Bank Lawyer's Blog

The Rocky Mountain Lowdown: Loan Collateral Up In Smoke

I asked Steve Mulligan, a partner in the Denver office of the law firm that suffers my presence in their Texas office, to write a guest post for the blog on an issue of concern to lenders in Colorado (and, perhaps, other states) where, after the most recent state and national elections, lighting up a fat boy in public, or growing smokable hemp in  your basement, no longer puts you on the wrong side of local law enforcement. As Steve points out, that's not the end of the story for lenders whose collateral may be a place where some mellow cats are toking up a Rocky Mountain high.

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Bankers & Lenders, Your Real Property Collateral May Be At Risk if Your Borrower Violates Federal Drug Laws

By Steven T. Mulligan, Bieging Shapiro & Barber LLP

Bankers and lenders, if your borrower grows marijuana or rents to people who grow marijuana, your real property collateral may be at risk of forfeiture under federal law despite the fact that such activity might be legal under Colorado state law.

Judge Howard A. Tallman, chief judge of the U.S. Bankruptcy Court in Colorado, had recent occasion to considersuch a situation.  In In re Rent-Rite Super Kegs West Ltd., the Chapter 11 debtor owned a warehouse in Denver and some of its tenants were in the business of growing marijuana.  While this may be a legal activity under Colorado law, it is not under the federal Controlled Substance Act (the “CSA”) unless one receives a certificate of registration from the Drug Enforcement Agency (“DEA”). 

Judge Tallman looked to § 856 of the CSA, known as the “crack house statute,” which provides that it is a federal crime to use real property or allow real property to be used for unlawfully manufacturing, storing, distributing, or using a controlled substance.  Marijuana is a Schedule I controlled substance under the CSA. 

The Judge then looked to the criminal penalties for violating the CSA which includes a potential prison term of not more than twenty years.  As a result, the federal forfeiture statute comes into play.  That statute provides that real property used in connection with activities that violate the CSA and are punishable by more than one year’s imprisonment is subject to forfeiture.

Consequently, Judge Tallman found that the debtor’s illegal activity put the lender’s collateral at risk because of the federal forfeiture statute.  Moreover, since the automatic stay provisions of the Bankruptcy Code do not prevent the U.S. from seizing property under the forfeiture statute, the risk continued every day that the debtor remained in bankruptcy.  The matter was before the court on the secured creditor’s motion to dismiss the debtor’s bankruptcy case. 

In re Rent-Rite highlights the need for lenders to gather important information when underwriting and administering a commercial real estate loan.  Such information should include current rent rolls, copies of any leases, and research on any tenant; it may be that the name is a good indication as to what the tenant’s business is.  If possible, you may want to visit the property to see if any potentially illegal activity is taking place.  An affirmative covenant from the borrower that no activity in violation of state or federal law may also be beneficial.

Additionally, consider requiring the borrower to provide periodic updates and immediate notification if it enters into any new leases or changes its own business to include growing marijuana.  Finally, think about reviewing your default provisions; if the borrower engages in activities that are in violation of the CSA or allows such activities to occur, you may be able to declare a default under the loan documents.

Plaintiffs Pile On

The lawsuit filed last June against the CFPB by a Texas bank, that alleged that the establishment of the CFPB was unconstitutional, the bases for which has been lambasted not only by the CFPB's hacks, but by some thoughtful commentators, is like a zombie that refuses to die no matter how much lead you pour into its body. It's not only surviving, it's gaining steam.

A client alert from Troutman Sanders discusses the fact that eight more states, Alabama, Georgia, Kansas, Montana, Nebraska, Ohio and West Virginia, have joined the lawsuit, joining Oklahoma, South Carolina and Michigan, which had previously joined the case. I'm sure Texas was motivated in part by the fact that Oklahoma had beaten it to the punch, and nothing galls Texas more than Oklahoma jeering at The Lone Star State from its rear view mirror.

Troutman Sanders posted excerpts of some of the public pronouncements by the attorneys general. Among those were the following:

• “Dodd-Frank is an alliance of big government and big business – Pennsylvania Avenue subsidizing Wall Street and suffocating Main Street,” Montana Attorney General Tim Fox said. “Montana’s community banks didn’t cause the 2008 financial crisis, but Dodd-Frank punishes them and our citizens who depend on them for credit to purchase a home, start a business or go to college. It cements the ‘too-big-to-fail’ approach and helps the biggest banks at the expense of consumers.”
• “The Dodd-Frank law is bad for banks, harmful to businesses and worse for consumers who want to borrow money,” said Texas Attorney General Greg Abbott. "It gives too much power to the federal government—and puts taxpayer dollars at risk."
• West Virginia Attorney General Patrick Morrisey said: “The Orderly Liquidation Authority allows un-elected Washington bureaucrats to pick winners and losers among affected creditors, entirely abandoning the rule of law."
• “Dodd-Frank was sold to the American people as a silver bullet to prevent another financial crisis and safeguard consumers,” said Georgia Attorney General Sam Olens. “In reality, it is a bureaucratic nightmare that puts Georgia taxpayers at risk and introduces more uncertainty into the economy. This is just another example of a power grab by the federal government attempting to dictate the operations of an entire industry.
• “Dodd-Frank shatters some of the most important rights we have in the marketplace and threatens our state’s and our citizens’ investments,” Oklahoma Attorney General Scott Pruitt said. “Our taxpayers could bear enormous burdens in making up for lost assets that were intended for retired state employees or to otherwise fund government services and infrastructure. The law puts at risk the pension contributions and tax dollars that the people have entrusted us to protect.”

I'm sure that big government fans in the trade press will continue to mock the plaintiffs and their supporters, as some of them did when the suit was initially filed, no matter how many states end up joining this lawsuit. Until banks and their trade groups wise up and stop paying subscription fees to publications that subtly, and not-so-subtly, undermine them, that is.

CFPB Delenda Est!

Disparate Impact On Ex-Cons A No-No

Credit Union consultant and pundit Marvin Umholz has been hammering on the Obama administration's use of "disparate impact" theory in not only the fair lending context, but in the equal opportunity employment context, as well (previously discussed here). In his latest email newsletter "CU Strategic Hot Topics" (you can email Marvin at [email protected] to be added to the circulation list), Marvin discusses the use of disparate impact to undermine the use of by financial institutions of background checks on prospective employees. The following is the section of the newsletter that focuses on this problem.

The new U.S. Department of Housing and Urban Development (HUD) rule entitled, “Implementation of the Fair Housing Act – Disparate Impact Rule (FR 5508) was posted in the Federal Register February 15^th www.federalregister.gov/articles/2013/02/15/2013-03375/implementation-of-the-fair-housing-acts-discriminatory-effects-standard?utm_medium=section_news&utm_source=homepage.  However, HUD’s use of the disparate impact doctrine to statistically prove discrimination regardless of intent represents just the latest in the executive branch’s efforts to utilize the controversial effects test to enforce the Fair Housing Act, the Equal Credit Opportunity Act (ECOA), and other laws.  In addition to HUD, the CFPB, the U.S. Department of Justice www.justice.gov, and the Equal Employment Opportunity Commission (EEOC) http://www1.eeoc.gov//eeoc/newsroom/wysk/arrest_conviction_records.cfm are using the statistical disparate impact discrimination effects test in their regulatory enforcement actions.

A February 15^th opinion essay in The Wall Street Journal reminded this correspondent that the EEOC

http://online.wsj.com/article/SB10001424127887323701904578276491630786614.html?KEYWORDS=perform+criminal+background+checks+at+your+peril is also a disparate impact activist in the extreme.  The op-ed began, “Should it be a federal crime for businesses to refuse to hire ex-convicts?  Yes, according to the Equal Credit Opportunity Commission, which recently released 20,000 convoluted words of regulatory ‘guidance’ to direct businesses to hire more felons and other ex-offenders…Last April, the agency unveiled its ‘Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions,’ declaring that ‘criminal record exclusions have a disparate impact based on race and national origin’…These statistical disparities inspired the EEOC to rewrite the corporate hiring handbook to level the playing field between ‘protected groups’ and the rest of the workforce…Most businesses perform criminal background checks on job applicants, but the EEOC guidance frowns on such checks and creates new legal tripwires that could spark federal lawsuits…If a background check discloses a criminal offense, the EEOC expects a company to do an intricate ‘individualized assessment’ that will somehow prove that it has a ‘business necessity’ not to hire the ex-offender (or that his offense disqualifies him for a specific job).”  Ex-offenders were disproportionately represented in the “protected groups” setting the stage for the EEOC’s statistical disparate impact effects test to the hiring process.

The op-ed continued, “Former EEOC General Counsel Donald Livingston, in testimony in December to the U.S. Commission on Civil Rights, warned that employers could be considered guilty of ‘race discrimination if they choose law abiding applicants over applicants with criminal convictions’ unless they conduct a comprehensive analysis of the ex-offender’s recent life history.  It is difficult to overstate the EEOC’s zealotry on this issue.  The agency is demanding that one of Mr. Livingston’s clients – the Freeman Companies, a convention and corporate events planner – pay compensation to rejected job applicants who lied about their criminal records…The EEOC is confident that its guidance will boost minority hiring, but studies published in the University of Chicago Legal Forum and the Journal of Law and Economics have found that businesses are much less likely to hire minority applicants when background checks are banned.  As the majority of black and Hispanic job applicants have clean legal records, the new EEOC mandate may harm the very groups it purports to help…The EEOC’s new regulatory regime is likely to chill hiring across the board and decrease opportunities for minority applicants.”  Did the EEOC run a cost-benefit analysis on this dangerous legal contortionism before it dove into these ideologically-questionable waters?  Does the EEOC consider its mission as being to inhibit job creation by exacerbating workplace uncertainty?

As recently as February 20^th CFPB Director Richard Cordray reminded everyone that the CFPB is committed to the disparate impact doctrine in executing its rulemaking and enforcement mission www.consumerfinance.gov/speeches/prepared-remarks-by-richard-cordray-at-a-consumer-advisory-board-meeting.  In his prepared remarks for delivery to the CFPB’s Consumer Advisory Board, Director Cordray said, “A final and consistent problem that can hijack consumers on the pathway to opportunity is the evil of discrimination.  For some people, the greatest challenges they face do not come from deceptive materials, debt traps, or market structures, but rather are rooted in something much more basic – unequal, invidious treatment based on characteristics such as race or gender or other bases prohibited by law.  The statistics show very clearly that communities of color were hit especially hard during the financial crisis.  All Americans saw drops in their household wealth, but African-Americans and Hispanics experienced the steepest drops.  This inequity is compounded by unequal access to responsible credit, which makes it difficult or even impossible to achieve their financial goals…We made it clear last year that – like other banking regulators and the Justice Department – we will pursue discrimination in consumer financial markets based on disparate impact as well as on intentional violations.  From the perspective of a consumer disadvantaged by policies that have a discriminatory effect, it makes no practical difference whether a lender consciously intended to discriminate.  Every consumer, regardless of race, gender, or other characteristics protected by federal law, should have equal access to credit and an equal chance to pursue the pathway to opportunity.”  The disparate impact doctrine is unconstitutional at best and a collection of counter-productive left-wing class warfare victimization claptrap at worst.

It was quite obvious from his remarks that CFPB Director Cordray believed that the United States was a nation statistically overflowing with victims and some were more victimized than others.  That is a distorted concept of what a level playing field should be.  The zealous application of the disparate impact effects test is unlikely to assure anyone access to increased prosperity and instead could bring the financial services marketplace to a screeching halt – and subsequently trigger widespread non-discriminatory austerity as a result.  Would that be consistent with the disparate impact doctrine?  Talk of social responsibility needs to be realistic.  It is more dangerous to promise too much than too little.  Despite the real social and economic advancement that has been made by ethnic minorities and other “protected groups” in this country, the federal government is still stuck in the 1960s.  Hopefully contemporary Americans believe in equal opportunity, not statistically-driven equality-mongering.  When it comes to the disparate impact doctrine, one can certainly hope that the U.S. Supreme Court Justices are true believers in equal opportunity rather than statistical quotas.

This is scary stuff. A number of my financial institution clients deem it a matter of safety and soundness to include within their contracts with vendors a provision that requires the vendor to perform background checks on employees who will perform services for the institution, especially if the employees will be involved in the handling of funds or sensitive information. Does that contractual requirement provide the vendor a legitimate business reason for performing the checks notwithstanding the potential disparate impact upon members of a protected class that contains a high number of ex-cons? On the other hand, is the financial institution subjecting itself to potential liability by imposing such a requirement and, if so, is it inserting itself between the rock of disparate impact and the hard place of unsafe and unsound practices?

The ideologues that are running the funny farm are forcing all of us to jump through the looking glass, head first.

Vendor Management Is Still A Regulatory Hot Button

According to the FDIC, a common theme in IT examination downgrades is poor vendor management by banks.

Last year, in 46% of the FDIC IT examinations in which bank ratings were downgraded, inadequate vendor management was cited as a causal factor, says Donald Saxinger, senior examination specialist in FDIC's Technology Supervision Branch.

"I'm not saying it was the primal causal factor, but, in 46% of the downgrades, vendor management was cited," Saxinger says. He spoke during the recent ABA Telephone Briefing "Vendor management: Unlocking the value beyond regulatory compliance."

Although the most common “error” that FDIC examiners discovered was the failure by banks to ask their vendors for copies of regulatory examinations, that wasn’t the only nugget contained in the linked article from the ABA Banking Journal. Among the others:

• Vendor management needs to consider all service providers that hold sensitive customer information, not just IT vendors. These include loan workout consulting, appraisal review companies, outside attorneys, and others.

• Make sure to get the proper exam reports about individual vendors. Some banks just obtain reports for the host data center, but not for the specific application that the banks were using.

• Even the proper reports don't cover everything that a bank must consider in its security risk management efforts. For example, one service provider with an otherwise clean report did not have an internal audit program and its business continuity planning was poorly documented.

This is all sound advice, of course, but knowing what you need to ask for is only half the battle. You also need to make certain that the agreement with your vendor gives the bank the right to ask for, and the vendor the obligation to deliver to the bank, copies of the necessary reports. Relying on the goodwill of the vendor in coughing up examination and audit reports, especially when they may contain results that are less than flattering to the vendor, is "unwise."

Here's one more tip: if the report reveals problems, the agreement with the vendor should require the vendor to notify the bank of what action the vendor intends to take to remedy the defects, and should also require the vendor to give the bank periodic progress reports on its progress in correcting those problems.

I'll be doing a webinar on March 6, 2013 on the topic "Technology Service Agreements: Meeting Regulator’s Expectations." It covers regulatory guidance applicable to credit unions, banks, and thrifts, although the same essential principles apply to each. The goal is to discuss the provisions of a technology service agreement that regulators expect (and that sound business judgment requires) be included, and to give financial institutions guidance on how to approach the issues covered by each of those provisions so that the institution meets its regulator's expectations while also meeting the institution's business needs.

Some Mighty Small Shoes To Fill

Maxine Waters gave her first interview (paid subscritption required) since assuming the chair of the House Financial Services Committee and spilled the beans on who she intends to model her behavior as chair person: Barney ("I Love You, You Love Me") Frank.

Waters contends that she's up to the challenge, saying she learned a lot from watching the Massachusetts Democrat work and plans to follow in his footsteps — including defending the financial reform bill that bears his name.

"Barney Frank has led us to understand that which we have to fight for," said Waters. "The basic idea of Dodd-Frank and what it will do for the financial services industry and the consumers of this country is what we really have to stand up for."

Barney "has led us to understand that which we have to fight for." Grammatically awkward, no? That which we have to fight for is apparently 2300 pages of goo.

Barney has taught Maxine more than the critical importance of the monstrosity legislation that bears (part of) his name. He's also taught her that unlike a good burger, the sausage made by Congress is not discovered at any old In-N-Out.

"You have to put in a lot of time. You're going to have to read, you're going to have to listen. It becomes a real part of your life. It's not like many issues of Congress where you can get in and out."

Yes, unlike most issues, where members of Congress phone it in and sort of understand a little bit about the surface portion of a sound bite of issues of critical importance to the future of this nation, on banking matters, you've got to pay attention for at least five minutes at a stretch before you start thinking about sex. It takes some time for Congress to screw up the banking business as badly as bankers screw it up, so you've got to pay your dues. Apparently, up to now, Maxine, as merely one member of the committee but not its chair, has been doing her nails and reading Marvel comics instead of reading and listening. From here on in, that's all going to have to wait until the 9:45 am coffee break.

Sure, Maxine might have started off a little behind the curve.

Waters acknowledges that she joined the committee with "not a lot of knowledge," except what she had picked up in the state legislature, where she led efforts to divest state pension funds from companies doing business in South Africa.

Yeah, that subject might not have been the best primer for banking law. Nevertheless, she's learned a thing or two since her rookie year. Like how to derail an ethics investigation into your alleged pressuring of federal regulators to give some TARP to a bank in which your husband owns stock. In addition, she learned the hard way about the difference between "socializing" and "nationalizing" in the course of threatening oil company executives who had the temerity to point out that prices rise when demand is high and supply is limited.

You can't make this stuff up. Luckily, for the next four years, I won't have to. Rep. Waters will be the gift that keeps on giving.

Memories, Like The Corners Of My Mind

Yesterday's post prompted a couple of quick responses from regular readers. One asked me if I had noticed who applauded Senator Chingachgook's question about taking big banks to trial. I had not noticed. My correspondent alleged that they were wearing NACA logos on their shirts. That explained much.

NACA is one of the non-profit organizations that was a prime player in the DAP debacle, which cost HUD a bundle of loot due to the fact that the percentage of borrowers under that program who defaulted on their loans far exceeded the percentage of borrowers who did not participate in the program. NACA also tried to convince various legislatures to enact foreclosure moratoriums, alleging that they were aghast that mortgage servicers were handling foreclosures in-house (The horror! The horror!). Finally, NACA was also one of the pre-Occupy-This-Or-That activist organizations that staged mock foreclosures at the homes of bank executives, prompting me to suggest that the way to combat those non-legal foreclosures might be with extra-legal firepower. As usual, cooler heads prevailed.

Of course the applause came from NACAites. Liz is their kind of pol.

Another reader reminded me that Senator Magua's habit of dramatic overstatement and misdirection was highlighted by me before the CFPB was even a gleam in the eye of either Dodd or Frank. That post featured the fevered dream of then-blogger Lie-awatha that national banks who were loan servicers were trying to preempt all state foreclosure laws. I think she might have thought that what national banks wanted more than life itself was to be able to move a battalion of dozers through poor neighborhoods with impunity, crushing homes like piles of matchsticks, just because they're all evil and that's what evildoers do. I'd forgotten about that post, but my elephant-minded reader had filed it away in his mental chest of fond memories.

I'm pleased that some readers pay more attention to what I write than I do. It saves time and effort to be resupplied in a timely fashion by others when the snark train needs another shovel-full of coal to keep steam in the boiler.

Full speed ahead.

Missing The Mark

In her attempt to grandstand at a Senate Banking Committee hearing last Thursday, Liz Warren screwed up the chance to make a valid point. The freshman Senator and veteran ideologue tried to beat up the federal banking regulators who were arrayed before the committee over their supposed reluctance "to take Wall Street banks to trial." You can watch her performance in the linked video, starting at approximately the 1 hour, 34 minute mark.

Although her opening question as to how tough the regulators were was never actually answered, I'm surprised that not one of the regulators answered "Tough enough to take anything a punk like you can throw at me without blinking, Running Joke." Instead, when she followed up by asking when was the last time any of the regulatory agencies took a Wall Street bank to trial, the least likely of all contenders stepped into the ring and counterpunched with a deft lesson in basic administrative law that sailed over the head of She Will Sioux (and over the heads of those droolers who applauded her).

Curry's point was that the OCC doesn't need to sue because it twists arms effectively enough in almost all cases to achieve its supervisory goals through consent orders, without commencing litigation. Warren's follow up, to the effect that she knows that the OCC doesn't have to bring banks to trial but when was the last time it brought a bank to (an unnecessary?) trial, caused Curry to again state that it doesn't have to sue banks (actually, commence an administrative enforcement action) to achieve its supervisory goals. Liz moved on to her next victim, who needed to check her facts and get back to the Senator at a later date.

Liz then got to the impetus for her initial inquiry, and it turns out to be a valid point that was made, unfortunately, before the wrong audience. She claimed that US attorneys throughout the country were taking "ordinary citizens" to trial all the time and "squeezing them" (and not like your main squeeze squeezes you, either), but were not taking Wall Street banks to trial. There's a case to be made that she's right about that. If there had been an actual US Attorney on the panel before her, that point would have been telling. Instead, those testifying were FEDERAL BANKING REGULATORS. THEY CAN'T BRING CRIMINAL CHARGES AGAINST ANYONE, LIZZIE. ONLY A US ATTORNEY CAN DO THAT AT THE FEDERAL LEVEL!

Sorry to monetarily channel the spirit of the late Sam Kinison, but Liz was a celebrated (for her "diversity") member of the Harvard Law School faculty, who made her bones by taking shots at banks, and who also birthed the concept of the CFPB. God forbid she should actually understand that when you're chapped at federal officials for not bringing big banks and bankers to trial on criminal charges, the federal officials you want in the room are those who have the power to bring people to trial on criminal charges.

If Liz actually knew something about the subject matter at hand (which would have made her unique among her compatriots in the US Senate), she might have realized that Comptroller Curry's agency could be criticized for persecuting the little guys, while being strangely passive with respect to some Masters of the Universe. At least, you seldom, if ever, hear about the "hot pursuit" by the OCC of executives at Chase, Bank of America, or Wells Fargo. 

Some of you may remember Patrick Adams, the former bank president who fought the OCC to clear his name and who was backed by a federal administrative law judge, who recommended that all charges against him be dismissed by the Comptroller of the Currency. Instead of dropping the case, rumor has it that the OCC has objected to the ALJ's decision and has urged the Comptroller not to follow the recommendation of the ALJ. Had she been aware of what is actually what, Ms. Warren might have asked the Comptroller why the OCC fights to the bitter end to pursue charges against folks like Mr. Adams, and whether it also aggressively pursues Wall Street bankers with the same zeal. She might have asked Curry to name the last time the OCC tried to overturn an ALJ's recommendation to drop charges against a Wall Street banker. Curry would have suffered instant aphasia, but it would have been a useful line of questioning to those of us who understand the difference between a criminal trial and a civil administrative enforcement proceeding.

But, no, Liz played to the cheap seats, including her acolytes in the trade press, and got her round of cheap applause from her targeted audience.

HUD Gives A Big Thumbs Up To Disparate Impact

“Disparate impact” as the basis for finding fair lending discrimination got a boost last week from HUD (paid subscription required), which issued an 83-page rule in support of that theory. As regular readers know, we at BLB have a long-standing antipathy to claims that spring fully-formed from the brains of those who live to ensure that every American has a right to obtain any loan that he or she applies for, especially if they won’t have one chance in a million of ever repaying it. After all, banks are public utilities, right?

The usual suspects came out in droves to bloviate about this latest exercise in pushing a political-social agenda through federal government action. On one side, you had the consumer advocates, who thought this rule might have originally been a part of the Arc of the Covenant.

"We're happy that the rule's out, and believe it's consistent with 40 years of policy," says Dory Rand, president of the Woodstock Institute, a nonprofit advocacy group.

Dory then reentered the Woodstock Institute and toked up a fat boy with Wavy Gravy.

From the dark side of The Force came the yowlings of the hounds of hell, otherwise known as bank lawyers.

"It's as extreme as it could be in adopting the disparate impact approach," says Paul Hancock, a partner at K&L Gates.

[…]

"There's concern that each element of the three-part test has some language that could make it easier to proceed with a disparate impact case, and harder to defend," says Joseph Barloon, a partner at Skadden Arps.

Messrs. Hancock and Barloon then paused to beat a homeless man senseless before stealing a third grader’s milk money and pushing an elderly dowager in front of an onrushing trolley.

None of this should come as a shock from an administration that also includes an ironically named “Justice Department” that has gone to great lengths to use disparate impact to squeeze lenders into coughing up mucho dinero. It is also no surprise that this rule was expectorated shortly after the second inauguration of the future “Lone Bust On Mount Rushmore.” Launching this thing off the pad in September 2012 might have posed some political risk. Now, the administration isn’t worried about re-election, only in firing the opening salvo in what will be four more years of beating banks into line to serve a progressive social agenda on “fair” lending. “Game On!”

There’s always the chance that the SCOTUS could throw a strip of road spikes in front of this speeding bus.

The rule also comes at a time when the Supreme Court has been mulling whether to rule on the applicability of disparate impact theory in the fair lending context.

In 2011, the high court agreed to hear a case involving the city of St. Paul, Minn., that might have resolved the issue. But St. Paul officials scuttled their appeal after the Justice Department agreed not to join another lawsuit against the city. Congressional Republicans are now accusing the Justice Department of entering into an inappropriate quid pro quo with the city of St. Paul.

The Justice Department's maneuver irked the lawyers who represent banks in fair-lending suits. "If the government was confident in its position on this issue, why didn't they let the Supreme Court decide the case?" Hancock asks.

Obviously, Paul was asking a rhetorical question, the answer to which is “Because they know they’d lose it.”

While some legal experts opined that the promulgation of HUD’s rule will make it more difficult for the Supreme Court to overturn the “disparate impact” theory because of traditional deference shown to regulatory interpretations by federal courts, others were less pessimistic.

Rich Andreano, a partner at Ballard Spahr, disagrees. He says that in some recent decisions the Supreme Court has given less deference to federal agencies than it did in the past.

"They're going to base it on their own interpretation and won't particularly care what HUD's interpretation is," Andreano says.

I’m with Rich on this one. As long as Justice Scalia doesn’t stoke out or end up shot dead in the street by a jealous husband, and Justice Thomas continues to honor his vow of silence and thereby avoid a rip in the space-time continuum, I think the SCOTUS will ultimately trim the wingtips from this high-flying bird. On the other hand, I wouldn’t take that prognostication to the bank.

The Eye Of The Beholder

BLB favorite Lizzie Warren may be only 1/32nd Cherokee, but she's 100% certain that she can judge right from wrong, and she held a press conference today to tell the world that Republican senators are "fundamentally wrong" to oppose Recess Richie Cordray's nomination as Czar Director of the CFPB.

At a news conference today on Capitol Hill, Warren — who as a White House official designed the bureau in 2010 — said that Cordray has “done a great job’’ at the agency since last year when President Barack Obama used a recess appointment to install the former Ohio attorney general as director.

“Rich has proven what he can do,’’ Warren told reporters. “This agency has proven what it can do. The agency has been signed into law. And the notion that a minority (of the Senate) can hold up the laws of the United States by using a filibuster on an appointment is fundamentally wrong.’’

[...]

Warren was joined at the news conference by Sen. Sherrod Brown, D-Ohio, who warned about “the precedent this sets in the United States Senate,’’ declaring that if lawmakers do not like an agency they can “refuse to confirm’’ anyone to run it.

The hypocrisy of Warren, Brown, and their ilk would not be so hard to stomach if it weren't for the fact that those two clowns are merely the latest in a long line of hypocrites in both parties on this issue. As Guardian columnist Megan Carpentier, certainly no friend of "The Right," pointed out a couple of years ago, when the Republicans controlled the Senate, the Democrats repeatedly used the filibuster to thwart Republican appointments, and Republicans made the same bombastic allegations regarding the nefarious effects of the filibuster and the need for "the nuclear option" (eliminating the right to filibuster). The tables are now turned and so are the positions of the parties. Carpentier also pointed out how the Republicans and Democrats resolved the earlier filibuster logjam: they compromised by selecting more moderate candidates. Today, apparently there's no desire to seek "moderation," just to wage complete ideological warfare to the bitter end. Neither side is without blame.

She may be a "newbie," but in an environment where intellectual dishonesty is the hallmark of success, you can rest assured that Liz is destined to rise to the top, in the way that cream always rises to the top. Or, as anyone who's ever seen a stagnant pond can attest, other stuff.

TARP Paybacks Continue To Roll In

Although I’ve beaten this drum for the last four years, I’m going to continue to rip flamadiddles on the same theme until my hinged wrists get tired. TARP, when it stuck to its intended purpose (before it became a slush fund to bail out the auto unions), not only saved many deserving community banks, it has ended up making a net profit for the US government. One more example is a recent auction of TARP preferred stock of a "saved" Texas community bank.

The U.S. Treasury said Friday it expects to recoup $19.8 million in proceeds from the public auction of FC Holdings Inc.’s Troubled Asset Relief Program debt.

The Treasury priced 21,042 TARP shares of the Sugar Land-based bank holding company’s TARP at $897 per share, which would ring up at $18.8 million. Another 1,052 TARP shares are expected to be sold for $955 per share, totaling $1 million, according to the Treasury.

FC Holdings, the bank holding company for Sugar Land-based First Community Bank, originally received $21 million in TARP in 2009. The Treasury said it has gotten back about $268 billion from its TARP investment in the U.S. banking industry, which was $245 billion.

Unfortunately, the hard-core critics of TARP will never admit that there might have been some good done for some banks, along with all the evil visited upon pure free market principles. The facts keep rolling in like waves onto the shore, and many refuse to acknowledge the error of their ideological ways. It's tough to prove a negative, namely, the proposition that if TARP had not been created, the economy would have tanked a lot worse than it did in 2008-2009.

It's a question of judgment. On this matter, I choose to trust my own. Of course, I'm leaving AIG out of the calculations. That organization wasn't among the "banks" TARP was originally designed to bail out. Nor, for that matter, was Chrysler.