tv Treasury Secretary Nominee Steven Mnuchin Testifies at Confirmation Hearing CSPAN January 20, 2017 12:02am-3:40am EST
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people line up to get their life savings out of indymac bank. it was the middle of the financial crisis, and despite the global panic, i saw a way to save the bank. i applied for a banking charter and submitted a bid to the fdic for indymac. on december 31, just before midnight, we signed a binding agreement with the fdic. they later confirmed that our bid was almost $1 billion higher than the next best bid. we were willing to invest $1.6 billion into the most costly bank failure ever to the fdic deposit fund. we did this because we believed in our ability to rebuild and create a successful regional bank. we believed in the recovery for the american economy. let me be clear, my group had
nothing to do with the creation of the risky loans in the indymac loan portfolios. when we bought the bank, we assumed these bad loans, which had been originated by previous management. some of the individuals had to answer to federal authorities for their bad lending decisions. we invested $1.6 billion into a failing financial institution when most investors were running for the hills. we renamed the business onewest bank and save thousands of jobs. we developed a prospering community banking franchise in southern california, as most banks were pulling back. over the next two years, we bought two more struggling banks from the fdic. first fed of santa monica and la jolla bank. both through competitive bidding. combined, we had almost 70 branches and a robust lending business especially for small and medium-sized businesses.
as chairman of the bank, i met with hundreds of business people from all walks of life who were seeking loans to grow their business and prosper. like many banks of the time, indymac and its reverse mortgage division, financial freedom, was unstable due to the large amount of distressed mortgages in its portfolios. we bought indymac. these legacy loans were included in the purchase. the responsibility landed on me to clean up the mess others make that we inherited. we worked very hard to help homeowners remain in their homes through modifications wherever possible. ultimately, onewest extended over 100,000 loan modifications to delinquent borrowers to try to help them out of a bad situation.
i am proud of the fact that loan modifications started at indymac under the leadership of the fdic. however, the fdic loan modification program did not work for everyone. when the fdic took over indymac, they estimated that over half the foreclosures would not meet their test for the loan modification, and they demanded many policy conditions -- extend assistance to some pathetic borrowers by establishing affordable and sustainable payments by borrowers, increase the net present value of cash flows to the owner of the loan, and to stabilize housing markets. my group had to adhere to servicing agreements that limited our ability to make loan modifications that could have helped more borrowers. in the press it has been said that i ran a foreclosure machine. this is not an accurate description of my role at onewest bank. on the contrary, i was committed to loan modifications intended to stop foreclosures.
i ran a loan modification machine. when we could do loan modifications, we did that. but many times the fdic, fannie mae, freddie mac, and bank trustees imposed strict rules governing the process of these loans. i am proud to be able to say our bank was able to do 100,000 loan modifications that allowed people the opportunity to stay in their homes. unfortunately, not all the homes were able to be saved through these programs, and despite my best efforts, some were sadly subject to foreclosure. so sincere was my concern over this that in 2010 i instructed my lawyers to sue hsbc to allow us to do loan modifications on loans and mortgage trusts that they oversaw. we won on summary judgment and were consequently allowed to do
more loan modifications and keep more americans in their homes. similarly, in 2015, when hud issued a mortgagee letter 2015-11, i wrote hud and asked them to change the policy so we did not have to foreclose and senior citizens who were behind on small amounts of money on taxes and insurance. i was so troubled by this that i discussed it with our primary regulator, the office of the comptroller of the currency. unfortunately, hud did not agree, and we were forced to foreclose and senior citizens even if they only owed one dollar. not complying with these hud policies would have subjected the bank to penalties and losses from hud. despite our inability to save every home from foreclosure, i'm
proud of the fact that onewest bank was the only one of 14 banks that was able to complete the independent foreclosure review that was conducted by the occ. every one of the 175,000 borrowers that were in the foreclosure process during 2009 and 2010 were able to have an independent review of their loan. we had a very low error rate. independent government reviews routinely showed that we had the most effective loan modifications of any bank. if we had not bought indymac bank, the bank would likely have been broken up and sold in pieces to private investors, where the outcome for consumers could have been much more bleak. overall, i helped many homeowners stay in their homes
and escape financial ruin through my management of onewest bank. my experience confirmed that we must identify and eliminate unwise and burdensome policies which contributed to the disastrous outcomes that came in the wake of the financial collapse. many americans are still suffering from the disastrous ripple effects the 2008 crisis had on our nation. faithfully entering this does -- faithfully and sharing -- ensuring this does not happen again means supporting careful oversight of financial system which prioritizes the needs of everyday americans over the wishes of the financial institutions or the federal government. i felt great empathy for the millions of hard-working american families who lost their homes because the system failed them. if confirmed as treasury secretary, i will work diligently and compassionately for the american people so that we never see anything like the meltdown of 2008 ever again.
i was deeply honored when donald trump asked me to join his campaign as finance chairman. i had the opportunity to travel with him and hear firsthand from hard-working americans about their concerns for the american economy. over the last year, i visited over 50 cities and 26 states. i remember attending my first rally with him in indianapolis. it was an unforgettable experience. as we arrived into the stadium packed with 20,000 people, i saw the excitement that people had for a trump presidency. on our trip to flint, michigan, i went with the president-elect to visit the water treatment facilities and saw firsthand the crumbling pipes and the devastation caused by that lead-tainted water. we met with water engineers and saw the impact it had on the
communities and the families. across the country on my travels with the president-elect, we heard the pain and heartbreaking stories of americans who had lost their jobs to workers in foreign countries. we heard the concerns of people in small business burdened by high taxes, just trying to make ends meet. in my meetings with you over the last month, you share the concerns of your constituents, like farmers who worry about the death tax wiping out the family farms, or workers who are nervous about whether their retirement accounts will be safe from ruin. one of the greatest reasons i was drawn to president-elect trump's campaign was it was predicated on a commitment to stimulating prosperity for americans of all backgrounds, if they lived in the inner city of detroit, rural north carolina, coal country of ohio, or west virginia, or any place in between.
i share the president-elect's goal of economically empowering every citizen. we will not rest in our mission until that is a reality. among the president-elect's signature issues in this campaign was reviving trade policies that put the american worker first. i will enforce trade policies that keep our currency strong on the world exchanges and create and protect american jobs. we will also make america the best place for companies to do business. sensible regulation is a necessity for healthy markets. however, i saw firsthand how regulatory excess can inhibit lending by financial institutions, resulting in a lack of access to capital for small businesses and entrepreneurs. alexander hamilton remarked that wealth of the nation may be promoted by "multiplying the objects of enterprise." hamilton knew the unique value
of entrepreneurial activity to a thriving economy. from our nation's earliest days, american business has been the greatest repository of ingenuity and entrepreneurial spirit in the world. we need to unleash that power to generate jobs and create abundance for americans of all backgrounds. we will work diligently to limit regulations, lower taxes on hard-working americans and small business, and get the engine of economic growth firing on all cylinders again. in this age of unprecedented online attacks, we must also be vigilant about cybersecurity. if confirmed as secretary of the treasury, i will use my expertise in technology to protect americans' information at the irs and keep our financial architecture safe from malicious attacks. i will use the treasury department's office of terrorism and financial intelligence to
stop the financing of terrorism. i will partner with other government agencies in our shared goal of allowing our financial markets to operate free from digital and physical threats. if i am confirmed as treasury secretary, i promise i will work hard with this committee, all members of congress, and the administration to put forth policies that will help american families reach and maintain prosperity. we will make america great again. thank you, and i look forward to answering your questions. sen. hatch: well, thank you, mr. mnuchin. we appreciate your comments. i have some obligatory questions i ask all nominees we do on this committee. first, is there anything you are aware of in your background that might present a conflict of interest in the duties of the office to which you have been
nominated? mr. mnuchin: i am not -- i worked with the ethics office and disposed of investments that could create conflicts. sen. hatch: do you know of any reason personal or otherwise that would prevent you from fully and honorably discharging the responsibilities of the office to which you expect to be nominated? mr. mnuchin: i do not. sen. hatch: do you agree without reservation to respond to any reasonable summons to appear and testify before any duly constituted committee of the congress if you are confirmed? mr. mnuchin: absolutely, i look forward to it. sen. hatch: finally, do you commit to provide a prompt response in writing to any questions asked you buy any -- addressed to you by any senator of this committee? mr. mnuchin: well, i provided over 5000 pages to the staff, i think i have the record of that. if there is any additional questions, i will respond to them promptly. sen. hatch: all right, i have to go outside for a minute. instead of my starting to question period, i will turn to the ranking member, my partner in this matter, and then i will ask questions when i come back.
sen. wyden: thank you very much, mr. chairman. mr. mnuchin, medicare finances about taxing. it would be your responsibility if confirmed, with the attempt to repeal the affordable care act, medicare's solvency is with the attempt to appeal the affordable act, what steps are needed in your view to strengthen the program that every senior in america relies on? first of all, senator. thank you very much. i appreciated the opportunity for us to meet yesterday and the opportunity to talk about tax reform. i completely agree with you that medicare is very important and important program.
if confirmed, that is something i look forward to working with your staff on. confirmed, mr. mnuchin, you'd be the managing trustee for medicare. wouldn't you like to offer something by way of discussion about what you would be doing if confirmed? this is an important part of the job. mr. mnuchin: senator, i acknowledge it is an important part of the job. there are many parts of this job that i consider myself an expert on and understand and there are certain parts of this job that if confirmed, i will work diligently with this committee and others and there is obviously a significant staff. this is a very important issue and i am committed to be very responsible in my position there and make sure i properly provide the support from the treasury department and i would take my responsibility very seriously.
>> without any specifics on a matter that is so important you would have direct responsibility, i find it very troubling you will not discuss medicare. let's go to terrorism financing. the country is financed fighting isis and other terrorist groups and the treasury department plays a key role in fighting this battle. what would be your idea on additional actions for strengthening health department fights terror? mr. mnuchin: let me first say i strongly believe and understand that there are very important tools within the treasury department that can combat terrorism. many of these tools, such as sanctions, are extremely effective and keep the armed services out of harm. so, i am fully committed to the maximum amount of law to both enforce the existing sanctions and i willtrict way
work with the president elect as he sees fit on additional sanctions and there are also other programs within the treasury that i believe are very effective in fighting terrorism. it is a very important part of the treasury and i know that that has been done very effectively under previous administrations. >> we all agree it is important. we are trying to assess your qualifications. you have not been willing to talk about medicare or specifics on terror. let me take one more crack on qualifications on the committee on foreign investments because this is something else as treasury secretary you would have a responsibility. when a foreign investor makes an investment into the united states it has national security implications. investor invest into mr. trump's business, should the committee on foreign investment automatically and
with close scrutiny examine the transaction. bernie sanders: yes, that is important, but let me go back to your other question. >> i is not searching for any specifics in order to be able to assess your qualifications. mr. mnuchin: senator, again, i believe there are some very important sanctions as it relates to the sanctions against iran and other countries. i would absolutely enforce those and encourage the president to use additional sanctions when appropriate. i also understand there are certain classified programs that i will be part of at the nsa and i will use that and work with the national security group to the maximum amount that is available by law. not hear what you would do to fight isis, we did not get any specifics on medicare. now let's hear about this most current question with respect to
the committee on foreign investment. what would you do if you were dealing with president trump's business. mr. mnuchin: i would deal with it no different than i would deal with any business that comes before the committee and i would take my role as chair of the committee very, very significantly. i think it is a very important issue. previousith secretaries, they have not enforced some of these things. as theyssarily as much should have in protecting the american workers, american people, and american technology. this is one of the most important jobs i would have as secretary of the treasury. >> the president is not like anybody else. he is the commander in chief and any foreign involvement in his business could compromise national security. i will reflect on that answer as well. can i pursue one additional extra question, mr. chairman? >> go ahead. mr. mnuchin: even a hedge fund for a few years, starting in
2004. i have been trying to get my arms around the mcuchin web of bank accounts and shell companies. how many employees did you have in anguilla? >> we did not have any employees. >> company customers did you have there? mr. mnuchin: we did not have any customers that resided there. >> did you have an office there? mr. mnuchin: we did not have an office ourselves there. >> so, you just had a po box? mr. mnuchin: senator, let me explain. >> yes, or no? mr. mnuchin: hopefully, the other senators will be for some time so i can answer this for you. defer some time so i can answer this for you. >> it is a legitimate question. you can answer. mr. mnuchin: i, like all other hedge funds and many private equity funds, set up offshore
entities that are primarily intended to accommodate nonprofits and pensions that want to invest through these offshore entities. as it relates to my own tax situation, these entities were u.s.r taxed as corporations or u.s. corporations or u.s. partnerships and in no way did i use them whatsoever to avoid any u.s. taxes. they were merely as an accommodation to pension funds and nonprofit institutions and a small number of foreign investors. as treasury secretary, if confirmed, i would look at these rules and make sure -- i think that you did a good job in stopping one of the abuses of offshore deferred fees, but i would diligently look at these things and i can assure you i paid all my taxes as was required. >> we will come back to the question of offshore deals, commonly called blockers.
i am very troubled about this question about how you are going to un-rig the system if you have a record of taking advantage of tax shelters. >> as you can see, you are going to get questions like this. what was legal at the time is still being criticized. i am sure you have heard of allegations that you profited from "predatory lending" during the housing crisis. and investor group you headed was responsible for many low and no doc mortgage loans into a viable institution called one west, which is described here. i offered loan modifications, above and beyond what other institutions were doing, to more than 100,000 borrowers. that is the way it looks to me.
meanwhile, during all of the foreclosure turmoil, the obama administration officials set up a national loan modification system. -- many members of congress have repeatedly fallen short of the goals and had significant design flaws. then, the special inspector general identified that there had been countless published reports of participants who end up worse off for having engaged in a civil effort to obtain the sustainable relief that the program promised. excuse me. modifications often made borrowers with more outstanding principal on their loans, less equity, depleted savings, and
worse credit scores. it is a provocative language that we have heard supporting her actions in the foreclosure crisis. i guess you could say the then secretary of was a "predatory loan modifier," using that type of logic. west haven, did one any interplay with the obama administration's program? was that program always successful in preventing foreclosures on struggling american homeowners, or could more have been done by the administration? mr. mnuchin: senator, thank you very much for that question. it is an important issue. when we did the deal with the fdic we committed to the fdic that we would continue the fdic loan modification program. it was after that that the obama administration came up with hamp. we had no obligation to do hamp. we could have continued to do
fdic loan modifications, but we felt it was the appropriate thing to go into the u.s. treasury program, as did other major banks. we voluntarily went into that program. the hamp loan modification program was a very prescriptive program, including us having to follow net present value calculations that were determined by the treasury models to see which was better, foreclosing on a home or providing a loan modification. we unfortunately had to follow the hamp rules, or he would have been severely penalized if we did not proceed with the foreclosures. >> these were not your rules? mr. mnuchin: no, these were rules driven by the administration under hamp. >> which administration? mr. mnuchin: the obama administration. >> let me ask one more question. there is a agreement that the
tax laws -- there is a wide agreement that the tax laws have become much too complicated. there are stories of people getting their tax liability not calculated correctly, reducing cynicism about the tax laws including an ever greater tax gap. it is clear there is a major problem that something needs to be done to address the problem. to your credit, mr. mnuchin, you have talked about your desire to civil by the tax code. thank you. i'm glad you are talking about that because i very much agree with you. my question is, how to address this problem? do you have any suggestions for how to make the internal revenue code less complex, or at least keep it from getting more complicated, and would you recommend a moratorium on tax legislation or tax regulations? should the tax laws simply try to raise revenue for the government and stop trying to achieve so many other social
goals or societal goals? mr. mnuchin: yes, senator, i agree with you completely. i have been one of the chief architects of the president-elect's economic plans. we believe the most critical issue is grading economic growth and passing tax reform is a major component of that. our tax reform plan, we believe the tax simplification and fewer deductions are absolutely critical. we mention about the tax g and that is something i have been reading about and studying. i was particularly surprised that at looking at the irs numbers, the irs headcount has gone down quite dramatically, almost 30% over the last number of years. i don't think there is any other government agency that has gone down 30% and especially for an agency that collects revenues, this is something i am concerned about. perhaps, the irs just started
with way too many people, but i am concerned about the staffing of the irs. that is an important part of fixing the tax gap. i'm also very concerned about the lack of first rate technology at the irs, the issue of making sure that we protect the american public's privacy when they give information to the irs, cyber security around that, and also customer service for the many hard-working americans that are paying taxes. you areor grassley, next. >> like i told you when we met in the office, i don't have any gotcha questions or i would let you know. let me go along the line of the first statement i want to make. i don't expect you to answer unless i have some misunderstanding of our position discussed in my office.
tax reform will be a top priority for you and i agree and look forward to working with you and the president elect on that point as part of any tax reform proposal. it will be important that adequate transition rules are included to provide a smooth transition for businesses that may be unpredictably negatively impacted. as we discussed, congress has effectively put in place transition rules for some alternative energy, including wind. the production tax credit is currently scheduled to phase out over the next few years, ending in 2020. based upon our conversation, i believe we are in agreement that you would support the current phase out as part of any tax reform proposal. question two. i have been a strong proponent debte irs private
collection process. 2015, congress updated and made mandatory the irs private debt collection program. this program is designed to chip away at the tax gap by requiring the irs to contract with private debt collectors. these are the tax debts not being worked by the irs. absent this program would likely never be collected. adding up to $187 million in 2017. out of that $187 million the treasury department has provided debt collectors to collect a net of $8 million. this is not because of a lack of the irs tox debt for
a son. according to the government accountability office report, the irs has over $130 billion of outstanding debt on its books . hamstringing this program by refusing to release in active debt should be considered unacceptable by anybody. can you give me assurances that the department of treasury under your leadership will work to implement the program to the full extent of the authorized law and bring in this tax money that is not being collected? mr. mnuchin: yes, senator. thank you for having spent time with me. i appreciate the opportunity to speak with you about important issues. on these issues that we do need to have phase out rules when we change things and i support the phaseout of that as you suggested. on the irs, i think most aspects of the taxes should be handled by the irs, but as you have
described, to the extent we have $100 billion plus of receivables that are just sitting there and that we can collect tens of millions, or hundreds of millions of dollars, for the american public. particularly in an environment where we are looking for money for summoning programs, i agree with you. this seems like a very obvious thing to do. my lastwill mbe question. in 2006 i was successful in enacting legislation to enhance the irs whistleblower program, and that program has been one of the most effective programs in addressing tax evasion, leading to the recovery of more than $3.4 billion in taxes that would have otherwise been lost to fraud. there has been resistance within the irs of the whistleblower program. whistleblowerse
who wait in the dark with no feedback from the bureaucracy. the irs has chosen to interpret the whistleblower law narrowly to the detriment of whistleblowers and several instances. the irs has interpreted the terms collected proceeds, which is the base for determining the amount of award to exclude criminal penalties and certain other proceeds, such as penalties assessed for undisclosed foreign bank accounts. two questions and i will say them most. should you be confirmed, can i count on you to be supportive of the whistleblower program and work to ensure it success? additionally, would you be willing to review the irs' administration program, including it's very narrow interpretation of the words collected proceeds? mr. mnuchin: absolutely, senator. and let me go on to say that the
majority of americans voluntarily file their tax returns honestly. but we are all aware that there is tax fraud. there is tax evasion, as you said, and we need to be diligent and i believe that the whistleblower laws are a very important part of that. i will work very hard with you on that, thank you, senator. >> thank you. you, mr. chairman. and welcome. congratulations on your nomination and welcome to your beautiful family as well. i do want to follow-up up on information we just received last night that were additions to your recent financial disclosures. i have not had a lot of time to take a look at that. we just received it last night, but you failed to include your position as a director of the cayman islands corporation as well as the manager chairman or director of seven additional shell corporations and holding
companies, nearly $100 million in real estate, as well as a number of other things, including $956,000 worth of artwork. and as wey secretary, go into tax reform, would you support closing tax loopholes in the u.s. tax code that extremely wealthy people use, as you yourself have used to avoid paying taxes? we have heard about the cayman island for many years. in the buildings that have had thousands of companies that have used them as addresses. and would you be willing to close those loopholes? mr. mnuchin: first of all, let me comment. i appreciated the opportunity to travel toyou and i your statement times and have great admiration for your state. the president elect had a very significant economics speech in detroit and we have been very
focused on time in your state. i appreciate everything you have done. on -- iust comment realize last night he did get a memo on some changes to my senate questionnaire. so thank you for giving me the opportunity to comment. i think, as you can all appreciate, filling out the us government forms is quite complicated. ever many things i expected in this job, including having to sell everything, but the amount of paperwork and filling out the forms, even for me, having experienced in business, was quite a job. in an effort to get the committee information early, we submitted a preliminary questionnaire prior to us having the 278 form finished in prior to signing the agreement with the ethics office. the me first say that any oversight was unintentional.
wasdid mention that there $100 million of real estate. i was advised by my lawyer that we did not need to disclose that on the questionnaire because it did not need to be disclosed on the 278. there was confusion about the complexity. we work tirelessly with the committee staff and i want to thank all the staff, i know they worked very long hours. as i said, they were extremely thorough. i appreciate their work. we delivered over 5000 pages and i can assure you they actually read all those 5000 pages because when i had the opportunity to meet with the staff, with my lawyers and accountants, we answered very specific questions. , i don't want to interrupt, and i appreciate the clarification. my question goes to what you are actually disclosing.
particularly the cayman islands. did you use the cayman island corporation to avoid paying taxes, or would you support closing tax loopholes that very wealthy people have consistently used in the cayman islands to avoid paying taxes? that really is my question. mr. mnuchin: let me just be clear. i did not use a cayman islands entity in any way to avoid paying taxes for myself. i pay u.s. taxes on all that income. there was no benefit to me from the cayman entity. it was set up to accommodate nonprofits and pension funds that want to invest through offshore and a certain number -- >> so, you have helped others avoid paying taxes? mr. mnuchin: again, they did not avoid. they follow the law. because i have experience as a hedge fund manager, i am committed to tax simplification. i think it makes no sense that we would encourage hedge funds
managers to set up entities in the cayman islands or anywhere else where you pointed out there are no physical people. there are people who set up offshore businesses and put other people offshore and you have heard of inversions and those types of things. they are perfectly legal and hurt the american workers. in the hedge fund world, these are set up to make the accountants rich and i would love to work with the irs to close these tax issues that make no sense and make sure we are collecting the proper amount of taxes. >> so you up or closing those loopholes? mr. mnuchin: i support changing the tax laws to make sure they are simpler and more effective, yes. >> thank you. >> thank you, very much senator. and mr. mnuchin, i appreciate your willingness to go through this and to serve the american people. we truly need the kind of vision that president trump has enunciated for the country and that you have committed to help
work with him to achieve for the country. as a part of that, one of the things you have already mentioned today -- and i am paraphrasing you hear, but i believe you said in essence that we have a regulatory excess in the united states in many circumstances that can, and is, inhibiting lending and inhibiting capital formation. very important things that i think are critical to a progrowth economy. could you elaborate on that? mr. mnuchin: sure, let me first say that i absolutely believe in proper regulation. before i had the opportunity to put ina baid for indymac bank, i had to be issued a charter. i worked very closely with what was the ots at the time and by the way, i was a big fan of the merging the ots with the occ. at the time i worked with the ots and the fed and the
regulators explained to me at the time, and i told him that i understood the responsibility of being given a banking charter. i took that very seriously. i must say that i enjoyed working with very smart regulators. i have tremendous respect for them. of fact, one of the few things the "wall street journal" wrote nicely about me, they made a comment that i told everybody that we had to treat the regulators like our best clients, which i believe. the regulators and the relationships with them and following the regulations, nothing was more important given the trust they had put in us. having said that, i witnessed firsthand multiple regulators fdic, the the consumer protection bureau, the federal reserve, and in certain cases, there was overlapping regulation. my biggest concern, and i fully
support regulation for banks insurance, but my biggest concern is that this regulation is killing community banks. we are losing the community banking business. we are losing the ability for small and medium-sized banks to make good loans to small and medium-sized businesses to the community, where they understand those credit risks better than anybody else. i think we all appreciate the engine of growth is with small and medium-size businesses and in working with a different regulators, i would did were that we could do have proper regulation, but eliminate overlap, as well as make sure that the banks are lending to small and medium-sized businesses and we do not end up with a world where we only have four big banks in this country. into my nextght
question. in a closely related matter, as you know, as a secretary of treasury, you have a very important role as the chairperson. in my opinion, it is focused on statutory mandates, some statutory mandates while ignoring others. one of the statutory mandates fsoc is required to do is to advise congress and make recommendations in such areas that will enhance the integrity, efficiency, competitiveness, and stability of u.s. financial markets. today, frankly i am not aware of fsoc the filling that role. we do not get a lot of advice from them. directives inf the country. will you pledge as the that youon of fsoc will ensure that the council considers ways to make the u.s.
financial markets more efficient and advise and work with congress to achieve those outcomes? mr. mnuchin: i absolutely will, senator. and let me just comment on, for instance, the rule as an example. i do support the rule. i think the concept of proprietary trading does not belong in banks with fdic insurance. but the federal reserve just put out its own report that the rule has eliminated liquidity in many markets. the federal reserve very concerned that the interpretation of the full rule toker create enough liquidity for customers. senator, i wanted to thank you in great esteem of having the mcuchin rule with the buffet rule and volcker
rule. thank you for putting me with these other great people. >> good morning. i enjoyed our visit yesterday. doomyou a director of capital international limited, a cayman islands corporation? mr. mnuchin: i was, that is correct. llcid you move a hedge fund to anguilla? mr. mnuchin: so, senator, first, let me just comment. moving, it isbout not as if i had about 50 people sitting in the office as we have talked about. >> i understand. mr. mnuchin: i do want to comment and yes.
dune capital llc, and not to get into the specifics, but when there is an onshore fund and offshore fund, we keep the assets in a master fund. because we set up the master fund in anguilla, i was required to change dune capital partners to become a foreign entity. that was the reason. but let me just comment. >> i am running out of time. i have got to get to the question. mr. mnuchin: sorry. >> the question is, both of those were for a tax consequence located in the caymans, as well as anguilla. the question is, you said you support tax reform. do you support closing those kinds of tax avoidance provisions? the anguilla and the cayman
islands type tax avoidance in the tax code. mr. mnuchin: let me just comment that when i did move it, i had to apply to the irs and the irs approved as a foreign eligible entity to be taxed as a u.s. partnership. from my standpoint, it made no difference to me whether it was located in delaware -- >> but my question. mr. mnuchin: i am giving you a slightly longer answer it is a complicated issue. >> just answer the question. mr. mnuchin: the short answer is yes. i think that i would work with the irs and with congress. it makes no sense that we have all these requirements to set up these offshore entities, which again, did not benefit me, but did benefit certain nonprofits and pensions. we should address the issues for nonprofits and pensions and
understand why they need to investor these offshore funds. i would not want to do anything that is detrimental to the pension holders, or these nonprofits, that i would commit to work with your office, senator, to make sure that we fix the system. nke talked about indyba yesterday and becoming onewest. you said you brought, when you acquired indybank the portfolio of reverse mortgages. enter your credit, you said that once it became onewest, that yo u did not sell anymore reverse mortgages. the ceo, i want you to comment on the fact that of the reverse mortgages that you acquired from indybank some
of the folks were not treated very well. amentioned to you yesterday, akeland woman was foreclosed on because of a 27 cent payment error. i did not mention two others. for closing on an 80-year-old orange park, florida woman that your bank claimed did not live in the home when in fact, she did and she happened to have the foreclosure papers served on her in the home that the bank said she did not live in. another example. a married couple in their 50's trying to make the best of everything. they asked for a loan modification of west bank. they were told there are eligible for, but instead, they
were for closed on. xplain to the committee, ifyo you would, and i think you are an earnest, well-intentioned person, but you are sitting there as a ceo, and this stuff is happening that is very unfair to the little people. why? mr. mnuchin: senator, thank you for taking the opportunity to meet with me. i appreciated that in the time to speak about these important issues. on the first say, to the extent that we made errors or foreclosed on anybody, i completely understand that the hardship that created. as i mentioned, we did go through an independent foreclosure review and unfortunately, there were some issues, very, very low rates, compared to everybody else, but there were some issues and we paid money to those people to make them whole. i earnestly feel terrible for any mistakes at the bank. thate comment on also
once a week i chaired an internal committee that dealt with customer complaints. so, any complaint that went to our regulators, that went to a senator, that went to a member of the house, or went to what we -- we had a special group of people that reviewed every single complaint and responded to all of your offices and responded directly to the bar trrower. we also routinely had the occ come in and monitor and test us and go through all those complaints. it was a very big concern because as you can imagine for both the fdic and occ, when we took over indybank, the amount of complaints spiked dramatically. the reverse mortgage business was not something we wanted to buy. we agreed to buy that as part of
an overall solution. what we were trying to do was to create a regional bank and that business had no part of it. there were about 1.5 billion reverse mortgages the bank owned. billionre over 20 reverse mortgages we did not own that we serviced for third parties. the majority of all those third parties were guaranteed mortgages. as i pointed out, i think there are some very significant issues with the hud program. one is a problem with taxes and insurance. if there is a shortage on taxes or insurance because somebody outlives their expectancy, hud forced them to foreclose, there is another problem called a non-borrower spouse, where if the spouse was not on the mortgage at the time, you would have to foreclose, spouse. we discussed these issues with hud. if i am confirmed, i would look
forward to discussing these with wouldrson in hopes hud seriously consider looking at these things, although it is not under my responsibility. i would share my concerns. these are government guaranteed programs where we are foreclosing on senior citizens. i can assure you nothing was more painstaking to me in the whole place, ok. i will tell you, i can't talk about specific loans because of privacy, that there are certain things that were in the press. the most troubling loan we had was actually to the octomom. we worked very hard. that was a terrible situation. we worked very hard to move her to another home that they could afford. chairmanre you that as of the bank i took these issues very seriously. it is not to say that we did not have certain mistakes. there were mistakes. we regret those mistakes.
mentioned, we had hundreds of thousands of delinquent loans. just as an aside, when you talk about loan modifications, banks are highly incentivized to do load modifications. anybody who thinks we made more money foreclosing on a long then modifying a loan has no understanding of this. we were highly incentivized for people.close on it is a terrible thing to do, but it is costly to the bank. we believed in loan modifications and financial incentivized to offer them when we could. >> thank you, senator. >> mr. chairman, i look forward to a second round. >> sen. menendez. >> i had a different line of questioning. but the information that came to us this morning makes me concerned. year, your 19 of last signed a notarized affidavit on your questionnaire to the finance committee certifying that it was true, accurate, and complete.
question 11 of this questionnaire asked nominees to "list all positions held as an officer, director, proprietor representative, consultant, other business enterprise, education, or other institution." that seems to be pretty pervasive. it is almost like an open book test. yet, you did not answer in that questionnaire, listing your position as director of a cayman islands corporation, as manager chairman and director of eight additional shell corporations and holding companies and nearly $100 million in real estate. that questionnaire was corrected only after the committee staff having done their due diligence, brought the missing information to your attention. after that, you admitted to being the director of the offshore entity dune capital
llc. you admitted to moving your hedge fund to anguilla in 2005. even though all the business was conducted in new york city. i have a ton of other questions on policy. but first and foremost is truth and veracity. what americans need in their treasury secretary, to know they will be asked to do different difficult work challenging things. in essence, isn't it true that what you did here is take these companies, put them offshore, so you can help your clients, who you were making money from, avoid u.s. taxation? mr. mnuchin: that is not true at all. >> you just described the purpose of creating these offshore entities was to help pensions and other entities and the only reason to go offshore as senator grassley said one he
was, i think the chairman of the committee, is the difference between investing in the united states or the cayman islands is the possibility of avoiding u.s. taxes. your clients, you made it very clear that you pay your taxes. i will accept your word on that. but the entities that you were helping and you were making money from, you are helping them avoid u.s. taxes. otherwise, they could have invested here. mr. mnuchin: senator, let me answer the first part of your question, which i will tell you, and i said this before. these forms are very complicated. i do not have the form in front of me, but i believe it said to the best of my knowledge this is true. when a certified those forms i thought it was correct. perhaps it was a mistake in giving the committee information early in the should have waited 278 andhad finished the the ethics office. it was not just a function of your office.
we were in the process of correcting things. >> does not take a rocket scientist to understand the words, list all positions. mr. mnuchin: with all due respect, i had a lot of complicated entities. you are referring to the fact that it did not list the director. i listed the entity. the fact that i did not list i was the director was not intended to hide anything. as i have mentioned with regards to my $100 million in real estate, my mother who has done ,his for many nominees before believed we had filled out the form correctly. >> let's get to the heart of my question. didn't you create these offshore entities that most americans cannot create or take advantage of, to help your clients, who you were making money from, avoid u.s. taxes? mr. mnuchin: no, not necessarily. first of all, i want to say that it is important that the committee -- >> what were you doing it for
them? mr. mnuchin: this was done so that different entities could invest, so sometimes it had nothing to do with taxes. it had to do with what they could invest in. as i said to you, if you want to put me on for the entire hedge fund and pension fund, we should have an irs session to go through these issues and i would be more than happy to work with you and your offices to go through these. they are very complicated issues. >> i appreciate that. does not go and create offshore entities at the end of the day other than to avoid in some form or fashion the tax laws of the united states. that is pretty simple. it might be even legal. in which case, we should definitely close it. but you have to question whether or not that is the essence of what we want as leadership. i would like to hear you be more
determinative of saying, yes, we will close all of those down if i can convince the president-elect and congress to do so. because what you did might have been legal, it was certainly to help people and entities avoid u.s. taxes. mr. mnuchin: i am absently committed to working with you and your offices on tax some publication and to cut down -- on tax simplification and to cut down and make sure that nobody avoids taxes. in certain cases, this is not a case of avoiding taxes. it was to create eligible investments for certain nonprofits. i agree with you completely. i am on board with what you said. i would be happy to work with your office to simplify the tax code. it may have been an eligibility issue and not a tax issue. i agree with you that this does not make sense and i will work with you and your office. i am committed to do that. why peoplere that
need to move entities from anguilla -- again, we are not grading jobs there. this is just where these entities are housed. i agree with you, it will create a lot less work for the tax accountants and lawyers and make the american public more money and move our irs resources otherwise. i agree with you completely, senator. thank you. >> your time is up, senator. i think it is ironic and a little hypocritical of my friends on the other side of the sign religionenly on offshore account holdings. evidently, your memories are short. who now serve in the cabinet who now serve in the cabinet had cayman island holdings, and that includes the current treasury secretary, who also ran a business group at citigroup. for which he received close to $1 million in bonuses. that unit has been sanctioned by the fcc for selling toxic assets that "harmed investors."
let me just say, with regard to the nominee's disclosures to the committee, i want to say this. as part of the committee bipartisan vetting process, mr. mnuchin in good faith submitted answers to committee questionnaires and other materials that were later modified. the file is now complete and meets the demands of some of my democratic colleagues, the disclosures now include financial information that is usually kept confidential. such is the value of personal residences. the committee appreciates mr. mnuchin's efforts to work through the complicated request for information on what is an exhaustive vetting process. let's be fair here. >> mr. chairman, just so we are clear. the bipartisan staff called out these offshore investments of both democrats and republicans to secretary liu and others.
i want it understood and that is the reason that people even knew that mr. mnuchin had not filled out these forms up properly. we did it because the american people deserve to know about mr. mnuchin's offshore investments, even though they had not been originally disclosed. but our track record has been bipartisan and we have called out both democrats and republicans. >> that is the purpose of it, but let's be fair, too. >> thank you, mr. chairman and mr. mnuchin for beigng willing to serve and go through this process. i want to thank you for meeting with me and my office and going through many of the accounting functions and initiatives that you will be managing. i do not ask those in these kinds of meetings because i noticed it puts the audience to sleep.
they are very important and i was really impressed with your answers. i am impressed with your private sector experience. i have always said that every business looks really simple unless you are the one who has to make the decisions on it. and how far ahead you have to make the decisions, and how you find in train employees, and how you meet the federal regulations. well, you have actually worked with those rules. you have actually been forced to learn some things that are going to be essential to your job. it is a pretty unique situation. this is the biggest business in we don't even make decisions timely. we are still working on last october 1's spending bills. there are many things around here that have to change and some of them you will be in the position to do and i have been really impressed with the knowledge that you have already shown with this committee on
different things that most of us never had any experience with. very impressive. now, i will cover a couple of specific thing. because i think the internal revenue service has often strayed from its core function of responsible and efficient revenue collection. i hope the new trump administration will make sure the internal revenue service stays on track with this purpose, while also improving the recent record on how it communicates with taxpayers and practitioners. people have not been able to get answers. something that has been more disturbing to me, to illustrate in recent years. the irs has inserted flyers with the tax refund checks and those flyers, one of them was produced by the consumer protection bureau, which is outside of our oversight. and solicited cases from the taxpayers about their money. it is not appropriate for the
cfpb, an independent organization, or any other organization to solicit information from taxpayers, nor is it appropriate for the irs to help facilitate this. as the treasury secretary, would you stop this activity. do you believe that is the role of the irs? mr. mnuchin: thank you, senator. and thank you for taking the time to meet with me and thank you for your long-standing service to our country. yes, i absolutely would work with you on that. i do not think it makes sense that the irs is doing that. i would want to understand what the reason is, but it seems to make no sense to me. as i have said to you, i think one of the big issues is around is technology.t i would use my expertise in technology to make sure that we bring the irs up to date. that is a function of, i understand old email systems,
old privacy systems, we absolutely need to make sure. in this world of cyber security and it being such a big issue, we need to protect american taxpayers' information, and there should be simple ways that the irs can interact with the american taxpayers. if you can get good service in business, online there is no reason why we cannot use that same type of technology o communicate and get their information securely with the irs. i look forward to working with you in your office on that. >> senator, if i could interject. you mean you will help us modernize the irs? mr. mnuchin: it would be one of my great priorities, absolutely. >> that would be a wonderful thing. mr. mnuchin: i that is at least a bipartisan issue that we can all agree on. >> since the chairman used part of my time, i would like to get this question here. in 20102, i introduced the
international tax reform act that would help fix our tax code and promote u.s. economic and job growth. that bill would help to right the ship by pulling our international tax rules into the 21st century and making the more certain soa u.s. companies are not had a disadvantage with foreign companies. this would give the companies incentives to create jobs here in the u.s.. i would encourage u.s. companies to develop and keep rights to their ideas and inventions in the u.s., rather than shipping them off short. do you agree that our current international tax system is aniested and the u.s. comp are at a competitive disadvantage with their foreign counterparts? mr. mnuchin: i could not agree with you more. i think the fact that we have companies like apple that have hundreds of billions of
dollars of sure because of the difference in tax rates in the are being penalized to bring back money. one of the things i think we all agree on. i have talked to the president elect. he believes we can bring trillions of dollars back on short, so that money is invested in american businesses and creating jobs. i absolutely look forward to working with you and your office on tax reform, bringing down business rates for big businesses and small businesses, and making american business the most competitive in the world, so we are not shipping jobs overseas and money overseas. >> thank you and i have some questions about thte e debt. as budget chairman, i am interested in that. it gets into the number minutias, so i will submit that. >> thank you. >> welcome, mr. mnuchin. i am a recovering governor from delaware. a lot of my time as governor, and even now, i speak a lot
about how i create a nurturing environment for job creation and job preservation. i will talk about that, but before i do, some of my colleagues have raised the cayman islands taxation. you mentioned the irs. in the past years, several times, john has sat right where you sit. the position he has been selected to serve, that is a five-year term. i think he has another year. he is in his 70's. he took this job not because it was something he was required to do, but because it was asked of him. he is one of the finest public servants i know. he has said to us many times, and you have said it here today, we give the irs less money than they need. they don't have the people they need. they don't have the technology they need. for every dollar we invest in the irs, they could at least four dollars back.
this is not so much a message for you. i think you have got it. the message is really for us. we are interested in raising revenue and not raising taxes. that is a good place to start. i was encouraged by what you had to say. 32nd, your take on the cfpb. are they worth keeping? mr. mnuchin: first of all. >> just really quick. mr. mnuchin: that is a complicated issue. but, yes. the biggest issue i have with the cfpb is i don't believe they should be funded out of profits from the federal reserve. i believe they should be funded out of an appropriations process. >> that is good. i mentioned a nurturing environment for job creation and job preservation. it has a lot of components to it. among them are funding research, actually making sure we are doing a good job protecting property,ual commonsense regulation, a sensible tax code, affordable health care, finding ways to get
the federal reserve for a little less money. we had people who suggested to us that one of the components is substantial investments in infrastructure. i have suggested for a number of years that we use an approach we have taken for years. the people and businesses that use our transportation system could actually pay for them. i think that makes sense. there are other ideas as well. vehicle miles traveled, sort of like we figure out how many miles vehicles are traveling and assess a fee. there are different approaches to that. is this something the infrastructure investment -- one of the things, ways to go, gdp and growth of jobs is exporting. getting into other markets. te pacific trade partnership,
pp, wanted to enable us to have access to the markets overseas. also at the same time, renegotiating nafta. that seems to me like a pretty good deal. i understand that there was interest in the administration renegotiating nafta. we did that. your thoughts on the trade policy, especially the transpacific trade partnership. mr. mnuchin: first of all, thank you. you have raised a bunch of very important issues. >> just go to that one issue, if you would. it is not a trick question. mr. mnuchin: i wrote down five of them i wanted to comment on. >> we just don't have time. on the trade agreements. mr. mnuchin: on the trade agreements, the president-elect is very much interested in free and fair trade. as you have commented on, this is not about limiting imports. it is about growing exports as much as we can be. you have also commented on intellectual property. i think what of the biggest trade agreements
is the american intellectual property is not being kept. it is being taken in foreign countries. you have mentioned nafta. the president-elect is very much interested in renegotiating nafta so we can keep more jobs here. he picked up the phone and called many ceos, i cannot remember the last time a president or president-elect did that and work for the american workers. i look forward to working with you and your office, you have brought important issues and infrastructure, at the appropriate time, i am happy to comment on infrastructure as that is important to the president-elect. sen. carper: comprehensive immigration reform, we learned that not only will it grow gdp by infrastructure investment. also comprehensive and -- immigration reform, any take on that? mr. mnuchin: immigration and
immigration reform is very important to the president-elect. not completely in my lane but i have been with him so i know his views on that. i think he works -- looks forward to working with the house and senate about a very important issue. sen. carper: if you do not share his views on comprehensive immigration reform, mentor him a bit. >> thank you for being willing to serve the country. i want to follow up quickly on this point on the irs, you have allies on both sides of the aisle that will help you. there is good professional people that work there. under very difficult circumstances, not enough people, i hope you will be effective with donald trump, i understand he is calling on a freeze.
i am not sure how that coincides with your desire to make sure we have adequate personnel in irs. hopefully you will get the number of people you need because they cannot do it with the current workforce. mr. mnuchin: i can assure you the president-elect understands we need people to make money and he will get that completely. that is a very quick conversation. >> i want to follow up with a couple issues. another role in the senate, i am the ranking democrat on the senate foreign relations committee and i want to deal with sanctions. i heard you with regard to enforcing sanctions, particularly those aimed at those dealing with those who sponsor terrorism and against countries that are violating our international norms on democratic principles. russia is top on that list and i will ask you questions for the record as to your views on the current sanctions and strengthening sanctions. particularly with russia's
attack against america's democratic election institutions. i want to make sure i understand. you are committed to enforcing sanctions against russia. mr. mnuchin: 100% so and the president-elect has made it clear they would only change sanctions if he got "a better deal" and we got something in return whether on nuclear arms or other areas. yes, senator -- >> in response to the questions about using the irs and making sure it is not partisan reasons, you will enforce sanctions without regard to a person's party affiliation or office? mr. mnuchin: of course, terrorism and supporting terrorism and illegal activities is the most important issue and i hope that is not a -- i hope that is -- that is a bipartisan issue and whether our sanctions, -- and where there are sanctions, i assure you i will use them to the maximum amount allowable by law. >> i appreciate that answer. senator warren and i will send you a letter if you are confirmed to investigate the
allegations that the recently named senior advisor to the president may well have violated sanctions against russia in his dealings. i accept that you would investigate this issue to see whether it was a violation of the sanction law. mr. mnuchin: of course. anything that you send to me i will make sure myself or my staff investigates and have your respect that i would do that 100%. >> i thank you for that. you pointed out that you would treat in your international roles, an american company dealing with the foreign markets equally, even if it is a trump enterprise entity. you are taking note to defend the constitution of the united states and there is the emoluments clause and you have
to make sure if you are dealing with a trump entity, it is not getting a favor in exchange for trying to influence the president of the united states or the trump administration. how do you go about knowing there are no special breaks being given if you do not have full access to that type of information? mr. mnuchin: let me first say and i think we all acknowledge this -- whichever side we are on -- that we are in a unique situation that we have a president who has the vast amount of money -- senator cardin: he is not doing what every other president has done, set up a blind trust to divest. what you are doing come if you are confirmed, divesting. that is what is required. he is not doing that. my question to you is how do you, if confirmed, deal with compliance to the constitution to make sure a trump enterprise is not getting a special
which would violate our constitution? mr. mnuchin: i think this is a very important issue for the american public. let me first say that i know the president-elect is absolutely following the law and is committed to following the law and has set out a series of -- although not a blind trust -- he has removed himself from his business, he put his sons in charge of his business and he is committed -- excuse me, one second. he is going to hire an ethics officer and i can assure you that in my job of treasury secretary, whatever is responsibilities i have to monitor these issues which are very important, i can assure you i will do. sen. cardin: you did not answer and i will follow up with questions, how do you make sure there is not a break given to a trump enterprise which would violate our constitution?
mr. mnuchin: i have employed a lot of lawyers, but i am not a lawyer. the good news is we have a big group of lawyers and a big ethics group and i can assure you we will make sure we absolutely follow the law and the constitution and i have every reason to believe that the president-elect absolutely wants president-elect absolutely wants to adhere to it and will do so. >> senator brown. senator brown: thank you for the conversation in my office on china and banking issues. let's clear up one thing. banks are in your words "not highly consented to do -- for their borrowers. that is why we had a systemic breakdown. put that aside. i want to talk about your situation. i understand your offensiveness in individual meetings and in
this committee about what happened at one west. in 2006, donald trump responded to a question about the possibility of a real estate crash by saying "i sort of hope that happens because then people like me would go in and buy." you bought the bank, the ability to help families stay in their homes -- that is not what you did. you have been saying that one west -- i really want yes or no answers, because i have a lot of questions and what i say is factual in my view and i would like you to confirm with yes or no. is it true that community groups say one west, specifically the california reinvestment coalition, is it true community groups say one west foreclosed on 60,000 families nationwide and denied three fourths of mortgage modification applications?
mr. mnuchin: i am not aware of that. sen. brown: they did. mr. mnuchin: if you know they did why are you asking? sen. brown: because i want to hear it from you. i will keep interrupting because i do not have a lot of time. is it true one west regulators said you had deficient mortgage practices, foreclosed on 10,000 plus borrowers without proper procedure on at least 23 who were current on their mortgages. mr. mnuchin: what i would say is we follow the same procedures that the fdic followed. we inherited the procedures. sen. brown: is it true that one west independent auto firm said it violated the servicemembers civil relief act by initiating foreclosures on 54 active duty military families? yes or no? mr. mnuchin: you have the document in front of you and i do not.
sen. brown: well they did. i am sorry, i am surprised you do not know these things because you have been rather defensive, for good reason about what happened at one west. is it true the california attorney -- mr. mnuchin: i want to comment for the record. we unfortunately did foreclose on certain people in the military and it was unfortunate and inappropriate and we responded and made them whole. obstructed the investigation. did they say that? mr. mnuchin: first, let me comment i saw the leaked memo as
you did, and i think it is highly inappropriate that somebody at the attorney general's office -- sen. brown: is their new -- no truth about backdating? mr. mnuchin: again, what i would say is the primary regulator was the occ. they had the obligation to regulate. sen. brown: i am sorry, the occ said you had these deficient mortgage practices that you could not remember when i asked you about occ and now you are citing occ. is it true that one of the employees that was in charge of the modification -- one of the one west employees accused one west of not having any process in place to help the 3000 fha and va mortgage borrowers avoid foreclosure and this same employee accused one west of not having a process in place to help those va mortgage borrowers avoid foreclosures and submitting false claims. mr. mnuchin: in all due respect, it seems you want to shoot questions at me and not let me
explain -- sen. brown: i will you explain after i go through the questions because one answer will take my whole time. mr. mnuchin: at least understand these are complicated questions. let me at least explain them, otherwise there is no point at shooting them at me and i do not have the ability to respond. sen. brown: you don't, but all of these are factual things if you want to follow up with a response later in more detail. you can answer this and take as long as you need. one example of an insider loan was the media deal that the fbi denied a request related to relativity media where you were cochair citing enforcement procedures. have you been questioned by law enforcement on this? yes or no? mr. mnuchin: i have not and i assumed you wrote that letter -- i saw you wrote that letter yesterday. i assume the fbi did a thorough background report.
i am not sure why they did not approve the issue. we have had no reason to believe it is an issue associated with me. sen. brown: fair enough. sen. brown: i accept your answer and you are not being investigated, but i find it interesting you know about the letter i sent yesterday detailing all of the questions i just asked about with one west, but the letter i sent you back in early mid december about this, you have not even taken the time to answer. i think the issue is the one west purchase went well for the treasury secretary designee, but was a disaster for homeowners, employees, investors, and taxpayers. we can talk more about taxpayer cost on this when the whole process and the amount of money
that he bought it for -- sold it for, mostly subsidized by taxpayers. >> senator, your time is up. take as much time as you want to answer. mr. mnuchin: thank you very much. senator, i did enjoy meeting you and if i am confirmed i look forward to spending more time with you. although we may not agree on everything, there were certain things we did agree on when we met and i have a lot of respect as you as a senator to hear your issues. i did acknowledge that you sent me the letter. i was advised by the staff that the appropriate thing was for me to come here and answer questions or meet with all of you independently and answer questions that you have and if i do not satisfy that you have the ability to submit questions afterwards which i will respond to. when i came to your office i told you that and said i would
spend as much time as you wanted answering those questions and that they work white significant -- were quite significant because i knew they were complicated. i told you i would not respond in writing, but i did understand your questions and wanted to respond to them. >> welcome. we have not had a single year with a growth rate has exceeded 3%. the current administration describes that is the new normal. tell me, what do you think is a reasonable expectation in terms of the growth rate in our economy? historically, if you go back to world war ii, we average about 3.2% a year. what do you think is a reasonable growth rate? mr. mnuchin: i am looking at some of my notes. the short answer is i have said publicly and believe that we should be able to get 3%-4% sustained gdp.
i think that is important and i think that as a country, the most important issue we have is economic growth, that whatever issues we have as republicans or democrats, i think we can agree that with more growth, it is a lot easier to solve these issues and we should all be focused on things that help grow the economy. in 1984, we had 7% and in 1998 , we had 5% and in 2005 we had 3%. that was the last time we had appropriate growth rates. i share the president-elect's concern of low growth. our number one priority from my standpoint is economic growth , and i can assure you i will work tirelessly if i am confirmed to create growth in the economy and create pro - growth programs and i commit to work with all of you on that. i believe the tax reform will be
our first and most important part of that. sen. thune: i think we can achieve a higher level of growth. to what degree to you believe that regulations -- a lot of regulations of volume out of the administration, as of yesterday there was a 277 page regulation out of the obama administration that affects farmers, small businesses, the folks that i represent and there was also in september we sent a letter to secretary lou basically trying to get him to withdraw regulations that dealt with valuation discounts that impact the estates and makes it difficult for a small business or a farmer or rancher to pass it on. when you get over there, are you going to hopefully look at withdrawing those types of
regulations and undoing a lot of the economic harm and frankly what has adversely affected the growth rate in the economy as quickly as possible? mr. mnuchin: absolutely and i will tell you that both myself and the president-elect believe in appropriate regulation. not just in financial services, there is excess regulation inhibiting jobs, in growth, hurting the american workers and we are committed, specifically on what you mentioned on the irs regulations on family businesses, i am committed to work with you and your office. we want to make sure that we cover the appropriate loopholes , so that people have businesses set up to avoid taxes, it is one thing and they are not a real operating business. we need to make sure that people who own minority interest and operating businesses -- that the valuation for tax purposes are
reflected appropriately, and anybody who follows the markets knows that there is a significant difference between control and non-control and the irs should follow their valuations. we should make sure we collect the most money and not have lots of loopholes. on the other hand, we need to reflect their valuations. sen. thune: senator cardin and i share -- one of the issues that came out of comprehensive tax reform. how do you treat businesses in treat passhow do you through businesses? 90% of the businesses operate as pass-throughs and they employ about 55% of the people in this country. as we think about tax reform, i guess i am asking you if you would commit to work with us to ensure that passed through businesses are treated fairly and that whatever we comes up
with in terms of policy reflects the economic impact that llc's and partnerships and chapter ask -- chapter corporations have on our economy. mr. mnuchin: absolutely. not only have i committed to it but i have spent a lot of time on this issue already. i have worked with the trade group that follows small businesses and not only do they support the trump economic plan that i helped design, but they were kind enough to write a letter of support for me to the committee and i think the important issue on pass-throughs that we are committed is that we want to make sure there is a business tax, not just a corporate tax. that there is a business tax. if there are large pass-throughs that earn tens of millions or hundreds of millions of dollars, we want to make sure that they keep the money in the company,
ok? as an incentive and do not use pass-throughs as a way to get lower taxes than they would pay as personal income tax and we want to make sure that hedge fund managers do not use pass-throughs to avoid what would be higher personal income taxes. we are absolutely committed and we have spoken to many small businesses and entrepreneurs to make sure that they are protected and get the benefit of the business tax. i appreciate your concern we have heard this loud and clear on the campaign trail and i can assure you it is something we are committed to work with you in your office on. sen. thune: keep that focus on growth so we can get that back up. >> senator toomey's next. senator toomey: thank you for joining us and i appreciate our chat the other day. mr. chairman, i want to thank you for observing some not too distant history, the fact that
our current treasury secretary -- the cayman island and maybe my memory fails, but i do not remember the outrage from my colleagues on the other side when it came to his circumstances. there seems to be a bit of selectivity on the part of that. i want to go back to a point you made earlier briefly because i think it is important for the benefit of those among us who have no experience in banking at all. you made a point that i think is really important. i have never heard of a bank that would not prefer loan modification every time over foreclosure. not only to avoid the misery that results for their customer, but also because foreclosure almost guarantees locking in substantial losses for the bank. would it be fair to say that virtually anytime it is possible
that -- mr. mnuchin: we ran a net value test that was established by the u.s. treasury assumptions and we put in the assumptions anytime we could collect more money by doing a modification, we were allowed to do a modification and incentived to do a modification. we would have done those modifications even if we had not received the incentives from the u.s. government which on our fdic loans were rebated back to the fdic. sen. toomey: a couple of things i want to touch on quickly if we could. on the trade front, the president-elect indicated an interest in revisiting trade agreements and some were negotiated a long time ago and i am sure there are things that could be modernized and updated. would you agree that it would be a mistake to evaluate whether or
not a trade agreement is a good one to solely look at whether or not we have a trade deficit with the country in question? would it be a mistake to make that the sole criteria? mr. mnuchin: i would agree with that. sen. toomey: good. also, would you agree that many of the periods of strong economic growth we have had in recent decades correspond to a period of a strong dollar and if the economy is performing well, the result will be a strong dollar. mr. mnuchin: let me comment on that because i think the u.s. currency has been the most attractive currency to be in for long periods of time. i think it is important and i think you see that now more than ever, the currency is very strong and what you see is people from all over the world wanting to invest in the u.s. currency.
i think when the president-elect made a comment on the u.s. currency, it was not meant to be a long-term comment. it was meant to be that perhaps in the short term, the strength in the currency as a result of free markets and people wanting to invest here may have had negative impacts on our ability in trade, but i agree with you, the long-term strength over long periods of time is important and that is a reflection of -- i believe we have the most attractive investment environment in the world and we just have to protect our u.s. companies so they are not forced abroad. sen. toomey: last point i want to make. running low on time, the many failures of dodd frank in my view include title 2, which i believe is a codification of a
mechanism to require future bailouts from taxpayers in the event that a large financial institution should fail again. would you share my view that it is much more desirable to amend the bankruptcy code so that we could handle the resolution of up complex financial institution through bankruptcy and not ever have to go to taxpayers to bail out these banks? mr. mnuchin: i 100% agree with you that we should not be in the business bailing out big banks and i 100% agree with you that i share concerns on title 2. i think we need to look at the bankruptcy code and what we can do as an alternative. i would just comment that the bigger issue is, for long periods of time, the fdic was
able to take over and resolve banks when the regulators determined there were issues in one of the big problems we had during the financial crisis was the intermingling of banks and holding companies and complex securities, so i do not necessarily -- i think if we have proper regulation of -- a lot of the need for title 2 also goes away. sen. toomey: i have run out of time. thank you, mr. chairman. >> senator bennett. senator bennett: thank you for holding this hearing and thank you for your willingness to serve in the meeting yesterday for clarity. "the wall street journal" yesterday "the dollar shrinks as trump talks it down." as treasury secretary are we ever going to hear that the dollar is too strong? mr. mnuchin: as treasury secretary i do not see it as my role commenting on the dollar on short-term. i have commented on what i believe are the long-term -- senator bennett: in 2011, due to
the this function in congress, we almost failed to raise the debt ceiling and as a result, a rating agency downgraded our nation's deficit for the first time in history and the stock market lost 17% of its value and did not recover for almost a year and consumer confidence fell 22% in a few months. it completely self-inflicted wound on the american economy. it hurt retirement savings and dealt a blow to job growth and job creation. mr. trump suggested he could refinance or renegotiate our existing debt and he walked away from the idea initially. later in the campaign he suggested the company could pay creditors less than what they are due, specifically he said "you go back and say hey, guess what, the economy just crashed and i am going to give you back
half." he also suggested the united states never has to default "because you print the money." the you agree with these statements? mr. mnuchin: first of all, thank you for asking the question about the debt ceiling. sen. bennett: good because i have another question. mr. mnuchin: i think it is an important issue for all of us. sen. bennett: please do not filibuster, i appreciate. mr. mnuchin: the president-elect has made it perfectly clear that honoring the u.s. debt is the most important thing. i hope that when we get to the point if i am confirmed that we have to have the debt ceiling -- that we will not go through another one of these issues because there are certain things that i would have the power to postpone this. i firmly believe the u.s. has the obligation to honor -- sen. bennett: can you then commit to working with congress to pass a clean debt ceiling?
mr. mnuchin: i will commit to absolutely work with the congress, the house, and the senate so we do not get to the last minute and run out of money. sen. bennett: is that a yes? we will pass a clean debt ceiling? mr. mnuchin: i do not know your technical issue of what a clean debt ceiling. sen. bennett: the debt ceiling. mr. mnuchin: let me be clear, i would like us to raise the debt ceiling sooner rather than later. sen. bennett: that is good enough for me. i am grateful for that answer. the nonpartisan tax policy center found that the president-elect trump's tax plan would increase the debt by $7.2 trillion over the next 10 years. the president-elect also proposed increasing defense spending of that he would not like medicareents and social security. in 2015, nondefense discretionary spending comprised about 16% of the budget and about $583 billion which
includes funding for veterans benefits, transportation, national parks, and research. even if we did not spend a single money -- penny on these priorities for a year, which i would not suggest, that would only pay for about 8% of mr. trump's tax plan. the tax plan increases the debt by $7.2 trillion in acceptable outcome for you? mr. mnuchin: i believe the $7.2 trillion number was the first tax plan and not the second tax plan. i believe it scored dynamic closer to -- sen. bennett: the first tax plan was $11 trillion. mr. mnuchin: you must be
referring to static and not dynamic. the dynamic number was closer to $2 trillion. sen. bennett: the dynamic is three point tricks -- $3.6 trillion. what we are doing is adding mountains of debt. mr. mnuchin: let me comment that i have discussed the debt and we are concerned that we have gone from $10 trillion to $20 trillion a me think the way to reduce the debt is by economic growth and that will create the opportunity for us to pay down the debt. sen. bennett: just to be clear on that, senator thune said that in our history, the average growth rate we have seen is about 3.2%. it would be great to get to 4%. you said between 3% and 4%. there is no way that will fill the gap that is projected in these tax plans. i can accept the fact the president-elect may have changed his mind or you differ. i am trying to find if you would
find it acceptable to bury the american people and this kind of debt? mr. mnuchin: i think as you know, we had a rather modest campaign staff relative to the other people out there. one of the things i look forward to if i am confirmed his having access to all of the people at treasury who are able to model these things. we were forced and we had some internal models, but we were forced to rely upon external models and certain assumptions we agreed with and certain we did not. i think it is important that president trump has a progrowth economic tax plan and we are sensitive to the cost of the plan. yesterday i did have the opportunity to meet with senator wyden and we talked about the process for tax reform. i will be the person from the administration taking the lead on that and i would look forward to working with the house and the senate, both republicans and democrats to move forward on tax legislation. sen. bennett: i am out of time mr. chairman, i just want to make one observation is that mr. mnuchin, in fairness to him, has twice praised the employees of the treasury department today and i would like to say that is
a refreshing and welcome change from what we have heard up until now in a lot of these hearings. >> sen. isakson. sen. isakson: thank you very much mr. chairman. i am sorry i have been in and out of the room. i have been listening, so i am up to date. i am going to talk to you about something i have not prepared myself to talk about. i want to talk about mortgage-backed securities in 2008. your port -- your purchase of indymac was in 2008? mr. mnuchin: that was correct, december of 2008. sen. isakson: it started a domino effect around the world that collapsed mortgage-backed securities and their value. is not that -- is that not correct? mr. mnuchin: that is correct. sen. isakson: when you purchased
indymac it had a number of those loans in its portfolio. mr. mnuchin: yes, that is correct. sen. isakson: wall street packaged loans and put it into a security based on a high yield. is that not correct? mr. mnuchin: indymac securitized the loans themselves and created their own security the market backed up and cannot afford to sell them and got stuck keeping them. most of the mortgage backed securities we had they did not buy. most of them were failed sales. sen. isakson: is it not true that the freddie and fannie guaranteed insured loans at the direction of the congress of the united states when it came to the affordable housing loans? is it not true that congress directed that to have a larger percentage of affordable housing loans in the portfolio? mr. mnuchin: absolutely and i believe that unfortunately what led them to buy a lot of bad loans.
sen. isakson: i want everybody to understand when they are talking about mortgage issues, i was in the real estate business for 31 years and in congress at the time this went on. what happened in a lot of these loans is they were made because of the inducement or direction of congress to take more of them. what was called and affordable housing loan ended up a subprime loan which ended up being a high risk loan which had a high interest rate and was packaged together into securities and sold around the world. is that not true? mr. mnuchin: these loans had all types of acronyms. they should have been called bad loans, that is what they were. sen. isakson: indymac, as i recall, tried everything it could to recalibrate those loans and restructure the loans and renegotiate the loans to keep as many as possible from going into foreclosure. is that not right? mr. mnuchin: that's right and
even not just the loans that we owned, but the loans that we serviced for fannie mae and freddie mac. the one person that protested at my home, it was a fannie mae loan and i was not able to do anything about that. but through my multiple phone calls to fannie mae, i was able to get a loan modification. a lot of times people thought we owned the loans and we did not. sen. isakson: the main part i want to that point i want to make for the sake of the argument and a lot of the questions you will get is a lot of these loans were called affordable housing loans and a lot of people bought those loans that had been made by some of the else and they inherited the problem and did not originate the problem. there is a world of difference between originating a loan and buying a loan. mr. mnuchin: that is correct. i can assure you the loans that we originated were good loans
and had nothing to do with the terrible legacy loans. thank you for pointing that out. sen. isakson: that is the important point because if you originate something, you own it, but if you acquire some thing that is a bad debt or a bad piece of paper, shame on you for buying it, but it is not your problem for creating it. is that not correct? mr. mnuchin: that is correct, thank you. sen. isakson: and i do not mean shame on you that you are wrong. one last point, i have been told by my state director of revenue that the irs is not sending out -- the federal government is not sending out the w-2 forms to the state revenue departments in the united dates. -- the united states. is that not correct? >> correct. sen. isakson: when you become treasury secretary, i hope you would pay attention to that and try to direct them to going back to do that because the only way we can keep bogus loans and intrusion out of the portfolios
is for people to get back their income tied to their social security in the federal government to get the report on that and the irs to get it at the same time. if you would work to seeing that those practices are ended i would appreciate it. mr. mnuchin: i will be committed to work with you and your staff on that. sen. isakson: thank you for your willingness to serve and congratulation on your nomination. >> thank you mr. chairman and mr. mnuchin, to you and your family welcome to the hearing. since the beginning of the great recession, no state was hit harder than the state of nevada. we let the -- we led the country in closures and unemployment. we are sensitive as to who becomes the next treasury secretary having gone through that over the next -- last eight or nine years. you came in my office on january 4 and i appreciate the visit. i asked you questions and i would like to ask the same questions today.
the question was how many nevada homes were in one west's bank portfolio? mr. mnuchin: unfortunately, i will go back and request that information from the bank. i no longer have that information. i will work with the bank to try to get that for you. >> how many nevadans did one west foreclose on while you owned the bank? mr. mnuchin: again, i have the information on public reports, but i am committed to go back and get that information for you from the bank. i apologize i do not have that with me today and i appreciate how hard your state was hit in the foreclosure crisis. senator heller: do you know how many nevadans one west provided assistance to with modifications? the reason i ask these questions over again is that this is the seventh time i have asked you. i asked when you are in my
office and i had my staff follow-up. three times by text and three times by phone and we still cannot get the answers and i am not quite sure with two weeks -- your own comments were they you had responded to 5000 pages of questions asked. why were these three questions not asked if you had 5000 pages of questions that you answered ? mr. mnuchin: first of all, let me apologize to you because i recall you asking them in your office and there is no excuse they have not been answered. i am not aware that my staff also got those questions. i apologize to you and assure you that as soon as i get out of this hearing i will request that information from the bank. we are responding to a lot of other information. i apologize, this is important to you and your have my -- you have my commitment you will get that. sen. heller: in 2008 when you purchased indie west can you tell me what motivated the transaction?
was it a way to save the bank, which make money, or a way to keep people in their homes? mr. mnuchin: i think it was all three of the above. i saw the opportunity that i thought there is going to be a banking crisis and i saw the opportunity that we saw we could turn around the regional bank and turn it from what was a lousy mortgage bank into what -- an attractive regional bank and it was the opportunity both to have an attractive investment. i had to convince my investors they would make money, but i saw it as a great goal of building a business. i just made comments and my investors made a lot of money on one west, but i comment if we had just invested in jpmorgan and bank of america and a handful of other stocks we would have made a lot more money and i would not have had to have worked nearly as hard. a big part of the financial return ultimately was reinvested
we -- was we reinvested in the market at a very depressed period of time. heller: were you motivated -- let me ask you this way, was it an objective of one west bank to foreclose on nevadans to receive compensation from the fdic on the shared loss agreement ? mr. mnuchin: no, quite a contrasty -- quite the opposite. we committed to loan modification. when we bought the bank, that was the agreement. we were proud of loan modification starting there and we actually had a bunch of incentives, whether it was hamp incentives or other things in the washer agreement where it was much better for us to do loan modification. as i have said before, i can assure you that what prevented us from doing more loan modifications was either the net present value test or what was
the qualifications. we were required to get updated income and people had to have -- had to be able to effectively requalify for the loan. as i have said before, not only from a social basis that i want to keep people in their homes, but we were economically motivated to do that. sen. heller: how much did the fc -- fdic pay one west for the losses? mr. mnuchin: what he mean by how much did they pay us for the losses? sen. heller: what was the compensation from the fdic for the shared lost homes? mr. mnuchin: i think there has been like 400 shared loss agreement according to the fdic data,lic beta -- public data, they believe they saved $40 billion by using the -- sen. heller: the answer is $1.2 billion. mr. mnuchin: that is after we absorbed $2 billion of losses. sen. heller: you are not saying that is not a motivation to
foreclose on a home is $1.2 billion? mr. mnuchin: no because they were restructuring loans and we wanted good loans. let me just be clear. we wanted good loans, having good loans that performed under the loss-share agreement. sen. heller: did one west bank specifically target my normal -- minority communities in nevada for foreclosure? mr. mnuchin: absolutely not. >> senator casey. senator casey: thank you very much. i wanted to start with a subject
you have already answered questions about, the issue of mortgage foreclosures and also modifications. i am holding in my hand -- i guess a 4-page document -- and investigative report announced "trump picked for secretary secretary foreclosed on -- treasury secretary foreclosed on in pennsylvania." i would ask to have this part of the record. mr. chairman: without objection. sen. casey: let me read part of it because i know some of these reports refer to individuals. you may know them and you may not and i will not ask if you know this person, but here is a couple of excerpts according to channel 4 in pittsburgh. nelly lost her husband to cancer, lost her son to an overdose, and then she lost her
home to one west bank. she says, i am quoting "one thing i will never get over is my son's death." she lives in west moreland county. here is what nelly hoped would have happened. she said "they -- meaning one west -- they should've worked with me to -- for a payment that i could make." she filed bankruptcy and even then cannot save her house. she said it caused her "a lot of depression." and it lists a couple of depression." and it lists a couple of examples. a house in white oak was foreclosed in 2014. another house in 2013 and another in 2012 at a house in pittsburgh in 2011. the headline says "hundreds of homeowners in western pennsylvania."
depending on where you draw the line, that is roughly 10 counties. one region of a state of 6 -- 57 counties. one reason i highlight that is to focus on the impact that those foreclosures had on one community and one state. also to ask questions so i can make sure the record is clear to the extent that we can get to modifications in foreclosures. one of the statements you made in my office when we met and i appreciated the time we had -- you said that one west "did lots of modifications." on the question of foreclosure itself, you said "at the time we only did $30,000 to $35,000 in foreclosures." mr. mnuchin: i was confused about the time period. that was 2009-2010 versus
175,000 -- the 100,000 loan modifications was over a longer. -- longer period of time. sen. casey: over the time that you were the leader of one west, how many foreclosures total nationwide? mr. mnuchin: i don't have that, but i can find the number. let me comment because there is talk about foreclosure business. 93% of the loans that we service, we service toward third parties. we sold this business. i never wanted to be in the mortgage servicing business. i did not want to be in the reverse mortgage business. i wanted to build a regional bank. one west is no longer, we sold years ago the servicing business because we did not want to be in that.
we sold the business to another company. the loan you are talking about sounds like a horrible situation and i sympathize for that person. sen. casey: i have limited time, let me get to the second question on modifications. there seems to be some discrepancy here about the numbers on modifications. you say in your testimony today and i am quoting you here at the bottom of page 2 "ultimately one west extended over 100,000 loan modifications to the ligament two -- to" -- delinquent borrowers" extended is not the same as a modification. you agree with me? mr. mnuchin: extended means they were put on modifications. sen. casey: that is not a completed modification. mr. mnuchin: again, they were offered and put on a loan modification. sen. casey: in fact, according to a document that makes -- i will make part of the record, this is a one page document from hamp, the home affordability modification program that mr.
chairman, i would ask to be made part of the record "making home affordable summary result," that is the name of the document. in terms of total modifications, it was really only 22,908 so we will put that into the record and have more questions later. mr. chairman: without objection we now turn to senator cassidy. senator cassidy: nice to see you. as you can tell from where i am, i am fairly junior on the panel. i will note that you have been somewhat insulted by innuendo and my sympathies for being insulted by innuendo. secondly, as regards economic growth, i wrote an editorial with a friend in the "wall
street journal that showed if we had economic growth from 2001-2014 as we had from 1993-2000, in 2014 we would've had a 550 -- we would've had a surplus as opposed to the $500 billion deficit we had. i appreciate your acknowledgment that progrowth policies cover a multitude of sins. good for you. mr. mnuchin: thank you. sen. cassidy: that said, i represent a lot of rural parishes and there are two things driving economic growth, typically utility companies and community banks. since dodd frank passed, you and i discussed the number of community banks -- it is just plummeted. "o-m-g" as my daughter would say. how do we revive economic prospects of rural america? mr. mnuchin: thank you and first of all, i enjoyed the opportunity to meet with you and
talk about these issues. as i mentioned before, i am very concerned that we had and continue to be in the business of putting community banks and small regional banks out of business, that the regulatory cost -- sen. cassidy: one guy told me that 64 regulatory visits in a 52-week period. the marginal cost for this small bank is like why am i not selling? mr. mnuchin: that sounds right from my -- for my experience, that is the right ratio. i agree with you completely and if we want to have economic growth, for us the -- to end up with four or five big banks in this country and dealing with
the two -- too big to fail or too big to succeed, we need to have banks. we need to have regional banks and community banks. those banks understand the people in the community and can make good loans. sen. cassidy: related to that and something you were speaking with thune, it doesn't seem like we haven't excess of capital. -- we have a lot of capital, but we cannot get it down to someone who is an entrepreneur and to bring prosperity to eventually -- prosperity to eventually evangeline parish. i do not know the answer to this, but it strikes me that there are those co-possible
goals of tax reform. one is to create more capital -- i think under the reagan tax cuts high mortgage rates deprived capital to those who -- high marginal rates the private capital to those who needed it. the other point of tax reform would be to align incentives. you spoke earlier that the pass throughs, you want to incent folks. would you agree with what i am saying? of the two -- is there a third reason to be tax reform? if you throw those in, it seems the creation of capital is the one that is not the priority so much as to align incentives and create certainty. you go. mr. mnuchin: i agree. the only other thing i would say because i think we have a lot of capital in the united states now, but we have a business tax system that is incenting u.s. companies keeping the capital of broad. the other thing we want to incent is that money comes back to the united states now as well as going forward and that money
can be deployed to create new business here and create jobs and that we stop things like inversion because it makes economic sense for u.s. companies to do business here. sen. cassidy: the incentive is both for the company to use their money more wisely, to invested to create jobs, and to keep companies from moving abroad? mr. mnuchin: correct. sen. cassidy: on behalf of all the folks in that small parish, i look forward to your nomination. >> senator warner. senator warner: i appreciate our visit and congratulations on
your nomination. i will try to move quickly. the united states obviously enjoys enormous advantages around the state with the reserve currency. that allows a slower interest rate and everything from student loans to mortgages. the president-elect's comments about negotiating the debt during the campaign were unprecedented. i want you to affirm to this body going forward it will be your policy as much as you can influence the president-elect that we would never again question america's willingness to stand by their debt obligations. mr. mnuchin: i agree with that 100% and let me thank you for meeting with me and acknowledged as an incredibly successful business person, i appreciate your service. sen. warner: don't let that eat into my time. i have been very troubled by even some folks in elective office who have somehow said we can ignore the debt ceiling without consequences or even some that are going out and saying somehow we could prioritize those debt
obligations and potentially pay off bondholders, many of them foreign and many of them chinese, and ignore obligations to pay states which then affects their bond ratings and honor commitments to salaries of fbi employees, etc. it is your policy that the united dates come in terms of debt obligations, needs to honor all debt obligations and should not have the ability to prioritize those obligations. mr. mnuchin: absolutely and i hope you will work with me so that we get that done. we have already spent the money and we have the obligations. there should be no uncertainty that we are paying the bills. sen. warner: i think that is extraordinarily important and those who argue prioritization would wreak havoc again in the financial market. i will raise what entered a bennett race. -- what senator bennett raised, if you get this role -- the actions of the president-elect in terms of commenting on the
strength of the dollar work on president has ever done this before. it has affects now. you will be a senior adviser in the cabinet of the president, but how do we and sure since words have consequences that there will be an ability for the trump administration on economic policy to speak with a single voice. mr. mnuchin: if i am confirmed, i think that once we all get in office and have regular access, both myself and the administration, i think you will see that and there may be times where there is a view that the dollar is slightly too strong, but i believe we will speak with a unified voice. sen. warner: you then expect to the president-elect and then president would break precedent and be able to way into these matters unlike any prior
mr. mnuchin: as you know, this president is willing to do many things other presidents have not done and many of them are great. sen. warner: one area i have concern and interest in is on fannie and freddie. i know there were some people that potentially interpreted some of your comments about recap and release, which in a sense would say even though the american taxpayer was paid back $188 billion in the failing institutions in a moment of crisis, i think from a business standpoint we would both say that was high risk capital and we got a better return, but somehow those that say let's refloat these entities and ignore the underlying challenges -- do you support that position of recap and release that some have advocated? mr. mnuchin: let me be clear that i did make comments about this.
my comments were never that there should be recap and release. what my comments were -- and first of all, i have been around the mortgage industry for 30 years and i have seen this for a long period of time. this is an area i believe i have expertise in. for very long periods of time i think fannie and freddie have been well-run without creating risk to the government and they played an important role -- i know you are running out of time. sen. warner: mr. chairman can i get another 30 seconds? mr. chairman: go ahead. mr. mnuchin: i believe these are very important entities for the necessary liquidity for housing finance. what i have committed to is that i will work with both democrats and republicans. what i have said and i believe, we need housing reform. we should not just leave fannie and freddie as is under government control without a fix. i believe we can find a bipartisan fix for these.
so on the one hand, we don't end up -- on the other hand, we don't run the risk of completely of limiting housing finance. >> i appreciate those comments and look forward to working with you. i have two quick questions i hope you can answer. with yes or no answers. one is, in light of those comments about recap and release, you commit not to support any kind of administrative effort that would bypass the congress in terms of efforts to recap and release? mr. mnuchin: i don't want to make any commitments to legislative or not. what i will commit, because it is my responsibility at treasury, as it relates to certain issues with fannie and freddie. what i will commit to is it is my objective to find a bipartisan solution to it. i would welcome the opportunity to sit down with you. sen. warner: my hope would be that the bipartisan consensus that the banking committee
, in particularly, arrived at was that that solution, and we can discuss about how we get there, should end up with the housing finance system that preserves things like a 30-your -- 30-year mortgage it also makes sure there is not the current status, when things are going well, private sector gain, but when things hit the fan, taxpayer holding the bag. mr. mnuchin: i can assure you i have no interest in that and i think i understand this well enough that you will find that i want support any policy that has that case. mr. chairman: senator mccaskill. senator mccaskill: mr. mnuchin, i found a tweet of your future boss that i agree with. keep it fast, short, and direct, whatever it is. that is what i'll try to do. first, you oppose lifting the current sanctions on russia. mr. mnuchin: right now i do. >> you think --
>> i'm sorry, i oppose right now lifting the current sanctions. sen. mccaskill: do you support new sanctions against russia? yes or no? mr. mnuchin: the answer is i don't have the information. i haven't been able to receive classified briefings. i would want to understand the classified information. i would want to work with others to understand it. i don't have an opinion right now as to whether we should have more. i do have an opinion that we should not be lifting the existing ones. sen. mccaskill: would you agree that your new boss is famous for firing people? mr. mnuchin: well, he has a show about it. but other than the show -- sen. mccaskill: sometimes it is a blurred line. at this point, we are not sure where the show stops and the reality begins. do you think he will hesitate to fire people if he disagrees with them or believes they are doing a bad job? mr. mnuchin: if he disagrees with them, no. i can tell you, the president-elect and i have disagreed on things. sometimes i have been able to convince him and sometimes i
haven't, and i haven't been fired. if people do a bad job, absolutely, he should be able to fire them. sen. mccaskill: will he be able to hire and fire the ethics officer? mr. mnuchin: the ethics officer as it relates to his trust? i have no idea. sen. mccaskill: who would hire and fire the ethics officer is not him? mr. mnuchin: i don't have access to the documents. and i don't have the answer to that. sen. mccaskill: we are not talking about trust. he says he will have an ethics officer to oversee him in the government. who is going to hire and fire his ethics officer? him? mr. mnuchin: it's a good question. i would be more than happy to ask him and talk to him about it and come back. i think you raise an important issue and i think he will understand that i don't have the answer. sen. mccaskill: he is not sting any -- dive business interests, correct? mr. mnuchin: correct. i believe he sold his public stocks. sen. mccaskill: i am talking
about his business. is it fair to characterize him as an international businessman? mr. mnuchin: i believe so. sen. mccaskill: he will enjoy the benefits of his businesses success while he is president, correct? mr. mnuchin: again, i believe he will do everything legally -- sen. mccaskill: this is not my question. my question is, he has said very loudly, he will go back to his business after he is president, even said he would fire his sons if they hadn't done a good job. so whatever success his business enjoys during his presidency, he will get the benefit of, correct? mr. mnuchin: i missed the part about firing his sons, but that sounds like something he may have said. but yes, he is the economic owner, so by definition, i would assume that he would have that. sen. mccaskill: his businesses in other countries and this country intersect with foreign
countries, you agree? mr. mnuchin: so i have read yes. , sen. mccaskill: isn't it true that a lot of his debt is held by foreign interests? mr. mnuchin: i don't know, i have read it in the papers. sen. mccaskill: do you think you should know that as someone who runs the committee on foreign investments, if we are talking about the commander-in-chief? should you, as secretary of the treasury, know what percentage of his debt -- i'm told by people familiar with his business that it is a huge percentage of his debt -- that is held by foreign interest. mr. mnuchin: well, as i said, if i am confirmed, i assure you, i will make sure the requirements of the constitution are upheld. i think you have a valid point about foreign debt and understanding foreign things. if i'm confirmed, i will research that and get back to you. sen. mccaskill: so what i want to get a commitment from you today is that you will report to this committee what percentage
of debt against the trump enterprises is held by foreign interests. that is your job as the secretary of treasury. i want your commitment that you will report to this committee as soon as you are able to get that information from the new president. mr. mnuchin: i am not making the commitment today to report to the committee on anything. but what i am willing to do is, to the extent i am confirmed, i am willing to speak to the chairman and make sure that whatever the committee thinks it needs, i will discuss with the president. sen. mccaskill: i can assure you the american people need to know. you in your job as treasury secretary that is supposed be determining national security interests based on foreign investment, the american people want to know how much debt is owed by the trump business is -- businesses is owned to foreign entities, and if that could have a direct impact on our national security. thank you, mr. chairman. mr. mnuchin: thank you, and i
think you have asked some interesting questions on which i will follow-up. mr. chairman: thank you. senator burr. senator burr: i would love for the staff to look it up and see if that is the responsibility of the secretary of the treasury, to actually ask the president what percentage of foreign debt -- i don't know if that is part of your job, mr. mnuchin. let me say, your employment history is quite complex. probably the most complex i have seen of any nominee that is here. what i read into that is that you are sort of a roadmap for things that we need to do, if the goal is a simpler, more transparent understandable tax policy in this country. so let me ask you, do you pledge, do you commit to the committee to work toward a simpler, more understandable tax code in this country?
mr. mnuchin: i do, absolutely. sen. burr: do you commit and pledge to this committee to divest yourself of any assets that may be perceived as a conflict with the job that you are being considered for? mr. mnuchin: i have already agreed to that and sign the form with the ethics office. sen. burr: i know that. many of the questions i have heard on this committee suggest that they did not hear it. i just wanted you to have the opportunity one more time to repeat it. in april of 2014, the treasury ig came up with a study. he found the internal revenue service had paid out $2.8 million in bonuses as well as tens of thousands of hours of leave and hundreds of pay step increases to employees who were tax delinquent or had conducted serious misconduct including
fraud and drug abuse. the inspector general found a 108 of 364 employees with willful tax noncompliance cases closed between october 1, 2008 & september 2013 received one or more awards, promotions, steps, incentive payments within a year of after being disciplined for non-tax compliance. will you commit to me today to change this policy, this insane policy? mr. mnuchin: absolutely, it's very concerning. i commit to working with you and your staff on it. absolutely. sen. burr: thank you. in another report, december 2014, the inspector general of the irs discovered that they had repeatedly hired employees who were fired for poor conduct and performance after lengthy examination processes on their employment. in fact, the treasury watchdog
found that in a sample of 763 employees who were rehired by the irs, 11% of them had bad performance in their record as to why they were fired in the first place. in some instances, it said in their records, do not rehire. yet, the irs rehired them. you do you pledge to this committee to change that insane policy at the irs? mr. mnuchin: that sounds like the most common sense thing i have ever heard. so yes, i'm absolutely committed to that. sen. burr: i appreciate it. because i think that with all the questions you have been asked today, all the pledges you have been asked to make, i try to look at it from the value of the american people. the american people deserve better than this because in the private sector you would not , stand for this, would you?
mr. mnuchin: absolutely not. >> you would not have a company that would pay people for nonperformance or poor performance. you would not reward individuals by rehiring them, if in fact, they did a poor job last time. i think the american people look at insane policies like this and they really do question those who head agencies, and quite frankly, committees like this that have oversight over the agencies. so i go back to where i started. you have a very complicated and fascinating employment background. probably more areas than any of us can ever imagine. do you pledge to use that experience to make the changes at the treasury department and within all the branches of the treasury department, that the american people sense need to be changed? mr. mnuchin: absolutely, it would be a great honor to lead the treasury department and work for the american people that's why i am here. sen. burr: thank you for being here, i yield back. mr. chairman: senator scott.
senator scott: thank you for coming by the office and having a good conversation about economic growth, which should be our focus as part of the finance committee. certainly the administration, as well. follow up on some of the senator's comments about a simpler tax code. i think about the comments i have heard from the president-elect as it relates to making sure the folks working paycheck to paycheck experience a better quality of life. raises, i think about the tax code. i specifically think about folks in south carolina who are strongly in support of president trump as well as places like , pennsylvania, wisconsin, michigan, where these folks are working every day long hours, barely making it. as we think about the tax code and reforming it, we can focus either on income or on capital. i would love to hear your comments on president trump's approach to reforming the tax code, will will the emphasis be
on the personal code or more on the capital process? mr. mnuchin: i think it is both. i think we have an opportunity to reform the tax code, and we should all be focused on this, on both the personal side and the business side. in many cases, i see them linked. there will be changes to the business tax code that will create more jobs and more income, but i think the overall goal, as we have the opportunity to discuss -- and thank you for meeting with me -- is to simplify personal taxes, deliver a middle income tax-cut, make u.s. business taxes competitive with the rest of the world so that we can compete effectively and aggressively and create more jobs. this is all about creating better economics and more jobs for the american public. i am very concerned about the
number of jobs that have been lost, the decrease in manufacturing, the number of people that have left the workforce. these are all very concerning issues and when you just look at the unemployment rate, that absolutely does not tell the story of what is going on in this country. sen. scott: following that same thread, you think about simple application of the tax code. in order for us to get to a lower rate, we need to have a serious conversation and perhaps a challenging conversation about the expenditures in the tax code. i hope the administration plans to treat very carefully the mortgage deduction and the charitable eduction going forward. i know the house plan cap the mortgage deduction at a home value of around $1.1 million. i saw at least in your political document, the approach that you are taking had more to do with the interest that you pay, not the actual value of the home.
i don't need a comment right now, but i hope you would take seriously the importance of those two deductions. also, if we lower the corporate rate, certainly we would be more competitive. i'm not sure just lowering the rate actually stops in versions. -- inversions. your thoughts? mr. mnuchin: i think it absolutely has a huge impact on stopping inversions. there are some other things that we may be able to do, but the biggest issue that creates in versions is the incentive for much lower taxes abroad than we have here. sen. scott: if we can get our 35% down to something competitive, that would be wonderful. mr. mnuchin: absolutely. whatever we can do to become competitive will be helpful. i do believe we will have to look at other remedies outside of the tax code in order to sell that perhaps the haven of america is a great take to do business beyond the tax code itself.
speaking about that simpler tax code, we have spoken before about legislation that i have sponsored around investing in opportunities. it essentially defers the capital gains tax for up to seven years, if you reinvest those resources into distressed communities. we have 50 million americans, more than one million south carolinians living in distressed communities. one of the goals that i hope we have is to look for ways to create incentives for private capital to come back into distressed communities. i would love to hear your comments on that. mr. mnuchin: absolutely, as a matter of fact, i have in my notes the investment opportunities act that we talked about. >> i'm glad you are supporting it. thank you very much. mr. mnuchin: i want to follow-up with you and learn more about it, and whether we use that or other tax incentives. i think it is absolutely critical that the areas that are
most struggling, that we use the appropriate incentives to get business to go there. i definitely look forward to following up on that. sen. scott: one last question. i think that was a ringing endorsement. on the trade policy, south carolina has been a place of provocative position on trade. we were a haven for manufacturing 100 years ago, we are today a haven from a high-tech manufacturing perspective. trade agreements are an important part of what makes it attractive for brands, caterpillar, b&w. trade is important to the state. i know that you guys are moving away from multilateral agreements and toward bilateral agreements. i hope that bilateral approach will include some of the countries in the growing markets around the world, specifically within the tpp footprint. mr. mnuchin: absolutely.
as i said, president-elect trump absolutely believes in trade, he just wants better deals. he wants us to grow exports. he wants better deals. mr. chairman: we have two more to go here. can we finish up? mr. mnuchin: absolutely, let's keep going. mr. chairman: and we will take a short break and then come back. senator portman: thank you for being here, but i think it is your kid to deserve the award for stamina. my kids at that age would have been long gone. whatever you've done, you have done a good job. mr. mnuchin: i told him they could leave after an hour but they opted to stay. sen. portman: i think you are right that a tax-cut is an opportunity to give the economy a shot in the arm. just to put a finer point on it median income has not gone up, , when you look back at the prerecession levels. that is the middle-class
squeeze, that an higher expenses in health care. in terms of unemployment, you are right. if you go back to the labor force participation rate in effect about 66% before the recession and compare it to today, unemployment would be about 9.5%. so this economy is not humming, we are not doing great. we are not serving middle-class families who are struggling to make ends meet. i think tax reform is one way within your purview that you can make a difference. i appreciate what you said in response to senator scott on that. because i do think that we should be focusing on wages and not just overall economic growth, but how to ensure we are creating opportunities for the families we represent. one thing you didn't talk about, at least when i was here is on , the business side, repatriations. you can lower the rate, and that is important. don't you think there is an opportunity to we patriots of -- repatriate some of those
profits that are now locked in overseas? the number i'm hearing is over $2 trillion. what can be done to bring that money to invest back in jobs and plant and equipment? mr. mnuchin: the president-elect thinks we will get over 3 trillion. trillionr is over 3 dollars to $4 trillion. i spoke to several ceos who want to bring money back. to the extent that we create a one-time repatriation in the trump plan, we had put it at 10% -- in the house gop plan, that was slightly lower. but i absolutely believe, and i have heard ceos say this -- and without naming names, some are the biggest holders of cash abroad -- absolutely want to do it and we are committed to that. sen. portman: you are committed to making sure that we can do that. this has bipartisan support here and we need to invest those funds back here, including for things like infrastructure. with regard to trade, we heard
some discussion on trade. as you know i believe in , expanding exports. i feel like we are not doing enough there but i also believe in a level playing field. one area we have had contention is currency manipulation. we tried in the legislation to get that done. we introduced an amendment which came close but we did not get it done to make it a trade objective in our trade negotiations. we did pass something in the customs bill that directly relates to your job. there are some conditions that have to be met that frankly trade manipulators will beat. at the end of the day, in the country feel to change its policies, the treasury secretary can recommend the president take action such as prohibiting the president from getting goods from that country. if confirmed, would you confirm -- commit today to take full advantage of that enhanced authority that would give the department --
mr. mnuchin: absolutely i want to point out and thank you to it i know you have taken the opportunity to meet with me several times. i enjoyed our working lunch yesterday in your office. we talk a lot about these issues. i'm absolutely committed to working with you on this. it sounds like a very important issue. sen. portman: again, one where there is bipartisan agreement to -- about the need to address currency manipulation, and i appreciate your commitment to work with us and other authorities. another topic i wanted to touch on was the irs. i understand there was some discussion when i had to step out to another hearing, regarding the irs. i heard what senator burr said about the examples of irs poor management, including promotion policies. obviously, we know there was politics involved in the irs, making decisions based on political matters, which is totally inappropriate for a tax collection agency. the irs has created a huge problem either way it has not performed in the way that anyone
would expect as a taxpayer. on the other hand, by understaffing and underfunding you the irs, taxpayers service has been eroded. that affects my constituents. are you committed to trying to fix these problems at the irs , but also working with us to ensure there is adequate funding and support so that the tax system can work better, hopefully under a simple fight tax code? mr. mnuchin: absolutely. this is something i feel very strongly about. it is something that i hope we do have bipartisan support on. this is one of the areas where i think we will all agree, to the extent we add resources, we can collect more money. one of the things i have heard is, one of the reasons we have technology problems is because, based upon the guidelines, we cannot afford to hire technology people internally. while i think there is some external technology, we need to have internal expertise in the irs to manage our own technology systems.
i think in this day and age, like any other entity, we need to have good customer service. if people are paying taxes, they have the right to get the information, they have the right to understand their information. i think that we should be able to interact electronically, securely, keep people's information safe. i can go on and look up my real estate tax bills in california and see my information there. i don't see why we don't have good systems that people who pay taxes can see their information securely online. so i look forward to working with you, and i also think that we should be monitoring customer satisfaction, like anything else we should understand what the taxpayers think of the service we provide them. sen. portman: i know my time is up, mr. chairman. but i would just say the ranking
member and i would agree on this but additional focus on the irs, i think, is an opportunity for us. 19 years ago there was this reform effort, i cochaired it. i was a house member. every 20 years, it ought to be looked at. including the technology. this is an opportunity. i appreciate your comments on that today and i appreciate you being here today. mr. mnuchin: i look for to working with you on it. mr. chairman: senator cantwell. senator cantwell: i missed some -- i caught some of your testimony, but i apologize i had to be at the hearing with governor perry for most of the morning. mr. mnuchin: it is a busy day and you are accommodating a lots of us, so thank you. senator cantwell,: do you support returning to glass-steagall? mr. mnuchin: i don't support going back to glass-steagall
as is. perhaps we need a 20 century glass-steagall, but no, i do not support going back as to taking a very old law and saying we should adhere to it as is. sen. cantwell: and so, is that the position of what the republican platform was? because i thought it was glass-steagall. mr. mnuchin: again, the republican platform did pass at the convention, glass-steagall. the president-elect, and went we talked about policy with the president-elect, our view is we need a 21st century glass-steagall. sen. cantwell: when did that change? mr. mnuchin: oh, that -- again, that has been a part of the campaign, has been in some of his speeches. sen. cantwell: so october? at the convention it was glass-steagall. mr. mnuchin: at the convention, the republican position was glass-steagall. sen. cantwell: so his position was never glass-steagall or all along he meant a different version? mr. mnuchin: again, i can only tell you, postconvention this is
an issue that he and i have discussed, ok? something that we will be looking at. but not -- sen. cantwell: do you think that -- leaving had anything to do with the change m -- manafort leaving had anything to do with the change? mr. mnuchin: no. sen. cantwell: now i understand that the president-elect is not really support glass-steagall. he supports some modern version, which i don't understand. perhaps you could tell me what that modern version is. mr. mnuchin: again, i think separating out banks and investment banks right now under glass-steagall would have very big implications to the liquidity and capital markets and the banks being able to perform necessary lending. i think in terms of looking at a
lot of regulatory issues, the administration will look at glass-steagall, and what i refer to as as the 21st century glass-steagall, as part of regulatory reform, have a view as to what is appropriate. sen. cantwell: i just want to be clear, because i think in your testimony i heard, you did allude to the damage that was caused by the implosion of our economy, brought on by toxic financial instruments that did not have the backing that they needed. according to the dallas fed, $14 trillion hole in our economy. i think you alluded to the damage. so now, what i also think you answered -- in some a note from my colleagues, you believe in the concept that proprietary
trading did not belong to the bank. mr. mnuchin: correct. sen. cantwell: so where does that go then? you are saying, you don't think today there is a clear prohibition, and you want to see a clear prohibition? mr. mnuchin: no, no. what i said is today, we have a prohibition of proprietary trading in banks. sen. cantwell: with loopholes. with loopholes. mr. mnuchin: the problem is it -- the definition of that was left to the regulators to decide. so the first issue -- and again, i'm a believer in proper regulation. but i'm also a strong believer in, people need to understand the regulation. we need to be able to explain to banks what is proprietary trading and what is not proprietary trading. i think we would all agree, if we were all sitting in this room and just betting on things is proprietary trading, what i referenced was that the federal reserve had their own
independent report on the lack -- iquidity in many of what i am in favor of is that we have clear definition around the rule and that the regulators come out with that and do it in a way that it doesn't eliminate liquidity in many of the important markets. so you would basically just theten what you think r rules that are out there. you would lessen the rules that are already passed in dodd frank? mr. mnuchin: that is not what i said. i want to be very clear. what i said is that i support the rule, but there needs to be proper definition around the -- vocal rule so banks understand exactly what they can do and can't did -- can't do and they provide the necessary function of liquidity in customer markets. then, am referencing that
federal reserve is independently raised. senator: i think this election was a lot about the frustration of the american people on the implosion of our economy and the fact they haven't recovered. i think the president-elect, whether he directly or meant to, i was a -- pleased that his party adopted coming up with a bright line, of separating commercial from investment banking. today, where we are hopefully we will get a chance to vote on this. to our colleagues have answer to platforms and committees will hopefully get an answer of where our colleagues are on this. i will tell you that not only is this an issue of people wanting to see a bright line and beep protected from this ever happening again, when it comes to the tax code and policy, the american people have not recovered. lowering the corporate tax rate
without getting a plan for the average american who lost pension, couldn't send their kids to school, maybe lost their tax policy thehe president-elect and you are going to pursue that will help restore them from that major implosion and protect them from this ever happening again? mr. mnuchin: having traveled with the president-elect the last year, i understand why he got elected. that is because -- as you pointed out, the average american worker has gotten nowhere. the unemployment rate is not real, the average american worker has gone nowhere. president-elect is committed, as am i has his economic advisor, to work for the american people and grow the american economy so that the average american worker does better. that is why i have been willing to sell all my investments, been willing to get up my businesses,
my desire is to work for the american people to create a better economy. i understand that. i have traveled for the last year, i have seen this and the president understand -- elect understand that very clearly. whator: did you mention tax break policy you would give to that american worker is to mark mr. mnuchin: -- worker? mr. mnuchin: middle-income tax cuts and to create business toes that consent businesses grow and make them more competitive and hire more people -- >> not specific to education or pensions are anything, a broad tax? we had a chance to talk about, i think pensions are a very important issue. i would be happy to work with your office another time. i think the people who have earned pensions absolutely deserve to have those pensions
maintained and be safe. i am very concerned about the retiree issue in this country. that is something i look forward to working with you and others on. we need to protect the pension holders in this country. >> thank you, mr. chairman. mr. chairman: we are going to take a 10 minute break here. my friends on the other side have requested a second round and we are going to grant that. so, let's just recess for about 10 minutes, maybe a little longer. [gavel]