The People’s Ledger with Saule Omarova

This month, we discuss democratic possibilities for public finance with Saule Omarova, the Beth and Marc Goldberg Professor of Law at Cornell University and President Biden’s original nominee for Comptroller of the Currency. Omarova’s work on financial regulation and banking law has long informed how we at Money on the Left understand the modern monetary system. Her and Robert Hockett’s “finance franchise” metaphor for modern banking-–according to which the federal government is the franchisor and chartered banks are all franchisees–renders an often-times opaque system intuitive and readily politicizable. Throughout our conversation, we learn from Omarova about how she arrived at this work, what other metaphors she and Hockett considered as alternatives, and exciting democratic possibilities for social policy development, including proposals for a National Investment Authority and a public banking system called “the people’s ledger.”

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Music by Nahneen Kula:


The following was transcribed by Mike Lewis and has been lightly edited for clarity.

Scott Ferguson:  Saule Omarova welcome to Money On The Left.

Saule Omarova:  Thank you so much. Thanks for having me.

Scott Ferguson:  We’re so glad that you could join us today. Maybe to kick off our discussion, you can tell our listeners a little bit about your professional and academic background, how you got into thinking about law and finance from the point of view that you pursue?

Saule Omarova: Sure. So I am currently teaching at Cornell Law School. I write and teach on a variety of subjects that have to do with financial markets, financial institutions, and various regulatory issues in finance, understood broadly. I came into academia from private practice, I was a bank regulatory lawyer primarily, but also have done a lot of transactional work with various regulated financial institutions, broker dealers, insurance companies, and so on, so forth. And I did it in New York City, as part of the specialized financial institutions group. I really, really enjoyed the work, it was really difficult and quite demanding, particularly of a young lawyer with no prior experience.

I came into the legal practice actually not thinking about banking law, even as a potential area in which I would pursue my career because prior to law school, I did a PhD program, and I’ve completed my doctoral studies at the University of Wisconsin at Madison, in political science. I studied comparative political economy, and was interested in economic development and all of this wonderful, interesting historical stuff. So as a lawyer, I was thinking I was going to be just a business corporate lawyer. And then I ended up being in the financial institutions group.

What I’ve learned in that practice was quite invaluable, and it spurred my interest in returning to academia, to share the knowledge, but also to contribute to the discussion of public policy matters that as a practicing lawyer, I simply didn’t have the luxury of thinking about or addressing in any significant way. I did spend one year in the Treasury Department between my leaving the law firm and becoming a law professor, which was also focused on potential regulatory reform and financial stability, oversight, and so on. That was actually right before the bottom fell out of the subprime mortgage market. I left the Treasury in early July of 2007, and quite literally a couple of weeks later, things began unfolding.

So my academic career began in the midst of an unfolding global financial crisis. And of course, given the fact that financial regulation and financial markets was something I was interested in to begin with, this was a very, I suppose, fortunate set of circumstances in terms of directing my research interest into law and finance. And as I continued to learn about finance and financial regulation from an academic perspective, rather than from a purely practical perspective, gradually, I came to appreciate and realize that my long forgotten, perhaps, academic training in comparative political economy and institutional, developmental, political science, whatever you call it, actually had a lot to contribute in terms of shaping the perspective with which I approached various legal and policy issues in financial regulation, and kind of presumptively focusing my attention on structural issues, because that was really what I’ve been interested in all along.

I gradually started expanding my research, beyond writing about specific dysfunctions and specific regulatory and policy problems in the regulation of banking institutions, including banking conglomerates, so called bank holding companies or financial holding companies. Expanding that focus to encompass broader, perhaps deeper issues in what it means to have this type of a dysfunctional banking system or malfunctioning banking system at the center of the financial market that is itself supposed to serve the interests of the real economy, and real people. That’s how I started researching and writing about issues of power and structure in finance, and I suppose that’s why I’m here right now talking about it.

Billy Saas:  So I first became aware of your work in a paper that you co-wrote with Robert Hockett on the “Finance Franchise”. And of course, you’ve done subsequent work on The People’s Ledger. I’m curious, in the context of this bio that you’ve just given us. I think a lot of academics when they come into contact initially with heterodox economic, financial or monetary theory, it seems like a surprise. Or things need to be relearned. But I wonder about your history as a regulator, and that sort of journey that you took… Could you kind of narrate that experience for us when it came time to kind of think about finance as a franchise? Was it novel or did it just sort of make sense in the structural thinking that you were prone to do at the time?

Saule Omarova:  I suppose it was both a surprising development and something that did not surprise me at all, more of a natural trajectory, I guess, of my thinking and learning and experience, both as a practitioner and academic. But the surprising part was, perhaps the excitement of a discovery, and the excitement in that moment when, suddenly, a lot of the pieces that you’ve been thinking about or writing about, or talking about, fall into place, more or less, to cohere into a whole of which you were not aware of previously. That was something that I don’t think anybody can kind of predict, or that’s definitely going to happen. Certainly not for my work.

Every time I start writing a paper, It’s always a process of a lot of doubt, and worry, and thinking about, is it really new enough? Is it interesting enough? Is it valuable to share with people? So the “Finance Franchise” was kinda like that, but it was also a different experience, because it was a co-authored work. When you are collaborating with somebody else, the dynamics change. Bob Hockett and I, we started talking and discussing various issues in finance a few years before the “Finance Franchise” was actually published. And it was not our first quarter piece, we’ve written a couple of shorter ones, and a really longer one about the developmental finance state previously, so this was a process.

What I am really grateful for in that process was that chance to find a comrade-in-arms in a way academically, someone who shared certain fundamental premises and understandings, but brought to the partnership a complementary set of ideas and knowledge. For example, I am not, and I do not consider myself an expert on monetary economics per se. I have never been formally trained, I don’t have a degree in economics, and whatnot. So it was really fascinating for me, to start from my usual, typical, let’s start from the ground, from the understanding of the mechanics in the market, certain financial instruments or certain market dynamics and relationships, that financial institutions and regulators and various other actors in the economy enter in starting from that understanding, building up toward the whole. Whereas Bob came into this experience, perhaps from a slightly different perspective, which was absolutely complementary. He has tremendous knowledge of economic literature and philosophy and history, so we worked really well together and it was truly a great partnership.

That was the “Finance Franchise” and I remember we’ve gone through many, many iterations of the draft. We developed and discarded multiple metaphors for the arrangement that we were trying to describe. I remember talking about the solar system and how the federal reserve, the central bank, the sovereign public is the sun, and emits that full faith and credit as the energy into the universe, and the first layer of planets would be commercial banks, and then the outer layer capital markets, and so on, so forth. We were writing and rewriting this draft. And at some point, we have decided to discard that particular metaphor for the sake of coherence and certain writing editorial choices.

That was the process. And I, perhaps I don’t know if Bob has a different recollection of that process. Perhaps what he valued is not exactly the same as what I value, but I really did value that chance to really build something from scratch. Because for both of us, I don’t think I will be speaking out of turn here on behalf of my colleague. But I think for both of us, that concept of the “Finance Franchise” — that particular public private partnership type arrangement in the creation and distribution of sovereign money and credit throughout the modern economy — that concept continues to be the foundation of whatever work we’re doing separately now.

Billy Saas:  I know that when I came to that work, I had been fairly deeply immersed in Modern Monetary Theory and heterodox economic discourse, generally. There was something special about that, that seemed to sort of click things into place in a new way. And the metaphor, just want to say, is very effective, very useful. And I think, as a metaphor, it’s not too far out of bounds from what it’s attempting to describe or carry over. It fits, it’s fitting. And I’ve found it very useful to share with students in courses.

Saule Omarova:  Thank you so much. Thank you so much. I do notice that with students as well, that I always start talking in my classes about what the financial system really is, what is it for, who are the main players and so on, so forth. And I start with the Orthodox description of financial intermediation, because to be perfectly fair, it’s not that that description is entirely and completely wrong. It does have its place. It is just not the correct description for what happens with money, as we know.

So you start with this kind of traditional description, and then suddenly, you problematize it. And you ask them the question, well, then what do you think JPMorgan does when you come and ask for a loan, let’s say for a million dollar loan? Do you think JPMorgan needs to go into its books right away and make sure that it actually has the extra million dollars in deposits sitting there ready for it to extend to you as a loan? Because if that were the case, do you think JPMorgan would ever find that moment at which is: “yeah, yeah! Right now we have it! Oops right now we don’t have it,” right? Because people withdraw money and put money in and things happen.

That kind of simple, and silly as it may be example, makes students wonder, wait a second, if that’s not the case, then what is happening here? Then I introduce them to this concept of “Finance Franchise” and how complex but yet incredibly simple it appears, and how it sheds light on so many problems that we seem to be walking around in practice, with respect to policy and regulation. And suddenly, understanding of that fundamental dynamics just changes the way you approach solutions.

Scott Ferguson:  We’re starting to wade into it, but I’m wondering if we can do a little teaching for those listeners who are not familiar with this very important paper that’s so foundational to your work. How would you describe your criticism of what we might call the conventional, micro economically-oriented approach to money, to law? You use the word intermediation, maybe we could spell out how is it that the dominant ways of understanding comprehend money and banking and finance? And what are the problems with that? And maybe a little bit about how that dominant model has shaped financial regulation and reform, especially after the Great Financial Crisis and Dodd Frank. The kind of sensibility that’s built into Dodd Frank that you criticize.

Saule Omarova:  Yeah, well, that’s quite a lot, so let’s see if I can actually do that. So if you pick up any textbook on economics, or finance, or corporate law, or financial regulation, for example, usually it starts with some introduction into what a financial system is, what it does, and its functions. Very respectable scholars, and practitioners have written those books and contributed to those books. Their view of what the financial system is, it sounds familiar, it sounds plausible.

They basically talk about how the financial system helps to transfer wealth across time and across space, and it helps to generate capital and do XYZ. But when they talk about banks and securities firms and insurance companies, and mutual funds and fund managers and other financial institutions, usually, the description is quite simple. They’re just introduced as this sort of middleman entities, intermediaries, whose job is to bring together two groups of actors in the financial system.

Those people or entities, those persons who have surplus funds, extra money, that they do not need for consumption immediately, but they’re willing to put into the game of investment one way or the other. And on the other side, there are those persons and those entities that have the need of money, of capital, of investment, so that they can actually build factories, hire people and produce goods and services that basically keep our economy going and, in fact, constitute our economy.

The banks come in, for example, in a particular way, banks are typically considered in the traditional standard explanation the quintessential archetype of financial intermediaries because what they do is that they step right between those two sets of players, the suppliers of funds, investors, lenders, and so forth, and the users of funds, the various companies that raise capital or individual borrowers and so forth. And the banks solve various problems in that relationship by absorbing the risks that the suppliers of finance fundamentally face because they are supposed to give their money up today, in exchange for some promise to be repaid at some point in the future, because nobody knows what the future holds.

Because these lenders or investors, they really often have no way of accessing or evaluating the information about their borrowers, or the issuers of securities, those companies’ future prospects and the ability to repay. Because of all these risks, frequently, that relationship simply fails to take place, which is not good for anybody. We need money to get inside the economic activity somehow so that the production happens. So banks come in, and they essentially become the borrowers to all those people who have extra money. They don’t have the use for it right now, but they also don’t really have the information or the expertise or the time to research any potential lending opportunities to see: Oh, to whom can I give this money temporarily for a fee? So those people can come to a bank, open a deposit account, and put the extra money into that account. The bank collects all these deposits, because those are what we understand by deposits from a myriad of individuals, each one of whom may put in a very small amount, but then the bank ends up sitting on this huge bag of money.

The bank then turns around and looks to the other side of the river, where all those other entities and people are standing there with hungry eyes and stretching out their hand, asking for capital because they want to build factories and they want to construct houses or buy those houses, whatever. And then the bank being the professional, now sitting on that huge amount of money, can actually conduct the necessary investigation into these people’s ability to repay or make good on their claims. And once they determine that a particular borrower is a worthy borrower, then the bank can essentially dip into its bag of money. Well, perhaps it’s not a bag of money, but their vault, because that’s where they were supposed to keep the value, right? Dip in the vault, take out a bunch of money and then extend that loan.

And that’s what this intermediation process in the banking sector is supposed to do: alleviate all these fears, all these risks of everybody who actually has that spare money that they don’t need to use, and then bundle it together and then extend loans to various borrowers. Of course, even within that traditional view of the banking relationship, there is already an element of surprise that students usually encounter. Because once you tell them, well, guess what if you go to the Tompkins Trust or to Citibank and open an account, putting your money in, open a checking account, right? Guess what, you become the lender to Citibank or the lender to whatever bank you open an account with. So you are basically an investor, and they are your borrower, and they owe you money. Is that how you think of this relationship?

And of course, the students just go: no, that’s not how I think of that relationship. I think of them selling me a service. The bank gives me some kind of a benefit by allowing me to keep my money safe. That is the fundamental, first step in the learning process in which you start pushing students toward rethinking what actually happens. This is when you tell them well, guess what? It’s not your money. If I asked you how much money you have? You would probably not give me the amount of cash in your pocket, but you would give me the balance in your bank account. And guess what, that’s not your money. You don’t have that many dollars.

What you have is a claim on a bank, a private corporation, that is your borrower to return that money to you should you have the need for it. And so that’s where it starts, but then you start explaining the fact that, well, if you think about the bank in this kind of terms, it’s just a middleman or middle person or middle entity. The player in the middle who essentially collects existing money that people have out there, combines it all and then out of that pile makes loans to other people, then what is the difference between the bank and the mutual fund? Well, then functionally, there shouldn’t be any difference, right? We could just all put our money together in one big bag, and some person in charge of that bag might actually then, extend loans out of that bag. Would that be the same as a bank?

Clearly, it’s not the same. It’s not the same because there is another very standard textbook explanation of what banks do. And that is typically known as fractional reserve banking, where people came to understand that banks don’t necessarily simply just disperse the money that all these little ladies like me brought to the bank and open deposit accounts. But what the bank does is whatever money it’s collecting in deposits from various depositors, it puts in the vault only a fraction of that amount. But then it can write pieces of paper, essentially, granting loans making promises to various borrowers out there in the real economy, to make payments on their behalf to their suppliers, or to their clients, or to their employees and whatnot.

What they do is they open these accounts and put that money in there. They create these loans, but the number or rather the amount of the lending activity is not directly limited to the amount of deposits that were brought into the bank because there is this magical understanding that all depositors are not going to knock on your door at once and withdraw all the money. As long as that’s the case, you don’t need to keep 100% of deposits in your vault. You could put in, typically, 10%. So you put in 10%, that’s your reserves. Your reserves, that’s your most liquid cash in the vault or whatever it is. But then 90% of that money that somebody brought in, you can actually extend in loans, and then those loans get deposited elsewhere, or maybe even at your own bank. And somehow, the balance sheet, the books of the banks–individual banks but also the banking system in general–grows.

This is what usually is meant by this phrase, that banks create money out of thin air because they’re able to use that fraction of the deposits brought in as some kind of reserve base, and then multiply that base by 9 or 10, or 25. That’s a very popular description of what banks do. But it’s so fascinating if you think about it. So which is it? What is it that banks actually do? Do they simply collect deposits and then use that amount of money to extend loans? Or do they have some kind of magical formula and where does that formula come from? Where if you have 10% in the vault, somehow, you can multiply that 10% so many times and everything will be hunky dory.

Those two descriptions do not really, necessarily cohere. They’re not consistent, but nobody really cares, because in the standard sort of economic textbooks, to the extent that I’m familiar with them, I don’t mean any disrespect for the economists, or corporate law textbooks or whatever textbooks, right? These questions do not get asked because money is frequently taken for granted as something that naturally in any kind of capitalist, or exchange based, private property based, market based economy is something that is almost a natural phenomenon. You need that universal measure of value, so money just happens. So yeah, we know that banks make money, but also, it’s not that somehow they have some magical power to make money. They make it out of thin air, but there is that reserve base. And where does it all come from? It comes from depositors.

The problem with that is that well, if that were the case, then how would we account for the fact that some countries, for example, don’t even have the mandatory reserve ratios for their banks. In other words, there is no 10% of all of your assets, or whatever deposits that you have, you have to keep in the vault. In some countries, it’s not even necessary. And yet their banks operate pretty much the same way as all banks operate. And banks create money. And there is this concept of the elastic money supply.

Sometimes banks create more money. Sometimes they create less money. And there’s monetary policy with a central bank in the middle, the whole point of which is to manage the supply. If it was all some kind of preset formula of what the little old lady brought in, and then how much it can grow because Citibank decided that’s okay, then why do we even need the whole complex edifice of monetary policy and whatnot? If we start thinking about it, then you start thinking, but what happens on the ground? How do banks create money? What happens when somebody comes to the bank and wants to borrow from that bank? Does the bank really have to look into his vaults? Does it even have any vault? Where does it look? And how does that decision get made?

In reality, of course, what happens here is that imagine Billy or Scott, when you went to the bank to borrow money to buy a house, the bank didn’t tell you: “You just wait here. Let me go check how much money I have in the vault or whatever my deposit base is.” No, they don’t do that. What they do, however, is they make you jump through millions of hoops to prove that you have income, you have a steady job, you have assets, to get an appraisal of your home so that you can give them security interest in your house.

In other words, they assess that loan, that prospective loan as an investment opportunity. And once the bank decides that this actually is a good investment opportunity, we can price the risk of this loan not being repaid and establish that interest rate, but we think this is a good loan to make, because over the next 10, 15, 30 years, we will actually make profit on that loan. And this person is actually going to use that money for some socially beneficial purpose: we want houses to be sold, we want the construction companies to actually build those houses.

Once the bank makes that decision, then the bank simply credits a deposit account that is in the borrower’s name with the amount of the loan. And that process is the moment of creating that purchasing capacity, that money that didn’t exist in the system before it was created. And at that moment was that bank actually credited that account, from that moment immediately, almost immediately, you can start spending that money. You can start writing a check out of that deposit account to cover your debts to cover your purchases, write a check to the seller of the house or to the construction company or whatever.

In the current modern system that we have in this country, nobody will start asking: well, which bank opened that deposit account for you? And essentially how liquid is this check? What is that? Maybe we should just discount it? Nobody does that. Why is that the case? There is no reserve requirement that presumptively limits the bank’s ability to create this new purchasing power. Right? And yet, nobody questions the fact that this is good money, because it’s drawn on a particular bank.

That’s because certain things, certain relationships involving money creation, in particular, and the banking system cannot be understood within this sort of narrowly, micro-level transactional framing that this financial intermediation concept conveys. And that framing being, you can only understand the relationships by looking at the private market interactions between specified private market participants. Like, here’s a lender, and here’s a borrower. Here’s a depositor, and here’s a bank. Here’s a bank, and here’s a borrower.

You can only understand that when you expand your view, and you look at what happens in these types of transactions as part and parcel of the broader system in which the government and government supported entities, the public, the sovereign, in effect, the sovereign public, various actors, that are typically just treated as being outsiders to private market exchange, in fact, are fundamentally important in terms of enabling those private market exchanges to take place in the form that we know.

The reason why the bank can actually credit the borrower’s account with the amount of the loan without being constrained in that moment of money creation, by the amount of deposits sitting “in its vault” is because each bank in the United States or in most modern economies, modern banks, is a participant in the system which we call the “Finance Franchise” arrangement, which is basically the principle of how the banking system works. It is tied into and directly plugged into the balance sheet of the Central Bank, which is a public actor, which is basically the embodiment of the sovereign public in the sphere of banking and money creation.

The central bank, on the surface of it, is essentially just a bank for those private commercial banks that extend loans and take deposits. Those banks open their own deposit accounts, effectively, with the central bank. When they have to make good on their promises, on the checks that are written by the depositors on them, these banks essentially have to make those payments out of the accounts that they hold at the central bank. In the US, those are called reserve accounts.

What happens is that once the bank created new money by extending a loan, at the end of the day, those checks that the borrower wrote to suppliers and employees and various other people that were accepted as good money, no questions asked, those checks at the end of the day have to come back to the original lender, the bank. And the bank would have to make a payment on those checks, make good on those promises. So that system is operated on the books of the central bank, a public agency, a public entity, a sovereign entity, which basically means that all of those new monies that were being created, because they were good investment opportunities for those banks– in other words, good creditworthy projects in the real economy that needed money, and they got the money from the banks–all those projects are able to take off and happen.

Now the banks have to actually make good on those promises because if they don’t, then those relationships will break down tomorrow. And the reason they are able to make good on those promises is because they do have those accounts on the books of the central bank. So for example, if on any particular day, suddenly, there are too many withdrawals from ATMs from the deposit accounts of a particular bank, and too many checks came in for payment on that same day. And suddenly, you don’t have enough in your account at the central bank in your reserve account. You can actually borrow either from other banks who also have reserve accounts in the same system, or worse comes towards, you can borrow from the central bank itself. And this is the most underappreciated, and the most fundamentally important institutional underpinning of our entire banking system and the system of money creation: an elastic currency that is meant to meet the needs of the growing, modern economy.

Because in the traditional, the standard, mainstream picture of things, when we just focus on private market participants, banks and companies and broker-dealers and borrowers, whatever, in this micro-transactional sense, and we think of the government as some kind of an outsider, usually, this function, the payments and clearing function, and the provision of this reserve accounts by the central bank to private banks, is considered something mundane, and kind of back office support function that is really, at most convenience, but generally speaking is just like, I don’t know, it’s just the way things are. Sometimes I joke with my students, it’s kind of teenage kids, just think that it’s, of course, how things are that there is a house and the parents provide the house.

Scott Ferguson:  Somebody will do the dishes.

Saule Omarova:  Yeah, somebody does the dishes. Do teenagers ever talk on their social media about how mom does the dishes and dad drives them everywhere? No, because that’s sort of considered part of the duty. So in that same sense, the central bank’s ability to provide that incredibly important support that maintains the ability of private institutions with limited financial resources to engage in money creation in this elastic manner, that we really need as a society. That function has consistently been underrated and misunderstood. And in the “Finance Franchise” framework, we are supplementing these two mainstream concepts, financial intermediation and fractional reserve banking, with this more comprehensive and coherent system-based approach, in which we say that the banking system is not just a collection of individualized direct micro level transactional exchanges between banks and depositors, of banks and borrowers, for example.

It is actually an institutional arrangement in which the sovereign public represented by the central bank injects its own credibility, its own credit, the full faith and credit of the nation, into that system by enabling certain licensed and regulated private corporations, banks, to have direct access to that public, sovereign credibility. And use that as a backup so that the private liabilities, those deposits liabilities that private banks issue, that we can use in everyday life as a form of money and think of it as sovereign money.

If I have $100 in the bank, I’m actually quite confident that I have $100, even though it’s actually a private liability. That ability is a result of this particular arrangement. And in that arrangement, effectively, private banks are not some independent creators of monetary value. They are essentially the agents of the sovereign public, to whom the sovereign public outsources this function of finding the good investment opportunities out there in the real economy, finding those potential borrowers, those companies, those individuals, households, that have good productive use for the money, and they need that money.

That’s why when private banks are doing their due diligence on any kind of prospective loan, that’s what they do on behalf of the public. And once they extend that loan and create new money, those banks can be confident that, as long as they of course comply with all the requirements of that relationship that are imposed on them by virtue of them being the agents of the sovereign public, as long as everything else goes right, that their private liabilities actually are treated in the entire economy as de facto sovereign money, even though it’s not.

It’s kind of like, again, going to my favorite, very basic example of teenage kids and the parents: it’s kinda like the parents giving those teenage kids their credit card, on which the parents pay the bill at the end of the day. And the kids now can use that credit card, to buy things, to do things to pay for services, whatever, because everybody in that exchange knows that ultimately, the parents stand behind the kids. And this is the relationship and that relationship is fundamentally hierarchical.

I think that hierarchy, that the public sovereign is the ultimate source of all the money credit, the safest money, that is, at the bottom of that entire pyramid of financial claims in our modern economy. The ultimate source of it is the sovereign public, we all of us. That fact gets completely brushed aside in mainstream economic thought. I think by bringing it out through showing the institutional dynamics in the very simple transactional context of the banking sector, that is what allows us to see how all these other relationships and the financial system are fundamentally about the balance of public and private power.

Billy Saas:  That was an amazing tour de force. So a couple of thoughts. One is it seems like a job one is in the classroom, in your classroom, but then also, more broadly, generating and disseminating and educating people about what actual financial literacy is, right? There’s a kind of baseline financial literacy, but also baked into the kind of popular understanding of how the banking system works is a fundamental disinterest, or even say ignorance. The full picture that you’re providing here includes the “Finance Franchise” and highlights and focuses on the support role, but it’s actually foundational and enabling from the very start. So you can’t have those two other models without having the foundation of this unaccounted for thing. And so what follows from that for you? There’s a full picture here. Now what?

Saule Omarova:  Right, so that’s an excellent question, because being a lawyer by training, and also a legal scholar, for me, the “so what?” is the ultimate question? It’s not just about getting the description right. But the reason why we need to get the description right is that the wrong description gives life to so many misguided policies and decisions that affect everybody’s daily lives. So if we understand the fundamentally central role of the sovereign public as the source of sovereign money and credit in this incredibly complicated financial system that we have, the smart person or critical thinker can actually address whatever burning policy or regulatory issue that they are looking at from the perspective of the public-private balance of roles, functions, responsibilities, and bring out normative implications.

One example is, in all this current, perhaps not so current, but the recurring and unfortunate political debates about the debt ceiling and federal budget, and those really unseemly political maneuvers in Congress that jeopardize, effectively, the United States credit standing as the global power and whatnot. A lot of these debates become, quite obviously, silly when you start thinking about the public debt that we issue as a form of that solar energy that needs to be emitted, and that is being emitted into the universe, that it’s not the same as a household borrowing money to pay credit card bills, right? It’s not that kind of a dynamic.

For me, I’m not really an active participant in those types of political debates. It’s just something that, quite obviously, everybody’s aware of right. But in terms of financial regulation of financial markets, the recent emergence of new digital technologies and digital currencies, and whatever we mean by this beautiful term, crypto, these are the issues that are very much front and center on many people’s professional and policy and academic agendas.

This is where the understanding of the fundamental dynamics of the financial system as we have it now can seriously inform our view of potential pitfalls, potential huge policy mistakes that we may make, as we’re trying to adjust ourselves or somehow respond to all of these developments and the crypto markets growing and so on, so forth. But also, and perhaps more importantly, it can inform our understanding of how we can harness the power of digital technology to make our financial system, this hybrid “Finance Franchise” system in which there is inherently that tension between the public and private, between private banks, franchisees trying to increase their private profits by abusing the public subsidy and by abusing this full faith and credit that they can disperse for money. And the interests of the public in keeping the system stable and safe and actually geared towards the needs of the real economy.

This inherent tension can become much much worse, if we switch to cryptocurrencies and various digital monies that are generated outside of this banking system that continues to be the core of our financial system. But of course, once they’re created outside of that system, they definitely need to be connected to the traditional financial system, particularly the banking system, because those cryptocurrencies need a way of being exchanged into US dollars, or euros or whatever, the real sovereign money that we have in circulation. Whatever happens in that realm really is something that can fundamentally disrupt the system we have today. So rather than sitting there and waiting passively for the disruption to occur, and then encounter the traditional arguments that: Oh, the genies out of the bottle, you cannot change anything. Now all you have to do is extend more public support to this newly created private type of digital money, or maybe financial transactions and financial markets that are built on top of that new private digital money.

Instead of saying, Well, you know, all parents just dish out more money. We can proactively say: how about we seize on the fact that there are these new technologies, and that we actually as a public together collectively, we are the source of all credit and finance in the system, ultimately. So to the extent that we know the tension in our hybrid finance franchise system, to the extent that we see that this system operates, yeah, more or less, it’s alright. But it does tend to miss allocate credit to over-generate risks to over-generate leverage that is unproductive. In other words, that energy that the sun emits into the system somehow gets trapped in the layers of the solar system, and never reaches the intended recipients, the real economy, the real people.

Why can’t we use this new technology? Why can’t we re conceive the relationship at the core of this financial system, the relationship between the public, the sovereign public, and the private financial institutions, the franchisees of the sovereign public, in a way that rebalances the currently sort of skewed control over how much money is out there and where it goes — that currently is residing mostly with the private institutions– rebalances it so that the public, the sovereign, the source of the credit, has a greater say, in how much credit money is generated, and where it goes for what purpose. If we can actually solve that puzzle, and I believe we can, it’s not easy, but it is conceivable, to think about various ways of approaching that problem.

If we can solve that problem, then we will actually be able to resolve for the first time a really, incredibly complex knot of not only financial, but also broader economic, political, and social problems that we have been dealing with for decades, if not centuries in our society. A lot of the problems that currently seem to be far removed from the idea of digital money, or digital currency, or the banking system, per se, and so on so forth, a lot of those problems actually will be able to be tackled, or we will be able to tackle those problems with these new tools. Because guess what, money, credit, finance is the universal input into every economic activity. And it is the most potent tool that we can use as a collectivity to resolve some of the tensions that we will not be able to resolve by looking at each individual tension individual problem in isolation, and trying to fix it with existing, very technical tools.

I know it’s a little bit abstract, but this is basically the “so what.” The “so what” is, here we have potentially, I don’t know, the Samurai sword that we can take and go to battle, to actually defend, protect our future, from a lot of the challenges. So let’s appreciate the sword, and let’s appreciate the hand that can wield that sword. And that is our hand. It is not the hand of an individual bank or an individual hedge fund or anybody else, not even Elon Musk. So there we are.

Scott Ferguson:  So you have laid out in your work a number of what you sometimes describe as radical proposals for remaking the financial system, the banking system, how deposits for everyday people work, all the way to really rethinking a macro structure and strategy of investment. Could you, and I know there are other proposals out there, and I think you put yourself more on the side of let’s go big or go home, whereas others want to kind of take baby steps with some of this knowledge. Can you maybe spell out one or two of these major proposals for pretty radical overhauls and how they might have effects on democracy, or social life and taking care of people and our environments?

Saule Omarova:  You’re absolutely right, Scott. There are, luckily, many proposals and many attempts, at least, to deal with these big social challenges we’re facing. That of course includes climate change and the great economic socio economic inequality we have in this country, in many societies. The fact that our economy has been gradually starved of productive capital and investment, and yet there is a lot of speculative investment that’s going on. So the reason I think that it is important to supplement a lot of the existing efforts, maybe to solve particular aspects of these particular types of problems with a more systemic or systematic structural approach to redefining the fundamental functions and dynamics of the financial system, is that sometimes the most practical way of achieving the desired result is not go to the smallest possible denominator and tackle each individual issue separately.

Sometimes it is the best, most pragmatic way of solving the problems. But sometimes all it does is disperse and diffuse the energy the efforts, and also pushes the pressure elsewhere in the same system. So you push on one lever, and suddenly, the problem comes out in another pocket, right? So I, for the longest time, have been thinking about the, again, the financial technologies, FinTech and digital money and digital financial products and crypto, because that’s basically in my wheelhouse as a former, currently recovering, financial regulation lawyer.

The more I thought about those specific issues, how do we deal with the emergence of all these private tokens that circulate supposedly, as a form of payment as money? How do we accommodate this kind of new financial markets into the existing framework, the more I realize that this is precisely one of those moments in history where we really need to go all the way to the very bottom, to the very root of how the system operates as a whole.

So when I use the word radical, I know that in common parlance, it is often considered a bad word, because radical means extreme. And it means almost violent. It means something that is unrealistic, or not something that we want if we’re pragmatic adults. We don’t want to destroy, but we want to construct, right? But radical, actually, it’s the root of that. The root of the word is root, right? So actually it means fundamental. And so when I call my proposals radical, I am hoping that more people will recognize the fundamental nature of the overhaul I’m proposing. So one of these proposals again, very little under the sun is brand new. But particularly during the pandemic, it became very clear that we need to make sure that everybody in the economy, everybody in our society, has equal, direct and easy access to sovereign money because that determines the ability of an individual person to buy goods and services, to pay for the housing, to pay for education, to feed themselves and to provide very essential basic needs.

For example, not being able to have a bank account in our current society means not being able to make those types of economic decisions and to take that action on a daily basis without having to pay an exorbitant, in many cases, unacceptable price. Those of us who are lucky enough to be part of the existing banking system, to us that may be a natural thing to use. But too many people were sort of in a position during the pandemic, in particular, where even the checks from the federal government that were supposed to help them continue paying their bills and feeding their families during the lockdown those checks had to be cashed by the recipients in some non bank institutions to which they simply didn’t have access during lockdown. They couldn’t even often get to the mailbox in which that check maybe was sitting. So that was an extreme situation. But it brought to the fore of public attention the fact about which many scholars and policy activists have been talking for many years before the pandemic hit; the fact that we actually do not have the kind of banking service, the basic provision of basic payments and banking services that we need to have in order to basically provide effectively economic citizenship rights to everybody.

During the pandemic, there was this sort of fermenting sentiment that perhaps we should think about a public option for deposit services, and that public option would alleviate the need to basically wait for banks to judge whether or not you’re a prospectively profitable client, before they open a deposit account for you. Of course, again, the idea, for example of using either a post office, or postal banking, or maybe even the central bank itself, the Federal Reserve, as an actual provider of services directly to individuals and households and businesses, in terms of opening deposit accounts directly with a central bank, or maybe a US Post Office in the postal bank. That idea has been around forever.

But one of the knock down arguments against that was the administrative difficulty of basically having a central bank, let’s say the Federal Reserve, actually manage these deposit accounts. Is the Fed going to open bank branches in every village out there? That’s ridiculous, right? So now we have digital money. We have the possibility of a central bank, for example, issuing digital currency, or I don’t know, any kind of let’s say public authority. It doesn’t have to be necessarily a central bank. It could be monetary, it could be the treasurer. It depends on the choices and the design and whatever.

Now, there is technology that allows the public money being issued digitally, and therefore managed those deposits accounts or wallets in which that money sits, and out of which it goes and into which it comes, with greater ease than was ever possible when all the ledgers had to be the manual or individually maintained on some proprietary computer systems, for example. So, I hesitate to say, “Oh, I am the smartest person in the universe, I was the first one to …”, of course not. But there were several of us thinking and writing about these things and discussing these things with one another. And, for example, Morgan Ricks, Lev Menand, and other people, in various ways, have been thinking and talking about the idea of the central bank actually offering deposit services directly to economic actors, individuals, households, and companies.

Of course, there was this great economic debate among central bank economists and particularly central bankers about issuing central bank digital currencies, CBDCs. But during the pandemic, I felt that look, right now is exactly the time when we need to bring those two debates together. First of all, those two ideas, the Central Bank Digital Currency and Fed Accounts, let’s call them, the central bank opening directly deposit accounts. But not only bring them together and think about how it could be done in greater institutional detail than was done before. But also address one big elephant in the room that, in my view, hampered all of these discussions and proposals with respect to CBDC are Fed Wallets and Fed Accounts before them, and that big elephant in the room was: Okay, let’s imagine that you can now have the central bank, the Fed, open deposit accounts for everybody potentially, in the economy. Issue these liabilities directly to everybody, so now, there are sovereign liabilities functioning in the economy as truly sovereign money. Which is how we think of it anyway, right?

Currently, it’s not happening outside of the cash. In the electronic world, there is no sovereign money. So why not create that sovereign money in the electronic form? But what that means is that the liability side of the Fed’s balance sheet will increase tremendously, immediately. Something has to be done on the asset side, on the other side of the balance sheet, to balance it out. Even if, as we understand, maybe not everybody, but let’s just postulate. Of course, it doesn’t mean that the Fed actually has to look in its own vaults and take out the money that some little ladies deposited in there and then bundle it up and lend it to somebody else.

That’s not what that balancing act is about. But the balancing act is, nevertheless, an important factor that if there is an increase in liabilities, you actually get greater capacity to invest. As the Federal Reserve, you have the greater capacity to use your own balance sheet to channel capital into the economy. And the question becomes, how will you channel it? Where will you invest?

So right now, the Fed doesn’t invest in many things. What does the Fed typically invest in? It extends loans, for example, to banks that need loans in emergency liquidity, whatever. So there are some of those discount loans to banks that the Fed has. It invests mainly in government debt, right? There are some treasury bonds, there are a lot of Fannie Mae, Freddie Mac, housing related bonds, because a policy decision was made many, many decades ago that we’re going to use the Fed’s balance sheet to support housing finance because we want homeownership in America. That’s basically it, maybe there are some precious metals, there are these claims on other central banks, but there are no commercial loans, no household loans on that balance sheet right now, and not much is happening.

So the question that both central bank economists, the CBDC guys, encountered, and that proposes to basically provide the public option for deposits, public option in banking for the people encountered was that well, what should the Fed do on the asset side? So most people pretty much either were just quiet about it, like, we don’t need to talk about that. Let’s just focus on the deposit side. But you cannot do that because there is always that question. But most people just sort of very … and it’s really funny, because very much in passing would admit to, well, the Fed or whatever, the central bank will just do more of what it does currently. So maybe invest more in whatever treasury bonds or agency bonds. And if you run out of those bonds, because you might run out of those bonds.

What does that mean? Does that mean that the Treasury now is going to be forced to issue more debt? So then, the Fed could invest in high quality corporate bonds. And what happens if the liabilities are growing and growing? Well, then maybe the Fed could even invest in corporate equity: stocks of some companies. And that is an incredible thing to even contemplate, because what that would mean is that private corporations would effectively have the captive buyer, the captive supplier of capital for them, which is the Federal Reserve. Do we really need that? Do we want that? What will the private corporations do with all that money flowing their way? Will they actually go into poor neighborhoods and build fancy facilities for the kids there or something like that. Or maybe…

Billy Saas:  Stock buybacks

Saule Omarova:  Yeah, exactly. Stock buybacks and dividends, all this wonderful stuff. Bonuses, whatnot. So clearly, that question created a problem, a conundrum, but also opened a possibility for rethinking the direction and the nature of the credit flows in the economy overall. Because now we can have one platform, the central bank’s balance sheet, that has a tremendous capacity to channel that investment, that capital, into the economy, into the economic activities that are going to generate greater employment, stronger supply chains, better life, greater infrastructure, better infrastructure for more communities because that balance sheet belongs to the public, effectively.

So I wrote up a paper that basically, it’s called The People’s Ledger, because it was kind of playing on the whole “distributed ledger” concept. Distributed ledger, well, you don’t just distribute it in that sort of technical sense. You give it to the people that write to basically use this central bank balance sheet as the platform for providing safe, sovereign money that is digital that is convenient, and universally accessible, and not predatory. But at the same time, with the other hand, channel the resources that are generated on the asset side of that platform, of that balance sheet. Channel those resources into productive activities.

And so once you start thinking about it, then you can imagine what kind of new assets the central bank, the Fed, can invest in. If it’s not corporate bonds, if it’s not treasuries, what else can it do? So I was thinking, first of all, the Fed could actually start supporting lending for productive enterprise rather than lending that goes into margin loans; the loans that support speculation in financial markets. How can you do that? You can basically build on the existing practice of those discount loans that the Fed already extends to banks, who need some liquidity support on a short term basis, and secure those loans with good loans of their own.

So to the extent that banks, for example, private banks will lose their access to deposits because deposits will be provided directly by the Central Bank. The central bank can actually open this kind of a discount window to a wider range of public and private lenders. They don’t have to be called banks; it can be called banks, call them whatever you want, right? And establish certain eligibility criteria for the kinds of loans that those lenders can extend and then bring a “discount” effectively sell to the central bank. Those criteria don’t have to be anything weird or radical in any way. But loans cannot support financial speculation, for example. It’s not the kind of loans that private equity firms will take in order to buy out some company and run it to the ground. But loans to productive companies, industrial corporations, loans to cooperatives, loans to universities, public entities of various kinds, like a State Transportation Authority wants to build something and needs to borrow money, they could get a loan now from a bank, a private lender, because the private lender knows that if they extend that loan, they can actually finance that loan at the Fed’s discount window, and essentially, not take too much risk and get a little bit of a profit on it and why not for instance. So that would be one asset.

The other asset to me is even more important, and that is the fact that rather than basically directing increased investment capacity toward blue chip corporate debt or something like that. The Fed could buy bonds and other securities instruments issued by various public and public-private entities, institutions that are financing large scale public infrastructure, for example, at the state level, but also at the federal level. For example, at the state level, we have various green banks, and there is a movement to create more green banks or some other public institutions like that.

To a great extent, access to financing becomes a real serious constraint on the potential of state level green banks or similar institutions to really spearhead sustainable economic development and maybe target other problems are on the local and state level like inequality or certain geographic imbalances and decay in certain communities, because those green banks have to finance itself either out of the budget, which at the state level is limited, or by issuing bonds in capital markets, which basically subjects them to the desires and profit seeking motives of private bondholders.

So now, what if the Fed can become the potential buyer for those bonds issued by state level public banks and state level green banks, for example. That would enable those institutions to really fulfill their missions. Rather than just promise some improvement, they will actually have access to patient capital that is not out for profit there. But in addition to those kinds of existing forms of public infrastructure investment institutions, one can now imagine the creation of a new, more capacious and more ambitious kind of federal level, national level investment institution that is public. For me, that is the National Investment Authority, NIA. Again, it was a big part of the “Finance Franchise”, “so what” answer to the “so what?”

The question is that, look, we’ve been talking for decades about the need to create some US infrastructure bank at the federal level, or investment bank. But of course, the devil is always in the details, right. All of the existing proposals to date have specifically envisioned those entities along the lines of what can be done in the financial markets and economic markets that are presumptively dominated by private financiers and private profit making motives and are subject pure to existing private market logic, and can only come into plug certain holes that are identified by a reference to market failures. So even where the private market “fails”, and does not provide credit for something that would be beneficial to the public in the long run for the economy, for example. Only then can a public investor come in, and take the risk and whatnot. And there are all kinds of problems with that limited approach to public investment.

What we can think of, instead, is a standalone federal institution that would actually be just as important in the overall federal structure of public institutions, financial institutions, as currently the Fed and the Treasury are, but it would perform this role that neither the Fed nor the Treasury department currently can perform. And that is the role of directing and managing the flow of public and public-private mixed capital into certain types of critically important public infrastructures. And it’s effectively an industrial policy entity.

The NIA, the National Investment Authority is not envisioned as a traditional public investment bank or the traditional sovereign wealth fund or whatever, but as a system that would have the political body, the federal agency, the governing board, that would be explicitly charged with a very political task of identifying the gaps in the public infrastructure, and in the structure of the US economy and developing some kind of a strategy for the types of investments and the places in which those investments need to be made and define the goals of that investment.

Those goals are not going to be commercial viability, per se, but the goals are bigger. Sustainability, resiliency, equality, creating jobs, increasing the well being of various communities and so on. And then in the second level, there will be the operating arms. And here we can actually have a variety of subsidiaries that will tackle various problems in various ways. The National Infrastructure Bank would actually be a much more traditional credit institution that would create a secondary market for various bonds issued by various institutions and enterprises that are building those critical public infrastructure projects.

As a public lender, the NIB, of course, would not have to squeeze the life out of those entities on those loans, but actually would be very patient and would be ready to absorb some of the losses because some projects will, let’s face it, never be commercially viable. And that’s okay. But in addition to that kind of traditional credit provision, we can actually now think about something alongside the public venture capital fund type of an entity or public asset manager, a slightly different function for a public institution that would essentially perform the same role, as currently private asset managers perform for really wealthy investors and institutions. But this particular institution can perform that function for a certain kind of publicly important type of institutional investor, like pension funds, for example, particularly public pension funds.

Right now, public pension funds are part of this financial market that lives according to the private financial logic. And when pension fund managers are looking at the menu of financial options that they have, should we put it in the treasuries? Should we put it in corporate bonds? Or maybe should we go into private equity because private equity funds offer higher returns? Well, how about this new asset manager that is a public asset manager can offer new type of a collective investment fund, a new type of investment opportunity for pension funds, where pension funds can put their money into those new vehicles that are managed by the National Investment Authority in the long term interests of the US economy, in US public, and channel that money into long term public infrastructure of the kind that cannot be built by private actors or via private funds. There has to be some financial engineering involved, of course.

This is where things get controversial, to some extent, but not to me, because all we’re doing here is essentially taking existing financial instruments that currently are being used for pure private profit maximization. But the instruments themselves, you know, a shovel is a shovel, right? A good person can use a shovel for good purposes. And a bad person can use a shovel for bad purposes. In the same spirit, we can use some of these financial techniques to replicate some of the returns, for example, as a reasonable reward to pension funds and other institutional investors for participating in the financing of certain long term public infrastructure projects. In effect, subsidizing the building of those critical public infrastructures. But doing it in a way that helps to avoid a lot of the political problems around budget and debt ceiling, and what have you that currently are plaguing our system.

So if we have that kind of National Investment Authority, it would be much easier to build it up and to enable its function as intended. If the Fed, as the issuer of the digital dollar, the CBDC and the provider of deposit accounts to the entire economy, is able to provide liquidity support to the NIA using its capacity on the asset side. These are the kinds of systemic, structural reforms that we can and should debate. Not everybody will agree on my particular proposal for example, and they don’t have to.

There are other proposals, other ways to skin that cat or you know, whatever animal one skins. I hope nobody skins anybody. In any event, there are many ways to approach this problem. The key here is to overcome certain premises, certain presumptions and assumptions, that limit the scope of the debate. We can never talk about, basically, the central bank channeling credit directly into the economy, because that is a political problem. Well, it may or may not be. It’s not like a central bank is apolitical. It’s not meant to be apolitical. But what we can talk about is, which specific instruments are better suited to the public purposes? What public purposes really should we pursue? These kinds of deliberations, they need to happen today, and they need to happen because if they don’t happen, then we will never be able to solve the problems we have in front of us.

Billy Saas:  When you’re talking about investment, and asked the question about what the Fed and the Central Bank currently invests in, one of the things that came to mind in response to that a little bit later, as you’re unfolding The People’s Ledger and the National Investment Authority proposals, is that to the extent that the central bank is not taking these actions, is not actively having these conversations, or in fact, that there’s not a huge constituency to have these conversations at the policy level, could we say that the central bank is actively investing in the status quo where the status quo means mass inequality across all sectors, health, climate, wealth, and all that sort of thing? So the thinking of investment in a kind of negative way, right? Investing in the bad today, and pushing away any discussion of a better future.

I’d be interested, by way of kind of closing out our conversation, Saule, which has been wonderful, in anticipating that I’ll play this or share this conversation with students in the future, I’ve had, through discussions, and I’m sure you’ve had a similar experience, and Scott probably has as well, you’re talking to students, and you’re doing the thick description of the financial picture: here’s how money works. And you see a light go on, or something snaps or clicks or ticks or whatever. And then you talk about what that permits, that fuller picture, as you have done so eloquently and thoroughly. And then the savvy student, or the savvy person you’re talking to says: “Yeah, but that’ll never work.”

So there’s a cynicism or a pragmatism, maybe both, that kicks in at that point where it’s like, well, if this is the case, why haven’t we been doing this the entire time. And it reintroduces that question of power and investment in the status quo. So what would you or could you sort of share with us? And maybe provide me with a good way to answer that question? I don’t think I’ve come up with one. How do you reckon with the apparent, cultivated ignorance or resistance to acknowledging how things really are and then there by refusing to have conversations about what a better world we could have, if only we recognized it that way?

Saule Omarova:  Right. Well, that is, to me, a much harder question than a question about designing a potential mechanism, for example, for achieving this or that goal. And it’s a hard question for a number of reasons. And some of it is maybe personal to me, because I’m not that good with blame assignments. It’s my temperament. At the moment when I’m asked, Can we affirmatively say it is your fault for affirmatively basically reproducing the bad thing? It’s not that I don’t think there are situations when such a statement is warranted.

There are situations like that. It’s just I don’t know how far it gets us in a way because by highlighting the specific political choices of certain entities or certain individuals, where on the other hand, doing a very important job of pinpointing the fact that this is a choice. So by not making a particular choice, the good choice, you are effectively de facto making a bad choice.

But then I think about sort of it from my personal experience, about the fact that I grew up in the former Soviet Union, at the very end of the Soviet Empire’s lifespan. Sometimes it is difficult to imagine the possibility of change or resistance that is not futile. Because the existing system is so entrenched and so powerful, and so oppressive in many ways, that when you look at it, and even if you are in a position, for example, to take a stance on a particular issue, or at a particular level, sometimes it just seems that there is no way things could possibly change.

Right now, when I think about the political obstacles to even having a serious conversation about these issues, let alone actually enacting the reform of any kind along those lines, I do feel that kind of despair. And it makes me feel powerless, let’s just admit to it. And in that moment, it’s very easy just on a personal level, for every individual who is part of an institution of whatever kind, even if you want that change to happen, it’s very easy to sort of feel like all it will do is kill me. It will not save it. So that’s sort of like a personal kind of thing.

When people are in certain positions of power, and their voice actually matters, definitely the responsibility on them to act in the interest of the public is immeasurably higher than the responsibility of any other individual in any other position. Right? Maybe there is that stronger case for basically saying to the central bankers that because you’re pretending this conversation isn’t happening, you are effectively enabling really bad things to continue. So 20-50 years from now, don’t you dare hide behind some kind of excuses, like, Who would have thunk that this would happen, right? And write your memoirs about how you were thinking about all of these things, but nobody could ever really imagine? Because here we are, we are imagining. So it is your job to give us the time that we deserve in terms of listening to our arguments and engaging with us, rather than pretending we don’t exist.

So yes. But ultimately, you know, what, Billy? Look, the Soviet Union fell apart. And nobody, nobody could have predicted it would happen this particular way, in this particular timeframe. And people were taken aback, even though everybody, everybody in that country knew that this was not a system that was going to last. But at the same time, nobody could imagine the specific mechanism and moment in which the Colossus will fall. So I’m thinking that politics is fickle. Right now, it seems to us the way central bankers are, the way the politics is, the way people think about these things, is so entrenched that there is no way that we can shift anybody’s view in the immediate term. People are just sort of so selfishly stuck in that mode of thinking, and because of the political economy and the lobbying and the corruption and whatnot, because of these various reasons. Those who could make change will never make that change. That may seem to us as the only possible reality. And 10 years from now, we could find ourselves in an entirely different situation.

This is why I try to focus not on pushing this narrative of, “if you’re not with us, you’re against us,” but rather conserving my limited mental capacity for trying to really engage with a ton of actual substantive design issues, because there are so many open questions. Even in that People’s Ledger scheme that I briefly described, there is a ton of problems that need to be addressed: privacy of CBDC, and how to actually insulate this particular institution from the corrupting influence of new kinds of political economy forces that will inhibit new types of vested interests that might emerge, and so on, so forth. These are the issues I want to engage with. So I’m sorry if it’s really a convoluted and unsatisfactory answer. But there it is.

Billy Saas:  There it is. You’re not alone and keep fighting and stay positive. Sounds like a one way to distill that.

Scott Ferguson:  One of the ways that doing critical work and doing and contributing is not necessarily always in the most direct way, but it is contributing to the conditions of legibility, right, and helping to make the debate and what is legible shift around the powerful actors, rather than necessarily…Sometimes it’s important to go after the powerful actors and to put their feet to the fire. And, of course, this podcast is called Money On The Left, and we’re all for that. But I also think that we’re committed, like you, to a long game, that is about a politics of pedagogy, a politics of shifting how we even approach problems in the first place, and what the conditions of possibility for doing so really are.

Saule Omarova:  That’s absolutely right. And I completely agree. You put it so much better than I could. It is very, very true. And I don’t mean to dismiss the progress that we all collectively have already made. Just a few years ago, some of these notions and ideas were absolutely nowhere to be found in the discourse outside of a very, very small circle of nerdy people. And now, the mainstream press, even, here and there talks about certain things and mentions certain things. For me personally, I consider a huge achievement already for me, the fact that the NIA, the National Investment Authority, even that term now is in circulation! In 2020, when the pandemic hit, nobody but a few academics in the FinReg world even heard of that term. So you know, we’ll take it one step at a time. At some point we might actually get to the change we all need.

Billy Saas:  Saule Omarova, thank you so much for joining us on Money On The Left, it’s been a pleasure.

Saule Omarova:  Thank you so much.

Scott Ferguson:  All right. Yeah. Thanks. You did great. I didn’t hear your allergies but yeah, now you need to get a coffee and decompress.

* Thanks to the Money on the Left production teamWilliam Saas (audio editor), Mike Lewis (transcription), & Emily Reynolds of The Buffalo Institute for Contemporary Art (graphic art)