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AT THIS HOUR WITH BERMAN AND MICHAELA
Senate Confirmation Hearing for Steve Mnuchin, Treasury Secretary Nominee. Aired 11:30a-12p ET
Aired January 19, 2017 - 11:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
STEVE MNUCHIN, NOMINEE FOR TREASURY SECRETARY: So, Senator, first let me just comment.
When we, when we talk about moving, OK, you know, it's -- it's -- it's not as if I had 50 people sitting as offices we've talked about and moving it.
NELSON: Right, I understand. What was....
MNUCHIN: I do want to comment -- and -- and yes so, Dune Capital LLC, which was our master fund. And not to get into the nuances of this, but when one runs an onshore fund and a offshore fund, there certain efficiencies of keeping the assets in what's called a -- a -- a master fund. And because we set up the master fund in Anguilla, I was required to change Dune Capital Partners to -- to become a foreign entity. So that was the reason for it. But let me just comment...
NELSON: No, I'm running out of time. I've got to get to the question.
NELSON: The question is, both of those were for a tax consequence located in the Caymans, as well as Anguilla. And so the question is, you said you support tax reform, do you support closing those kind of tax avoidance provisions? The Anguilla and the Cayman Islands type tax avoidance in the tax code?
MNUCHIN: So, let me just comment that when I did move it, I had to apply to the IRS and the IRS approved it as a foreign eligible entity to be taxed as a U.S. partnership. So from my standpoint, it made no difference to me whether it was located in Delaware...
NELSON: That's not my question.
MNUCHIN: I'm giving you a slightly longer answer I apologize, it's a complicated issue.
NELSON: Can you just answer the question?
MNUCHIN: The short answer is, yes, as I said before. I think I would work with the IRS and with Congress, OK as I've said. It makes no sense, OK, that we have all these requirements to set up these offshore entities -- which again didn't benefit me, but did benefit certain non-profits and pensions.
And we should address the issues for non-profits and pensions and understand that why they need to invest through these offer funds. Now, I wouldn't want to do anything that's detrimental to the pension holders or these non-profits, but I would commit to work with your office, Senator, and make sure we fix the system.
NELSON: All right.
We talked about Indy bank yesterday and becoming OneWest and you said you bought -- when you acquired Indy bank, the portfolio of reverse mortgages. And to your credit, you said, that once it became OneWest, that you did not sell anymore reverse mortgages. And yet you as the CEO -- I want you to comment on the fact that, of the reverse mortgages that you acquired from Indy bank, some of the folks were not treated very well.
I mentioned to you yesterday, a 90-year-old Lakeland woman was foreclosed on because of a 27 cent payment error. I did not mention two others. Foreclosing on an 80-year-old Orange Park, Florida woman that your bank claimed didn't 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 didn't 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 and then -- which they were eligible for -- and instead they were foreclosed on.
Explain to the committee, if you would -- and I think you're an earnest, well-intentioned person, but you're sitting there as a CEO and this stuff is happening that is very unfair to little people. Why?
MNUCHIN: First of all, Senator, again, thank you for taking the opportunity to meet with me, I appreciated that and the time to speak about these important issues.
Let me first say to the extent that we made any errors or we ever foreclose on anybody, I -- I completely understand that the hardship that created. As I mentioned, we did go through an independent foreclosure review and unfortunately there -- there were some issues, very, very low rate relative to everybody else, but there were some issues and we paid -- we paid money to those people to make them whole. And I earnestly, feel terrible for any mistakes at the bank.
Let me comment on also that 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, went to a -- a member of -- of the House, or -- or went to, what we call the -- the came through those, we had a special group of people that reviewed every single one of those complaints, responded to all of your offices and responded directly to the borrower. We also, routinely had the OCC come in and monitor and test us and go through all those complaints. It was a very, very big concern because as you can imagine, from both the FDIC and the OCC when we took over IndyMac, the amount of complaints spiked dramatically.
As I shared with you, the reverse mortgage business was not something we wanted to buy, that we agreed to buy that as part of an overall solution. That what we were really trying to do, is create a regional bank and that business really had no part of it.
There were about a billion and a half reverse mortgages that the bank owned. There were over 20 billion of reverse mortgages that we didn't own, that we serviced for third parties. And the majority of all those third parties were -- were HUD guaranteed mortgages.
As I pointed out, I think there's some very significant issues with the HUD program. One, as I mentioned, is a problem with taxes and insurance, that if there's a shortage on tax -- an insurance because somebody outlives their expectancy, that HUD forced us to foreclose. There's another problem called the Non-Borrower Spouse, where if the spouse wasn't on the mortgage at the time, that you'd have to foreclose on the spouse.
We discussed these issues with HUD. If I'm confirmed, I would look forward to discussing these with Dr. Carson and hope that HUD would seriously consider looking at these things, although it's not under my responsibilities, I would share my concerns. These are government guaranteed programs where we are foreclosing on senior citizens. And I can assure you, nothing was more painstaking to me in the whole place, OK? And I will tell you, I can't talk about specific loans because of privacy, but there are certain things that were in the press. And the most troubling loan we had was actually to the Octomom, OK and we worked very, very hard. That was a terrible situation and we worked very, very hard to move her to another home that they could afford.
But I can assure you, that as chairman of the bank, I took these issues very seriously. It's not to say that we didn't have certain mistakes, there were mistakes, we regret those mistakes. As I mentioned, we -- we had hundreds of thousands of delinquent loans.
And -- and just as an aside, when you talk about loan modifications, banks are highly incented to do loan modifications. Anybody who thinks that we made more money foreclosing on a loan than modifying a loan, has no understanding of this.
We were highly incented for closing on people, it was a very, very, very terrible thing to do. But its also very costly to the bank. So we believed in loan modifications and we were financially incented to offer them when we could.
So thank you, Senator.
HATCH: Thank you.
Senator Menendez? NELSON: Mr. Chairman, I look forward to a second round.
HATCH: Senator Menendez?
MENENDEZ: Thank you, Mr. Chairman.
Mr. Mnuchin, congratulations on your nomination. I had a different line of questioning, but I have to be honest with you, the information that came to us this morning makes me concerned. You've addressed some of it, but not all of it.
On December, 19th of last year, you signed notarized affidavit on your questionnaire to the Finance Committee, certifying it was true, accurate and complete. Question 11 of this questionnaire asked nominees to quote, "List all, all, positions held as an officer, director, trustee, partner, proprietor, agent, representative, consultant of any corporation, company, firm, partnership, other business enterprise or education, or other institution."
That seems to be pretty pervasive. So it's almost like an open- book test. And yet, you did not answer in that questionnaire, listing your position as director of the Cayman Islands Corporation, as manager, chairman and director of eight additional Shell Corporations and holding companies and nearly $100 million in real estate.
And that questionnaire was corrected only after the committee staff, having done their due diligence, brought the missing information to your attention.
Now, after that, you admitted to being the director of the offshore entity, Dune Capital International Limited, a Cayman Island corporation. You admitted to moving your hedge fund Dune Capital Partners LLC offshore to Anguilla in 2005, even though all the business was conducted in New York City.
So, you know, I have a ton of other questions on policy, but first and foremost is truth and veracity, what the Americans need in their Treasury secretary, to know they're going to be asked to do difficult things or challenging things; that they understand that there's a system.
In essence, isn't it true that what you did here, is take these companies, put them offshore, so you could help your clients, who you were making money from, avoid U.S. taxation?
MNUCHIN: No, that's not true at all. That's...
MENENDEZ: Then why would you -- then why would you...
MNUCHIN: That's not true, Senator.
MENENDEZ: You just described -- you just described that the purposes of creating these offshore entities were to help pensions and other entities. And the only reason to go offshore, as Senator Grassley said when 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've made it very clear that you paid your taxes. OK, I'll accept your word on that. But the people, or the entities that you were helping and that you were making money from, you were helping them avoid U.S. taxes, otherwise they could've invested here.
MNUCHIN: Senator, let me first answer the first part of your question, which I will tell you -- and I've said this before and will repeat it again.
I assure you, that these forms were very complicated. I don't have the form in front of me, but I believe it said to the best of my knowledge this is true. And when I certified those forms, I thought it was correct. Perhaps it was a mistake in giving the committee information early and I should have waited until I had finished the 278 and the -- the Ethics Office.
It was not just a function of your office, we were in the process of correcting things -- I, but...
MENENDEZ: But it doesn't take a rocket scientist to understand word list all positions. All positions.
MNUCHIN: Senator, in all due respect, I had a lot of complicated entities. You're referring to I didn't list the director. I listed the entity, so the fact that I didn't list that I was a director was not intended to hide anything. And as I've mentioned in regards to my $100 million of real estate, my lawyer, who's quite sophisticated in this stuff and actually done this for many, many nominees before, believed that we filled out the form correctly and that...
MENENDEZ: Let's get to the heart of my question.
MENENDEZ: The heart of my question is didn't you create these offshore entities -- that most Americans can't create or take advantage of -- in order to help your clients, who you were making money from, avoid U.S. taxes?
MNUCHIN: No, not necessarily. OK? So, first of all, I want to say, it's important that the committee and the American public understand...
MENENDEZ: But what -- what were you doing it for then?
MNUCHIN: ... that 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 and they couldn't invest in. And as I've said to you, if you want to put me on for the entire hedge fund and pension fund, you know, we should have an IRS session to go through these issues. And I'd be more than happy to work with you and your offices to go through these -- they're very complicated issues. We need...
(CROSSTALK) MENENDEZ: Well, I -- I appreciate that, but let me -- let me make the complication simple.
One 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's pretty simple. And so, that may 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.
And so I'd like to hear you be more determinative of saying, yes we're going to close all of those down, if I can convince the president- elect to do so and Congress. Because what you did, may have been legal, but it certainly was to help people and entities avoid U.S. taxes. MNUCHIN: Well, first of all, I'm absolutely committed to work with you and your offices. I've said on tax simplification and to cut down and make sure that we don't let anybody avoid taxes. In certain cases, this is not a function of avoiding taxes, it was to create eligible non-profits.
But I agree with you completely, I'm on board with what you've said. I'd be happy to work with your office to simplify the tax code, cut down...
MENENDEZ: Whose investments were ultimately eligible, therefore to avoid some taxes.
MNUCHIN: Again, it may -- it may have been an eligibility issue and not a tax issue. But I -- I agree with you that this does not make sense and I will work with you in your office. I've committed to do that, to make sure that, you know, why people need to move entities to from Anguilla to everywhere else.
And again, we're not creating jobs there, this is just where these entities are housed. I agree with you and, you know, it will create a lot less work for the tax accountants and the lawyers and make the American public more money and move our IRS resources otherwise.
So I agree with you completely, Senator, thank you.
HATCH: Your time -- your time is up, Senator.
Let me just say, its ironic and I think a bit hypocritical. My friends on the other side of the aisle to suddenly find -- found religion on offshore account holdings. Evidently, memories are short.
At least two of President Obama's nominees -- who now serve in his Cabinet -- had Cayman Islands holdings. Now, that includes the current Treasury secretary, who also ran a business unit at Citigroup that bailed out Mega Bank, from which he received close to a million dollars in bonuses.
That unit has been sanctioned by the SEC for selling toxic assets that quote, "Harmed investors." Lemme just say, with regard to the nominee's disclosures to the committee, I wanna say this. As part of the committees bipartisan vetting process, Mr. Mnuchin in good faith, submitted answers to committee questionnaires and other materials that were later modified.
Mr. Mnuchin's file is now complete and to meet demands of some of my Democratic colleagues, the disclosures now include financial information that is usually kept confidential. Such as, the value of personal residences.
The committee appreciates Mr. Mnuchin's efforts to work through the multiple and -- and complicated request for information of what is, by any reasonable measure, an exhaustive vetting process. I think its -- let's be fair, here.
WYDEN: Mr. Chairman, just -- just so we're clear. The bipartisan staff called out these offshore investments of both Democrats and Republicans to Secretary Lew and others. So I wanted understood and that's the reason that people even knew that Mr. Mnuchin hadn't filled these forms out properly.
We did it because American people deserved to know about Mr. Mnuchin's offshore investments, even though they hadn't been originally disclosed and disclosed fully. But our track record has been bipartisan and we've called out both Democrats and Republicans, as I mentioned.
HATCH: I think so and I -- that's the purpose of it, but let's be fair about it, too.
ENZI: Thank you, Mr. Chairman.
And thank you Mr. Mnuchin for being willing to serve and to go through this process. I wanted to thank you for meeting with me in my office and going through many of the accounting functions and initiatives that you'll be managing, I don't ask those in these kinds of meetings because I've noticed that it puts the audience to sleep.
But they are very important and I was really impressed with your -- your answers. I'm impressed with your private sector experience. I've always said that every business looks really simple, unless you're the one who has to make the decisions on it. And how far ahead you have to make the decisions and how you find employees and how you train employees and how you meet all of the federal regulations.
Well, you've actually worked with those rules. You -- you actually have been forced to learn some things that are going to be essential to your job. And it's a pretty unique situation.
This is the biggest business in the world. And we don't even make decisions timely, we're still working on last October 1st spending bills. There are a lot of things around here that have to change. And some of them, you're going to be in a position to do.
And I've been really impressed with the knowledge that you've already shown with this committee on different things that most of us have never had any experience with. Very impressive. Now, I'll cover a couple of specific things, here because I -- 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 that 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 haven't been able to get answers. But something that's been more disturbing to me, to illustrate, is that in recent years, the IRS has inserted flyers with the tax refund checks. And those flyers, one of them was produced by the Consumer Financial Protection Bureau, which is outside of our oversight and solicited cases from the taxpayers about their money.
It's not appropriate for the CFPB, an independent organization, or any another 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's in the role of the IRS?
MNUCHIN: Senator, thank you.
And again, thank you for taking the time to meet with me and thank you for your long-standing service to our country. And yes, I absolutely would work with you on that. I don't think it makes sense that the IRS is doing that.
I'd want to understand what the reason is, but it seems to make no sense to me. And, you know, as I've said to you, I think one of the big issues is around the IRS, is technology. And I would use my expertise in technology to make sure that we bring the IRS up to date and that's a function of, you know, I understand old e-mail 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 taxpayer's information and there should be simple ways that the IRS can interact with the American taxpayers. If you can get good service in the retail online business, there's no reason why we cannot use the same type of technology for taxpayers to communicate and get their information securely with the IRS. So I look forward to working with you and your office on that.
ENZI: Thank you.
HATCH: Senator, if I can just interject. You mean you're going to help modernize the IRS?
MNUCHIN: It would be one of my great priorities, absolutely.
HATCH: My gosh, well, that would be wonderful thing.
MNUCHIN: I hope that's at least a bipartisan issue that we can all agree on.
ENZI: Since the Chairman used part of my time, I'd like to get this question here.
In 2012, I introduced the United States Job Creation and International Tax Reform Act that would help fix our tax code and promote U.S. economic and job growth. And that bill would help to write the ship by pulling our international tax rules into the 21st century and make them more certain so the U.S. companies are not at a competitive disadvantage with foreign companies.
It would give American companies incentives to create jobs in the United States and undertake activities here at home so that they can win globally. I would encourage U.S. companies to develop and keep rights to their ideas and invention in the United States, rather than ship them over -- offshore.
Do you agree that our current international tax system that is outdated and places U.S. companies at a competitive disadvantage with our foreign counterparts and would work with me on international tax reform?
MNUCHIN: I couldn't agree with you more. I think the fact that we have companies like Apple that have hundreds of billions of dollars offshore because of the differential in tax rates and they are being penalized to bring back money.
One of the things I think, you know, we all agree on -- and I have talked to the president-elect, he believes we can bring trillions of dollars back on shore so that that money is invested in American businesses and creating jobs. And I absolutely look forward to working with you and your office on -- on tax reform, bringing down business rates for big businesses and small businesses and making America business the most competitive in the world. So that we're not shipping jobs overseas and money overseas.
ENZI: Thank you and I have some questions about the debt and how we will handle that -- and as budget chairman, I am interested in that. But again, it gets into the number minutia's, so I'll submit that.
Thank you Mr. Chairman.
HATCH: Thank you.
Welcome, Mr. Mnuchin.
MNUCHIN: Thank you.
CARPER: Senator from Delaware -- recovering governor from Delaware, and a lot of my time as governor and even now, I think a lot about, how do we create nurturing environment for job creation and job preservation. I want to talk about that in just a moment.
But before I do, some of my colleagues have raised -- I think appropriately -- tax havens, Cayman Islands has been mentioned, Anguilla has been mentioned. You have mentioned IRS, and I just want to -- in the past year -- several times in the past couple of years, John Koskinen (inaudible) right where you sit, the commissioner of the IRS.
It's a position he's been selected to serve -- it's a five-year term -- I think he has maybe another year to run on it. He is in his 70's. He took this job not because it's something he aspired to do, but because he was asked to do this for his country. He is one of the finest public servants I know, he is often berated.
There was an attempt to impeach him in the House of Representatives, which I thought that was lunacy. And he has said to us many times, as has the general accountability office has said and you sit here today. "We give the IRS less money than they need. They don't have the people that they need, they don't have the technology that they need. For every dollar we invest in the IRS, we get at least four dollars back."
I've seen (inaudible) as $10. This is not so much a message for you, I think you got it. But the message is really for us. We were interested in raising some revenues and not having to raise taxes, that's a good place to start. I was encouraged by what (inaudible).
CFPB, just real quickly -- 30 seconds, your take on the CFPB, how are they doing? Worth keeping?
MNUCHIN: Well, first of all...
CARPER: Just real quick.
MNUCHIN: OK, that's a complicated issue, so, but yes, OK? The biggest issue I have with the CFPB is that I don't believe they funded out of profits from the Federal Reserve. I think they should be funded out of a appropriation process.
CARPER: That's good, thanks very much.
When I think of that nurturing environment I mentioned earlier for job creation and job preservation, there are a lot of components to it. Among them are actually funding research, actually making sure that we're doing a good job protecting intellectual property, sensible tax code, common sense regulation, affordable health care, finding ways to get better results, maybe for a little less money.
We've had people suggest it to us that one of the components (inaudible) GDP is -- is substantial investments in infrastructure. I have suggested for a number of years that we use -- an approach we had taken for years and that is the people -- the businesses that use our transportation system would pay for them. We have done that for half a century I think that makes sense. There are other ideas as well, vehicle miles traveled, where sort of like, you know, figure out how many miles vehicles are travelling and assess a fee. There's different approaches to that. But interestingly, the administration -- incoming administration infrastructure investment and there's another time to talk about that. One of the -- one of the things -- ways to go, GDP or grow jobs is to export -- do a better a better job of exporting our products and getting into other markets.
The Trans-Pacific Trade Partnership, TTP, proposed to take down a lot of barriers overseas and enable us to have better access to those markets. And also at the same time renegotiated NAFTA, as you may know. That seems to me like a pretty good deal and I understand that there's an interest in the new administration renegotiating NAFTA. We did that in TTP.
But your thoughts on trade policy, especially the Trans-Pacific Trade Partnership?
MNUCHIN: Well, first of all, thank you. You've raised a bunch very, very important issues.
CARPER: I'm just going to ask you, just to go to that one issue if you would, please. It's not a trick question.
MNUCHIN: I wrote down five of them I wanted to comment on.
CARPER: We just don't have time. Just on trade agreements.
MNUCHIN: So on the trade agreements, I think as you know, the president-elects is very much interested in free and fair trade. And as you've commented on, this is not about limiting imports, this is about growing exports as much as we can be.
You've also commented on intellectual property. I think one of the biggest problem and certain of our trade agreements is, our American intellectual property is not being kept and is being taken in foreign countries.
You've mentioned NAFTA, the president-elect interested in renegotiating NAFTA so that we can keep more jobs here. I think as you know, he's picked up the phone and called many CEOs, I can't remember the last time a president or president-elect did that and work for the American workers. And I look forward to working with you and your office. You've raised some very, very important issues.
MNUCHIN: ... and infrastructure, again at the appropriate time, I am happy to comment on infrastructure because that's very important to the president-elect.
CARPER: One -- one last quick one. Comprehensive immigration reform. One of the things we've learned is, not only will it grow GDP by infrastructure investments (inaudible) infrastructure investments and some of the other things that I mentioned, but also comprehensive immigration reform. We were strongly urged by the business community for years to do it. Do you have any take on that?
MNUCHIN: Again, you know, I think immigration and immigration reform is very important to the president-elect. It's not completely in my lane, but I've been with him so I know his views on that. And I think he works -- looks forward to working with the House and Senate on a very important issue there.
CARPER: Well, if you don't share his views on comprehensive immigration reform, I would just ask that you mentor him a bit. Thank you.
HATCH: Senator Cardin.
CARDIN: Mr. Mnuchin, first of all, thank you very much for being willing to serve your country. Appreciate it very much. I want to just follow up quickly on Senator Carper's point on the IRS.
You do have allies on both sides of the aisle that will help you. There's good professional people that work there under very difficult circumstances. There are not enough people there, so I hope you'll be effective with President-elect Trump, because I understand he is calling on a freeze.