Trump taps Goldman Sachs movie mogul to head Treasury Department

Eli Miller (left), chief operating officer of the Trump campaign, and Steve Mnuchin, national finance chairman for the Trump campaign, arrive at Trump Tower, November 29 in New York City. President-elect Donald Trump and his transition team are in the process of filling cabinet and other high level positions for the new administration. Mnuchin is expected to be selected for Treasury Secretary.
Eli Miller (left), chief operating officer of the Trump campaign, and Steve Mnuchin, national finance chairman for the Trump campaign, arrive at Trump Tower, November 29 in New York City. President-elect Donald Trump and his transition team are in the process of filling cabinet and other high level positions for the new administration. Mnuchin is expected to be selected for Treasury Secretary. Getty Images

President-elect Donald Trump will nominate Steven Mnuchin to head the Treasury Department, one of the senior-most positions in his administration, according to a person with knowledge of the situation but not authorized to speak publicly.

A film producer, banker and investor with no government experience who served as Trump’s finance chairman during the campaign, Mnuchin is expected to be named to the Cabinet position Wednesday.

Mnuchin is a 17-year veteran of Wall Street powerhouse Goldman Sachs, where his father had served on the management committee. He left in 2002 and founded a hedge fund called Dune Capital Management. He also sits on the board of directors of retailing giant Sears Holding Corp. He had two companies that were involved in providing capital for movies such as the “X-Men” franchise and “Avatar.”

John Allison, the former CEO of Winston-Salem-based BB&T, had been seen as a potential candidate for the post, meeting Monday with Trump and other aides.

Mnuchin is sure to face questions about his banking ties in California, which suffered greatly during the housing crisis in 2008.

“Steven Mnuchin...made himself enormously wealthy by cashing in on the country’s financial collapse,” the group Americans for Financial Reform said in a statement Tuesday night. “He purchased a bailed-out bank for pennies on the dollar and then aggressively foreclosed on tens of thousands of families. Anyone concerned about Wall Street billionaires rigging the economy should be terrified by the prospect of a Treasury Secretary Mnuchin.”

Consumer advocacy groups charge that Mnuchin as a banker exacerbated the foreclosure crisis in California. He led a group of powerful investors in 2009 that purchased the assets of failed lender IndyMac Bank, which had specialized in loans to weaker borrowers and was taken over by the government during the financial crisis. As part of the deal, the government agreed to absorb some of the potential losses.

From the ​ruins of IndyMac came OneWest Bank, based in Pasadena, Calif. It was owned by a holding company led by Mnuchin and composed of hedge fund giants. They included billionaire George Soros and John Paulson, who famously made billions betting on the collapse of housing finance. They were part of the plot of the book and movie “The Big Short.”

Just four years later, they all roughly doubled their investments when it was announced that New York-based CIT Group would purchase OneWest Bank for $3.4 billion. Mnuchin sits on the CIT board of directors.

“We expect that the Senate will dig into Mr. Mnuchin’s track record, and we imagine the many families who lost their homes at the hands of OneWest will be watching closely and will also want to share their experiences as part of any confirmation hearings,” Paulina Gonzalez, executive director at the California Reinvestment Coalition, a housing advocacy group, said in a statement.

Trump has pledged to rid Washington of Wall Street’s influence, part of a broader call to “drain the swap.” Democrats quickly pounced on the nomination.

“Nominating Steve Mnuchin to be treasury secretary – a billionaire hedge fund manager and Goldman Sachs alumnus who preyed on homeowners struggling during the recession – is a slap in the face to voters who hoped he would shake up Washington,” said said Adam Hodge, a spokesman for the Democratic National Committee.

The treasury nominee also holds a unusual place in pop culture as financier of Hollywood hits.

The Warner Brothers movie “The Accountant,” in theaters now, was produced with Mnuchin’s Ratpac-Dune Entertainment, and the new treasury nominee appears in the credits as an executive producer. Mnuchin also has a cameo in “Rules Don’t Apply,” a movie directed by Warren Beatty and in theaters now. Mnuchin plays a Merrill Lynch executive in the film. Ironically, also in that movie is actor Alec Baldwin, whose portrayal of Trump on Saturday Night Live has angered the president-elect.

The incoming treasury secretary will face a number of difficult issues in a Trump administration, especially if the president-elect makes good on promises to have a more confrontational approach to China. It could lead to an upward cascade of prices for consumers.

Both the Bush and Obama administrations, in annual reports to the Congress, raised concerns routinely about China’s semi-fixed exchange rate. They argue that financial markets should set the value of China’s yuan against the U.S. dollar, not China’s government.

But both presidents declined to label China a currency manipulator, a designation that would allow Congress to seek retaliatory action such as imposing a compensatory penalty in goods imported from China.

The past two Treasury departments have instead engaged in a strategic dialogue with China, meeting twice a year, one in each country’s capital.

The new treasury secretary will likely preside over a revamp of corporate taxation, if not the entire tax code. Tax legislation by law is introduced in the House of Representatives and has been promised for a number of years running.

The president-elect has already had conversations with Ways and Means Committee Chairman Kevin Brady, R-Texas, to begin narrowing differences between Trump’s campaign proposals and a tax plan offered by House Republicans in June.

The next treasury secretary will also have to deal with issues of deficits and the debt ceiling. Republicans who’ve led both chambers had engaged in brinksmanship with President Barack Obama, bringing the nation close to defaulting on government debt before raising the legal borrowing limits.

That ceiling must be raised again, and is estimated to bump against the limit in May. Some deficit-concerned Republicans may push back if Trump’s tax cuts and spending plans threaten to significantly widen deficits.

Many Republicans would also like to see a number of key provisions of the 2010 revamp of financial regulation overturned. The so-called Dodd-Frank Act sought to rein in the bad behavior on Wall Street that led to 2008’s deep financial crisis, including the independence of the Consumer Financial Protection Bureau, which has put curbs on a number of lending practices advocacy groups deemed predatory.

Most recently, the CFPB issued a massive fine against Wells Fargo & Co. for its creation of phony bank accounts to meet sales targets. The mounting criticism, even after a formal apology before a Senate panel, led to CEO John Stumpf’s resignation, and attracted attention on the bank’s spending on lobbyists.

The next treasury secretary will also wade into the complex web of financial sanctions imposed on Iran, and recently lifted in part, in the effort to curb the Persian nation’s nuclear ambitions. Trump has blasted the Obama administration’s deal to disarm Iran and vowed to reimpose a range of financial sanctions. That will put him at odds with Europe, Russia and other international powers, and will be another challenge awaiting the next leader to occupy the historic building adjoining the White House.

Kevin G. Hall: 202-383-6038, @KevinGHall

Anita Kumar: 202-383-6017, @anitakumar01