No, Joe Biden Did Not Just Nominate a 'Passionate Communist' to the OCC

The bank lobby goes McCarthyist.

Joseph McCarthy, pictured lying.

The term McCarthyism has always been unfortunate. The paranoid movement that now bears Joseph McCarthy's name began well before the Wisconsin Republican began raving from the Senate floor, and continued to fester long after his death. The Hollywood blacklist arrived in 1947. Barry Goldwater's 1964 campaign relied on grunt-work from the John Birch Society, whose founder was busy proclaiming Dwight D. Eisenhower to be a Communist Agent. McCarthy was only really involved from 1950 to 1954.

Nor was McCarthyism restricted to Washington or Hollywood. Some of the most effective McCarthyists were acutely concerned with academia and the economics profession. In 1947, a mail-order conspiracy theory magnate named Merwin K. Hart organized a national campaign to cancel the country's first major Keynesian economics textbook, Elements of Economics by Lorie Tarshis, who had studied with John Maynard Keynes himself in the 1930s. Working meticulously over the course of several months, Hart enlisted newspaper editors from across the country along with executives from Sunoco, Philips Gas and Oil, B.F. Goodrich and other prominent corporations in a successful, lunatic crusade to destroy an introductory econ book.

According to Hart's newsletter, the book's treatment of aggregate demand and government debt was not only "Marxian" propaganda but "a pagan-religious and political tract" that represented a desperate threat to the youth of America. Hart and his wealthy, addled allies wrote to university deans, department chairs and boards of trustees, leveraging Hart's mailing list and their collective connections in Republican politics. One by one, schools withdrew the book from classrooms. After beginning the academic year with strong sales, Elements of Economics disappeared. A young writer named William F. Buckley piggybacked on Hart's campaign, denouncing Tarshis and the Keynesian economists at Yale University as "atheistic socialists" in his debut God and Man at Yale. Buckley's second book, McCarthy and his Enemies, celebrated McCarthyism as a movement of "good will and stern morality." A year later, he founded National Review.

McCarthyism was not the brainchild of a rogue Senator, but rather a sophisticated political enterprise that coordinated local activists with leading conservative writers and intellectually weak businessmen, all trying to purge the nation's institutions of New Dealers and nefarious immigrants.

The Tarshis episode is important to understand in light of the ongoing right-wing mania surrounding President Joe Biden's bank regulatory nominee Saule Omarova -- a case of modern-day McCarthyism in the strictest sense of the term. According to this chorus of dim demagogues, Omarova -- a former Treasury official under President George W. Bush -- is actually a "passionate Communist" bent on overthrowing American capitalism. Any Senator who feigns to give credence to this rot is insulting the dignity of their office.

We should not be overly serious about the details of the policy claims being made in this disgraceful display. One hit piece in the Daily Mail claims Omarova stiffed a college roommate for fifty bucks back in 1987 -- proof, apparently, that she rejects the sanctity of debt contracts.

But the bad-joke quality of the assault from outlets including The Wall Street Journal, National Review, Fox News and broader QAnonia does not mitigate its political gravity. Sen. Pat Toomey (R-Pa.) has made himself the face of the crusade in Washington, assailing Omarova in a confirmation hearing on Wednesday for attending Moscow State University as an undergraduate and writing a paper on Marxism. Virtually the entire bank lobby is involved in an unusual and aggressive attempt to kill her nomination. American Bankers Association President Rob Nichols has accused Omarova of seeking to “effectively nationalize America’s community banks," while Independent Community Bankers of America President Rebeca Romero emphasizes that Omarova is bent on "eliminating the banking system as we know it." Both groups donate heavily to swing-state Democrats, and in a 50-50 Senate, they need only break off one to torpedo Omarova's nomination.

Is this … Communism?

Bank lobbyists think Omarova will be a serious regulator, and they are enlisting the most toxic wing of the conservative movement to block her nomination, using whatever wild denunciations they can muster. The rhetorical battery comes in two stages. First, Omarova is denounced for being born in the Soviet Union. Then her academic work on financial reform is cited to prove she is and always has been an Ultracommunist. Her more cautious defamers carefully insist they are not interested in Omarova's birthplace or background -- only her persistent, dirty beliefs.

All of this is outrageous. Omarova grew up on a street named after Vladimir Lenin and attended Moscow State University because she was born in Kazakhstan when it was part of the Soviet Empire. She fled to the United States in 1991 to complete her education, took a job at a corporate law firm and worked in the Treasury Department during the George W. Bush administration before moving into academia, where she writes papers on bank reform. She is 54 years old. This is not the career of a Bolshevik saboteur. 

But she does write papers on bank reform, and most banks don't want to be reformed. She is best known for a proposal that would move deposit-taking away from commercial banks and into the Federal Reserve. This would indeed be a significant change to the banking system -- Omarova boasts that it would "effectively 'end banking' as we know it" in her paper -- but this is cheeky academic bravado, replete with a footnote clarifying it as a play on words. In truth the scheme is more like a reimagining of the 1933 Glass-Steagall Act for a post-2008 world.

The simplest banks do two things: Borrow money at a low interest rate, and lend it out at a higher rate. These activities feel intuitively connected to us because we know that they happen at banks, but they don't really have much to do with each other economically. Banks always lend out much more money than they keep on hand, and there is no particular reason why the money in the vaults has to come from consumer deposits.  

Indeed the system looks a bit peculiar once you review how much government supervision is involved. Deposits are insured by the federal government, meaning the government will cover (socialize, if you prefer) any losses to your checking account if your bank fails. As a condition for this guarantee, the government also regulates what banks can pay for these deposits and what they can do with them. 

So if the government is setting the policy parameters and guaranteeing the money, you might ask why it doesn't just take the whole deposit thing in-house. After all, the Fed already has deposit accounts for financial institutions, why not just move all of the deposits into the Fed, which would give the central bank much more direct control over the operation of monetary policy. Changing the interest paid on deposits at the Fed, for instance, could become a new benchmark of economic life, rather than, say, the interest rate at which banks trade excess reserves.

Omarova's proposal is not so much nationalization of the banking sector as an extension of the 1933 Glass-Steagall Act, which severed deposit-taking from fancy, high-flying securities trading. After Glass-Steagall, banks could make accept deposits and make loans, or they could play around in the stock market, but not both. Omarova would simply sever deposit-taking from the private financial system altogether. Just as securities trading continued to exist after 1933, so would the lending business after this grand reform. Banks would just have to fund themselves with different loans.

I like Omarova's idea and think its monetary policy implications, in particular, deserve more study. But it's okay if you don't! Because the Comptroller of the Currency has no power to do any of it. The OCC is not the Fed, and it isn't Congress making laws for the Fed to follow. It's just a bank regulator. Omarova's main job will be enforcing basic rules that have been on the books for ages -- rules that say things like "don't steal from people" and "don't lend money to terrorists." 

A big problem with U.S. bank regulation is that regulators often just don't enforce those rules. The bank lobby would like to keep it that way, and is willing to indulge in unvarnished McCarthyism to do so.