The David Rubenstein Show: Steven Mnuchin

This is my kitchen table and also my filing system. Over much of the past three decades, I've been an investor. The highest calling of mankind I've often thought was private equity. And then I started interviewing. While I watch your interview, because I know how to do some interviews. I've learned in doing my interviews how leaders make it to the top. I asked him how much he wanted. He said 250. I said fine. I didn't negotiate with him. I did no due diligence. I have something I'd like to sell and how they stay there. You don't feel inadequate now because being only the second wealthiest man in the world. Is that right? Steve Mnuchin served as Treasury Secretary under Donald Trump's first term. Today, he's running a global private equity firm. I had a chance recently to sit down with Steve Mnuchin to talk about his days as Treasury Secretary, the investment environment and the global economy. So you served as the 77th Secretary of the Treasury. When President Trump was reelected, did you say maybe I want to go back in again? Or you had enough government service? Well, it was an extraordinary experience working for him and being part of the whole first campaign. And now I'm really focused on private investments and opportunities. But I am trying to help from the outside. So you're not going to go back in anytime soon. I'm happy doing what I'm doing and giving a little coaching from the outside. You served for four years. And President Trump, to my knowledge, never criticized you in public. I don't know about private, but you know. So to be four years and never be criticized in public, that was pretty impressive. So what's the secret? Have you told the new Secretary of Treasury what to do? I haven't told him what to do. I think he's in very good shape. Look, I understood the president's agenda. I had the opportunity to help shape the economic agenda. And we were proud of what we did the first term. We were focused on tax cuts, getting the biggest tax cuts done, trade and regulatory relief. And I'm excited to see them focused on it again. So how do you think the tariffs are going to affect the economy? Why does President Trump like tariffs so much? The president's been very focused on tariffs for a long time. And he fundamentally believes it's a good source of revenue and that it's impactful in getting people to change behavior. And that's what we're seeing today. You think that tariffs will be ultimately good for the U.S. economy, I assume. You have a similar view? Well, I think the market really wants certainty and understanding certainty and will adjust to whatever they are. I think the problem right now is we don't have certainty. My own view on the tariffs would be that if he wants to do something, I like the idea of the 10% tariff across the board. It's a consumption tax on foreign goods. But if he were to do that, he should do that through the reconciliation process. So that can be scored, I think would raise about two and a half trillion dollars and could be used to pay for tax cuts, as an example. Speaking of tax cuts, you engineered with President Trump the very large tax cut of his first term. Do you think a similar size tax cut is essential now? Well, the biggest focus for them is just extending the personal side of the tax cuts, which are going to expire. And I think that, you know, that was a signature part of his first term. And I think that's got to be the priority to continue. Now, on top of that, I know he wants to do additional tax cuts. And that'll be a little bit more challenging with the pay force. During the campaign, he talked about a couple other tax cuts. One is no tax on tips. Are people getting tips, actually paying a lot of taxes? I don't know. You know, we're not in as much as a cash society as we used to. So there's a lot of tips that go through an electronic mechanism. I think if he wants to have a small carve out for tax on tips, I think that makes sense. I think, obviously, if you start giving tips to investment bankers at the end of the year instead of bonuses and they don't get taxed, that would be a little bit more problematic. And, you know, you could tax your lawyers. And so I think if he does that, it needs to have a small carve out. When you were working on the tax cut, when you were secretary of treasury, how did you find the intellectual level of the Ways and Means Committee members? You know, when we passed the tax cuts, and this was a lot of work, we were very engaged with both the House and Senate. And actually, we had weekly meetings, which was called the Big Six. It was me and Gary Cohn from the White House. It was the Senate. And it was the House. And literally every week, we sat down and went through details. So, I mean, as you know, I mean, we had sweeping tax reform across everything. This time, it is actually a lot simpler. But I do think Secretary Besant needs to be very focused on working with the House and the Senate to get this across the finish line. In recent decades, the annual deficit has been fairly high. I think under President Trump's first four years, I think it was maybe $6 to $8 trillion of additional debt added to the total debt. We have about $36 trillion now. How are we going to get the debt down and the deficit down if we have these big tax cuts? Well, David, let me just say, I think the deficit is probably the most important issue today in terms of the long-term impact on the economy. And just to put this in perspective, in the first term, we had debt-to-GDP ratio of about 100 percent. And with the tax cuts and economic growth before COVID, we were growing the economy faster than we were growing the debt. So that ratio would have come down. And I think we were trying to get it down to 90 to 95. The big focus on the first term was military spending. We unfortunately had to increase non-military spending to get it through the House and Senate. But what really impacted us was COVID. And I think, as you know, firsthand, we had to spend a lot of money in COVID, or we would have had a worldwide depression, not recession. I think the problem was the first $2 trillion was well spent. The next $2 trillion, we never should have spent. And then the Biden administration kept on spending. So we have debt-to-GDP of close to 125 percent today. That's a gigantic problem. Secretary Besant has talked about getting the deficit down from 6 percent to 3 percent of GDP. And that's got to be a major focus. So if we're going to do the tax cuts, we need to make sure there's pay-fors, and we need to make sure there's economic growth. When Bob Rubin was Secretary of the Treasury, he once talked about the value of the dollar. And he made a mistake, he later would say, by talking about saying something other than we want a strong dollar. And now every Treasury Secretary is told, you can only say one thing about the dollar, we want a strong dollar. But what can former Secretaries of Treasury say about that? Can they say, we want a strong dollar? Can you say, maybe it should weaken a little bit and make our exports easier to sell? Well, you know, it's funny that you say that. And Bob really was kind of credited with the strong dollar policy. And I think it's kind of every Treasury Secretary after that, kind of, you know, you got Treasury 101 training, and the first thing they told you was, just talk about a strong dollar. You know, actually, when I was at Davos, I commented on a balanced, stable dollar, as opposed to saying a strong dollar. And all of a sudden, the dollar moved significantly. I think on the long term, it is important that we have a strong dollar. The dollar is the reserve currency of the world. And a strong dollar reflects a strong economy. In the short term, particularly because of trade, you know, the strength of the dollar can have a negative impact. But I think the most important thing is actually a stable dollar, so that there's not volatility. Speaking of stable, what do you think about the Secretary of Treasury or the U.S. government supporting cryptocurrencies? They didn't really have them so much when you were Secretary of Treasury. But now, cryptocurrencies seem to be very heavily supported by President Trump and his administration. Do you have any comment on whether that's a good or bad thing? Look, my view on crypto is pretty consistent. We did a lot of work on this in the first term. If people want to buy crypto as an asset class, like they buy gold, that's fine. To me, the bigger issue has been making sure that crypto is not used for illicit activities. And, you know, we spent a long time getting rid of Swiss numbered banking accounts, making sure that we have a mechanism that crypto can be compliant with BSA and all of our money laundering regulations. And I have concerns today about that. You know, in the business world, investment world, if you hire more fundraisers, you usually raise more money. In the IRS world, if you get more agents, you usually raise more money. But for some reason, the Republican Party seems to want to have fewer agents, and therefore they reduce the number of agents. And therefore, maybe they're not going to raise as much money. Do you have a view on whether cutting back the IRS agents that were put in under President Biden is a good thing to do or not? I actually don't think we need more agents. What we need is a bigger investment in technology in the IRS. The systems are outdated. And I think in this day and age, there's a lot we can do with technology that we don't need physical agents auditing people. It can be done electronically. So when you became the Secretary of the Treasury, there was somebody on the Federal Reserve Board who had been appointed by President Obama, James J. Powell, who used to work at my firm. And then you recommended him to President Trump, I think, to be the chairman of the Federal Reserve. President Trump was not happy with him at the beginning, I guess. Any regrets about recommending J. Powell? I do think J. has done a very good job. You know, as President Trump, he had a bunch of issues with him raising rates. But then during COVID, he did give him the most improved player award when he dropped rates down to zero at the time. So generally, the President of the United States is not supposed to talk to or lobby the chairman of the Fed. But the Secretary of Treasury usually meets regularly with the chairman of the Fed. Did you meet with him fairly regularly? I did. I mean, we inherited a tradition which has been kept up, is that the Secretary of the Treasury and the chairman of the Fed meet weekly. It alternates every week between being at the Treasury and the Fed. And I found those meetings very helpful. I mean, a big focus was obviously what we were doing on regulation. Monetary policy. I never talked about monetary policy publicly. But yes, of course, we did talk about those types of things. We talked about the economy. And I think we had a very good working relationship. So today, if you were J. Powell, would you lower interest rates in the next six months or so? I think it's pretty clear the Fed is going to lower rates. So I mean, if you look at the dot plot, which is what the Fed governors have publicly said, you do see rates coming down to about three and a quarter. And you see the long term rate at about 2.8. I do think the long term rate between being closer to two and a half than three. And I think we're going to see rates lowered next year. And by the way, I think the 10 year has that already built in to the market. So I think we're going to see three and a quarter, three and a half percent funds. And I think we'll see about 4 percent 10 year Treasuries. You left Secretary of Treasury and you started a private equity firm, Liberty Strategic Capital. So is private equity as fulfilling as you thought? I know you were in it a bit before you became Secretary of Treasury. But how do you enjoy the private equity world? Well, David, you know, I've been in the investment business and the markets businesses now for 40 years. And I think kind of every job I did kind of prepared me more for the future. And when I became Treasury Secretary, I think it was helpful that I had a background in markets and risk. I had been CEO of a bank so that, you know, I understood a lot of these issues. You know, we're small enough that we focus on a handful investments. We've done about 10 investments to date. And, you know, I find it very interesting. You agree with my view that the highest calling of mankind is private equity? I do not. No, you don't think so. There's something more important. I don't know what it is, but OK. I would have thought you were going to tell me the highest calling was to own a baseball team. If it's a winning team, yes. But so let me ask you, well, one of the pleasures of being Secretary of Treasury is you get your handwriting on the dollar bill, something like that. Some Secretary of Treasuries had incomprehensible, indecipherable handwriting and they couldn't figure out who actually was signing it. But what was the pleasure like of getting bills, a hundred dollar bills or dollar bills and and having your signature on it? Was that fun or not? You know, David, I changed my signature because my signature was completely illegible. And I thought if I'm going to have my my signature on the money forever, it would be nice if you could see it and read it. So I simplified my signature a lot. I guess the question is, is, you know, I wonder if President Trump wants his signature on on the money. One of the most important parts of the Treasury code, IRS code, is something called carried interest taxation. You're probably familiar with that. I've heard about it a few times. I heard about it during the first. I know President Trump has never been a big fan of that. I think, you know, and I think in this current speeches he's made about, he said he wanted to get rid of current carried interest taxation and whatever benefit sports owners gets as well. I don't know exactly what they are. But so do you have a view on carried interest now that you were in the private equity world? One of the issues, as you know, on carried interest is if you have two investors and we invested, you know, if I invested 50 percent, you invested 50 percent, we need to pay a certain amount of tax to the extent in it you create a fund and we decide, as opposed to it being 50-50, we're going to exchange profits. It doesn't change the tax that the government collects. So I think from an academic standpoint, you know, there's a reason behind this. From a revenue standpoint, that'll have to be something that Congress looks at. So what is the biggest pleasure you've gotten out of having a private equity fund now? You raised the fund. You've made a number of investments. Are you enjoying this as much as being Secretary of Treasury or being a partner at Goldman Sachs or not as much? I mean, David, all these experiences were really extraordinary. I mean, what I find interesting about this is investing in businesses and being able to impact certain businesses. You know, I've had a long experience in banking. We made a big investment that we bailed out and saved what was Flagstar Bank. It was called New York Community Bank at the time. And, you know, banking is something that's been very interesting to me. So this is the second time I did this. Now, President Trump and his administration are very focused on the trade deficit, which is very, very high these days. But is the trade deficit that big a problem compared to the budget deficit? If you were to worry about which deficit, wouldn't the budget deficit be more important than the trade deficit? Well, as you said, we have what's called the twin deficits. In my opinion, the budget deficit at $2 trillion annually is a much bigger problem. And I think, by the way, if you brought down the budget deficit, by definition, you'd bring down the trade deficit because you'd have less demand for goods in general. And I do think the idea of resetting trade relationships. I mean, President Trump is right that the U.S. market has been open for foreign trade and foreign markets have not been open in the same way. You know, we spent a lot of time with China on the phase one deal. They haven't lived up to that. But the whole idea was if we could allow access to our business to a growing China middle class, that's an enormous opportunity for U.S. business. And I do think kind of a big part of the trade deficit is we don't have fair trade in both directions. Now, President Trump has made a big push on getting American companies and foreign companies to invest in the United States, manufacture things that would probably be somewhat inflationary because by definition, if you have people producing things overseas, probably because it's the lowest cost producer, if you bring them back to the United States with higher labor costs, it'll be a higher cost production, therefore maybe more inflationary. Despite that, you think it's a good idea to have more things manufactured in the United States? Well, I definitely think U.S. manufacturing jobs has always been a big focus of his. I think, you know, there was a large part of the economy that was left behind. And I do think that's a focus. Now, obviously, there are different markets that can be competitive. So I think we can have the same thing. But his focus should be U.S. investment. In your view, is Congress likely to deal with the budget deficit in a way where we won't have to deal with the government shutting down? Do you think that's a real risk that the government could shut down again? Look, I'd say, you know, there's two issues that, again, that I spent a lot of time on, both the debt ceiling and government funding. So as Treasury, we could have the money and not be able to spend it because of government funding, or we could have the government funding but not have enough money because of the debt ceiling. My major focus was the debt ceiling. And one of the things I think now is the most important issue is the Republicans need to get the debt ceiling into a reconciliation bill quickly and raise the debt ceiling. In 1917, the debt ceiling was first imposed, and we've now raised it more than 90 times. President Trump has said before we should get rid of the debt ceiling. And we're the only country in the world with one other than Denmark. So what is your view on do we need a debt ceiling because we change it all the time anyway? Or should we just keep the debt ceiling? Well, given the side of the debt that we have today and the focus on the debt, I would keep the debt ceiling. I think it's an important mechanism. It's become too political. But I think spending and the debt ceiling should be passed at the same time. So whenever Congress passes whatever the spending is, they should simultaneously pass the debt ceiling so that you can afford to pay for that. But I don't think, you know, unlimited spending is a good thing. As I mentioned earlier, you know, COVID, we had to do trillion dollar spending. We then got spending out of control, and we need to get that back into control. If you were king for a day, what would be the one thing you think we should do to make our financial system better than it is today? I would reform the spending process and the debt ceiling process. Many countries around the world have something called a sovereign wealth fund. And the United States doesn't have that. We have the printing press. We print dollars and people buy those dollars. But we don't have a sovereign wealth fund. President Trump has signed an executive order, I think, creating a sovereign wealth fund. Where will the money come from for that sovereign wealth fund? Well, David, as you know, most countries that have sovereign wealth funds are because they have certain resources today that are going to be limited. Obviously, oil and energy is a big focus. And the purpose of the sovereign wealth fund is to capture a huge amount of those revenues today so that it can be spent over generations. The U.S. is not in that situation. So if we're going to have a sovereign wealth fund, I think, obviously, we'd have to borrow to put the money in the sovereign wealth fund since we don't have a surplus. And if we did that, I think it should be very limited in scope for are there certain areas that we need government support. It shouldn't be used, obviously, to crowd out private investments. The third rail of American politics is thought to be the social security system and Medicare. Some people say, ultimately, we are running out of money to fund the social security system because people are living longer and so forth. And we have more people retiring and then living longer. Are you worried about the security of the social security system? David, one of the big titles I had in government was managing trustee of the social security trust fund. And when I got there, I thought I actually could do a lot of good. And one of the things I was actually very focused on, social security still has paper cards. And I thought one of the most ridiculous thing is the social security number is the identifier most people use. I wanted to focus on creating electronic ID. And I think that's still something we should do. Now, as it relates to the trust fund, we issue a report every year. The trust fund is going to run out of money. And I think it's something that Congress has to deal with. I hope that in the second half of the president's term, he can focus on social security reform because it's a problem. The fund is going to run out of money. And there's lots of people who rely upon it. So it needs to be fixed. Bismarck, I think you said that two things you don't want to see being made are sausage and legislation. And what is it like when you're doing tax bills, you're sitting in a smoke-filled room and you're sitting there with the members of Congress and they say, I'll give you this and you give me this? And how does that really work? You know, we worked very closely with the House and Senate. These are huge, complicated issues. Of course, there have to be trade-offs. You have to think of how they were paid for. I mean, when we did this the first time, it was a trillion and a half dollars static, trillion dollars dynamic. And we had about $500 billion in what we considered to be baseline issues. So, of course, there have to be trade-offs. And then I would just comment on, even once tax reform was passed, we spent the next year writing tax regulations in Treasury, which is a very important function to institute the law. So if you were king for a day and you can make any change in the way the economy, the finance structure of the United States is based, the spending is done, what would be the one thing you think we should do to make our economy better or make our financial system better than it is today? One thing. I would reform the spending process and the debt ceiling process so that there was a real process of the administration having a budget, that budget going through Congress every year, and that kind of the focus around spending. Okay. So for the time being, you're going to be in the private sector. You're not going to be drafted back into government. And you're happy with the highest calling of mankind that you're now pursuing, private equity, right? The highest calling was serving the people in the government. I know you think this is the highest.