Trump Treasury Secretary Steve Mnuchin Renounces Commitment to Glass-Steagall While Saying He Isn’t

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I’ve seen some pretty brazen performances over the years, but this one is a standout in a bad way. Steve Mnuchin tells Elizabeth Warren, with a straight face, that Trump’s campaign pledge to implement Glass Steagall has nada to do with breaking up banks. He also makes the utterly false claim that separating commercial and investment banks would hurt small bank lending. The integration between small business activities and investment banking is nada, save at most for brokerage and investmetn management targeting the more successful small business owners. That has bupkis to do with lending.

In fact, we’ve discussed repeatedly that large and even medium sized banks have exited small business lending almost entirely. Nothing Trump can do will bring it back because they don’t have the infrastructure and don’t want to rebuild it. In the hoary old ages of my youth, the big banks had two year credit officer training programs. Among other things, some graduates of those courses would eventually become branch manager, which in those days had more autonomy than now. One of their big jobs was to review and approve more complex, character-based loans, meaning to small businesses and local developers.

Thanks to Wall Street poaching more credit officers during the debt market boom of the 1980s, the rise of securitization, and the tender ministrations of consultants like McKinsey, banks moved away from the model of the branch manager as expert in his local economy and accordingly having some latitude to extend credit to branches as retail stores offering standardized products, and lending based on FICO scores. Lending to small businesses in this model dwindled to lending against collateral, like the owner’s residential or business real estate or other company assets that have resale value. Cash flow based lending has become rare save for much larger businesses than in the past.

So what is the real reason for refusing to break up the banks? The big reason is is deprive the very large capital markets players of the ability to use bank deposits to fund derivative positions.

Do watch this exchange with Warren. As the lawyers like to say, res ipsa loquitur.

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42 comments

  1. Steve

    Mnuchin wouldn’t even be happening if Kamala Harris had not dropped the case against him when she was the CA AG :(

    1. DH

      The post-financial crisis Democratic leadership normalized looting and pillaging by refusing to investigate and prosecute white collar crimes. I believe this has been one of the politically disruptive things that has left the Democratic party largely irrelevant in this day and age, allowing for the rise of Tea Party and Trumpian politics. If the Democrats abandon their long-term philosophical positions, then they leave a vacuum that can be filled with empty rhetoric.

  2. mike

    1:50 into the video. Did you catch the suppressed chuckle? How about the lecturing tone starting at 2:23? At least he dropped some of the lie towards the end. It’s pretty plain he holds a contemptuous view of Senator Warren.

    1. mpalomar

      I like to watch the supporting cast at the hearings, the aides to the Senators and the family of the witnesses. The blonde in back of Mnuchin, his wife I believe, is ping pong gazing, staring daggers at that b**ch questioning Stevie and then gazing adoringly as Stevie spins his slimey answers. She mimed a similar back and forth between Steve and VP Pence during Mnuchin’s swearing in ceremony though Pence was treated to a more respectful look of questioning interest.

      Maybe I’m not focusing on the important issues here?

      Warren has her own 21rst Century Glass Steagall co-authored with McCain from 2013 and must be a little ticked that Mnuchin and Trump have further confused the issue by appropriating it for their diversionary ball of sealing wax and other fancy things.

      Beyond “depriving the very large capital markets players of the ability to use bank deposits to fund derivative positions,” are investment banks still able to tap into Federal Reserve support through depository banking charters?

      1. Joseph

        That’s Louise Linton, the Scottish “actress,” “author,” and Maxim model and soon to be Mnuchin’s third wife. Wherever there’s a camera, she can be found in front of it.

    2. watermelonpunch

      He holds a contemptuous view of anyone or anything that reveals him to be a stooge and so forces him to have to dance around with clumsy lies to try and hold his world together with the cheeks of his ass.

  3. Schnormal

    This seems to be part of the standard right-wing rhetorical strategy of destroying meanings of words (e.g., Bush’s “Clean Air Act.”) The establishment Dems do it too, but they at least choose a separate name for their policies, however misleading (“Affordable Care Act.”)

    Trump’s strategy seems to be to just appropriate an existing term that already resonates positively with the voters, and attach it to a destructive right-wing policy. Why bother debating policy — it’s much easier to murder the language. And intentionally taking the name “21st Century Glass-Steagall Act,” the name for which Liz Warren et al have already created a specific meaning (something which takes actual work), accomplishes many things. It lets him: 1) appropriate the name’s accumulated value for his own “policy,” which would never get off the ground on its own, 2) make it look like he’s trying to compromise, and 3) destroy the “brand” of her policy (and therefore the policy itself) by defiling its meaning in the public sphere.

    I can’t wait to see their “single payer” plan.

    1. Bukko Boomeranger

      Warren referred to Munchkin’s (sic) evasiveness as “1984” (meaning doublespeak, I suppose) but it’s actually straight outta “Alice in Wonderland.”

      “When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean- neither more nor less.”

      Therefore, “Glass-Steagall” means “separating gambling banks from federally-protected consumer banks” to Warren and me and anyone familiar with New Deal laws. But “21st Century Glass-Steagall” signifies something opposite (and never defined) to The Munchback of Trumpre Game. A word means only what someone with power says it does. Too bad that the people with power are grifters and sociopaths.

  4. CronyCapitalist

    Absolutely incredible…in the worst way. At least the cat is now out of the bag, but it doesn’t make the landscape any less precarious.

    1. Mike G

      Anyone who expected Trump Assministration policy to be any different than the kleptocratic, corporate cronyist looting of Bush/Cheney is in for a (very predictable) big disappointment.

    1. RabidGandhi

      Absolutely not, but I would like to see him prosecuted for repeated, systemic violations of California foreclosure law.

    2. Huey Long

      Eh, not really. I’m more into schadenfreude these days, as in I’d rather see him attacked by an angry mob with pitchforks and torches after some sort of economic catastrophe.

      1. nowhere

        So you are in support of seeing his face smashed in (or poked and burned) by a mob, but in the long run?

        Let’s just get it going now!

  5. johnnygl

    I thought warren lost her cool a bit too much. She could have asked better questions to grt him to keep digging deeper into the hole he dug for himself. Maybe she was so shocked at the brazen deception and at his very matter-of-fact tone and insistence that there was no deception present whatsoever. Nothing to see here!

    Warren seems like she hasn’t been on her game, q-a wise since the 2016 campaign. Go back and look at how she does q-a with geithner or even the wells fargo guy, more recently. She was masterful in taking those guys apart.

    Does she still suffer from trump derangement syndrome?

    1. Yves Smith Post author

      Yes, a very good point. She’s gotten shrill in a lot of her questioning. She seems to think outrage works in appealing to voters. While that’s probably true up to a point, if if becomes your normal register, it loses its punch. I think it would be more effective if she kept cooler and used ire as a crescendo.

      1. JohnnyGL

        As a political barometer, my 70+ year old mother used to like her but doesn’t like her much anymore. She’s not a big political watcher, but I’ve noticed she (my mother) is very big on personality and demeanor. Mom doesn’t like shrill all the time and seems to find reasons to justify it.

        On the other hand, with the fall of the house of Clinton, the right is sharpening up its attacks on Warren, figuring she’s a favorite for 2020. Those attacks might be getting into my mom’s head, too.

    2. JohnnyGL

      Watching it again, I might have been harsh on Warren. His non-answer answers were really patently ridiculous and he was clearly running the clock out.

      I just thought she could have pressed him when he said Glass-Steagall was about “conflicts” not “credit risk”, which was a flagrant lie. It was absolutely about credit risk!

      1. JohnnyGL

        https://twitter.com/EmmaVigeland/status/864255095571087365

        Now, it’d be nice if Senator Warren would stop pretending the Clintons are important (they’re dead, politically, but they won’t admit it and neither will the media) and ignore them. She doesn’t owe them anything and it tarnishes her to continue to lend them support….even via twitter.

        She spent a big part of her speech decrying money in politics at CAP, but then re-tweeted support for HRC’s new PAC. The contradictions are glaring.

    3. Temporarily Sane

      These government vs. government grillings are pieces of (tedious) theater designed to show that they are Taking This Very Seriously. The exaggerated outrage, buttoned down poker faces, liars droning on for hours and fake remorse are all part of the act.

  6. Vatch

    I sat through the four and a half minutes of the video, and I was quite impressed by how weaselly robo-signer Steven Mnuchin is. He refused to say what it means to support a twenty first century Glass Steagall Act. He just wouldn’t say. He said a lot of other irrelevant things, but he wouldn’t answer Sen. Warren’s simple question.

    There are so many terrible cabinet level officers in Trump’s administration; it’s hard to decide who’s the worst. My personal view is that EPA Administrator Scott Pruitt is the worst, but who is the second worst? Is it racist Attorney General Jeff Sessions? Is it Medicare Privatizer Tom Price? Is it Bizarro Charter School Advocate Education Secretary Betsy DeVos? Or is it Slick Squirrelly Steven Mnuchin? So many choices!

  7. Greg Buser

    21st century Glass/Steagall, just like the 20th century Glass/Steagall, except completely different. Uh, maybe, just maybe, they should consider calling it something else besides Glass/Steagall considering that it, in no way, has anything in common with the original.

    1. Alejandro

      Not sure you’ve read either, but here are some suggestions for “brain”-storming sessions:

      21st century RICO act bankster edition…Gamble with your own fukking money act…NO gambling debt covered by taxpayer act…Affordable derivatives act…No derivative claims on real stuff act…Deflate TBTF with payment system as public utility act…Make banking boring again! act…

  8. Sue

    It is very simple. Goldman Sachs and the likes do not influence the government anymore they just have literally taken it over.

  9. J Bank

    Cash flow based lending has become rare save for much larger businesses than in the past.

    LOL what? That’s all most banks look at (as well as assets). If the cash flow is good enough, banks will even stretch on credit.

    1. Yves Smith Post author

      For small businesses. In context, that is what it refers to.

      Also, big businesses rely on commercial paper and bonds, both of which are securities, not loans. They don’t use revolving credit much.

      1. J Bank

        Yes, for small businesses it is cash flow that is king. Wells Fargo, U.S. Bank, and Chase (the 3 biggest small business lenders) lend on cash flow. If the cash flow is good enough, they will overlook credit hiccups and stretch on asset valuations.

        1. Yves Smith Post author

          That is for businesses with over $~5 million in revenues. That is a very small subset of “small business” in the US, from every perspective such as number of establishments or number of employees, jobs created every year. In the days where branch managers has more autonomy, adjusted for inflation, the threshold was much lower. Amar Bhide, one of the top academic experts on entrepreneurship, who was formerly in the finance faculty at HBS (and briefly a prop trader), has written extensively about this issue.

  10. Deloss Brown

    I don’t think she’s shrill. I don’t think she “lost her cool.” She did stop him cold, sometimes interrupting, every time he started to spin one of his lame excuses. All she needed to hear was the verb.

  11. TheBellTolling

    I think this might a typo “tow year credit”, two?

    Also I find Mnuchin’s patronizing tone way more aggravating than Warren’s questioning.

    1. Sue

      Because he is the Treasury Secretary, otherwise I would think he is a cartoon character

  12. George S

    Would someone please edit these articles before posting them? I’m tired of reading sentences over and over again to parse the grammar and understand the actual meaning.

    1. Vatch

      This article is really a video. The introductory text is secondary, and was written by a very busy person. I happen to be grateful for the video and the introduction, even if there is an occasional typo. Extra time spent on additional editing costs money, so here’s where you can donate:

      http://www.nakedcapitalism.com/tip-jar

    2. Sue

      Treasury Secretary is more descriptive than Secretary of Treasury because Mnuchin is truly a treasure, a gem. BTWY I am surprised NC has not posted any piece on Gary Cohn’s influence in the Trump adm.

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