Mnuchin Said to Be Trump’s Treasury Pick

Mnuchin's role in buying the bank, then called IndyMac, may hold clues to what his leadership at the Treasury department means for Fannie Mae and Freddie Mac. The two companies have been under U.S. control since 2008, sending their almost all of their profits to the Treasury. Just before the crisis hit, Mnuchin was financing movies, including Avatar, at 20th Century Fox.

In the new job, Mnuchin would inherit an era of rising government debt just as the Treasury will need to finance Trump's expansionary fiscal plans. The U.S. budget deficit is forecast to widen and could go higher if Trump needs to finance a wall at the U.S.-Mexico border, cut taxes and spend $1 trillion on infrastructure. Investors say the new era of steep increases in debt issuance could cause market turbulence.

Currency Policy

While traditionally a Treasury secretary with Wall Street experience has been associated with dollar strength, Mnuchin inherits a list of campaign promises filled with trade policy rhetoric that could collide with currency policy, said Alan Ruskin, head of currency research at Deutsche Bank Securities Inc.

"It's possible that that the strong dollar will be worn by the coming administration as a badge of honor — a signal of global confidence in 'Trumpism,'" he said. "You need a stronger exchange rate, otherwise you're going to have too much inflation pressure, meaning the bond market would blow up."

Ruskin sees room for the dollar to appreciate at least 5 percent given the prospect of fiscal expansion under Trump.

The president-elect's pledge that he'll direct the Treasury to designate China a currency manipulator as one of his first official acts could also impact the U.S.'s financing outlook. The U.S. has long relied on insatiable demand from international investors for its debt. China is the largest foreign holder of U.S. debt. Although the stockpile is at the lowest level in nearly four years, it's still a massive $1.16 trillion.

Dodd-Frank Views

As Treasury chief, Mnuchin will lead the Financial Stability Oversight Council, established under the Dodd-Frank Act that Trump wants to unwind. The 2010 law aimed to prevent future crises similar to those of 2008-09 with an overhaul of U.S. financial regulation. Asked about Dodd-Frank before the election, Mnuchin said there are good and bad things about it, without elaborating.

He'll also chair the Committee on Foreign Investment in the U.S., through which he could raise protective barriers by rejecting Chinese investments.

Mnuchin stands to save millions in taxes should the Senate confirm his nomination. A 1989 rule would allow him to sell stock tax-free if he reinvests in Treasuries or government-approved funds. Mnuchin owns $97 million of CIT Group Inc., according to a February ownership filing.

Mnuchin, who donated to Hillary Clinton and Barack Obama's 2008 presidential campaigns but backed Romney in 2012, also worked for a time with George Soros, and co-founded the hedge fund Dune Capital Management LP.

Criticism of Mnuchin came quickly Tuesday from at least one Democrat.

"Bad choice," Senator Jeff Merkley of Oregon, a member of the Senate Banking Committee, wrote on Twitter. "We need a Treasury secretary who will stand up to predatory lending, not one who practiced it."