Conservatives are outraged that Sarah Bloom Raskin actually believes in capitalism

Last Friday, the White House made a long-expected announcement that Sarah Bloom Raskin would return to the Federal Reserve Board of Governors as the next vice chair for supervision, the top regulatory guidance post at the Fed.

Scores of progressive allies, Democratic and Republican economists, and even George W Bush appointee Betsy Duke all praised the decision. Even the ranking Republican on the House Financial Services Committee, Patrick McHenry (R-N.C.), seemed conciliatory.

But McHenry’s Senate counterpart, Patrick Toomey (R-Pa.), is frantic to block her. “Sarah Bloom Raskin has specifically called for the Fed to pressure banks to choke off credit to traditional energy companies [fossil fuels] and to exclude those employers from any Fed emergency lending facilities,” Toomey claimed last week.

The Wall Street Journal editorial board concurred on Monday, writing “Ms. Raskin apparently wants the Fed to use the law to force banks to finance green energy” and claimed that Raskin “wanted the Fed to exclude fossil-fuel companies” from its emergency lending facilities.

These few conservative objections to Bloom Raskin are worth unpacking. Essentially, both Toomey and the Journal editorial board are gasping that Bloom Raskin believes the market should reward well-run companies and punish poorly-run ones. You know, capitalism.

Let’s take the allegation that Bloom Raskin wants “to choke off credit to traditional energy companies.” This is a strawmanned version of the concept of climate-oriented financial regulation. Neither Toomey nor the Journal provides evidence that Bloom Raskin wants to legally mandate lending to greener projects, because she doesn’t. She just wants to price climate-related economic risks into banks’ lending decisions, via longstanding risk tools.That’s an idea that even Republican regulators, from re-nominated Fed Chairman Jerome Powell and former Vice Chair for Supervision Randal Quarles to former Federal Deposit Insurance Corporation Chair Sheila Bair, are lining up behind.

But both Toomey and the Journal have decided that anything climate-related is a political judgment, and the Fed should never engage in politics. “The central bank’s regulatory command is financial stability, not making policy judgments that are the province of Congress, and not using regulation to allocate capital based on politics,” the editorial board wrote.

Lucky for the Journal, Bloom Raskin does not advocate for climate-related regulations on a political basis. Last August, she told Politico that when it comes to climate finance, “I’m not looking at this as a social policy. I’m looking at this as economic resilience and financial institution resilience. I see it as integral to how we actually manage risk.”

But evidence trumps testimony, and Toomey and the Journal seem to think they have a smoking gun: an op-ed Bloom Raskin wrote for the New York Times in May 2020, questioning why the Fed’s Main Street Lending Program shifted its rules to allow for far greater purchases of fossil fuel debt. They claim this op-ed proves that Bloom Raskin has called to “exclude” fossil fuels from the Fed’s Main Street Lending Program. But what does the piece actually say? 

For context, the Main Street Lending Program was the Fed’s unprecedented program to directly buy investments and debt from tailspinning sectors in the real economy during the first COVID-19 wave. The Fed claimed it was backstopping companies which would not be failing if not for COVID-19. 

But then something bizarre happened: A week and a half into the program, the Fed started purchasing billions of dollars’ worth of years-old debt issued to fossil fuel companies. That sector has been in a debt spiral ever since the fracking boom of the 2010s proved illusory for investors. How was wiping away old debts from bad investments allowed?

The answer isn’t surprising. President Trump leaned on Powell to bail out a Republican-aligned industry, and Powell — a pillar of ethical judgment through the early COVID-19 pandemic — bent. Trump Energy Secretary Dan Brouillette admitted on Bloomberg TV that Trump ordered him and Treasury Secretary Steven Mnuchin “to evaluate the programs that were passed by the Congress and ensure that there is access for these energy industries to those programs. And that’s what we’ve done.”

This brings us back to Bloom Raskin’s op-ed. Far from asking to “exclude” the oil industry from the Fed’s lending, she asked why the Fed went out of its way to bring in firms that were contrary to the program’s intent and a plainly bad investment. “Buying this bad debt is not likely to support the creation of jobs or even ensure that existing jobs survive,” Bloom Raskin wrote. “Moreover, the Fed-subsidized loans come with no strings attached regarding the retention of jobs, C.E.O. bonuses or stock buybacks.”

So to summarize: A Republican President pressured a Republican Fed Chair to distort financial markets to aid Republican industry allies. Bloom Raskin pointed out that this isn’t how capitalism is supposed to work. And now Toomey, a Republican Senator, says that means she wants “to misuse financial regulation to politicize capital allocation” while the Journal’s conservative editorial board says she “wants to politicize Fed bank supervision, especially on climate.”

The only people trying to “politicize capital allocation” in this story are conservatives. Debt-saddled fossil fuel firms and their saps of investors are mustering pure political power to entrench themselves, since actual oil and gas products just can’t stand up in a fairly-structured financial marketplace anymore.

The Biden administration must shoot down Toomey’s foolishness and confirm Bloom Raskin. Then we should all gear up to discredit even more lies, distortions, and foolishness as the industry digs in to fight.

Max Moran is a research director at the Revolving Door Project.