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Mnuchin at the Senate Finance Committee: Issues to watch
By ZACHARY WARMBRODT, KATY O'DONNELL and LORRAINE WOELLERT 01/19/17 05:25 AM EST
Steven Mnuchin, who will appear before the Senate Finance Committee Thursday morning, is on the verge of becoming one of the most influential economic policymakers in the world.

The Goldman Sachs alumnus, former bank executive and hedge fund founder has a long career in finance but no track record at high levels of government. The hearing will be Mnuchin's first public opportunity to outline his views on the vast responsibilities of Treasury. It will also provide an update on the emerging economic agenda of President-elect Donald Trump.


"We will work diligently to limit regulations, lower taxes on hardworking Americans and small businesses, and get the engine of economic growth firing on all cylinders once again," Mnuchin said in prepared testimony.

Here are the issues expected to come up during his confirmation.
His resumé and investments

Senate Democrats are scrutinizing Mnuchin’s banking career and personal investments. Front and center at his hearing will be his tenure at OneWest, a bank that he and other investors built during the housing crisis from the remains of failed mortgage lender IndyMac. Controversy over OneWest's foreclosure practices has dogged Mnuchin since the IndyMac takeover, and he will devote a big piece of his testimony to defending the bank's record.

"If we had not bought IndyMac, the bank would likely have been broken up and sold in pieces to private investors, where the outcome for consumers could have been much bleaker," he said in his written remarks. Mnuchin has argued that the takeover "saved a lot of jobs" and was one of the most satisfying moments of his career in finance.

His personal investments also will raise questions. The nominee has invested with hedge fund billionaire John Paulson, who has made a long-shot bet on Fannie Mae and Freddie Mac, Treasury-backed mortgage giants whose future rides on Trump administration policy. On the day of his nomination, Mnuchin lifted Fannie and Freddie shares when he told an interviewer that he wanted to release the companies from government control. His hearing is likely to move those share prices again. Mnuchin is expected to face questions about how the incoming administration would approach overhauling the housing finance system.

Mnuchin has pledged to divest interests in several major corporations, including some of the country's biggest financial institutions. But questions remain about what he plans to keep, including the title of president at Steven T. Mnuchin Inc., which he uses

Mnuchin is sure to get questions about the distributional effects of the Trump tax plan, which independent analysts have said would benefit the wealthy the most. The nonpartisan Tax Policy Center found the top 0.1 percent of taxpayers would get a 14 percent cut, compared with a 0.8 percent reduction for the bottom quintile of households. Mnuchin told CNBC in November that “there will be no absolute tax cut for the upper class. There will be a big tax cut for the middle class, but any tax cuts we have for the upper class will be offset by less deductions that pay for it.” But he didn’t spell out which deductions he would cut or by how much.

Mnuchin would be tasked with working with Congress to shape tax reform — Treasury stewarded the last major tax overhaul — so he’ll probably be asked to weigh in on the most controversial element of the House GOP plan, border adjustability. Trump panned the idea last week, but House Republicans are sticking with the proposal for now. Either way, Mnuchin will get questions about the best way to stop corporate inversions — when companies move their headquarters overseas to cut their tax bills — and give the businesses an incentive to bring foreign earnings back home.

Dismantling financial regulation

Mnuchin, who if confirmed will play a major role in coordinating government oversight of the financial system, has said the Dodd-Frank regulatory overhaul enacted after the 2008 crisis is "way too complicated." The Trump administration is vowing to dismantle the law. Mnuchin has described the approach as "strip[ping] back parts ... that prevent banks from lending."

"Sensible regulation is a necessity for healthy markets," he said in this week's Senate testimony. "However, I saw first-hand how regulatory excess can inhibit lending by financial institutions, resulting in a lack of access to capital for small businesses and entrepreneurs."

As Treasury secretary, he would chair an interagency group known as the Financial Stability Oversight Council, which also includes the heads of the Federal Reserve, SEC and CFPB. The council plays a coordinating role across regulatory agencies and has the power to impose stricter oversight on firms outside the banking sector.

It's an area of finance that Mnuchin knows well thanks to years in the hedge fund industry, which FSOC has been scrutinizing under the leadership of Obama administration appointees. Mnuchin would have the power to decelerate FSOC's activity in general, and a question will be whether the council decides to remove "systemically important" insurance companies from Federal Reserve supervision.

The Treasury Department has the potential to play a major role in Trump's plans to reshape the nation's standing in the global economy. Mnuchin will tell the Finance Committee that while traveling with Trump he "heard the pained and heartbreaking stories of many Americans who had lost their jobs to workers in foreign countries."

One way Treasury could follow through on Trump's trade agenda is by labeling China a currency manipulator, which the president-elect pledged to do on the campaign trail. Mnuchin would have an opportunity to take action when Treasury releases its next report on international exchange rate practices, expected in April.

Another question looming over Treasury is the extent to which the Trump administration would take advantage of economic sanctions capabilities that the department has employed against Russia, Iran and North Korea. Outgoing Treasury Secretary Jack Lew has warned against the overuse of sanctions because of the risk of diluting their impact.

Mnuchin said in testimony for Thursday's hearing that he would use Treasury's Office of Terrorism and Financial Intelligence to stop the financing of terrorism.

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