UPDATE: Nov. 30 ― President-elected Donald Trump has tapped Steven Mnuchin, a former Goldman Sachs banker with ties to Hollywood, to be his Treasury Secretary.
Mnuchin confirmed the news to CNBC on Wednesday.
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Donald Trump said the system is rigged. He said hedge fund managers are “getting away with murder.” He said that he’d “tax Wall Street.” He called Washington D.C. corrupt and promised to “drain the swamp.” He said his opponent Hillary Clinton was too cozy with the banks, as epitomized by her closed-door paid speeches. He said Clinton’s vice presidential nominee, Tim Kaine, was “owned by the banks” and that he, Trump, would break them up. Trump closed his campaign with an ad bashing Goldman Sachs and George Soros, using classically anti-Semitic phrases.
And now, according to The New York Times, ABC and CBS, the president-elect has chosen a second-generation Goldman Sachs partner who worked for George Soros before starting a hedge fund and buying IndyMac, a failing California bank that made billions while foreclosing on homeowners after the financial crisis.
Steven Mnuchin’s takeover of IndyMac is a story about everything Americans have come to hate about how the financial crisis was allowed to unfold ― ordinary people panicking, savvy investors pouncing, a government guarantee that saved a bank but didn’t even try to keep people in their homes, a clever rebranding, rampant foreclosures, billions of dollars in profits. And now, the cruel punchline: The man behind it is being nominated for treasury secretary by a self-proclaimed billionaire populist.
Mnuchin got the idea to invest in IndyMac when he saw TV news footage of panicked customers at ATMs, Bloomberg’s Max Abelson and Zachary Mider reported. “This bank is going to end up failing, and we need to figure out how to buy it. … I’ve seen this game before,” Mnuchin said at the time, according to Abelson and Mider.
And so, in 2008, during the depths of the financial crisis, Mnuchin’s fund ― along with Soros, Trump-supporting hedge fund billionaire John Paulson and other investors ― scooped up IndyMac for $1.6 billion. After renaming it One West and foreclosing on thousands of homeowners it had written bad loans to, Mnuchin and his partners sold the bank for $3.4 billion in 2015. (Mnuchin now sits on the board of the company that acquired OneWest, CIT.)
OneWest played a particularly large role foreclosing on reverse mortgages, in which generally elderly homeowners slowly sell off the equity they’ve built in their homes to fund their retirements. It made up just 17 percent of the market for these contracts, but accounted for a whopping 39 percent of all reverse mortgage foreclosures in the years following the financial crisis.
OneWest has been accused of racist lending and business practices by housing advocacy groups. It failed to locate bank branches in minority neighborhoods, loaned money to “very few or no” people of color and did a better job maintaining and marketing foreclosed homes in mostly white neighborhoods, according to a complaint filed by two housing advocacy groups with the Department of Housing and Urban Development on Nov. 16.
Such discrimination, called “redlining,” keeps people of color in poverty by making it harder for them to buy homes. It was banned in 1968 under the Fair Housing Act.
As treasury secretary, Mnuchin would have sweeping authority over the industry he was born into and made millions working in, as well as a central role in economic policies like Trump’s proposed sweeping tax cuts.
He would also have to liquidate his holdings in his hedge fund in order to avoid conflicts of interest. As is also the case for the president he would serve, simply putting the fund’s current assets under a new manager is not sufficient because Mnuchin has detailed knowledge of those assets.
However, it won’t be all sacrifice. Like then-Goldman Sachs CEO Hank Paulson before him, selling his assets to comply with conflict of interest rules would enable Mnuchin to defer paying capital gains taxes.
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Trump has also reportedly chosen Wilbur Ross, a billionaire private equity investor, as commerce secretary.
This article has been updated to include confirmation of Mnuchin’s nomination.