After weeks of speculation, Donald Trump has announced Steve Mnuchin as his nominee for Treasury Secretary.
Though Mnuchin can currently be seen in movie theaters playing a banker in Warren Beatty’s new film Rules Don’t Apply, he has a lower profile than most tapped to head the Treasury department. Probably to his credit, he has no experience with public policy and has made relatively few public statements on policy. Perhaps his best qualification for the position was that he was an early supporter of Trump’s campaign, serving as its fundraising director.
Though Mnuchin himself has said little, his resume does seem to contrast sharply with Trump’s populist campaign. Mnuchin, like his father before him, was a partner at Goldman Sachs before joining the world of hedge funds, including working as a portfolio manager for George Soros. He went on to start his own hedge fund, Dune Capital Management, and become a prominent Hollywood financier serving as executive producer for such hits as Avatar, Lego Movie, Mad Max: Fury Road as well as a number of superhero films.
While it’s certainly possible to have a history with a Wall Street bank like Goldman Sachs and not end up an asset to them later on, Trump White House strategist Steve Bannon too spent time in Goldman trading offices before becoming a critic of taxpayer bank bailouts, there are some troubling signs that Mnuchin is unlikely to “drain the swamp” connecting Wall Street to the beltway.
For example, during interviews following the official announcement, he was quick to praise Janet Yellen as having done a “good job,” after Trump spent much of his campaign criticizing the sitting Fed Chairman. He also entertained the idea of following the lead of other countries in possibly issuing 50–100 year bonds government bonds. As Dr. Joseph Salerno wrote recently on the subject of Austria’s 70-year bond:
“The creation of [long-term bonds] enables the political elite to covertly and repeatedly plunder and impoverish productive savers, capitalists, entrepreneurs and workers, while avoiding the need to incur the wrath of the productive class by raising taxes.”
It will also be interesting to see what Mnuchin’s nomination means for Dodd-Frank, which he vowed to “strip back” on Wednesday. Though he started his career on Wall Street, his most recent banking experience came when he and other investors acquired subprime lender IndyMac which was re-branded as OneWest. Though the California-based bank had its own bad headlines for controversial foreclosure practices, his experience in the regional banking sector does give him a perspective from outside the world of Too Big to Fail banks. Since Dodd-Frank has increased the market share of players like Goldman and JP Morgan Chase, at the expense of community and regional bankers, perhaps his time with OneWest will keep him more focused on the concerns from those outside Wall Street.
Unfortunately unlike other Treasury candidates such as Congressman Jeb Hensarling, Mnuchin hasn’t given many specifics in terms of how he wants to go about neutralizing Dodd-Frank. During Wednesday interviews he did specifically mention the Volker Rule, which banned banks from proprietary trading. Since it can be difficult for government regulators to figure out what bank activity is reasonable and speculative, the rule has been criticized for requiring bureaucrats to become mind-readers. One solution to this would be re-instating Glass Steagall, an approach advocated by Frank Shostak and James Rickards among others, an under-reported aspect of Trump’s campaign platform. Since Glass Steagall would explicitly put a barrier between deposit and investment banking, it would eliminate the uncertainty caused by the Volker Rule while protecting taxpayers from bailing out FDIC-insured banks from the sort of reckless lending that occurred prior to the 2008 crisis.
Of course the best solution would be a complete separation from government and banking all together, and the news that John Allison, the libertarian former BB&T president, was reportedly under consideration for the Treasury post makes Mnuchin’s appointment all the more disappointing. As a critic of TARP, Dodd-Frank, the Federal Reserve and the FDIC, an Allison Treasury would have represented a real move away from business as usual. Of course with the growing power of regulatory agencies outside the Treasury, Trump has several appointments that can end up having a profound impact on the country’s economic policy going forward. Only time will tell whether his vow to drain the swamp will come to fruition, or end up alongside George H. W. Bush’s anti-tax pledge in campaign slogan infamy.