Pam Martens and Russ Martens: October 26, 2021
This month, the Vanderbilt Law Review published a 69-page paper by Saule Omarova, President Biden’s nominee to head the Office of the Comptroller of the Currency (OCC), the Federal regulator of the largest banks in the country that operate across state lines. The paper is titled “The People’s Ledger: How to Democratize Money and Finance the Economy.”
The paper, in all seriousness, proposes the following:
(1) Moving all commercial bank deposits from commercial banks to so-called FedAccounts at the Federal Reserve;
(2) Allowing the Fed, in “extreme and rare circumstances, when the Fed is unable to control inflation by raising interest rates,” to confiscate deposits from these FedAccounts in order to tighten monetary policy;
(3) Allowing the most Wall Street-conflicted regional Fed bank in the country, the New York Fed, when there are “rises in market value at rates suggestive of a bubble trend,” such as with technology stocks today, to “short these securities, thereby putting downward pressure on their prices”;
(4) Eliminate the Federal Deposit Insurance Corporation (FDIC) that insures bank deposits;
(5) Consolidate all bank regulatory functions at the OCC – which Omarova has been nominated to head.
Republican Senator Pat Toomey has been running a Red Scare campaign against Omarova, who was born in the Kazakh Soviet Socialist Republic (now Kazakhstan) and attended Moscow State University on a Lenin Personal Academic Scholarship.
The real threat that Omarova poses to U.S. financial stability, that Democrats should be calling out, is that she wants to further concentrate all major aspects of the U.S. banking system in the hands of the Federal Reserve, a captured regulator whose 12 regional bank tentacles are, literally, owned by the banks. (See These Are the Banks that Own the New York Fed and Its Money Button.) Omarova offers not one scintilla of a suggestion about restructuring the Fed so that it is not owned by or controlled by the banks.
In her paper, Omarova characterizes the current relationship between the Fed and the banks as the Fed running a “franchisor ledger” to assist its franchisee-banks. But as the Fed’s secret $29 trillion bailout of the mega banks on Wall Street and their foreign derivative counterparties proved following the financial crash in 2008, it’s actually the banks that are cracking the whip and the Fed amicably doing their bidding. That means that the mega banks are the franchisor and they’ve shifted their faux bank examinations and faux stress tests to the Fed, for appearances sake.
This point is further demonstrated by the fact that during the Fed’s 2007-2010 bailouts, most of the Fed’s emergency lending programs were farmed out in no-bid contracts to the very banks being bailed out. JPMorgan Chase, a five-count felon, continues to have a contract with the Fed to serve as custodian of more than $2 trillion of the Fed’s agency Mortgage-Backed Securities (MBS).
As further proof as to who owns whom, the Federal Reserve Board of Governors has outsourced its major functions to the privately-owned New York Fed, whose largest private shareholders are the mega banks, JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley, and Bank of New York Mellon.
One New York Fed bank examiner, Carmen Segarra, was so outraged at what she witnessed at the New York Fed that she went to the Spy Store, bought a tiny tape recorder, and secretly recorded 46 hours of audio. Segarra filed a federal lawsuit, charging that when she attempted to write a negative examination of Goldman Sachs, she was first bullied by her colleagues at the New York Fed and then fired for refusing to change her examination results.
As additional proof that the New York Fed does not function anything like a public servant, the President of the New York Fed receives a larger paycheck than the President of the United States. According to the Fed’s 2020 Annual Report, the President of the New York Fed, John Williams, makes a salary of $506,300. The President of the United States and Commander in Chief, who is elected by the people, makes $400,000. The CEOs of the mega Wall Street banks rotate on and off the New York Fed’s Board of Directors.
The New York Fed is so deeply in bed with the Wall Street mega banks that instead of using a misconstrued franchisor-franchisee analogy, Omarova should have thought along the lines of Stockholm Syndrome: the Fed is completely enthralled with its captors. So enthralled, in fact, that one of the first things that former Fed Chair Janet Yellen did after leaving the Fed was to sign up at a speakers’ bureau and grab millions of dollars in speaking fees from Wall Street.
With that as a backdrop, this is what Omarova proposes in her paper:
Deposits at Commercial Banks Would Be Replaced with FedAccounts:
“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 nonprofit organization, or a business entity incorporated or operating in the United States.”
The New York Fed Would Overtly Insert Itself into the Stock Market:
“Under this proposal, the Federal Reserve Bank of New York (‘FRBNY’) would conduct regular purchases and sales of a broad range of securities and other tradable financial assets with an explicit view to modulating volatile swings in what has been defined elsewhere as ‘systemically important prices.’
“To this end, the FRBNY would establish a separate trading portfolio replicating, as closely as practicable, the market portfolio. In effect, this portfolio would be an index fund reflecting the proportional values of all financial asset classes constituting the financial market as a whole. Once the fund is established, the Fed would conduct its current daily tracking of the nation’s financial markets.
“If 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 will short these securities, thereby putting downward pressure on their prices. This type of action would tend to tighten the flow of speculative credit to the asset class in question, because (1) speculative profit prospects would be diminished by the price drop; and (2) the Fed’s engineering the drop would signal to the market its determination that current prices of the asset in question are artificially inflated and accordingly best suppressed. Conversely, the FRBNY will go long on particular asset classes that appear to be artificially undervalued in order to avoid unnecessary market dislocation. It will follow the same process in targeting broader market-price fluctuations.”
One can only imagine what a field day hedge funds are having with this idea. They could simply jump on board whatever the New York Fed is shorting and drive the share price to zero. The fact that Omarova specifically mentions technology stocks as potential shorts has likely caused Google and Microsoft to call an emergency session with their lobbyists.
The Fed is already artificially suppressing interest rates by buying up $120 billion a month in Treasury debt and agency Mortgage-Backed Securities (MBS). Omarova would now add to its portfolio the ability to manipulate stock market prices. The fact that Omarova would commit this idea to paper, let alone publish it in a legal journal, shows an incredible naivete about how members of Congress, investors, and even average Americans would react to the idea of bureaucratic control of stock prices.
The Fed’s Ability to Confiscate Money from Depositors’ FedAccounts:
“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. It is nevertheless important to have a mechanism in place for draining excess liquidity from these accounts with minimal disruption of productive activity.”
The most important question that Democrats should be asking right now is who vetted this nominee for Biden.