming that it will help the smaller banks. Don’t believe it for a second.  His disdain for reenacting the Glass-Steagall Act, which once made the merging of commercial and investment banking operations illegal and so curtailed the too-big-to-fail status of the largest banks, tells you all you need to know.  It reflects his real thinking when it comes to banks and the stability of the economy. Emblematic of this has been the way he steered the Financial Stability Oversight Council that he chairs to give AIG, the insurance company at the core of the 2008 financial meltdown, a gateway back to prominence by removing its too-big-to-fail label.

He’s proven adept at blurring the lines between what effective banking regulation would actually involve and how he can wordsmith out of pushing for it. In May, testifying before the Senate Banking Committee, for example, he noted that “we do not support [the] separation of banks and investment banks.” When Senator Elizabeth Warren pointed out that this was hardly the position Donald Trump and his team had taken during campaign 2016 (or of the Republican platform, which had explicitly called for the reinstitution of the Glass-Steagall Act of 1933), he promptly waffled: “We, during the campaign… specifically came out and said we do support a twenty-first-century Glass-Steagall… That means there are aspects of it that we think may make sense, but we never said before that we supported a full separation of banks and investment banks.”

In June, when pressed on the matter by Senator Bernie Sanders, the Treasury secretary argued that Trump was not responsible for the language in the Republican party platform and remained opposed to breaking up the big banks. He added, “We think that that would hurt the economy, that would ruin liquidity in the market. What we are focused on is safe and prudent regulation for the large banks so we don’t have taxpayer risk.”

In other words, this is a man who has a real sense of the opportunity that’s embedded in this moment — for the large banks and their CEOs to make a bundle of money — but no appropriate sense of the risks involved or fear for a future in which he and his president might find themselves bailing out such banks, 2008-style.

Lessons unlearned? If that isn’t the Trump administration, what is?

Threatening the Market

Mnuchin may have little grasp of what constitutes a real risk, but he can still make threats about it. In an October interview with Politico Money, he credited the stock market’s post-election rally to positive expectations that Congress would pass a major tax “reform” bill.  If that bill doesn’t go through, he warned, the markets will suffer big time — and so will everyone else.

Coming from a Goldman Sachs alum, that should have rung a few bells. After all, in the fall of 2008, with the stock market tanking and banks imploding, then-Treasury Secretary and former Goldman Sachs CEO Hank Paulson took a similar position with House Speaker Nancy Pelosi. Following that chamber’s initial rejection of a $700 billion bank bailout bill that sent the markets into a tailspin, he warned that, if she didn’t get it through, the big banks would stop providing money to the American public.  Sure enough, Congress complied. With 91 Republicans joining 172 Democrats, the bill passed by a vote of 263 to 171.

Nine years and a plethora of big bank subsidies later, Mnuchin conflated market levels with legislation in a similarly threatening manner. As he told Politico, “There is no question that the rally in the stock market has baked into it reasonably high expectations of us getting tax cuts and tax reform done.” He then added, “To the extent we get the tax deal done, the stock market will go up higher.” But with that, of course, went a warning: “There’s no question in my mind that if we don’t get it done you’re going to see a reversal of a significant amount of these gains.”

And speaking of reversals, the “Mnuchin Rule,” as it was dubbed in January, 2017, underscored the then-prevailing Trump administration position that the wealthy should not be afforded tax cuts. By October, however, Mnuchin had changed his rule. “When you’re cutting taxes across the board,” he explained to Politico, “it’s very hard not to give tax cuts to the wealthy with tax cuts to the middle class. The math, given how much you are collecting, is just hard to do.”

Actually, the math isn’t hard to do at all. My eight-year-old niece could do it.  If you make more than a certain amount, your tax rates shouldn’t get cut. That’s the only math that makes sense. But in the land of tax subterfuge, even if you leave a top tax bracket rate as it is, you can still ensure that the wealthy get all the breaks in other ways.

On November 2nd, the Republicans finally released their “Tax Cuts and Job Act,” which contained new blows to middle-class well-being, including the elimination of deductions for medical expenses, student loan interest, and state and local taxes. For corporations, already flush with cash, the plan calls for a significant, not to say staggering, tax break.  Their tax rate would be slashed from 35% to 20%.

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