Updated: Jul 26
The New Yorker July 20, 2020 pp40-41 THE POLITICAL SCENE “DOLLAR FOR DOLLAR” “How the financier Steven Mnuchin gained control of America’s money machine.” By Sheelah Kolhatkar.
“In early June, he [Steven Terner Mnuchin (SM)] told me [Sheelah Kolhatkar (SK)] that, before the coronavirus outbreak, the possibility of a global pandemic ‘was not a risk on my radar screen.’ “I don’t think it’s fair to say in any way that the Administration should have been better prepared.’
Unlike prior Treasury Secretaries, SM, a Wall Street financier, had no Washington credentials. He was familiar with Donald Trump (DJT) dating back to 2003 and was an investor in two of DJT’s real-estate developments. SM was well connected with “some of the wealthiest people in the country” and so DJT targeted SM to lead his 2016 presidential fund raising and later as Secretary of the U.S. Treasury. SM, 57, plays in his lane and is dubbed “minutiae mnuchin” for his involvement and attention to detail. He’s undoubtably the adult-in-the-room for the administration and has earned praise from congressional leaders as a knowledgeable collaborator with which they have achieved the Cares Act. SM is viewed as “a pragmatist whose interest lie in searching out opportunities, brokering deals, and reaping the rewards.” He has one of the longest tenures on DJT’s cabinet and is said to be extremely loyal and personally the closest to DJT. “He’s almost part of the family” a former Administration official said.
SM feels…”the government has a role, but I believe free-market economies have turned out to be the best way of lifting the economic prosperity for everyone” but adds that “at times like now, where we shut down the economy, of course you should have government intervention.” SM given his earned reputation is called on for economic cheerleading. “ On June 23rd he said “he expected a ‘spectacular rebound’ later in the year.” Having said that other experts express concern believing as the virus proliferates the “downturn could broaden” because bills aren't getting paid and “people feel too fearful and too financially insecure to resume work patterns and spending habits.”
SM “grew up…wealthy and well-connected” in NYC. He’s essentially forth generation prominent. His father, Robert Mnuchin, was known as “coach” at Goldman Sachs, a Yale grad, worked his way up from the floor to the glass office and was beloved by his “block traders”-he innovated block trading which is simply flipping large blocks of stocks purchased from large investors like mutual funds and then selling them for more-buy low, sell hi. He retired at 57, and became a highly successful art dealer running the Mnuchin Gallery on the Manhattan’s Upper East Side. SM, born in 1962, is the second child and second son of Robert Mnuchin and Elaine Terner Cooper but was raised, apparently-implied, starting in 1963 by Robert’s second wife Adriana who became a successful retailer and was involved in the arts and adult continuing education (Detail from Wikipedia and IMDB.Com). SM attended Riverdale Country School, a private school in NYC, and was best at math, science and was captain of the tennis team. Like his father he attended Yale majoring in economics and was publisher of the Yale Daily News. He interned at Salomon Brothers working three summers with bond traders.
After graduation, SM joined Goldman Sachs and made partner nine years in. Mnuchin was part of the bond-trading division considered as “important to the future of Goldman Sachs.” He left Goldman two years after their IPO with reportedly $6M in Goldman Sachs’ stock. Since Goldman Sachs, SM was briefly part of ESL Investments (Edward Lampert) and then also briefly SFM Capital (Soros) before starting a hedge fund known as Dune Capital with two “Goldman alumni and a seed investment from Soros.” In that year, 2003, he met DJT through mutual friends and Dune invested in “Trump International Hotel Waikiki and Trump International Hotel & Tower in Chicago.” In 2006 Dune and Soros “were part of an investment group that bought DreamWorks studio’s film library valued at nine hundred million dollars”. After the panic of 2008, Mnuchin marshalled others including Michael Dell, John Paulson and Soros to buy IndyMac a company that “posed ‘significant risks to both taxpayers and borrowers’.” The F.D.I.C. “imposed some conditions on IndyMac’s new owners-they had to modify, rather than foreclose on, as many mortgages as possible” but they were free to keep any profit. They renamed the company OneWest and “just a year later reported a profit of $1.57 billion. Even though OneWest was profitable from there on, the F.D.I.C. paid OneWest for loses they incurred which amounted to more than one billion dollars over five years. SM had invested $10 million, and became CEO and chairman. OneWest foreclosed on 36,000 homes mostly in low income areas and SM was dubbed “the foreclosure king”. SM claimed that not many loans qualified for modification. In 2015, SM sold OneWest to CIT for $3.4 billion with SM reportedly coming away with “several hundred million.
On April 19, 2016, SM was “invited to a party at Trump Tower, on Fifth Avenue, hosted by the Trump campaign…”. Trump proposed he become campaign chairman.
Prior to SM becoming Secretary of the Treasury the agency has been struggling to retain past competency caused by rounds of cut-backs. Many left for better opportunities in the private sector. With past administrations their work followed careful consideration and executed a well-thought out plan of action. Reportedly “Trump had won the election, in part, on promises to cut taxes and repeal the Affordable Care Act, also known as Obamacare, and replace it with ‘much better health care’ that would cost less…”. DJT was hit with a “humiliating loss” after an executive order “that was intended to facilitate the new health-care legislation….” failed to gain traction.
Meanwhile SM went about constructing the “most significant change to the tax system since the Reagan years”. Insiders report that unlike the Obama’s “relentless focus on the mission and things they could use government to do” DJT and SM didn’t have a “proactive agenda”. “We got ‘tax reform’ but there was nothing else”. “That and ‘Go pull out regulations for no reason’.” It was claimed the tax cut would “pay for itself”. Experts knew that was not the case instead warning that the bill was not “revenue neutral” and would add significantly to the deficit. “Democrats doubted that the cuts would lead to the promised wage increase for middle-income workers." SM, hoping to prove the case, had department analysts model data in search for output that rendered a “pay for itself” forecast. Staffers didn’t push back on SM but “They said, ‘If you put in these ridiculous growth numbers, you could spit out a result that says it arguable increases the baseline”.
The “Tax Cuts and Jobs Act of 2017” key elements were cutting corporate taxes from 35% to 21% and “modest reductions in individual tax rates”. It initially passed the House (227-205) November 16, 2017, the Senate on December 2, 2017 (51-49) and signed into law by DJT December 22, 2017. In April, 2018 “the Congressional Budget Office released its analysis…which showed that it was likely to create only 0.7 per cent of additional economic growth-a fraction of what Republicans had predicted…and projected that it would lead to a $1.9-trillion increase in the deficit by 2028." The, left-leaning, Brookings Institution called the law, “the wrong thing at the wrong time”, adding “It will take resources from future generations and from today’s lower and middle-income households to enrich today’s well-to-do.” “Trump told Congress” that the bill would result in a “massive tax relief for the middle class”. Companies having received a windfall spent much of the money on “big stock buybacks” rewarding executives and shareholders but “did not generally invest…in their workers or in extra resources…”
More collaboratively, as mentioned earlier, SM worked with Congressional and executive leaders to provide wide-ranging pandemic relief-the Cares Act for citizens and businesses. Not surprisingly, to be expected given the rush, there were mistakes in the plan and in the execution but most egregious has been DJT blocking oversight of the funding. Top Democrats indicated that “They resisted every rule, every kind of transparency and accountability that we were able to negotiate.”
As a side bar, the Fed through Congress and including part of $0.45 trillion from the Cares Act has the mission to infuse the stock and bond markets with nearly $4 trillion. This essentially transfers wealth from the “middle and working classes to the affluent, who own most of the stock and bonds whose prices have been propped up by the Fed…”.
In the end, there are two “theories of prosperity” those being “trickle down” and bottoms up-“that if we make the average of mankind more comfortable and make them secure in their existence, then their prosperity will rise upward through the ranks”. The former is failing again and building huge deficits meanwhile according to Michele Holder (John Jay College) in Harlem, where she lives, “you can literally cut the mood with a knife. People in my neighborhood are scared, they’re angry, they’re hurt, they’re depressed…It may be difficult…[for SM] to relate to what is happening with the everyday Joe and Joanna, whether they be Black or white or brown. I don’t know if someone like him can really understand it at a deep level”. Add to this level of unemployment, it is noted by Barry Eichengreen, “People take to the streets in part when they can’t take to the office.”
For his part, SM has said “But I think we always need to do a better job of making sure that the people who have been left behind has the right economic advantages”. “ Whether that’s because minorities don’t have the same access to education, or what I saw travelling the country with the President during the campaign, when people said average American wages have not gone up in eight years by any significant amount.” “We all need to do a much better job on these issues. It’s less in my view about income inequality, and it’s more about income opportunities”. “I believe the right solution is to create equality of opportunity, and a big part of that is around education. And job training and mentoring”. “I think we’ve unfortunately seen that not everyone has an equal shot”.