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During his campaign for president, Donald Trump repeatedly knocked opponent Hillary Clinton for the highly paid speeches she gave for Wall Street's Goldman Sachs. Now Trump has named Steven Mnuchin, who spent 17 years with Goldman Sachs, as his candidate for treasury secretary. He had been Trump's finance chairman.

Steven Mnuchin

Steven Mnuchin

At Goldman Sachs, Mnuchin specialized in trading distressed bank assets. This generally involves government-subsidized sweetheart deals, because the Federal Deposit Insurance Corporation (FDIC) or some similar government agency picks up the tab for the lousy assets of a bank being seized by the government. An existing bank, or a group of investors, takes the good assets and the deposits, and the government agency picks up the losers.

After he left Goldman, Mnuchin helped put together a group of investors to buy IndyMac Bank, a scandal-plagued lender that had been seized by the Federal Deposit Insurance Corporation. IndyMac had been one of the largest lenders to collapse in the Great Recession of 2007–2009. "The Mnuchin group paid FDIC $1.5 billion for the bank, far less than the value of IndyMac's assets," reported The Nation magazine.

Mnuchin and a bunch of billionaires got a special "shared loss" agreement from the FDIC that reimbursed the billionaires for much of the cost of foreclosing on people who had gotten their mortgages from IndyMac. Within a year, the billionaires had paid themselves dividends of $1.57 billion, says The Nation.

IndyMac was renamed OneWest Bank. It turned around and bought the seized La Jolla Bank, "getting the FDIC to agree again to additional 'loss share' arrangements so the billionaires had little if anything to lose. According to a news release from the Federal Deposit Insurance Corporation, La Jolla Bank was seized on February 19, 2010. OneWest Bank got all the deposits of around $2.8 billion and assets of about $3.6 billion.

There was a revealing sentence in that news release: "The FDIC estimates that the cost to the Deposit Insurance Fund will be $882.3 million." I doubt if that is the only loss the government took, because it must have taken a beating on the agreement to subsidize foreclosure losses.

La Jolla Bank had done some smelly banking. On September 25, 2015, I reported in the Reader that Amalia Martinez, head of Small Business Administration lending at the seized bank, had pleaded guilty to conspiracy to misapply bank funds. Martinez admitted that she and other senior bank officials accepted cash and kickbacks from borrowers to issue hundreds of millions of dollars to borrowers "that they knew they were unlikely to repay," reported the Reader. The La Jolla Bank executives overlooked red-flag information when approving fraudulent loan applications. On one occasion, a construction-industry executive handed $100,000 in cash to a senior bank official who distributed it to Martinez and others.

When the borrowers defaulted, the bank would issue even more bad loans to cover up the original ones. Martinez was the fourth to be charged in the case. So the government probably got stung for more than a billion dollars for such hanky-panky. But Mnuchin and his friends raked in big bucks.

When Congress looks into Mnuchin next year, it is essential that these deals be examined publicly.

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Chuck Levitin Dec. 3, 2016 @ 12:05 a.m.

Well, Don, I suppose it would have hurt your story line to mention that Mnuchin left Goldman Sachs in 2002, a full decade before Hillary made those highly paid speeches. And what good what it have been to mention that the FDIC is government owned, but all the loses are funded by reserves from insurance premium charges to member banks? The US taxpayer did not pay one thin dime for those banking losses, they were from private funds, but better to just let your readers think Mnuchin made money off of the taxpayer's back.

What a hack!

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Don Bauder Dec. 3, 2016 @ 8:58 a.m.

Fulano de Tal: What difference does it make that Mnuchin left Goldman Sachs in 2002? The point is that throughout his campaign, Trump blasted Hillary for her relationship with Goldman Sachs, then nominated his campaign manager, Mnuchin, a 17-year Goldman Sachs veteran, as treasury secretary. Trump's e-mail blasts had served to demonize Goldman Sachs.

It interests me that Mnuchin spent his time at Goldman Sachs specializing in trading distressed bank assets. Then he left, spearheading a group of billionaires that got sweetheart deals from the FDIC for taking over scandal-plagued banks. IndyMac had specialized in shaky loans, and the inevitable happened when housing collapsed. So Mnuchin and his billionaire buddies induced the FDIC to give them a special deal for taking over the institution: subsidizing them for costs of foreclosing. So foreclosures zoomed. The group paid a very low $1.5 billion for the bank, and having raked in bucks from the "shared loss" agreement, sold it last year for $3.4 billion.

When the bank, renamed OneWest, bought La Jolla Bank, it got another "shared loss" agreement. The Justice Department prosecuted a number of La Jolla Bank officials who admitted having set up loans that they knew would not be paid back.

Yes, the FDIC claims that it is funded through premiums paid by banks and federal or state taxes are not involved. Ha! The Treasury Department investigated IndyMac, concluding that the Office of Thrift Supervision saw the bad loans but did little about them. The FBI investigated IndyMac. The Justice Department successfully prosecuted wrongdoers at La Jolla Bank. Taxpayers picked up the tab for this work by federal agencies.

These slimy deals must be stressed when Congress holds hearings on Mnuchin. As a taxpayer, I will be happy to chip in for those investigations, in addition to chipping in earlier for the work of the Treasury and Justice Department in these dubious deals.

Best, Don Bauder, delighted to be called "a hack."

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ImJustABill Dec. 3, 2016 @ 4:17 p.m.

Don Bauder takes bigs HACKS at those in power who misuse their power for ill-gotten gains. Please continue to hack away.

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Don Bauder Dec. 3, 2016 @ 6:58 p.m.

ImJustABill: I intend to hack away, but to do my job, I have to be accustomed to be called a hack. Best, Don Bauder

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Psycholizard Dec. 3, 2016 @ 3:51 p.m.

I know it's foolish to think of Banks generally as US taxpayers, but in fact, when they pay "fees", to government entities, they are taxpayers. No doubt the money will slush back in from the Government, point taken.

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Don Bauder Dec. 3, 2016 @ 7 p.m.

Psycholizard: I would like to know if the FDIC coughed up all the money for the Mnuchin group's sweetheart deals. Best, Don Bauder

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MURPHYJUNK Dec. 5, 2016 @ 7:52 a.m.

could be the "fees" that are paid out that don't show up on the books that really count in politicians decision making.

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Don Bauder Dec. 5, 2016 @ 9:19 a.m.

Murphyjunk: Americans get several varying stories on how much money was spent -- and where it came from -- in the bank bailout. Best, Don Bauder

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ImJustABill Dec. 3, 2016 @ 4:19 p.m.

It says right on FDIC's website "FDIC insurance is backed by the full faith and credit of the United States government."

https://www.fdic.gov/deposit/deposits/faq.html

So ultimately all the taxpayers ARE on the hook for FDIC payments.

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Don Bauder Dec. 3, 2016 @ 7:01 p.m.

ImJustABill: The FDIC is part of the federal government. Period. Best, Don Bauder

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SportsFan0000 Dec. 5, 2016 @ 9:05 a.m.

Fulano del Tal US Taxpayers payed hundreds of billions to subsidize foreclosure losses...Reserves from premium charges to members banks?! What a bad joke?! There was little or no money in those so called "reserve funds"...FDIC went with its "hat in hand" to Congress and received 100's of billions in taxpayer funds to cover foreclosure losses...so your statement is plays fast and loose with the facts..

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Don Bauder Dec. 5, 2016 @ 9:24 a.m.

SportsFan0000: Fulano de Tal (who I think is a John Doe) is one of the few people believing that the FDIC reserve funds paid for all the foreclosure losses, particularly in the cozy deals made by Mnuchin and the billionaires. If this is not investigated in the Mnuchin hearings, there is something rotten in Washington (in case you didn't know.) Best, Don Bauder

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SportsFan0000 Dec. 5, 2016 @ 9:08 a.m.

Meet Trump's New Treasury Secretary Nominee.......................... Swampmaster Steven Mnuchin Goldman Sachs 17 years, Former Partner of George Soros. Alleged to be "One of the Architects of the Crash of 2008". As a "Vulture Capitalist", Mnuchin Purchased Failed Indymac Bank with Soros & Hedge Fund..Changed Name to "One West"..MOST AGGRESSIVE FORECLOSURE LENDER TOSSING MILLIONS OF HOMEOWNERS ONTO THE STREETS.....RECEIVED BILLIONS IN US GOVERNMENT TAXPAYER SUBSIDIES (Government backed loans were insured by US Government/Taxpayers...According to Numerous sources including Senator Elizabeth Warren..Made More Money Foreclosing on Properties than doing "workouts" for families across America...."Socialized their Risks..."Privatized their Gains"...According to The New York Times, OneWest "WAS INVOLVED IN A STRING OF LAWSUITS OVER QUESTIONABLE FORECLOSURES, & SETTLED SEVERAL CASES FOR MILLIONS OF DOLLARS". OneWest was sold to CIT Group in 2015 for $3.4 billion. One West Financial Freedom Subsidiary ALSO FORECLOSED ON 16,220 FEDERALLY INSURED REVERSE MORTGAGES 2009- 2016. 39% of ALL FEDERALLY INSURED REVERSE MORTGAGES AT THAT TIME. The 39% figure was criticized by CRC, who estimated that Financial Freedom only serviced about 17% of the market. In other words, Financial Freedom was foreclosing at twice the amount that one would expect, given its share of the market. CIT Group disclosed to investors that it had RECEIVED SUBPOENAS FROM HUD's INSPECTOR GENERAL 2015-2016 ALLEGING "REDLINING" two nonprofits filed a complaint with the Department of Housing and Urban Development, alleging redlining by OneWest Bank. (Racial Discrimination against borrowers in inner city neighborhoods) (Redlining: is the unethical/illegal practice where financial institutions make it extremely difficult or impossible for residents of poor inner-city neighborhoods to borrow money, gain approval for a mortgage, take out insurance or gain access to other financial services because of a history of high default rates. In this case, the rejection does not take the individual's qualifications and creditworthiness into account). Was Finance Chair of Trump's campaign..."Draining the Swamp"?!?! OR Transferring the Swamp Monsters from Wall St to the White House Executive Branch of Government?!?!

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Don Bauder Dec. 5, 2016 @ 9:41 a.m.

SportsFan0000: Watch out for another vile move by Trump and his followers: they will try to eliminate or weaken the Consumer Financial Protection Bureau, which is our main hope for getting to the bottom of a corrupt bank/regulator/politician system. Best, Don Bauder

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Ponzi Dec. 5, 2016 @ 9:21 a.m.

Trump is not "draining the swamp," he is releasing bigger alligators into it.

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Don Bauder Dec. 5, 2016 @ 9:45 a.m.

Murphyjunk: Several piranhas will be named to the Consumer Financial Protection Bureau. Aim: destruction. The losers will be the penniless white nationalists who put Trump in office. The big banks will fleece them even more than they do now. Best, Don Bauder

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Don Bauder Dec. 5, 2016 @ 9:42 a.m.

Ponzi: That is a wonderful line, and I wish I had thought of it. Best, Don Bauder

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Don Bauder Dec. 6, 2016 @ 7:58 p.m.

Flapper: Oh dear. Rattlers from Mars? We have enough rattlers -- many in Congress. Best, Don Bauder

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Don Bauder Dec. 7, 2016 @ 8:08 a.m.

Flapper: Rattlers are native to a continent? I don't understand. Best, Don Bauder

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Chuck Levitin Dec. 5, 2016 @ 11:36 p.m.

The U.S. government essentially closed the books on TARP with a $15.3 billion profit. Treasury sold its remaining shares Friday in Ally Financial, its last remaining major stake from the $426 billion bailout of banks and the U.S. auto industry.

The Troubled Asset Relief Program was passed in 2008, in the wake of Lehman Brothers' bankruptcy, as the nation's financial system was on the verge of collapse and economists feared another Great Depression. At the height of the bailout, Treasury owned a significant stake in all of the major U.S. banks, such as Citigroup (C) and Bank of America (BAC), two of the nation's Big Three automakers -- General Motors (GM) and Chrysler Group (FCAM) -- as well as one of its largest insurers, AIG (AIG).

http://money.cnn.com/2014/12/19/news/companies/government-bailouts-end/

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Don Bauder Dec. 6, 2016 @ 9:36 a.m.

Fulano de Tal: And you believe all those glowing success stories shoveled out by Washington DC publicists? Best, Don Bauder

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Chuck Levitin Dec. 5, 2016 @ 11:45 p.m.

Does loss share put the taxpayer on the hook for additional losses down the road?

When the FDIC calculates the estimated cost of a failure, it takes into account all expected losses on the assets covered in shared-loss agreements (SLAs). These current market assumptions are built into the cost of failure at the time of resolution. Thus, the cost of all expected future payments are recognized at the time of bank failure and no losses are deferred. Any loss sharing payments are made from receivership funds from the specific failed bank or thrift or, if those are insufficient, from the FDIC's Deposit Insurance Fund (DIF). The DIF is funded by assessments paid by insured banks and thrifts. It is not taxpayer funded.

https://www.fdic.gov/bank/individual/failed/lossshare/index.html

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ImJustABill Dec. 6, 2016 @ 3:27 p.m.

"It is not taxpayer funded."

You are saying that if the DIF runs out of money (say if there are a large number of bank failures) the United States government WILL NOT honor the claim "FDIC insurance is backed by the full faith and credit of the United States government."

https://www.fdic.gov/deposit/deposits/faq.html

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Don Bauder Dec. 6, 2016 @ 8:01 p.m.

ImJustABill: The federal government already has bailed out the FDIC in its foreclosure deals. Best, Don Bauder

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Don Bauder Dec. 6, 2016 @ 9:48 a.m.

Fulano de Tal: Backed by the shared loss agreements, IndyMac (or renamed OneWest) became a "foreclosure machine," says the New Yorker. That is "a point that is likely to become a focus of criticism."

You seem to suggest that the government knew full well when it made the dubious deal with Mnuchin's group that a waterfall of foreclosures would flood the nation. Hmmm. Best, Don Bauder

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Chuck Levitin Dec. 6, 2016 @ 2:15 p.m.

The believing mind is externally impervious to evidence. The most that can be accomplished with it is to induce it to substitute one delusion for another. It rejects all overt evidence as wicked...

H. L. Mencken

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Don Bauder Dec. 6, 2016 @ 8:04 p.m.

Fulano de Tal: It's those believing minds -- those who accept the federal government's word on the bank bailouts -- that are impervious to evidence. Best, Don Bauder

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shirleyberan Dec. 7, 2016 @ 9:47 a.m.

Don - Tell deTal what time it is! Somebody has to, you do it best Bauder. No substance in dysfunctional narcissistic empathy deficit.

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Don Bauder Dec. 7, 2016 @ 2:21 p.m.

shirleyberan: I think contributors are giving him the time of day, as well as a kick in the behind. Best, Don Bauder

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