Biden’s Nominees to the Federal Reserve Challenged

Biden is having problems with two of his nominees to the Federal Reserve (FED). The first: Sarah Bloom Raskin, is the most problematic. The former FED Board Governor and Deputy Treasury Secretary is under attack from Republicans on the Senate Banking Committee who must participate in a vote in order to send her nomination to the full Senate for confirmation.

Raskin’s major sin is that in a New York Times opinion piece early during the pandemic, she argued against the fossil fuel industry being the beneficiary of FED bond buying programs or other government relief programs which targeted the corporate sector. She stated that a large portion of the highly indebted U.S. fossil fuel industry will not likely survive long term, so why make the investment? Second, a Treasury or FED investment in the oil, gas, or coal industries represents an investment in the past; the FED and the Treasury should look to make investments in the Green technology firms of tomorrow, not climate damaging firms of yesteryear. It’s hard to argue against that point.

This obviously upset the fossil fuel industry and they have lobbied Republican members of the Senate Banking Committee to vote against sending Raskin’s nomination to the full Senate. Republican members of the Committee, particularly the ranking Republican Pat Toomey of Pennsylvania, have expressed concern that if Raskin were confirmed as the Vice Chair for Supervision of the Board of Governors, she would use this powerful regulatory perch to direct lending away from the fossil fuel industry. Raskin states that as a regulator, she would not direct lending towards or away from particular industries. On February 15th, Republican Committee members boycotted a scheduled vote to send Raskin and four other FED nominees, including FED Chair Jerome Powell for a second term, in order to prevent a quorum so that no vote could occur.

The other nominee who faces a Republican challenge is Lisa Cook, a female, African American Michigan State University economics professor, for the position of Board Governor. Senator Toomey questions her academic background which does not appear to include academic work in monetary economics. Cook argues that a stint at the Treasury Department has given her insight into the field. Her earlier academic work was in macroeconomics and international economics; more recent research has sought to promote policies which would benefit a wider swath of the U.S. population, e.g., women, minorities . . . . This is more likely the reason for Republican pushback against her potential confirmation.

The Republicans’ professed objection to Cook’s lack of monetary training is interesting because the current FED Chair Jerome Powell, a Republican, is a lawyer by training, not an economist. He apparently received his monetary insights as a partner at the politically well-connected private equity firm: The Carlyle Group. Powell was nominated and confirmed as a Board Governor under Barack Obama in 2012, and nominated and confirmed as FED Chair under Trump during 2018.

You might recall two earlier discussions on this Page about President Biden’s nominee, Saule Omarova, to head the Office of Comptroller of the Currency which oversees national banks which includes several of Wall Street’s biggest names such as: J.P. Morgan, Bank of America, Wells Fargo, and Citibank. Omarova’s offence was that she had written about opening checking accounts for all Americans directly at the Federal Reserve. This would solve the significant problem of being unbanked among the working and nonworking poor. FedAccounts would enable direct stimulus/survival deposits into the accounts of all Americans. When the Treasury Department was distributing checks directly into American bank accounts during the early stages of the pandemic, those who needed the money the most, were often unbanked and had to wait weeks to receive their checks via U.S. mail.

Under Omarova’s most hoped-for scenario, although not required, and which she would have been unlikely to effect as head of the OCC, U.S. commercial banks would be out of the checking account business and would fund their loan activities through direct borrowings from the Federal Reserve. This would significantly rework U.S. monetary operations and would amount to greater government control over the industry. Undoubtedly this ruffled more than a few feathers and rather than watch her confirmation go down in flames, Omarova withdrew her nomination.

It is well understood there is a revolving door between the regulators and the regulatees within the banking industry: that does not appear to be changing. There will be no real banking reform, however, until reform minded people are nominated and confirmed to bank regulatory and monetary posts. Reform itself is merely a baby step towards the radical transformation which must occur within mainstream economic thought if the U.S. economy is to serve all of its people while simultaneously stopping the assault on the planet. This will require massive investment in human capital and greater public control over large corporations, preferably through government ownership stakes in these firms, along with board representation. More importantly, the U.S. will need to undergo an ideological/spiritual transformation which replaces the desire for individual wealth acquisition with a desire to create an economy which serves everyone’s needs within a healthy planet. Meanwhile, even minor reform would keep us headed in the right direction. The above nominees would seem likely to advance this cause.