Mnuchin, bruised by hearings, heads for new battles

Mnuchin, bruised by hearings, heads for new battles

POST WRITTEN By ZACHARY WARMBRODT at Politico

Treasury Secretary Steven Mnuchin, confirmed by the Senate Monday night in a partisan vote, is now facing an even tougher battle: overhauling government oversight of Wall Street and the banking system with little political capital to spend.

Mnuchin has almost no support among congressional Democrats, no government experience and a scarred reputation after facing withering criticism over his former bank's treatment of foreclosure victims.

 It’s a stark difference from the mandate enjoyed by his predecessors, who took the job in the midst of the financial crisis and its aftermath, when the Obama administration and Congress erected the system of tough banking rules that Mnuchin is now charged with dismantling.

President Donald Trump has given the onetime Goldman Sachs partner, hedge-fund manager and Hollywood producer just four months to consult with the government’s top regulators and report back on what measures should be taken to rewrite rules that the president says have stifled lending and economic growth.

On top of that, he’ll also need to focus on other controversial issues such as reforming the tax code and taking a more aggressive approach to trade policy.

"Mnuchin will want to hit the ground running with both Congress and regulators," Capital Alpha Partners financial policy analyst Ian Katz said.

"He's had time to map out a strategy."

Yet questions remain about how the new Treasury chief will fit in with the Trump administration.

He was an early Trump ally, becoming his national finance chairman last May.

When he was tapped as Treasury nominee in late November, Trump praised him as a "world-class financier, banker and businessman."

He also said he played a key role in developing plans "to build a dynamic, booming economy that will create millions of jobs."

Mnuchin will be a prominent player on policy alongside National Economic Council Director Gary Cohn, a fellow Goldman alumnus who also has no government background.

The two men became Goldman partners in 1994, but are not particularly close, according to a person who knows both. They have similar views on trade and immigration, the person said, suggesting that clashes were possible over influence rather than policy.

How they work together is an open question, said Brian Gardner, Washington policy analyst at Keefe, Bruyette & Woods.

"It's not like we can point to what they've done on policy in the past to point out where they can clash," Gardner said.

Mnuchin left Goldman after a 17-year career and went on to run his own financial ventures. Cohn rose through Goldman's ranks and served as the bank's president before joining the Trump administration.

Post-Goldman, Mnuchin co-founded his own investment firm, Dune Capital Management, and ran the California bank OneWest after he and partners acquired failed lender IndyMac from the government.

His time at OneWest was the biggest political liability during the confirmation process because of controversy around the bank's foreclosure practices. Democrats even boycotted the Senate Finance Committee's confirmation vote, and only one party lawmaker — Sen. Joe Manchin of West Virginia — voted for him Monday night.

Sen. Elizabeth Warren labeled him "the Forrest Gump of the financial crisis" for participating in "all the worst practices on Wall Street."

Sen. Sherrod Brown said on the Senate floor last week: “If you're Wall Street, you can get away with anything with this guy as secretary of the Treasury.”

Yet the banking industry is looking to Mnuchin and Cohn as two of the administration's leading voices in the looming debate over unwinding financial rules enacted after the 2008 crisis.

Another key relationship for Mnuchin will be with House Financial Services Committee Chairman Jeb Hensarling, the Texas Republican who is preparing to release a bill that would repeal and replace post-crisis banking regulations laid out in the 2010 Dodd-Frank law.

Hensarling, a close friend of Vice President Mike Pence who was also floated as a potential Trump Treasury secretary, has been talking to Mnuchin and Cohn about the way forward.

In response to senators' questions, Mnuchin suggested that he supported some aspects of the current regulatory framework but that parts needed to be rolled back.

Some oversight activities “likely improved following enactment and subsequent implementation of Dodd-Frank, while some risks and uncertainties may have increased," he told the lawmakers.

Washington veterans don't know what to expect. Cam Fine, who heads the Independent Community Bankers of America, said while Trump's economic nominees are all "highly accomplished private industry leaders," they don't have a paper trail on their beliefs the way an academic nominee would.

“They’re just businesspeople, and until they get into office and start having to deal with actual policies, we’re not going to be sure how they’re going to come down," Fine said.

Another major issue Mnuchin will confront is tax reform, a top priority for the administration and congressional Republicans. How big of a role he will play is unclear for a White House that has centralized power early on.

"We need someone like Steve Mnuchin working with both parties to make it happen," Senate Majority Leader Mitch McConnell (R-Ky.) said before his confirmation.

Mnuchin helped craft Trump’s tax plan during the campaign. He was behind the decision to keep the upper-income tax rate for individuals at 33 percent, rather than going lower as the campaign initially proposed.

He will also inherit an IRS — which falls under Treasury’s umbrella — that has been under sustained attack by congressional Republicans for several years.

During his confirmation hearing, Mnuchin surprised some watchers by departing from Republican orthodoxy and seeming to endorse a bigger budget for the IRS. He said he was concerned whether the agency had enough workers and about the state of its technology.

He will also have to confront calls from House Republicans for the administration to oust IRS Commissioner John Koskinen. While that decision is up to Trump, Mnuchin will have input.

So far, Trump has shown no interest in dismissing Koskinen before his term is up in November.

On trade, Treasury will have a voice in the policy debate that helped propel Trump to the White House.

Trump has pledged to label China a currency manipulator, a move that Mnuchin could make when Treasury releases a report on international exchange rate practices.

Mnuchin has been more circumspect than Trump, saying he would recommend formally labeling China a currency manipulator if the facts supported it.

He enters office with high praise from Republicans but deep skepticism from Democrats, who accused him of misleading Congress and not being forthcoming about his former bank's foreclosure practices.

But Mnuchin and his detractors might have reasons to work together on policy changes that require support from Senate Democrats.

“If they think it's in their interests to do so, they'll look past their comments on Mnuchin," Gardner said.

 

Posted by: The Trust Advisor

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