Yves here. I hate criticizing an important post by Nomi Prins, which sets forth Treasury Secretary Steve Mnuchin’s dodgy history and his current hypocrisies in detail. But even though Prins has been a regular, articulate critic of high finance, she has not gotten as far from Goldman as she thinks she has.
Like virtually all people who spent time in finance, she has been indoctrinated in neoliberal orthodoxy, and it shows. I cringe at some of the asides in my early posts about the Federal deficit. Unfortunately, Prins has some passing remarks, as well as a narrative device, that undermine an otherwise fine piece.
Prins repeatedly praises Alexander Hamilton, an unfortunate sign that she would and probably does approve of the policies of the Robert Rubin wing of the Democratic party, which brought us not just Rubin himself, but Larry Summers, Timothy Geithner, Jack Lew, and many other less visible officials and policy makers (note that Gary Gensler was also a Rubin placement, but he became an apostate). One of the big vehicles for Rubin promoting neoliberalism is The Hamilton Project. As a result, Prins also promotes the idea of the virtue of taxation, which (if you’ve read her other works) comes out of the misguided idea that the Federal government ought to run a balanced budget. While this is clearly true for governments that don’t issue their own currency, like states and municipalities, this is misguided for a sovereign currency issuer like the United States.
Not only is the fealty to Hamilton economically misguided, it is historically misguided as well. Hamilton was openly the most anti-democratic founding father. As Matt Stoller pointed out:
Weirdest thing about the Hamilton cult is that his loathing for democracy is not controversial. So what gives? https://t.co/cs81j6Ao6z
— Matt Stoller (@matthewstoller) March 7, 2017
A representative section of his Baffler article:
What’s strange about all of this praise [for the musical Hamilton] is how it presumes that Alexander Hamilton was a figure for whom social justice and democracy were key animating traits. Given how Democrats, in particular, embraced the show and Hamilton himself as a paragon of social justice, you would think that he had fought to enlarge the democratic rights of all Americans. But Alexander Hamilton simply didn’t believe in democracy, which he labeled an American “disease.” He fought—with military force—any model of organizing the American political economy that might promote egalitarian politics. He was an authoritarian, and proud of it.
To assert Hamilton disliked democracy is not controversial. The great historian Henry Adams described an evening at a New York dinner, when Hamilton replied to democratic sentiment by banging the table and saying, “Your people, sir—your people is a great beast!” Hamilton’s recommendation to the Constitutional Convention, for instance, was to have a president for life, and to explicitly make that president not subject to law…
Indeed, most of Hamilton’s legacy is astonishingly counter-democratic. His central role in founding both the financial infrastructure of Wall Street and a nascent military establishment (which supplanted the colonial system of locally controlled democratic militias) was rooted in his self-appointed crusade to undermine the ability of ordinary Americans to govern themselves.
In other words, Prins is off base when she lambastes Mnuchin depicting himself as a following in Hamilton’s footsteps. If she had a better grasp of history, she would recognize Mnuchin as a true heir of Hamilton.
Nomi Prins, a TomDispatch regular, is the author of six books. Her most recent is All the Presidents’ Bankers: The Hidden Alliances That Drive American Power (Nation Books). She is a former Wall Street executive. Special thanks go to researcher Craig Wilson for his superb work on this piece. Originally published at TomDispatch
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 Accountability, called 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 real risk, but he can still make threats about it. In an October interview with Politico Money, he credited the stock market’s postelection 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 wellbeing, 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%.
And don’t forget repealing the estate tax, that other classic benefit for “the masses.” Count on one thing: there will be no reversals from Mnuchin or Trump on that because the math couldn’t be clearer. Only the hyper-wealthy have estates big enough to reap rewards from such a change. At an Institute for International Finance conference, even Mnuchin had to agree that this was a benefit of the rich, by the rich, and for the rich: “Obviously, the estate tax, I will concede, disproportionately helps rich people.” Indeed, the heirs to the estates of fewer than 1 in 500 Americans who die each year would benefit in any way from such a repeal, though the children or other relatives of 13 of the 24 members of Donald Trump’s cabinet and the president himself would bag a collective estate tax break of about $1.5 billion.
Still, don’t think that everything’s coming up roses for our latest secretary of the Treasury. Wall Street may now be king in Washington, but Mnuchin is not (though he is clearly a prince to the one man who truly matters right now, Donald Trump). In his efforts to promote the Trump vision (whatever that might be), the Treasury secretary seems to be coming up distinctly short, even with Republicans in Congress who have described his approach to lawmaking in terms ranging from “uncomfortable” to “intellectually insulting.”
Donald Trump, of course, campaigned as an anti-establishment candidate who would offer a hand to regular people, drain the Washington swamp, and have our backs. Then he promptly began filling his administration, especially when it came to the economy, with the richest of the rich, figures guaranteed to promote the dismantling of whatever tepid regulations remained to protect citizens from economic disaster while enriching the usual .01%.
Mnuchin has yet to even do something as simple and seemingly straightforward as posting a full-scale explanation of the tax plan he’s plugging so hard at the Treasury Department’s web page. Even though until November 2nd it remained a chimera, that hasn’t stopped him from rushing to its defense — the defense that is, of giving the extremely wealthy yet more of their money back. Welcome to the twenty-first-century American politics of the .01%.
Meanwhile, Mnuchin has noted that he’s a big fan of biographies, though his schedule doesn’t allow much time for “pleasure reading.” When asked about Alexander Hamilton, he said, “I have a beautiful painting of him in my office. He stares at me every day and I look at him for great advice.”
But Hamilton understood that, without adequate taxation, you couldn’t run a country, or pay its debts, a stance that informed how he implemented federal taxes in the new nation. As he said in 1801, “As to taxes, they are evidently inseparable from government. It is impossible without them to pay the debts of the nation, to protect it from foreign danger, or to secure individuals from lawless violence and rapine.” He also believed that those with more money should pay more taxes. His excise tax plan, for example, required the taxation of luxury items, bastions of the rich.
This government has, in fact, received more than $2.96 trillion in total tax revenues so far in the first 11 months of fiscal year 2017. That figure comes with a budget deficit of $673.7 billion, which means that if the rich or corporations were to cease to pay various taxes (at least at present rates), money would still have to come from somewhere. To begin to make up for the shortfall, the less wealthy will simply have to pay more in some fashion, as will states and cities, and cuts in social spending will undoubtedly follow as night does day.
The High-Flying Treasury Secretary Covers Trump’s Back
Mnuchin himself knows a situation ripe for the picking when he sees it, in government or out. Take, for instance, his prodigious use of military planes for his personal travel, both on government business and for pleasure. These flights have pushed the boundaries of judgement, if not legality. According to a report from Rich Delmar, the counsel to the Treasury Department’s inspector general, Mnuchin took military aircraft on at least seven occasions without obtaining appropriate authorization, skirting a “rigorous” preapproval process established to avoid undue use of such expensive amenities. And though he withdrew a request to take his wife on their honeymoon to Europe last summer by military aircraft, he did use an Air Force jet to fly to Kentucky with her to watch the solar eclipse and — he carefully added — to “review the gold” at Fort Knox. Unlike Health and Human Services Secretary Tom Price whose government aircraft fetish cost him his job, Fort Knox covered the solar eclipse for Mnuchin.
He classified each of those trips as a “White House support mission,” which sounds dramatic and is a category technically reserved for situations in which commercial flights aren’t available or there is a national security or other emergency. I checked, however. There are several $200 economy flights from Washington to Kentucky, which more than beats the $10,000 per hour the Pentagon charges as its official aircraft expense when its planes are used in this way.
In addition to those flights, Mnuchin has been flying high as a kind of second Kellyanne Conway on all sorts of non-Treasury-related topics that threaten to eclipse his boss. With Trump embroiled in a bitter war of words with National Football League players taking a knee over racism, Mnuchin saw an opportunity and cruised the Sunday talk-show circuit attacking the players. He used his platform to insist that they should “do free speech on their own time” — “off the field,” not on it.
About a week later, he responded to the flak over the president’s lackluster support for Puerto Rican recovery after Hurricane Maria devastated that island. Defending his boss and his tweets in another circuit of those talk shows, he doubled down on White House criticisms of San Juan Mayor Carmen Yulin Cruz. “When the president gets attacked, he attacks back,” he told Chuck Todd on NBC’s Meet the Press, adding, “I think the mayor’s comments were unfair given what the government has done.”
While the head of the Treasury isn’t an elected official, his words do hold considerable weight — and he is, after all, fifth in the line of succession for the presidency. The value, insights, and credibility of the Treasury Department impact economies, markets, investors, and confidence the world over.
Call it lying, misleading, flip-flopping, or the invocation of the “rights” of privilege, but Mnuchin has already amassed quite a catalogue of questionable statements in his brief career in public office and, while he’s been at it, he’s even made extra money along the way: at least $15 million and possibly as much as $53 million, reports Fortune, from “entertainment and real estate interests that he sold to comply with federal conflict of interest rules.”
For him, as for his boss, whatever anyone says, the bottom line and their allegiance remains simple and clear: it’s not to the middle class; it’s to their class, the half-billion and up folks.
Alexander Hamilton was no stranger to wealth either, but he understood that the nation’s wealth should be shared more evenly. He attempted to use his office as a national unifier and a place to coordinate efforts to pay off debts from the Revolutionary War. Mnuchin’s doctrine is one of returning to a world of fewer rules for Wall Street and fewer taxes on corporations and the wealthy, which, in translation, means greater risks and costs for the rest of us and for the country as a whole. While President Trump isn’t exactly the cannot-tell-a-lie inheritor of the Washingtonian tradition, his Treasury Secretary, the foreclosure king of America, is distinctly no Alexander Hamilton.