US POLITICS: ANALYSIS
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Donald Trump

Historic flip-flop? Donald Trump’s choice for Treasury boss slammed as one of ‘the biggest swamp-dwellers’

Mnuchin had long been considered a top contender for the Treasury post but his selection runs counter to the anti-establishment rhetoric of the Trump campaign

PUBLISHED : Thursday, 01 December, 2016, 12:26pm
UPDATED : Thursday, 01 December, 2016, 10:13pm

US president-elect Donald Trump’s naming of veteran Wall Street banker and hedge-fund manager Steve Mnuchin to be the next Treasury secretary quickly turned into a polarising appointment as financiers cheered the selection while watchdog groups warned that it could lead to roll-backs of crucial post-crisis regulations.

Mnuchin, who was a Goldman Sachs partner before starting Dune Capital Management and later running Pasadena lender OneWest Bank, confirmed the appointment in an early morning appearance on CNBC. He appeared alongside billionaire investor Wilbur Ross, who was named Commerce secretary.

His selection as Treasury secretary should send shivers down the spine of every American who got hit hard by the financial crisis
Senator Elizabeth Warren

Mnuchin said his top priorities would be to hasten economic growth and job creation through tax cuts and a loosening of post-crisis financial regulations.

“We’re really going to be focused on economic growth and creating jobs,” said Mnuchin, 53, whose appointment must be confirmed by the Senate. “Our most important priority is sustained economic growth.”

He boldly predicted the economy could sustain an annual growth rate of as high as 4 per cent, about twice as fast as the economy has grown since 2009.

Mnuchin, who served as Trump’s campaign finance chairman, had long been considered a top contender for the Treasury post, though his selection runs counter to the anti-establishment rhetoric of the Trump campaign.

Throughout this year’s presidential campaign, Trump criticised Democratic candidate Hillary Clinton for being too cosy with Wall Street.

A Trump ad that aired during the final days of the campaign called hedge fund manger George Soros – a Clinton supporter who is a business associate of Mnuchin – someone who controls “the levers of power in Washington”.

It also implied that Goldman Sachs, where Mnuchin’s father also was a partner, has been the beneficiary of policies that have “robbed our working class”. The add featured footage of Goldman Chief Executive Lloyd Blankfein at a Clinton Global Initiative event.

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Mnuchin spent 17 years at Goldman before leaving in 2002 to work with Soros. Later, he started Dune Capital, a hedge fund that was his entree to Hollywood. An offshoot of Dune Capital financed Hollywood blockbusters including American Sniper and Mad Max: Fury Road.

Senator Elizabeth Warren, a leading financial industry critic, called Mnuchin “the Forrest Gump of the financial crisis” because he “managed to participate in all the worst practices on Wall Street” during his lengthy career.

“His selection as Treasury secretary should send shivers down the spine of every American who got hit hard by the financial crisis, and is the latest sign that Donald Trump has no intention of draining the swamp and every intention of running Washington to benefit himself and his rich buddies,” she said.

Dennis Kelleher, chief executive of Better Markets, a non-profit that advocates for tighter Wall Street regulation, called Trump’s Treasury pick and promises of looser financial rules “a flip-flop of historic proportion”.

“We had candidate Trump who got elected promising to drain the swamp of special interests,” Kelleher said. “Now we have president-elect Trump promoting the biggest swamp-dwellers into his administration.”

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But those establishment credentials don’t worry some Trump supporters, including Tim Donnelly, a hard-right conservative who served two terms in the California Assembly and ran unsuccessfully for governor in 2014.

During that campaign, he pilloried fellow Republican candidate Neel Kashkari – currently serving as president of the Federal Reserve Bank of Minneapolis – for his role in overseeing the federal bank bailout programme in 2008 and 2009.

“If [Trump] picked someone like Jamie Dimon or Blankfein or one of those guys from the old guard, that would be the establishment,” Donnelly said Wednesday. “We’re counting on him putting successful people in charge of executing. The execution is more important than the purity.”

During the campaign, Trump said he would seek to dismantle much of the Dodd-Frank Wall Street Reform Act, a sweeping 2010 bill that sought to rein in big banks and prevent another financial crisis.

Mnuchin said on CNBC that he does not want a wholesale repeal, but does want to make substantial changes.

“We want to strip back parts of Dodd-Frank that restrict banks from lending,” Mnuchin said. “The No. 1 priority will be to make sure banks lend.”

Now we have president-elect Trump promoting the biggest swamp-dwellers into his administration
Dennis Kelleher, chief executive of Better Markets

Kelleher said that Mnuchin should instead subject more financial companies to the kind of strict scrutiny now reserved for the largest banks. He noted that as Treasury secretary, Mnuchin would serve as chairman of a federal financial committee that has oversight of large non-bank businesses such as insurance companies.

“If you have a Treasury secretary who doesn’t think that type of regulation is appropriate, the country is going to end up in a disastrous situation. The American people will once again be surprised with the equivalent of another AIG,” Kelleher said, referring to the massive insurance company that had to be bailed out in 2008.

For Democrats and consumer advocates, hearing Mnuchin talk about a roll-back of Dodd-Frank is troubling given his recent history in the banking business. Mnuchin in 2009 led a group of wealthy investors – including Soros and Michael Dell – who bought failed Pasadena mortgage lender IndyMac and turned it into OneWest Bank.

Mnuchin’s group netted billions thanks in large part to a much-criticised deal that allowed the investors to buy the bank at a big discount while passing off as much as 75 per cent of its loan losses on the Federal Deposit Insurance. Mnuchin and his group paid about US$1.6 billion for the bank and sold it last year to New Jersey lender CIT Group for US$3.4 billion.

Between the sale price and hefty dividends paid out from 2011 to 2015, Mnuchin and his group made a profit of more than $4 billion. It’s not clear how much of a profit Mnuchin personally made, because his stake in OneWest was undisclosed.