By Pam Martens and Russ Martens: May 23, 2019 ~
U.S. Treasury Secretary Steve Mnuchin appeared yesterday before the House Financial Services Committee. You know it was a bad day for the Secretary when the low point was not Congressman Stephen Lynch’s request to the Chair, Maxine Waters, to have Mnuchin held in contempt for not following the statute that calls for the IRS to turn over tax returns on any American when requested by an authorized Committee of Congress. Mnuchin has said he will not turn over the tax returns of the President of the United States, which are under subpoena by Congress. (The Internal Revenue Service, which holds these tax returns, is an agency of the U.S. Treasury.) Waters said she will seek the advice of the Committee’s counsel on the contempt request.
A number of Democratic members of the Committee intensely questioned Mnuchin on his myriad deregulatory efforts that have harmed the average American and have not been widely covered by mainstream media.
Congresswoman Rashida Tlaib grilled Mnuchin on the fact that his Treasury Department had rolled back earlier this year an Obama-era rule that stopped corporations from offering lump-sum retirement benefits to retirees receiving a fixed amount of monthly income for life under a Defined Benefit Pension Plan. Tlaib told Mnuchin that Whirlpool, which is headquartered in her state of Michigan, had bragged that it could cut $39 million off its pension obligations by giving lump sums. Tlaib also told Mnuchin that Forbes estimated that retirees could receive 20 to 30 percent less under the lump sum option.
Mnuchin responded that this was “not an area that I’m up to speed on” and promised to get back to her.
Tlaib recommended that Mnuchin read a report on the matter that was prepared by the Government Accountability Office (GAO). While Tlaib did not have time during her question period to get into the nuts and bolts of the report, it offers this assessment of the risks:
“Participants potentially face a reduction in their retirement assets when they accept a lump sum offer. The amount of the lump sum payment may be less than what it would cost in the retail market to replace the plan’s benefit because the mortality and interest rates used by retail market insurers are different from the rates used by sponsors, particularly when calculating lump sums for younger participants and women. Participants who assume management of their lump sum payment gain control of their assets but also face potential investment challenges. In addition, some participants may not continue to save their lump sum payment for retirement but instead may spend some or all of it.”
The GAO report also found that few of the informational packets given to retirees by the corporations offering the lump sums “informed participants about the benefit protections they would keep by staying in their employer’s plan—full or partial protections provided by the Pension Benefit Guaranty Corporation, the agency that insures defined benefit pensions when a sponsor defaults.” The report said “This omission is notable because many participants GAO interviewed cited fear of sponsor default as an important factor in choosing the lump sum.”
Congresswoman Katie Porter focused on another deregulation initiative advanced by Mnuchin’s Treasury Department to remove enhanced oversight of U.S. and foreign banks with less than $50 billion in assets. She said that last month the Federal Reserve had followed through on this recommendation. She said under this rule change, Deutsche Bank would only have to file its living will once every six years. She said this is the same Deutsche bank that had a surprise $3 billion loss (it wasn’t clear what quarter she was referring to); had failed its stress test in three of the last four years; was fined for laundering money for the Russians; manipulating Libor (the interest rate benchmark); and violating sanctions against Iran and other countries. Porter also made reference to the recent report in the New York Times where a whistleblower, Tammy McFadden, and four of her colleagues, had their efforts blocked by Deutsche Bank when they tried to file suspicious activity reports on bank accounts affiliated with Jared Kushner and Donald Trump.
Mnuchin said he was going to ask FinCEN, the Federal agency where the suspicious activity reports should have been filed, to follow up on the matter.
Congressman Jesus (Chuy) Garcia raised another troubling aspect of Mnuchin’s deregulation agenda on behalf of the financial industry. As Treasury Secretary, Mnuchin also Chairs the Financial Stability Oversight Council (F-SOC), which is supposed to monitor and prevent systemic risks to the U.S. financial system. Garcia said that last October F-SOC had removed the designation on Prudential Financial – a large U.S. insurance company – as a SIFI (Systemically Important Financial Institution).
Last October, Mnuchin said this in a press release announcing the removal of Prudential Financial as a SIFI:
“The Council’s decision today follows extensive engagement with the company and a detailed analysis showing that there is not a significant risk that the company could pose a threat to financial stability. The Council has continued to act decisively to remove any designation that is not warranted.”
Garcia also noted that earlier this month, former Federal Reserve Chairs – Janet Yellen and Ben Bernanke – and former U.S. Treasury Secretaries – Jack Lew and Tim Geithner – had criticized the SIFI rollback. The four wrote in a letter to Mnuchin and Fed Chair Jay Powell the following:
“We caution against taking the steps outlined in the proposed guidance. We believe that these steps – in design and in practice – would neuter the designation authority. Though framed as procedural changes, these amendments amount to a substantial weakening of the post-crisis reforms. These changes would make it impossible to prevent the build-up of risk in financial institutions whose failure would threaten the stability of the system as a whole.
“It is our belief, consistent with the Dodd-Frank Act, that any financial firm whose material distress or failure could result in a significant threat to financial stability should be subject to enhanced prudential supervision. This cannot rely on a determination that failure is probable; nor can it wait until the point that failure is inevitable. We should not need to wait for cracks in the foundation to appear before recognizing that building inspectors must spend more time on the largest and most complex buildings. The overwhelming lesson of our experience in the financial crisis is that uncertainty pervades all decision making, especially when financial risks are developing in real time. Even in the months leading up to the crisis, it was not clear which financial firms were most at risk of failing nor was it clear how the risks from the failure of those firms would impact other financial institutions, financial markets, or the economy as a whole.”
Prudential Financial poses serious threats to the financial system as a counterparty to Wall Street banks’ massive positions in derivatives. (See our report: Wall Street Has Placed a Derivatives Noose Around the U.S. Insurance Industry.) The same is true for Deutsche Bank. (See our report: After a $354 Billion U.S. Bailout, Germany’s Deutsche Bank Still Has $49 Trillion in Derivatives.)
Mnuchin’s failure to turn over the President’s tax returns was looking even more legally questionable by the end of the day. A Federal Judge in New York City ruled yesterday against an effort by Trump and three of his children to block Deutsche Bank from complying with subpoenas from Congress for Trump’s financial records. That decision followed Monday’s decision by a Federal judge in Washington, D.C. that upheld the right of Congress to obtain subpoenaed financial documents and tax returns from Trump’s accounting firm.