Trump’s Wolves of Wall Street
On Thursday morning, a headline on the cover of Le Monde, France’s centrist daily newspaper, declared, “Steven Mnuchin, un Loup de Wall Street à la Maison Blanche”—“A Wolf of Wall Street in the White House.” The subtitle described Mnuchin, who, pending confirmation, will be the next Treasury Secretary, as “one of those pure products of finance that the candidate Donald Trump couldn’t stop castigating during his campaign.” Another headline leading Le Monde’s business section, “Goldman Sachs and Finance Are Returning to the White House,” further reinforced the fact that the promises Trump made as he was campaigning are now strangely at odds with some of the appointments he’s named, and that the rest of the world, watching with a mixture of amusement and horror, has taken note.
Mnuchin himself reinforced the dissonance on CNBC’s “Squawk Box,” just before the announcement became official. “One of the good things about Wilbur and I, we have actually been bankers,” Mnuchin said, referring to Wilbur Ross, who was sitting beside him, and who is Trump’s recently named appointee for Secretary of Commerce. Ross is a titan of Wall Street, who made his fortune investing in near-bankrupt companies and building them up again.
The idea that being a banker is an alluring characteristic for a member of the Trump Administration is a startling change. For months, Trump criticized Hillary Clinton for giving paid speeches to banks like Goldman Sachs. There were periods, later in the fall, when the Trump campaign seemed to be sending out e-mail blasts nearly every day highlighting one comment or other that Clinton had made in front of a Goldman audience—comments retrieved from her campaign manager’s hacked e-mail account. Still, even during the campaign, the messages from Trump on financial matters were confusing and often at odds. Trump complained not so much about Wall Street itself but about his opponent’s alleged affiliation with it. Were Wall Street banks the enemy of working people, or was the enemy the politicians who socialized with bankers? Was Wall Street part of the establishment Trump was railing against or not? Trump spent much of his time campaigning in states where jobs had emptied out and the landscape was dotted with idle factories, but, strangely, Trump seemed rarely to criticize the managers of those companies directly—rather, it was the fault of Washington alone that those corporations had moved to places that were much more economically advantageous. (A similar logic explained why Trump, a billionaire, had not paid federal taxes in many years. As he said during the third debate with Hillary Clinton, “We’re entitled because of the laws that people like her pass to take massive depreciation and other charges. And we do it.”) As with much of what Trump said as he petitioned for the job that he will soon have, his true feelings were unclear.
Mnuchin, who presents as a mild-mannered egghead, was once a Goldman banker, but his career could be better characterized as one built on financial opportunism. He was born into wealth and privilege, the son of another Goldman banker, who later left Wall Street to trade in art, a trajectory the son loosely followed. Mnuchin went to Yale, where he reportedly drove a Porsche; he joined Goldman after his graduation, in 1985. He stayed with the bank for seventeen years, developing an expertise in trading distressed bank assets. He left in 2002 and worked briefly for two prominent hedge-fund managers, Eddie Lampert, a Yale classmate, and George Soros, the billionaire who has become known in recent years as a donor to liberal causes. Soros provided seed money for Mnuchin to start, in 2004, his own hedge fund, Dune Capital Management, “named for a spot near his house in the Hamptons,” according to Bloomberg Businessweek. Dune made investments in at least two Trump-related real-estate projects, and ended up settling a lawsuit with Trump over one of them.
In 2009, during the heat of the financial crisis, Mnuchin assembled a group of investors to make a bid for IndyMac, a California bank that had to be taken over by the federal government following one of the biggest bank failures in U.S. history. The group bought the bank’s assets for $1.6 billion and renamed it OneWest Bank, ultimately selling it in 2015 for $3.4 billion. Because so many of the loans that the bank owned were distressed, it became a “foreclosure machine,” in the words of one housing advocate, a point that is likely to become a focus of criticism. Eventually, Mnuchin took his fortune and turned to Hollywood, investing in such films as “Avatar,” one of the highest-grossing movies of all time.
If Mnuchin and Ross are confirmed as Treasury Secretary and Commerce Secretary, respectively, they will be leading the Trump Administration’s plans on tax policy. Trump began his Presidential campaign by promising to eliminate the “carried interest” tax loophole, which allows many hedge-fund and private-equity-fund managers to pay extremely low taxes on much of their compensation. This proposal, however, was followed by a tax plan that promised to lower taxes for hedge-fund managers by introducing a flat fifteen-per-cent business and partnership tax. (The tax plan over all did not include specific ways to pay for the tax cuts, leading to an estimate that it would increase the federal deficit by $5.3 trillion over ten years.) Trump also vowed to renegotiate or cancel international trade deals, to repeal the Dodd-Frank financial-reform legislation implemented after the financial crisis, and to ban any new regulations.
During his CNBC interview, Mnuchin presented a more measured view than some of what Trump had outlined, but also, in some ways, a more radical one. “Our No. 1 priority is tax reform,” he said. “This will be the largest tax change since Reagan. . . . We’re going to cut corporate taxes, which will bring huge amounts of jobs back to the United States.” He said that the Trump Administration would lower corporate taxes to fifteen per cent, from thirty-five per cent, which even the “Squawk Box” questioners found aggressive, and is lower than House Republicans have proposed. Mnuchin then promised again, without offering any detail, that cutting corporate taxes would create “huge economic growth.” He added that the Administration’s other priority would be having “a big middle-income tax cut,” with a vague promise that “the revenues will be offset on the other side.”
Mnuchin also insisted that “there will be no absolute tax cut for the upper class, but any tax cuts we have for the upper class will be offset by less deductions that pay for it.” Regarding how exactly that would happen, he was, again, vague. On the matter of Dodd-Frank, he suggested that the Administration would only get rid of whatever aspects are causing banks not to lend money.
“Our job is to make sure the average American worker has wage increases and good jobs,” Mnuchin finally said. “That’s the priority of this Administration.”
The Trump Administration seems to be suggesting that a trickle-down policy of mostly corporate and high-earner tax cuts, along with, perhaps, the occasional personal negotiation to save some small number of jobs, as Trump and his Vice-President-elect Mike Pence pulled off with the Carrier plant in Indiana, will produce enough well-paying jobs to satisfy those voters who saw Trump as bringing hope to depressed areas of the country. The proposals seem to suggest that companies will automatically convert tax breaks into jobs in the United States, and not be influenced by lower costs abroad or other large economic forces.
Ross, who is a so-called vulture investor, made his career as an owner of mills and mines, and he offered the most insightful comment of anyone during the CNBC interview. It’s not true that “all jobs are created equal,” Ross said. “A guy who used to work in a steel mill now flipping hamburgers, he knows it’s not the same. So it’s the quality of jobs as well as the quantity, and one of the problems with the recovery is when the newly created jobs are not nearly as remunerative as the jobs that were lost.” He paused for a moment before stating more of the obvious: “That’s a structural problem.”