Treasury secretary nominee Steven T. Mnuchin defended his ties to offshore business entities and his management of a controversial California bank during a testy confirmation hearing on Thursday.
Speaking before the Senate Finance committee, Mnuchin said businesses in the Cayman Islands and Anguilla revealed in his financial disclosures were not used for his personal benefit but served nonprofits and pensions. A memo compiled by Democratic committee staffers obtained by The Washington Post showed Mnuchin initially omitted some of those entities -- as well as more than $100 million in personal assets -- from his nomination paperwork.
Mnuchin has revised the documents. He did not dispute the errors Thursday, which were characterized inadvertent mistakes.
“In no way did I use [offshore entities] to avoid U.S. taxes,” Mnuchin said. “I can assure you I pay all my taxes as was required.”
Mnuchin, a veteran Wall Street investor, has also come under fire for his 2009 purchase of failed subprime mortgage lender IndyMac from the federal government. Mnuchin renamed the bank OneWest and ran it for six years. During that time, he said, the bank modified over 100,000 of the country’s most troubled loans and saved thousands of jobs in the process.
“I have been maligned as taking advantage of others’ hardships in order to earn a buck,” Mnuchin told lawmakers Thursday. “Nothing could be further from the truth.”
The hearing began with a sharply combative tone before Mnuchin even began speaking. Chairman Sen. Orrin Hatch (R-Utah) decried “stupid arguments” against Mnuchin’s qualifications to manage the nation’s finances and accused Democrats of obstructing President-elect Donald Trump’s nominees. Ranking member Sen. Ron Wyden (D-Ore.) shot back by accusing Mnuchin of using loopholes in international tax law to shield millions of dollars from taxation.
Republican Sen. Pat Roberts (Kan.) then interjected with a suggestion that Wyden take a Valium, an attempt at what he called a “pinprick” of levity, prompting Sen. Sherrod Brown (D-Ohio) to object to the remark.
Mnuchin is one of several Cabinet nominees facing a rocky path to confirmation. Democrats have seized on the vast wealth amassed by Trump’s advisers -- not just Mnuchin but also his picks to lead the Commerce, Education and State departments, among others -- as undermining the working-class support that fueled the president-elect’s surprise victory. Mnuchin purchased OneWest for $1.6 billion and sold the bank to CIT Group in 2015 for $3.4 billion
“The Treasury secretary ought to be somebody who works on behalf of all Americans, including those who are still waiting for the economic recovery to show up in their communities,” Wyden said. “When I look at Mr. Mnuchin’s background, it’s a stretch to find evidence he’d be that kind of Treasury secretary.”
Mnuchin attended Yale University and began his career at Goldman Sachs, where his father was a senior partner, before leaving the legendary investment bank to form his own private equity fund, Dune Capital Management. After purchasing IndyMac, Mnuchin became a Hollywood financier, backing well-known films such as “Avatar.” He has not previously served in government.
At several points during his hearing, Mnuchin appeared stung by the sharp questioning from lawmakers. During an exchange with Ohio Democrat Sherrod Brown over his role in homeowner foreclosures, Mnuchin pushed back at the senator.
"If you know [the answer], why did you ask me?" Mnuchin said. “It seems to me with all due respect that you just want to shoot questions at me.”
One of Mnuchin’s most controversial — and profitable — investments was his purchase of IndyMac during the depths of the financial crisis. At the time, many investors were wary of the complicated securities at the center of the housing bust, but Mnuchin said he saw a way to save the ailing bank, though it had little ability to stray from government guidelines in deciding when to foreclose. He noted that at one point, the bank sued HSBC for the ability to modify loans in trusts that it controlled.
Mnuchin’s spokeswoman has said that 178,000 homes were already in foreclosure when Mnuchin took over the bank. On Thursday, Mnuchin said one of the “most troubling” cases involved Nadya Denise Suleman, the California mother of octuplets who became known as the “Octomom.” Mnuchin’s bank foreclosed on her home in 2012, according to news reports.
“The responsibility landed on me to clean up the mess that we inherited,” Mnuchin said.
He also faced scrutiny of his complex business interests. According to the memo from Democratic staff, Mnuchin initially failed to disclose his homes in New York City, Southampton, N.Y., and Los Angeles, as well as $15 million in real estate holdings in Mexico. Also missing was $906,556 worth of artwork held by his children.
On Thursday, Wyden accused Mnuchin of using loopholes in international tax law to shield millions of dollars from taxation. “I’m very troubled about this question of how you’re going to un-rig the system if you’ve got a record of taking advantage of tax shelters,” Wyden said.
Mnuchin made few forays into policy during his hearing, though he did provide details of the border tax that Trump has threatened to impose on U.S. companies that offshore operations and then sell products back home. Mnuchin said the tax would be narrowly targeted at such businesses, not broadly levied on all imports. Trump has singled out Ford and General Motors as potentially facing those penalties.
The president-elect “has not suggested in any way an across-the-board 35 percent border tax,” Mnuchin said.
Just a few weeks ago, however, Trump appeared to suggest just that. In an interview with the New York Times, Trump said he “would tax China on products coming in.” On the campaign trail, Trump called for a 35 percent tax on Mexican imports and a 45 percent tariff on goods from China.
Mnuchin helped craft Trump’s proposal to overhaul the tax code and is expected to have a significant role in pushing the plan through Congress. The current proposal would lower the corporate tax rate from 35 percent to 15 percent and streamline individual tax brackets. An analysis by the conservative Tax Foundation estimated the reductions would cost at least $2.6 trillion over a decade, even after accounting for faster economic growth.
But Mnuchin pledged Thursday that Trump’s tax plan would be fully paid for. He said that lowering taxes and reducing regulation, among other steps, would boost economic growth to between 3 percent and 4 percent. There is a heated debate among analysts over whether that forecast is too optimistic and whether it would offset the cost of tax reform.
“With the appropriate growth, we want to make sure that tax reform doesn’t increase the size of the deficit,” Mnuchin said.
Mnuchin also called for reform of the housing finance giants Fannie Mae and Freddie Mac, which buy mortgages from lenders and then package them into securities to sell to investors. They have been under government control since 2008, but over the last few years Fannie Mae and Freddie Mac have been returning billions of dollars to federal coffers.
That has roiled shareholders, who are suing to have the arrangement overturned as efforts to resolve the firms’ status have languished. On Thursday, Mnuchin said he wanted to reform the companies but did not support simply releasing them from government control and allowing them to recapitalize -- an approach that has been favored by many investors, particularly some Wall Street hedge funds.
“We shouldn’t just leave Fannie and Freddie as is for the next four or eight years under government control without a fix,” Mnuchin said. “I believe we can find a bipartisan fix for these.” Shares of Fannie Mae and Freddie Mac dove more than 10 percent after Mnuchin's comments.
Mnuchin also said he did not advocate a return to Glass Steagall, a law stemming from the Depression that separated commercial and investment banking. Instead, he advocated a “21st century Glass Steagall” -- a rare point of agreement with critics such as Sens. Elizabeth Warren (D-Mass) and Bernie Sanders (I-Vt.), who tweeted his support for the measure on Thursday.
Staff writers Renae Merle and Ed O'Keefe contributed to this report.