Willow Omarova, Biden’s choice for OCC, draws fire from crowds of private money
Nowadays, when helicopters fly over the earth to distribute government largesse, they seem to dump most of their cargo on Wall Street, not Main Street. Milton Friedman, in this analogy, envisioned $ 1,000 bills thrown from helicopters, hastily collected by members of a community. Today, that money instead of floating in the wind and dispersing even in tight quarters of Wall Street in a decentralized manner, lands in big balls in the courtyards of the largest institutions, contrary to Friedman’s conception. The vanity of the helicopter analogy applies to the unconditional distribution of grants, subsidies and asset buybacks by federal authorities. Even the strongest supporters of the free market don’t renounce free money when it lands on their knees.
What should have been an intervention during an extraordinary crisis has almost become a permanent feature of the economy, from the 2008 financial crisis to Covid, the Fed has kept its monetary taps open. Those who demand a belt tightening when the crisis deepened have been alarmed by the countercyclical nature of the Fed’s intervention, as has the almost unfathomable nature of low inflation through 2019. Even the most intransigent of 2008, surrendered during Covid. Premature austerity led to deflation and a slow recovery in most countries that tried to manage monetary policy like small businesses or households, balancing the budget. No wonder economics is a dismal science, it’s not physics.
When there is “action at a distance”, in the case of the Federal Reserve, whose mandate is to promote economic stability and vitality, the absence of a direct channel to the public is what has tipped us off from crisis. in crisis, says Prof. Omarova, who was appointed controller of the OCC. Most of the opposition to his appointment came from the banks and their agents in government. Professor Omarova has written extensively on overhauling the current financial system, her most recent article “The People’s Ledger: How to Democratize Money and Finance the Economy” calls for a complete overhaul of the financial system in the United States. If confirmed at the OCC, Omarova must apply the regulations as they stand, and not what she envisions in her article. The rest of this article engages with the paper, with his ideas.
The Fed’s dual mandate, full employment and price stability, with a single tool, the interest rate, means that price stability often takes precedence over full employment. This tool in its many forms deals with Fed franchisees, banks that have direct accounts with the Fed and whose paper the Fed buys, and finances their speculative activity through Open Market Operations (OMO). She advocates for direct FedAccounts to the public. In one fell swoop, deal with financial inclusion and the direct distribution of cash from helicopters, instead of just bullets to already wealthy people. A transformation of the ledger of franchisees to the ledger of peoples.
Currently, the lack of a direct connection between the Fed and the people participating in the economy has led to the rise of cryptocurrencies, the wider acceptance of the idea of ââa universal basic income, the rally Gamestop memes and support for public banking, all aimed at a more inclusive and equitable financial system. Professor Omarova’s prescription for direct Fed accounts for all citizens has drawn attacks from private money folks at the Cato Institute, the Wall Street Journal, Republicans on the Banking and Finance Committee and usual suspects of the right-wing blogosphere. These people, instead of debating the ideas contained in Professor Omarova’s article, instead used smear tactics, words like “comrade”, “communist” and questioning his education in Soviet Kazakhstan, his first article. cycle on Das Capital and brought her up to speed by selectively citing her work. They may have already torpedoed his appointment as OCC comptroller. Even âmoderateâ Democrats have joined in the blood sport.
The lack of a direct link between the central bank and the economic life of the country created a system whereby well-connected institutions, big banks and others operated the system to take advantage of the system for the purposes of private profits, but consolidate the risk to the public through institutions like the Fed. Professor Omarova brings a new perspective, in her article she argues that the system cannot be fixed in small steps; a fix requires a complete overhaul of the financial system, with the Fed stepping in on behalf of the little guy instead of supporting the big banks and big corporations. It is for the CBDC, but not for one that aims to preserve the status quo by strengthening commercial banks through the two-tier model. Omarova advocates for the distribution of CBDCs through direct FedAccounts. According to Omarova, this should simplify the design and implementation of CBDCs. His call to migrate deposits and credit generation to the Fed, just administered by customer-facing entities like community banks, has alarmed the banking industry.
An analysis of the effects on banks, money market funds, shadow banking, structuring and derivatives in the document gives us an overview of what can become of banks and shadow banks in the system proposed by her. Overall, it is the easing of volatility and instability due to regulatory arbitrage fueled by speculation that she seeks. Left unchecked, private institutions have always captured public money and exacerbate inequalities in the system.
After the migration of all deposits to the Fed and the creation of a direct CBDC, Professor Omarova suggests three constructions to create a true public-private partnership, with the Fed no longer just a liquidity provider and a lender last. spring to bail out institutions when they act speculatively. These include a new discount window for loans at prime rates to qualified credit institutions that channel Fed deposits to QLIs. A separate securitization and investment arm called the National Investment Authority (NIA) which would invest and finance public projects. The third piece of this puzzle would be OMO (Open Market Operations) Plus which would engage in market intervention much like QE and Operation Twist to mitigate volatility, targeting a diverse mix of instruments. The DNA of these three constructs exists in the current system.
Omarova might not pass the confirmation process to become OCC comptroller, the spectacle of a Senate hearing where an intelligent woman of color who is possibly the best-qualified candidate for the post is savagely attacked by a group of renowned politicians of a certain age, does not bode well for the future of financial system transformation.