Stock prices were tanking, the Federal Reserve was pouring unprecedented relief into the markets and Wall Street firms were in panic mode. Steven Mnuchin was due to gather the central bank chairman and other top financial regulators to assess the damage from the coronavirus outbreak.
But the Treasury secretary was stuck on Capitol Hill.
Lacking both a chief of staff and a legislative director, Mnuchin was personally negotiating details of what would become the largest stimulus legislation ever passed. The critical March 23 meeting with market overseers would have to wait.
As it confronts the worst economic disaster since the 2008 financial crisis, the Treasury Department is riddled with vacancies among its political appointments.
Of 20 Senate confirmed roles reporting to the secretary, seven aren’t filled, and four are occupied by acting officials. The domestic finance unit, which should be handling the brunt of the work related to the coronavirus outbreak, is particularly empty. It has no top boss and is missing three assistant secretaries, who are the next level down.
Treasury’s head of legislative affairs, Brian McGuire, left the agency while rescue legislation was still being hammered out. McGuire worked on the second phase of the virus-aid bill and his departure was planned earlier in the year, according to a person familiar with the matter. Mnuchin, who boasts about his tendency to micro-manage, hasn’t chosen a new chief of staff since the departure of Eli Miller to Blackstone Group LP a year ago.
The lack of leadership and expertise, bank executives say, was on display this week as the department rushed to meet its goal of beginning the small business loan program on Friday. Lenders complained they were urged to start pushing money out the door without detailed guidance from the Treasury on how to process the loans. One problem, the banks said, was how to show they’d verified the identity of applicants, a requirement of anti-money laundering laws.
The disarray caused some of the biggest banks, including Wells Fargo & Co., to say they wouldn’t be able to accept requests immediately. Another, JPMorgan Chase & Co., held off until Friday afternoon.
Ultimately, more than $5.4 billion in loans were issued on the first day, according to the Small Business Administration, within one week of President Donald Trump signing legislation to create the new loan facility.
“We have a great team of political appointees and professional Treasury career people that are hard at work to support American workers and American business!” Mnuchin said Saturday in a tweeted response to the Bloomberg News report.
The Treasury vacancies are forcing the few senior managers who remain to stretch their job descriptions, sometimes dramatically. Deputy Secretary Justin Muzinich, for example, now oversees two-thirds of the agency: domestic finance and the sanctions office, neither of which has an undersecretary, the top official at the units.
But that’s not all. As a former Morgan Stanley executive, Muzinich is Wall Street’s main contact in the department. He’s also likely to supervise a half-trillion dollar loan program for big businesses hit by the outbreak, according to people familiar with the matter.
Bimal Patel, assistant secretary of financial institutions — who is responsible for watching over the banking industry — now is helping execute the small business loan program.
And Brent McIntosh, undersecretary of Treasury’s international affairs unit, is playing a leading role in deciding how to dole out federal aid to U.S.-based airlines, the people said. They asked not to be identified discussing the department’s personnel issues.
A Treasury spokeswoman disputed Bloomberg News’ tally of confirmed officials in the agency, saying that with Muzinich serving as deputy secretary and filling two undersecretary roles in an acting capacity, along with similar other examples, all portfolios are covered.
Mnuchin must now help to rescue a U.S. economy in paralysis. That’s in addition to his regular full-time duties overseeing a dozen sanctions programs, monitoring the $16 trillion Treasuries market, and consulting with finance ministers across the globe — all of which are more important than ever as the economic crisis deepens.
“That becomes a lot for one individual,” said Clay Lowery, who worked at Treasury when the global financial crisis began during the George W. Bush administration. Mnuchin’s team has done a “pretty darn good job, but it probably needs a little more strength, especially on the domestic finance side.”
Praise for Stimulus
Mnuchin, who brings deal-making experience as a former Goldman Sachs Group Inc. partner, Hollywood producer and banker, has been widely praised for his work smoothing passage of the $2.2 trillion rescue package.
“Mnuchin was steady and focused on those negotiations — he got results quickly,” said Tony Fratto, who worked in the Bush White House during the global financial crisis.
Since the virus outbreak brought the economy to a halt, Mnuchin has authorized Federal Reserve Chair Jerome Powell to launch six lending programs within a week of Trump signing the bill that authorized the funding.
He’s also rethinking U.S. debt-management strategy to finance the stimulus. That includes consideration of ultra-long bonds, which may require updating the agency’s bond auction technology.
Still, as his postponed meeting with the Financial Stability Oversight Council shows, the 57-year-old is operating more as a one-man band than as the leader of the president’s economic team. And he can’t be everywhere at once.
“That needs to be resolved over time, by bringing in people to take part of that responsibility off their shoulders, because they also have their day-jobs to do,” said Lowery. “You don’t want to have corruption or fraud, or even inefficiency holding things up.”
The U.S. economy may shrink an annualized 34% in the second quarter, according to Goldman Sachs. Nearly 10 million Americans lost their jobs in the past two weeks, as many as in the first six months of the Great Recession more than a decade ago.
The FSOC meeting that Mnuchin postponed was eventually held three days later, after which consequential decisions were announced: Regulators will seek to keep financial markets open, despite wild market swings triggering circuit breakers, and a task force will be created to focus on the liquidity shortfall that mortgage service firms may soon face.
Amid all the crisis-fighting, Mnuchin will have to contend with two new oversight panels. Democrats fought for the latest stimulus bill to create a special inspector general and a five-member congressional committee to oversee how Treasury doles out some $500 billion in loans and grants for distressed businesses.
As the department’s work becomes increasingly urgent due to the coronavirus, officials have reached out for advice to a number of ex-Treasury staff members who were instrumental in fighting the last financial crisis in 2008 and 2009, according to people familiar with the matter.
Mnuchin is also considering bringing in people with experience in the markets and investment banking to assist, and the Treasury is also contracting out some work. This week it announced the hiring of three Wall Street firms — PJT Partners Inc., Moelis & Co. and Perella Weinberg Partners — to assist with the loan programs.
The financial crisis rescue, led at first by Secretary Henry Paulson during the Bush administration, consumed the Treasury Department even though it played out slowly compared to the coronavirus pandemic, giving officials more time than Mnuchin has had to plot strategies.Under Paulson, there were all-nighters, weekend work often conducted at the secretary’s Washington home, and many testy phone calls with top bank executives.
Treasury’s experience in 2008 offers some lessons for the current crew, people who worked at the department at the time said in interviews. Most asked not to be identified so they could speak candidly, saying that much of the history points up holes that Mnuchin will need to fill.Most notably, the people said, then-President Bush gave Paulson, the former chief executive officer of Goldman Sachs, free rein to the set up bailout programs and communicate with both Wall Street and the public.
That was partly due to the recession sending Bush’s approval rating plummeting and partly, they said, because that president was known for trusting his advisers. Trump, they noted, is not.