David Haggith is an author published by Putnam and HarperCollins. He is publisher of The Great Recession Blog and writes for over 50 economic news websites. His Twitter page of economic humor is @EconomicRecess.
Radical, reformer or outright red? Saule Omarova came under intense scrutiny when she appeared before the senate for the post of Comptroller of the Currency, drawing fire from Republicans, banks and even some Democrats.
She was called by some “Joe Biden’s most dangerous nominee.” Saule Omarova, the president’s pick for one of the US Treasury’s top posts, was born and raised in Kazakhstan back in 1966 when that nation was part of the former Soviet Union. From the word go, her views on banking and her birthplace wrapped her in a tornado of controversy.
If confirmed to the comptroller position, Omarova would have become the nation’s top bank regulator, and she approached the post with some potent banking reforms she has long advocated, which even she described as “radical.”
The Republican offensive
During Omarova’s nomination hearing on November 18, the financial law professor was questioned about her previous affiliation with a communist youth organization, although all students in her day had to be a part of it. When asked by Republican Senator John Kennedy from Louisiana if she should be addressed as “comrade,” she vigorously denied any sympathy for communism.
Pennsylvania Senator Pat Toomey, the top Republican on the Senate Finance Committee, which held the hearing, reviled her as the most “radical choice for any regulatory spot in our federal government” he had ever seen.
Toomey pointed to her promotion of bank-transforming ideas, which the Federal Reserve has already been exploring, such as creating bank accounts at the Federal Reserve for every US adult citizen into which the Fed can directly deposit free money to stimulate the US economy. This plan, which Omarova once identified as ‘the People’s Ledger’, would offer, in her words, a “blueprint for reshaping the basic architecture and dynamics of modern finance” that would place digital Fed dollars into private personal bank accounts at the Fed.
Toomey also brought up Omarova’s desire to establish a National Investment Authority with the aim of guiding the nation’s industrial policy more toward central planning of the economy rather than being in the hands of bankers.
Toomey then asked, “How does it even happen that it occurs to someone to think of these things? Maybe a contributing factor could be if a person grew up in the former Soviet Union and went to Moscow State University and attended on a V.I. Lenin academic scholarship.”
Toomey also pressed her to release the Russian-language version of her 1989 thesis from Moscow State University, titled ‘Karl Marx’s Economic Analysis and the Theory of Revolution in The Capital’.
Her senate hearing last month played like a reminder of the McCarthy era of the late ‘40s and ‘50s, when Senator Joseph McCarthy tried to eradicate any hint of communist sympathy in the US via his notorious Senate inquisition. Senator Kennedy grilled her to the extent Omarova felt pressured to declare outright, “I am not a communist.” She then described the history of her grandmother’s family, which was sent to Siberia back in the 1920s for refusing to join the Communist Party as having “escaped death under the Stalin regime.”
“I studied hard, got into the best university I could, and was ultimately able to fulfill my dream of coming to America – the land of opportunity and freedom.”
In another instance, Omarova said, “I know that Soviet-style communism doesn’t work … I’ve lived through it. That system was deeply flawed. It’s dead.”
Democrats to the defense
Toomey’s aspersions during the hearing raised the ire of Sherrod Brown (D-Ohio), chair of the banking committee, who defended Omarova and attacked Toomey’s insinuations saying, “Before today, I thought red-scare McCarthyism was rightly relegated to the dustbin of history … Any American citizen who fled communist repression – whether it be FDIC Chair Jelena McWilliams or OCC nominee Saule Omarova – should be lauded for their courage and conviction. I believe that my colleagues – from both sides of the aisle – will reject such character assassinations.”
Other Democrats described Kennedy’s and Toomey’s attacks as “vicious” and “disturbing,” while some Republicans took a less vilifying approach. Sen. Thom Tillis of North Carolina expressed concerns about her policy statements, but said, “For somebody’s who’s lost family members in the time that she was young, for somebody who was growing up in Russia [the USSR], I would think that some of the decisions that Dr. Omarova may have made back at the time had as much to do with survival as anything else … I don’t have any concern with where she came from.”
One political commentator from MSNBC’s Morning Joe, Mika Brzezinski, later fumed, “Look what she’s done and what incredible accomplishments in her life and now wanting to serve. This was sick. This was really hard to watch. It made me want to cry.”
Big banks sure don’t love her
Toomey’s concerns reflected fears that were expressed by bank lobbyists and conservative media that Omarova may be a Trojan horse being rolled into the US camp to enable a communist conquest of the US economy by destroying capitalism.
Some of her views are certainly radical by her own admission, leaning hard left of anyone brought into the Treasury before. Yet, she would not have been new to the Treasury. She served as a special adviser under George W. Bush before teaching financial law at the University of North Carolina and then Cornell University.
Carter Dougherty, communications director for Americans for Financial Reform, said, “What really drives the hysterical bank lobby opposition is that Omarova is an experienced bank lawyer and policymaker who worked alongside banks and Republican Treasury officials, and she knows where Wall Street buried all the bodies.”
Omarova has written extensively about weaknesses in US banking regulations, and her desire to reform those regulations, her potentially becoming comptroller undoubtedly raised concerns among those who have benefited from the planned weaknesses. She has claimed in the past that banking regulators have enabled profligate banking practices.
Prior to her withdrawal from nomination, Raúl Carrillo, an associate research scholar at Yale Law School, said. “They’re resorting to this just because she’s one of the best minds we have in the area.”
One of the practices Omarova criticized was the opening of banks to investing in derivatives prior to the 2008 financial crisis by the very department she would have wound up heading if confirmed. Those practices, such as collateralized debt obligations, played a central role in the banking collapse that followed. She had also criticized the conglomeration that continues to allow banks to become “too big to fail,” and had suggested breaking up banks with more than $250 billion in assets.
The radical reformer
It’s not surprising there was no love lost from big banks for Omarova. She once participated in a Canadian documentary titled, ‘Assholes: A Theory’, in which she claimed banking was the “quintessential asshole industry.”
The Wall Street casino was not too happy with these views, so they used their money to fight her. Banks, Omarova has said, should be kept out of the casino because they are playing with public money and lack the capacity to restrain themselves from risky behavior:
“Events of the last decade revealed pervasive patterns of corrupt behavior and systematic indifference to the public costs of excessive risk-taking on the part of large financial institutions,” she wrote. “This fundamentally anti-social behavior was put on full display, for example, when the post-crisis congressional investigation uncovered and documented numerous cases of financial institutions’ conscious disregard for, and often deliberate concealment of, unacceptably high risks built into subprime mortgage loans they originated, packaged, and sold to investors. One of the most troubling revelations in this respect was that, in the vast majority of these cases, banks’ and their employees’ socially harmful and ethically questionable business conduct was perfectly permissible under the existing legal rules.”
If she had been confirmed, Omarova may have used her new position to scale back such liberties. She was viewed as likely to tighten stress tests in ways that would make it harder for banks to remain ‘too big to fail’. She may even have gone so far as to remove the safety net of bailouts that protect big banks. She would have entered office just as her department was reviewing rules and regulations put in place by the Trump administration to gut the Clinton-era Community Reinvestment Act, which aimed to eliminate bank redlining of impoverished neighborhoods, which are often dominated by people of color. Redlining unofficially zoned those areas out of being eligible for loans.
The CRA became a red herring used by bankers to take the blame off of themselves for the Great Financial Crisis by claiming those loans were higher risk and, thus, became the underlying weakness that caused the collapse. However, a review by the Federal Reserve showed that loans across the entire financial spectrum contributed equally to the collapse when compared to CRA loans.
Small banks may have found something to like in her
Omarova’s main attacks have been against big banks. In her opening testimony she assured smaller banks, “If I am confirmed to lead the Office of the Comptroller of the Currency, my top priority will be to guarantee a fair and competitive market where small and mid-size banks that invest in their neighbors’ homes and small businesses can thrive.” Omarova testified that she favors community banking based on her own experiences as a child taking out her first account in Kazakhstan, claiming, community banks would “know no better ally than [they] would find in me.”
Even smaller banks, however, indicated concerns about her social agenda, which would have used them to manipulate the economy “toward the greater good” of society, instead of just making decisions based on business and finance.
Omarova had a social agenda, if not a socialist agenda
Omarova indicated in past writings that she would aim for more liberal ideals, such as directing the powers of finance toward combating global warming. Banks, which have been largely apolitical and amoral in terms of the social effects of the projects they fund, should, in Omarova’s view, take a more socially selective role in what they choose to finance. This has already started happening on Wall Street with investment funds that focus on buying stocks in corporations that are seen as being ‘green’. Omarova has suggested banks could more intentionally focus on the direction of making loans to corporations and projects viewed as being environmentally or socially positive. The Fed, she has said, could even buy up – at a profit to banks – bonds issued to fund targeted public projects in order to “channel credit to productive uses.”
In the comptroller position, she would also have guided regulatory policy over innovative and recently emerged cryptocurrencies that compete against national currencies. She has written, “Recent advances in cryptography … are visibly disrupting traditional methods of delivering financial services and conducting financial transactions.” In this arena, she had expressed concern that corporations would gain control over much of the nation’s monetary system.
She has also written that changes in financial technology, such as cryptocurrencies, are “the catalyst for a potentially decisive shift in the underlying public-private balance of powers.” In her article, she states that cryptocurrencies and digital crowdfunding will amplify the destabilizing effects of mechanisms that “enable private actors to continuously synthesize tradable financial assets.” Regulating all of this, she says, is a “challenge of the highest order.” Thus, Omarova may have used the Office of the Comptroller to force these extramural actors to operate within the same confines as banks.
Even some Democrats didn’t love her
Full support of Democrats was essential to Omarova’s confirmation, and that support never emerged. After her hearing, seven Democrats questioned her nomination. Two of the seven were senators from Biden’s home state of Delaware, which is also the home state of numerous major banks and financial firms. The closest she got to having the votes she needed was whittling that down to five Democrats who joined Republicans in opposing her nomination.
Omarova’s nomination, even though it failed, shows how much progressives in the Democratic Party have influenced Joe Biden’s choices.
In a letter to the White House on Tuesday, Omarova wrote that it was “no longer tenable for me to continue as a Presidential nominee” as comptroller of the currency.
President Biden responded, “I have accepted Saule Omarova’s request to withdraw her name from nomination for the Office of the Comptroller of the Currency … Unfortunately, from the very beginning of her nomination, Saule was subjected to inappropriate personal attacks that were far beyond the pale.”