Biden’s radical Treasury nominee in her own words

In an incomprehensible act, President Biden has nominated as comptroller of the currency Saule Omarova — a law school professor who thinks that banks should have their deposit business taken away and transferred to the government, the Federal Reserve should be the monopoly provider of retail and commercial deposits, the Fed should perform national credit allocation, the Federal Reserve Bank of New York should intervene in investment markets whenever it thinks prices are too high or too low (shorting or buying a wide range of investments accordingly), the government should sit on boards of directors of private banks with special powers and disproportionate voting power, new federal bureaucracies should be set up to regulate financial regulators and carry out national investment policy and in general, it seems, has never thought of a vast government bureaucracy or a statist power that she doesn’t like.

What follows is a collection of such particularly unwise proposals in Professor Omarova’s own words, which might be appropriately called “Omarova’s Little Book.” 

“On the liability side” of the banking system, Professor Omarova “envisions the ultimate ‘end-state’ whereby central bank accounts fully replace — rather than compete with — private bank accounts,” according to her 2020 paper, “The People’s Ledger: How to Democratize Money and Finance the Economy.”

“On the asset side,” she “lays out a proposal for restructuring the Fed’s investment portfolio and redirecting its credit-allocation power…leaving the asset side free to serve as the tool of the economy-wide credit allocation.”

In short, “the key is…eliminating private banks’ deposit-taking function and giving the Fed new asset-side tools of shaping economy-wide credit flows,” the proposed regulator of national banks writes.

At this point, it is already unnecessary to proceed any further, but we will.

In the paper, “The ‘Too Big To Fail’ Problem,” Omarova suggests “an expansion of the Federal Reserve’s so-called ‘open market operations’…to encompass trading in a wide range of financial assets. … If, for example,  a particular asset class — such as mortgage-backed securities or technology stocks — rises in market value at rates suggestive of a bubble trend, the FRBNY trading desk would short these securities.” 

“The FRBNY trading desk would go long on particular asset classes when they appear to be artificially undervalued.” 

Also, a “National Investment Authority” would be “charged with developing and implementing a comprehensive strategy of national economic development.” 

In “The Climate Case for a National Investment Authority,“ she said “The NIA will act directly within markets as a lender, guarantor, market-maker, venture capital investor and asset manager. … It will use these modalities of finance in a far more assertive and creative manner.”

These ideas will perhaps strike you, as they do me, as exceptionally naïve.

Meanwhile, in “Bankers, Bureaucrats, and Guardians: Toward Tripartism in Financial Services Regulation,” Omarova proposes creating a “Public Interest Council,” which “would have a special status … outside of the legislative and executive branches.” The Council “would comprise…primarily academic experts [!]” and “it would have broad statutory authority to collect any information it deems necessary from any government agency or private market participant and to conduct targeted investigations.”

On top of that, in “Bank, Governance and Systemic Stability: The ‘Golden Share’ Approach,” she recommends a “new golden share mechanism” which would give “the government special, exclusive and nontransferable corporate-governance rights in privately owned enterprises.”

“As a holder of the golden share, the government could have disproportionate voting power with respect to the election of the company’s directors and various strategic decisions,” reads the paper.

“This ability to affect directly a private firm’s substantive business decisions — without holding a controlling economic equity stake — is a particularly promising feature of the golden share,” Omarova thinks. Do you?

While considering this quite remarkable nomination, any member of the Senate Banking Committee who personally supports these proposals of Omarova should boldly hold up their hand and then speak in their defense. It seems hard to believe there would be many hands.

Alex J. Pollock is the former principal deputy director of the U.S. Treasury’s Office of Financial Research and the author of “Finance and Philosophy — Why We’re Always Surprised.”