Biden’s nominee for the Comptroller of the Currency, Saule Omarova, may be one of his most radical appointees yet. She recently came under fire for apparently removing her Marxist thesis from her resume.
In an open letter to Omarova published on Tuesday, Toomey claimed that she had deleted reference to her thesis “Karl Marx’s Economic Analysis and the Theory of Revolution in The Capital” from her current resume with Cornell Law School, adding that the paper was featured on her resume in April 2017.
Saule Omarova (Kazakh: Сәуле Омарова; born 1966) is a Kazakh-American attorney, academic, and public policy advisor who was nominated to serve as Comptroller of the Currency by President Joe Biden.
Omarova was born in Almaty Region of the Kazakh Soviet Socialist Republic, stating in a 2020 interview with Chris Hayes that “I went to high school in a small, tiny Kazak[h] provincial town on the outskirts of the Soviet Empire”. Omarova graduated from Moscow State University in 1989 on the Lenin Personal Academic Scholarship. Omarova moved to the United States in 1991, where she received a Ph.D from the University of Wisconsin–Madison (UW), and a J.D. degree from Northwestern University Pritzker School of Law. At UW, Omarova defended her thesis, The Political Economy of Oil in Post-Soviet Kazakhstan.
Omarova practiced law in the Financial Institutions Group of New York-based law firm Davis Polk & Wardwell for six years. During the George W. Bush Administration, Omarova served in the Department of the Treasury as a special advisor on regulatory policy to the Under Secretary for Domestic Finance. During her time as an associate professor of law at the University of North Carolina at Chapel Hill, Omarova was a witness at a U.S. Senate hearing on bank ownership of energy facilities and warehouses.
In August 2021, Omarova’s name was floated as a potential contender to lead the Office of the Comptroller of the Currency (OCC) under President Joe Biden. She was chosen to serve as Comptroller of the Currency in September 2021, pending Senate confirmation.
She recently wrote a paper entitled “The People’s Ledger: How to Democratize Money and Finance the Economy”. It is a good read,but below are some quotes that I pulled from it as well as the page it came from. The emphasis added in BOLD is mine.
Here is a link to the paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3715735
Among other things, the crisis amplified recent calls to create free digital-dollar deposit accounts at the Federal Reserve (the Fed) for every American household and business. In essence, this “FedAccounts” idea represents an explicitly political—and consciously progressive—take on the traditionally technocratic proposals to issue central bank digital currency (CBDC). The discourse on CBDC, however, is preoccupied mainly with operationalizing potential changes in central bank liabilities, rather than situating them within the broader institutional critique. Framed as a matter of “fast payments” and/or “access to banking,” it is not grounded in a coherent vision of how the financial system operates—and, more importantly, how it should operate. (3)
Deliberately radical in scope and substance, this proposal defines the frontier of reform possibilities and throws into sharp relief what is really at stake in this process. (3-4)
On the liability side, the Article envisions the ultimate “end-state” whereby central bank accounts fully replace—rather than compete with—private bank deposits. Making this explicit assumption helps to illuminate and explore the full range of new monetary policy options enabled by the compositional change in the Fed’s liabilities. As part of this exploratory exercise, the Article proposes a mechanism for modulating the aggregate supply of money via direct crediting—and, in rare circumstances, debiting—of universally held FedAccounts. It shows how this unconventional mechanism, colloquially known as “helicopter money,” would empower the Fed to conduct monetary policy in a far more targeted, dynamic, and effective manner than can be done via interest rate management alone. (4)
On the asset side, the Article lays out a proposal for restructuring the Fed’s investment portfolio and redirecting its credit-allocation power in qualitatively new ways. Under this proposal, the Fed’s principal asset holdings would fall into three categories: (1) redesigned “discount window” loans to qualifying lenders; (2) securities issued by existing and newly created public instrumentalities for purposes of financing large-scale public infrastructure projects; and (3) an expanded portfolio of trading assets maintained for purposes of financial market-stabilization. Together, these new investment choices would empower the Fed to channel greater quantities of credit to productive uses in the real economy far more directly and effectively than it can hope to do today.
It is especially important to recognize that taking a more limited, piecemeal approach to reform is not necessarily the most prudent or practically feasible option. (6)
From this perspective, the overtly radical reform outlined here is ultimately a more pragmatic and sensible response to the challenge of democratizing finance. (6)
The key to these amplification and replication dynamics is the direct or indirect central bank accommodation of private liabilities issued by these “rogue” franchisees operating outside of the original franchise arrangement. Money Market Mutual Funds (MMMFs), bespoke derivative instruments, securities repurchase (“repo”) markets, and complex securitizations all exemplify these dynamics and illustrate their potentially destabilizing systemic effects. (9)
In fact, reclaiming the public’s primary role in allocating publicly issued money and credit is critical to its ability to perform the modulatory task effectively—and to solve ubiquitous self-reinforcing collective action problems that create financial instability and hinder socially equitable economic growth. (9)
The best-known recent proposal to institute FedAccounts was advanced in 2018 by Morgan Ricks, John Crawford, and Lev Menand.115 Their proposal envisions FedAccounts as a cheaper and more efficient alternative to, rather than effective replacement for, private deposit accounts offered by commercial banks. As proposed, FedAccounts would have transactional functionalities of private bank accounts (save for the overdraft coverage) but pay higher interest on deposits and avoid predatory charges. They would provide a “money-and-payments safety net” for the unbanked or under-banked American households and “crowd out unstable, privately issued deposit substitutes.” Overall, the authors make a thoughtful and convincing case that ending banks’ privileged access to the Fed’s balance sheet would have a wide range of salutary effects. (21-22)
Focusing on the ultimate “end-state” whereby central bank accounts fully replace—rather than uneasily co-exist with—private bank deposits, the Article explores the full range of new monetary policy options the proposed structural shift would enable. (23)
A single most effective solution to this problem is to reform the composition of the Fed’s liabilities, by replacing commercial bank reserve accounts with universally available deposit accounts.124 The core idea here is simply to allow all U.S. citizens and lawful residents, local governments, non-banking firms and non-business entities to open transactional accounts directly with the Federal Reserve, thus bypassing private depository institutions. In this sense, it is a variation on the familiar FedAccounts—or FedCoin, “digital dollar wallets,” etc.—theme.
In principle, FedAccounts can be made available as an alternative to bank deposit accounts, upon a person’s request. As explained below, however, the more effective option would be to transition all deposits to the Fed. Functionally, all FedAccounts will be essentially identical. For purely administrative purposes, however, it would be advisable to differentiate among “individual” and “entity” accounts. For U.S. citizens, Individual FedAccounts would be opened automatically upon birth or naturalization. These accounts would also be credited automatically with regularly received federal benefits: Social Security payments, tax refunds, and all other disbursements that depend on one’s citizenship status. For qualifying resident aliens, Individual FedAccounts would be opened and closed upon request, rather than automatically, but otherwise would function in the same manner. Entity FedAccounts could also be administratively divided into separate categories, depending on whether the holder is a government unit, a non-profit organization, or a business entity incorporated or operating in the U.S.
This internal classification will simplify and optimize federal payments—including economic stimulus benefits or crisis-time financial aid—to all entitled recipients. The inherent programmability of the digital dollar would enable the Fed to manage these, as well as any other, payments in real time and with maximum flexibility, capturing the necessary gradations in the amounts or timing of individual transfers. (24-25)
In basic terms, the Fed will credit all eligible FedAccounts when it determines that it is necessary to expand the money supply in order to stimulate economic activity and ensure better utilization of the national economy’s productive capacity. In the economic literature, this form of unconventional (by present standards) monetary policy is commonly known as “helicopter drop” or “QE for the people.” (25)
On the amount issue, there is again a range of potential choices. One option is to credit the same amount to each eligible account. This would be the easiest to execute from a purely logistical viewpoint. To maximize the economic stimulus of the helicopter drops, however, it may make more sense to have a progressive scale for crediting accounts of individuals, so that less wealthy U.S. citizens and eligible residents receive proportionately higher amounts of money. This differentiation would channel more funds to the people who both need it most and will be more likely to spend the money on daily purchases. (27)
Implementing a contractionary monetary policy by debiting FedAccounts, in turn, presents a different set of ex ante institutional choices aiming to minimize the economic and political fallout from what is likely to be perceived as the government “taking away” people’s money. This tool is to be reserved only for extreme and rare circumstances, when the Fed is unable to control inflation by raising interest rates and deploying its new asset-side tools, discussed below.140 It is nevertheless important to have a mechanism in place for draining excess liquidity from these accounts with minimal disruption of productive activity. (27)
One potential approach could be to set up each account as a two-tiered structure, in a manner functionally similar to the familiar combination of a checking and a savings account. The first tier—a “transaction sub-account”— would be used for making and receiving payments, including regular governmental disbursements like tax refunds, social security benefits, and so forth. The second tier—a “reserve sub-account”—would be explicitly reserved for use as the destination account for the receipt, transfer, and holding of funds designated by the Fed as subject to a specific monetary policy action.
If and when the Fed injects monetary base into the system, each reserve sub-account would be credited with the appropriate “helicoptered” amount. If and when the Fed seeks to drain money from the system, the appropriate amount would be transferred from the transaction sub-account to the same holder’s reserve sub-account, where it would be effectively escrowed until the Fed ends its tightening policies. These temporarily “reserved” funds would pay a higher interest than the regular interest paid by the Fed on money held in transaction sub-accounts. Importantly, raising this reserve interest rate would enable the Fed to incentivize depositors to move more of their money from transaction into reserve sub-accounts voluntarily.
Strategic use of this tool, therefore, may decrease the need for the mandatory “reserving” of people’s money, which would also help to counteract negative perceptions of this policy. In effect, the tightening of the money supply would be achieved through a compulsory but economically attractive investment scheme. (27-28)
One such public instrumentality is the National Investment Authority (NIA), proposed elsewhere. Filling the critical institutional gap between the Fed and the Treasury, the NIA would be tasked with devising and implementing a comprehensive national development strategy. In essence, it is envisioned as the modern-day equivalent of the Reconstruction Finance Corporation (RFC), the New Deal-era public institution that successfully led a massive nationwide capital mobilization campaign to aid Depression-struck sectors of the American economy. Much like the RFC, the NIA would transact directly in private financial markets, proactively channeling public and private financial resources into large-scale, transformative public infrastructure projects. Importantly, however, it would reverse the familiar pattern of “public capital, private management,” typical of most modern “public-private partnerships,’ in favor of the “public management, mixed public-and-private capital” model.
Another arm of the NIA would function as a hybrid of a sovereign wealth fund (SWF) and a private equity firm. Following the business model of a typical asset manager, the NIA would set up a series of collective investment funds (structured similarly to traditional private equity funds) and actively solicit private investors—pension funds, insurance companies, university endowments, foreign SWFs, and so on—to purchase passive equity stakes in its funds. The NIA’s dedicated professional teams would then select and manage individual funds’ portfolios of public infrastructure assets: nationwide clean energy networks and high-speed railroads, regional air and water cleaning and preservation programs, systems of ongoing adult education and technical training, networks of mixed public-private “startup” finance funds, and so on. The NIA would employ advanced financialengineering methods to reward private investors for their participation in financing these large-scale, long-term economic growth-boosting projects—even where such projects do not generate easily privately “capturable” revenues. (37-38)
The Fed’s balance sheet will function as the ultimate platform for the integrated public management of the economy-wide flows of the sovereign public’s full faith and credit. It will become the People’s Ledger. From this perspective, the increased size of the Fed’s balance sheet is a measure of the People’s Ledger’s depth and capaciousness. A bigger, deliberately constructed, and dynamically managed asset portfolio is an indicator of the Fed’s enhanced ability to channel our collectively accumulated financial resources into productive economic activities. (42)
Thus, to manage the supply and cost of privately available credit effectively, the Fed would need to monitor relevant market dynamics and analyze relevant quantitative and qualitative data with a specific view to (1) identifying potential structural impediments to achieving desired levels of output, productivity, employment, or other policy-driven metrics in specific pockets of the economy; and (2) correcting these imbalances in an optimally targeted and timely manner, among other things, by incentivizing QLIs to increase or decrease lending to specific borrower categories.
Having the NIA, in particular, take on the task of mobilizing public and private investment in the real economy would significantly ease the currently mounting political pressure on the Fed to use its balance sheet to create jobs, fight climate change, reduce racial and social inequity, and so forth. (44)
Banks, in other words, will not be “special” any more. By separating their lending function from their monetary function, the proposed reform will effectively “end banking,” as we know it. Credit-generation, fundamentally dependent upon the monetized full faith and credit of the sovereign public, will be reserved either for public instrumentalities or for QLIs—private lenders with access to the Fed’s NDW facility. (47)
Again, none of this means that private finance would be forced to disappear or “shrink into irrelevance.” The proposed reform would simply redefine or restore its proper social function. In effect, it would force private finance to conform to its own self-narrative as the realm of pure “intermediation” between private suppliers and users of “scarce” capital.
In this sense, the restructuring of the Fed’s balance sheet, advocated here, would allow for a more transparent, fair, and socially beneficial delineation between the properly “private” and the legitimately “public” spheres in modern finance.
By removing the underlying sources of bank’s present “specialness” and fragility, the proposed change would also eliminate the need for an intrusive and complex regime of bank regulation and supervision. Thus, both federal deposit insurance and deposit-based bank reserve requirements will become unnecessary. Once banks stop depending on short-term funding of their longterm assets, mandatory liquidity requirements, which were introduced into the Basel Capital Accord in the wake of the 2008 financial crisis, would also become redundant. (48)
This shift would allow for a significant streamlining of the U.S. bank regulatory apparatus. The Federal Deposit Insurance Corporation (FDIC) would have no practical role to play. All of the continuing prudential oversight and chartering responsibilities can then be consolidated and transferred to the Office of the Comptroller of the Currency (OCC), the primary regulator of federally-chartered banks. Accordingly, the scope of the Federal Reserve’s own formal bank regulatory functions would significantly shrink, if not disappear. (49)
In that sense, the People’s Ledger will simply restore the traditionally central role of private ordering and risk-taking in private finance. It will return the markets to their original state of “freedom.” (59)