CNN reported that “OneWest developed a reputation as a ‘Foreclosure Machine,’ and Mnuchin himself has been dubbed the ‘Foreclosure King.’” After a memo from the office of the California attorney general alleged that OneWest engaged in “widespread misconduct” to boost foreclosures, including the backdating of mortgage documents, the network noted: “The nonprofit watchdog Campaign for Accountability called on the Department of Justice to investigate OneWest for ‘using potentially illegal tactics to foreclose on as many as 80,000 California homes.’”
A ProPublica investigation revealed that “since the financial crisis, OneWest, through Financial Freedom, has conducted a disproportionate number of the nation’s reverse mortgage foreclosures.” ProPublica found numerous examples where Financial Freedom “had foreclosed for legally questionable reasons. The company served several other homeowners at their homes to let them know they were being sued for not occupying their homes. In Florida, a shortfall of only $0.27 led to a foreclosure attempt. In Atlanta, the company sought to foreclose on a widow after her husband’s death, but backed down when a legal aid attorney sued, citing federal law that allowed the surviving spouse to remain in the home.”
Alys Cohen, a staff attorney for the National Consumer Law Center in Washington, DC, reviewed the details from Mnuchin’s tenure and said: “It appears their business approach is scorched earth, in a way that doesn’t serve communities, homeowners or the taxpayer.”
How scorched? A California Reinvestment Coalition analysis determined that OneWest was responsible for 39 percent of foreclosures on government-backed reverse mortgages nationwide from 2009 to 2014, yet it serviced only around 17 percent of those loans.
None of the revelations made Mnuchin sound like the right person to be heading a federal department that takes as its mission stewardship of U.S. economic and financial systems. Describing Mnuchin as someone who “spent two decades at Goldman Sachs helping the bank peddle the same kind of mortgage products that blew up the economy and sucked down billions in taxpayer bailout money, before he moved on to run a bank that was famous for aggressively foreclosing on families,” Massachusetts senator Elizabeth Warren said: “His selection as Treasury Secretary should send shivers down the spine of every American who got hit hard by the financial crisis.”
Warren was even more upset when the Columbus Dispatch revealed that Mnuchin’s testimony to the Finance Committee that his firm did not engage in the controversial practice of robo-signing mortgage paperwork (signing stacks of foreclosure documents without properly reviewing them) was, um, untrue. The paper reported widespread evidence of aggressive foreclosure practices, including robo-signing in the Buckeye state. “The guy is just lying. There’s no other way to say it,” said Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio. “People were bamboozled into signing these mortgages,” Faith added. “We watched this train wreck happen. It’s been devastating, not only to the people who got caught in this kind of scheme, but also to people who happened to live in the neighborhood… It’s scary that he’s going to be treasury secretary.”
The conflict over Mnuchin’s truthfulness had some skeptics wondering about whether the befuddled nominee really was confused by those financial disclosure forms. But there was no question regarding the robo-signing testimony. “You know, in this town nobody wants to use the word I’m going to use,” said Ohio senator Sherrod Brown when it came time to vote on the Mnuchin nomination. “They want to say it was a half-truth or it was not quite right or fabricated. No. What Mr. Mnuchin did is he lied.”
“Mnuchin profited off of kicking people out of their homes and then gave false testimony about his bank’s abusive practices,” said Brown. “He cannot be trusted to make decisions about policies as personal to working Ohioans as their taxes and retirement.”
Former Ohio attorney general Marc Dann worries a lot about that. Dann specializes in representing the victims of wrongdoing by big banks, and he says he is troubled that a man whose firm was a “major offender” that “caused unbelievable devastation in people’s lives” is now in a position to undermine the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act that allowed victimized borrowers to sue reckless and irresponsible banks.
Dann is right to worry. In written testimony to the Senate, Mnuchin argued that “it has been over six years since the passage of Dodd-Frank and it seems like an appropriate time to review all of the regulations from Dodd-Frank to understand their impact on the market, investors, small businesses and economic growth.”
Mnuchin says he wants to “strip back parts of Dodd-Frank” because, the New York Times reports, as with those financial disclosure forms he had so much trouble filling out, the secretary of the treasury finds all those regulations on banks and protections for consumers “too complicated.”
— 41 —
THE FOX GUARDING THE HENHOUSE
Jay Clayton
Chairman, Securities and Exchange Commission
When Donald Trump announced his nominee to head the powerful Securities and Exchange Commission (SEC), watchdogs started to wonder whether the president had confused his mission. Instead of “draining the swamp” of Wall Street–tied influence peddlers, he seemed to be stocking it with even bigger fish. Trump’s SEC pick was Jay Clayton, a lawyer for the most powerful investment bankers on Wall Street who listed his specialties as “public and private mergers and acquisitions transactions, capital markets offerings, regulatory and enforcement proceedings, and other matters where multidisciplinary advice and experience is valued.”
“Jay Clayton, the Sullivan & Cromwell partner tapped by Trump, outlined his clients—and his potential conflicts—in a filing to the U.S. Office of Government Ethics that he signed in January,” explained a Bloomberg assessment when Trump announced the nomination. “If confirmed by the Senate, Clayton would have to recuse himself for one year from matters involving [his law firm] Sullivan & Cromwell and companies he represented. He also would be barred from ever weighing in on a specific business deal or an investigation that he worked on as a lawyer. At least one of Clayton’s clients, Valeant Pharmaceuticals International Inc., has disclosed that it’s being investigated by the SEC. Pershing Square, another Clayton client, is among Valeant’s biggest investors.”
The recusals were a serious concern for senators who thought it might be useful to have a fully functional SEC led by an engaged and involved chair. “Holding Wall Street firms accountable is a major job of the SEC’s mission and the SEC chair needs to be able to participate in those enforcement actions… Not on the sidelines when former clients and Wall Street firms are able to skate free,” complained Massachusetts senator Elizabeth Warren, who told the nominee when he appeared before the Senate Banking Committee that “the conflicts raised a very serious concern about your nomination.”
Other senators were concerned about what Clayton might do when he wasn’t recused.
Senator Sherrod Brown, the Ohio Democrat who has made it his mission to take on the power of the banking combines and investment houses that are supposed to be regulated by the SEC, said: “It’s hard to see how an attorney who’s spent his career helping Wall Street beat the rap will keep President-elect Trump’s promise to stop big banks and hedge funds from ‘getting away with murder.’”
Over at Rolling Stone, Matt Taibbi argued that the elephant in the room was wearing an “I work for Wall Street” T-shirt. Clayton did not have a record of cracking down on bad banking practices; he had a record of helping banks avoid crackdowns. “He represented Goldman Sachs when the firm received a $5 billion capital infusion from Warren Buffet during the September 2008 meltdown. He also represented Barclays during its malodorous acquisition of the assets of Lehman Brothers, an episode one lawyer described to me years ago as ‘the greatest bank robbery you never heard of,’” wrote Taibbi. “That Clayton has been a devoted legal slave to the usual Wall Street monsters over the years is obviously concerning, though not terribly unusual.
”
Obviously not.
On April 4, the Banking Committee voted 15–8 to recommend Clayton’s confirmation, with three Democrats—Jon Tester of Montana, Mark Warner of Virginia and Heidi Heitkamp of North Dakota—joining the Republicans in supporting Trump’s man. A month later, the full Senate backed Clayton by a 61–37 margin, with ten Democrats joining fifty-one Republicans in voting to approve a nominee who a former congressional aide told Taibbi would serve as “the most financially conflicted SEC chairman in history.”
— 42 —
SWIMMING IN THE GOVERNMENT SACHS SWAMP
Gary Cohn
Director of the National Economic Council
When Donald Trump sat down on May 4, 2017, with the editors of the Economist magazine, he was accompanied by National Economic Council director Gary Cohn and Treasury Secretary Steven Mnuchin. They listened attentively as their boss made a fool of himself.
The president explained that he was a free trader and a fair trader.
He explained that he was all about negotiation but that some things were not negotiable.
He said he was against deficits but more than ready to run deficits in order to give out tax breaks while at the same time making massive investments to spur economic growth. Bloating out the deficit is cool, sometimes, “because [the combination of tax cuts and spending hikes] won’t increase it for long,” Trump explained to the editors. “You may have two years where you’ll… you understand the expression ‘prime the pump’?”
“Yes,” said his inquisitor from the Economist, who was obviously familiar with the common term for the sort of governmental interventions that John Maynard Keynes (1883–1946) proposed to avert, or at the very least address, recessions and depressions.
The president continued. “We have to prime the pump,” he said.
The Economist editor allowed as how “it’s very Keynesian,” but Trump did not get the joke.
The president really wanted to make sure that the editors knew what he was talking about. “Have you heard that expression before, for this particular type of an event?” he asked.
“Priming the pump?” asked the editor.
“Yeah, have you heard it?” asked the president.
“Yes,” said the editor.
“Have you heard that expression used before? Because I haven’t heard it,” said Trump. “I mean, I just… I came up with it a couple of days ago and I thought it was good. It’s what you have to do.”
Gary Cohn, the former president and co-chief operating officer of the Goldman Sachs investment banking empire, who had left his previous position with a $285 million severance package in order to bring a measure of coherence to the young Trump presidency, was very quiet. Presumably, Cohn knew about priming the pump and John Maynard Keynes and all that. But he just let the president talk himself out. The interview ended and Trump went off to fret about FBI director James Comey, who he would fire a few days later. Cohn went back to running the economy.
Donald Trump had in February of 2016, when he was campaigning in South Carolina before that state’s critical Republican primary, warned that voters should reject Texas senator Ted Cruz because “the guys at Goldman Sachs… have total, total control over him—just like they have total control over Hillary Clinton.” By February 2017, however, Trump had a different view altogether. As the new president of the United States he was busy appointing a graduating class of Goldman Sachs alumni to top positions in his administration:
· Secretary of the Treasury Steven Mnuchin
· Deputy Secretary of the Treasury Jim Donovan, the managing director at Goldman Sachs’s Private Wealth Management Division, who Mnuchin tapped to oversee the radically transforming $13.8 trillion market for treasury bonds. Donovan’s client list at Goldman Sachs included Bain Capital and Mitt Romney, whose presidential campaign Donovan served as an economic policy advisor.
· Deputy National Security Advisor Dina Habib Powell, a former Goldman Sachs managing director, partner and global head of the Office of Corporate Engagement, who was initially brought into the Trump administration as “Senior Advisor to the President for Entrepreneurship, Economic Growth and the Empowerment of Women.” Before going to Goldman Sachs, she served as George W. Bush’s assistant to the president for Presidential Personnel, assistant secretary of state for Educational and Cultural Affairs and deputy under secretary of state for Public Affairs and Public Diplomacy. In her spare time, Powell advises Ivanka Trump; their West Wing offices adjoin one another.
· And, of course, Gary Cohn.
Though he accepts the director of the National Economic Council title, Cohn is broadly recognized as Trump’s “chief economic advisor.” That’s kind of a big deal. DC gossip columnists and commentators who delight in palace intrigues like to imagine that Cohn is the leader of a team of internationalists who square off against a team of protectionists for influence in the West Wing. Sometimes they get excited because it seems like Cohn and his crew have captured the president’s attention and begun to place their input on the administration. But then Trump jets off to Wisconsin to tout his “Buy America, Hire America” agenda and the pundits get confused.
People who recognize how Goldman Sachs has always operated know that Cohn and his compatriots have things covered, even if they sometimes have to listen to Donald Trump brag about how he came up with Keynesian economics.
Cohn is, in fact, aligned with a West Wing faction known as the “New Yorkers” that includes Dina Powell, Jared Kushner and Ivanka Trump, among others. The Forward newspaper says he strides through the White House with “the swagger befitting a banking titan.” And he is surely influential. But there are other influential people in the West Wing, and one of their factions is led by a fellow named Steve Bannon.
Now, here’s the interesting part: for all the talk of long knives and petty feuds, Bannon is not quite so different from Cohn as the fevered coverage of White House positioning might suggest.
Bannon was also a Goldman Sachs investment banker. He worked in the Mergers and Acquisitions Department during the “greed is good” 1980s. Determining that more greed would be even better, he left Goldman to go even deeper into the game as the head of Bannon & Company, a boutique investment bank that specialized in media financing and eventually ended up with a stake in the TV show Seinfeld.
Bannon is a frequent critic of Wall Street who played a critical role in framing the final Trump campaign ad that featured an image of Goldman Sachs CEO Lloyd Blankfein as the candidate decried “a global power structure that is responsible for the economic decisions that have robbed our working class, stripped our country of its wealth and put that money into the pockets of a handful of large corporations and political entities.” He has an ally in Peter Navarro, the China-wary director of Trump’s newly created National Trade Council, who warned in a March 5, 2017, Wall Street Journal op-ed that the persistent U.S. trade deficit “would put US national security in jeopardy.” It was once thought that, on the trade issues so central to Trump’s campaign, Bannon and Navarro (and to a lesser extent Robert Lighthizer, the former Reagan aide who is the new U.S. trade representative) might steer the Trump White House away from the influence of the Goldman Sachs and Wall Street axis, which has contributed so many cabinet members and economic “advisors” to so many administrations of both parties that it is now referred to as “Government Sachs.”
But as the Trump administration took shape, Bannon seemed to be distracted and Navarro was increasingly marginalized. AFL-CIO trade specialist Thea Lee told the Financial Times in early March of 2017 that “at the moment it appears that the Wall Street wing of the Trump administration is winning this battle and the Wall Street wing is in favor of the status quo in terms of US trade policy.” As the investment bankers arrayed themselves throughout the administration, on every side of every issue but always around core “deconstruct the regulatory state” strategies that invariably reward Wall Street, it became clear that the “factions” were not really at odds,
at least not sufficiently at odds to change the economic equations that matter to Main Street. As the influential financial blog Zero Hedge reminds us, if there is a conflict over economics in the White House, “Goldman is winning.”
Afterword
Averting the Trumpocalypse
A little patience, and we shall see the reign of witches pass over, their spells dissolve, and the people, recovering their true sight, restore their government to its true principles. It is true that in the meantime we are suffering deeply in spirit, and incurring the horrors of a war and long oppressions of enormous public debt… And if we feel their power just sufficiently to hoop us together, it will be the happiest situation in which we can exist. If the game runs sometimes against us at home we must have patience till luck turns, and then we shall have an opportunity of winning back the principles we have lost, for this is a game where principles are at stake.
—THOMAS JEFFERSON, 1798 letter on building an opposition to the
Alien and Sedition Acts and to John Adams’s abuses of power
When Justin Trudeau became the twenty-third prime minister of Canada in November of 2015, he announced an unprecedented cabinet. “This group—men and women totaling 30 in all—included new Canadians and members of the first peoples of this land, a woman who is just 30 years old, and three men who have reached the age when most Canadians retire,” explained the Canadian Broadcasting Corporation report. “For justice minister, Trudeau chose Jody Wilson-Raybould, a member of the We Wai Kai Nation. Another of his ministers, Maryam Monsef, just 30 years of age, fled Afghanistan as a child with members of her family to escape the Taliban. She becomes the minister of democratic institutions. There are five ministers of South Asian descent. There are two with disabilities. And yes, there are 15 women and 15 men, not including Trudeau, although gender parity is only part of the story. Women also hold senior positions, among them Chrystia Freeland in Trade, Wilson-Raybould in Justice and Catherine McKenna in the newly renamed Environment and Climate Change.”