Bank Lawyer's Blog

Barney Bites Bernie (And Neel)

2016-03-27T22:07:00-05:00

Now that hell has frozen over, I find that all kinds of amazing things are occurring, one of which has created the danger of ripping a huge hole in the space-time continuum: I find myself in agreement with Barney Frank.

While watching the PBS News Hour this past Thursday night, who should pop up but the former House Banking Committee Chair and favorite Bank Lawyers Blog Bullseye, Barney, who was interviewed by Jeffrey Brown about Frank's reaction to statements by Neel Kashkari, currently president of the Federal Reserve Bank of Minneapolis and former Bush Bailout TARP Toolmaker, and the ever-cranky Bernie Sanders, Gen Y's favorite "Democratic Socialist," about "To Big To Fail Banks." Sanders also alleged that the way to break up big banks is to reimpose the Glass-Steagall on commercial banks. Frank, now that he's out of the political arena and no longer feels compelled to be what every politician feels he or she must be, i.e., a caster of shade upon of the truth, was remarkably critical of two gents who are spouting the Democrat Party line about the evils of Wall Street's "TBTF" banks.

Barney may have gained some objectivity, but he's lost none of the pungent-tongued arrows from his verbal quiver.

In the first place, both Senator Sanders and Mr. Kashkari continue to evade the biggest question. That is, how big is too big? The crisis which touched off when Lehman Brothers couldn’t make its payment, Lehman Brothers was about $650 billion in assets. We have banks four and five times that size

And the question is, does everybody have to be smaller than Lehman Brothers is today? But that would have consequences. Getting there would be a problem. By the way, it should be very clear, Glass-Steagall doesn’t do it. There is a disconnect between Senator Sanders insisting that the banks be broken down to the point where they won’t by their own size threaten, if they have too much debt, to undermine it.

And Glass-Steagall — Glass-Steagall would reduce — it wouldn’t do anything to Goldman Sachs and to Morgan Stanley, which are almost Glass-Steagall-ized themselves. But looked at Citicorp, or J.P. Morgan Chase, or Bank of America, Wells Fargo, even if they were subject to Glass-Steagall, they would still be well beyond the size that Lehman Brothers was.

There is just a disconnect between saying we’re going to do Glass-Steagall and getting the banks down to a size where, if there was a complete failure, you would get damaged by it.

The entire response above by Frank is remarkable for the fact that he's right. It's obvious that he's not been spending his time since retirement sampling the wares of Mar Jane-related "legal" businesses in Colorado.

Frank also jumped all over Kashkari's comparison of the 2008 meltdown to the S&L crisis of the 1980s, and Kashkari's statement that the reason the S&L crisis didn't bring the economy down was because none of the S&Ls was "too big to fail." Again, Frank asks why Kashkari won't tell us how big is too big? He also correctly notes that the bailout of the S&Ls cost a lot more than the bail out of big banks in 2008, although he does not also observe that this was because the 2008 TARP allowed the big banks to survive, while the S&L "bailout" allowed them to fail (or most of them, at any rate (outside the Southwest Plan thrifts), and established the Resolution Trust Corporation, staffed by the FDIC, to liquidate their assets. If the politicians, including Frank, had stayed out of it in the 1980s and let the initial bailout template concocted by the former Federal Savings and Loan Corporation play out, there's a chance that the money from that bailout might also have been largely repaid.

Frank says the primary risk is not size but "indebtedness," and on this point he's got a point. However, I disagree with his assertion that his bloated namesake, Dodd-Frank, has dealt successfully with the risk of bank's engaging in excessive borrowing and hinky derivatives that made "The Big Fail" such a hit (his misapprehension of the effect of the Volcker Rule has been lambasted previously), and his assertion that now, no bank is too big to fail.

If a large institution can’t pay its debts, it fails. It is not too big to fail. It is put out of business, by law. No federal official can advance any money to pay its debts under the law until it is dissolved.

TARP also required legislation to create, and the wide-open authority it provided the federal government to bail out banks was induced by panic among folks at the highest levels of the federal government (including Frank) of immanent widespread economic collapse. We'll see how effective Franken-Dodd is when the next crisis hits, as it inevitably will. There's no prohibition on a future panicked Congress changing the rules on the spur of the moment to do what Frank claims can never again be done.

To prove that I haven't completely turned to the dark side, I think his statements about overturning Citizens United are bunk. Nevertheless, all-in-all, startlingly, he makes a lot of sense.

Rent-a-Charter vs. Strategic Alliance

2016-02-15T21:58:00-06:00

In June 2004, I wrote a post about schemes by non-bank lenders, especially payday lenders, to "partner" with banks and thrifts in ways that would allow the non-banks to use the bank's or thrift's status to "preemept" "inconvenient state laws, such as those pesky usury limits. As I said at the time:

Apparently, the state-chartered banks involved in this practice are counting on the continued lack of objection by the FDIC, and the continued sympathy of state banking regulators who are eager to increase the number of state-chartered institutions that they regulate. In my opinion, this is a risky course.

I also pointed out at the time that national banks and federal savings banks could rest assured that their primary federal regulator would be scrutinizing their business arrangements with non-banks like Elizabeth Warren looking under her bed every night for a bad banker looking to steal all the cash she has hidden in the sock that she keeps under her pillow.

According to a recent client alert from Chapman and Cutler LLP, this bad old idea not only refuses to die, but has engendered state officials to take action to stop it in its tracks. While the alert discusses the State of Pennsylvania going after payday lenders who've aligned themselves with Native American tribes (which has been a problematic marriage for quite some time), it has wider implications for similar arrangements. In this instance, the Commonwealth of Pennsylvania alleged that the "true lender" for regulatory purposes was not a bank in Delaware that would have been exempt from Pennsylvania usury limits and licensing requirements but the non-bank website "originator" that did most of the origination work and derived most of the economic benefits from the loans. The authors note that in other jurisdictions, the court decisions have not been in lockstep on the issue of preemption, arrangements like the one challenged here are likely always to put the lenders in the regulatory crosshairs.

No clear rule has emerged although regulatory challenges almost certainly are more likely to be made when excessive interest rates and/or abusive sales or collection practices are involved. In this case, the loans imposed interest rates of 200% to 300%.

The alert notes that even though the court's decision involved only a motion to dismiss Pennsylvania's action, and that is a long way from a judgment on the merits, the red flags for financial institutions involved in such relationships are clear "because it demonstrates that plaintiffs will continue to raise the “true lender” theory and courts will not necessarily dismiss at an early stage (for failure to state a claim upon relief can be granted) “true lender” claims solely because a bank is the named lender on the loans, at least where there are allegations that the originating bank does not have substantive duties or an economic interest in the program."

In order to mitigate the risk of claims based on the “true lender” doctrine, companies that engage in internet-based lending programs through an arrangement with one or more banks should consider how the programs are structured. For example, consideration should be given to operations where the bank has substantive duties and/or an economic interest in the program or loans. We are aware that some internet-based lending programs are considering structural changes of this nature.

The firm also advises institutions to make certain that they comply with regulatory guidance governing relationships with service providers. They cite FIL-9-2016 and related FDIC guidance. I'd also suggest taking a look at the OCC's Bulletin 2013-29.

Or, for a change of pace, a bank considering one of these schemes might decide to take its entire capital to The Bellagio in Vegas, walk up to nearest roulette wheel, and lay it all on "00." I mean, if you like dancing along the razor's edge with insured deposits, you might as well go all-in. Plus, you get free booze as long as your money lasts. To hedge your bet, you might want to hold back enough to buy a one-way ticket to Havana (regular flights from the States start soon) just in case that method of income-generation doesn't work out as well as a strategic alliance with a non-bank payday lender.

De Novo Deep Freeze Thawing? Not So Fast!

2016-01-31T21:54:00-06:00

Although SNL's Nathan Stovall tantalizes readers with the headline "De novo market could be warming up," I think that--reading between the lines--the De Novo Deep Freeze of the past 8 years is not going to be thawing this year.

Stovall cites the recent de novo charter approval of California's Core Commercial Bank. However, that bank's investment adviser's CEO, Edward Carpenter, while stating his belief that "you can expect to see more applications in the relatively near future," warns that the path to approval of a de novo charter is a rocky one.

[T]he application process for de novos is "considerably more difficult" and requires much greater preparation now than before the credit crisis...

[...]

"We believe that a new bank requires more capital than it did in the past. It requires a stronger and deeper management team than it did in the past. And it needs to make a more persuasive case than was often made in the past about community need."

Core Commercial, like the two other most recent de novos, Pennsylvania's Bank of Bird-in-Hand and New Hampshire's Primary Bank, "plans to target a fairly narrow customer base as well, catering to small and medium-sized businesses that might feel disenfranchised by the nation's largest institutions." I assume that the geographic market area is also relatively focused, and that the applicants had to prove with more than lip service that the community was not being adequately served by existing financial institutions.

While Carpenter seems optimistic (and, I'm sure, stands ready to assist other potential clients with their de novo needs), others, including some regulators, are less pie-eyed.

Candace Franks, commissioner of the state banking department in Arkansas, acknowledged that de novo banking activity certainly slows during a recession, but said prior downturns have been followed by a "generous" era of de novo applications. She said that certainly hasn't been the case this time around. Franks, the immediate past chairman of the Conference of State Bank Supervisors, said the lack of de novo activity is "very concerning to us," particularly in rural areas like Arkansas, where community banks serve as the engine of small business activity.

Some observers have argued that regulators were hesitant to grant new charters since many banks that failed during the crisis were de novos formed in early 2000s. The Federal Reserve discussed the issue on a handful of occasions. Robert Mahalik, director of applications at the Federal Reserve Bank of Dallas, said at a conference in April 2014 that he saw no hint that new charter activity or approval would be on the near horizon.

Stoval also discusses other disincentives that may restrain a de novo deluge.

While regulators might be easy to blame for the dearth of de novos, Stevens noted that bankers have not painted a very attractive picture for parties considering entering the industry, often complaining about heightened regulatory burdens. Such rhetoric could serve as a deterrent to potential investors.

Some advisers say there simply are not many investors looking to form new banks. DD&F Consulting Group President Randy Dennis, who has helped launch a number of de novos in his career, said there is a whole new breed of investors that want to put money to work in the banking sector, but some are concerned they will not be able to receive regulatory approval. He further said the higher capital requirements facing de novo banks have limited investor interest.

[...]

...Tom Brown, longtime bank investor and CEO of Second Curve Capital LLC, said at a conference in mid-November that he understood why there is so little investor interest in forming a new bank charter. He believes the capital constraints on de novos make it difficult for investors to earn adequate returns on their capital.

"Who in their right mind would start a bank today? The FDIC requires $35 million in capital to start a bank. And no one can pencil out an annual rate of return on $35 million in the next five years, so you're not seeing new chartered banks," Brown said at the event.

Well, obviously the investors in Core Commercial, who we presume are not insane.

Noted bank attorney Walt Moeling of Bryan Cave also is cautiously optimistic. He thinks the prospects of additional de novo applications is "real," but that there numbers will be far less than in the past.

All the observers seem to agree that the application process will not be easy. The organizers will need to present a convincing case, based on hard data, of the need for the new institution. Capital will be king, and as Tom Brown asserts, the more capital required, the more difficult it is to earn a decent return on equity, especially when private investors have places to place their capital where the returns are larger, quicker. Management will also be critical, with both expertise and probity playing critical roles. Finally, the application process is likely top much more time-consuming and expensive than it ever has been.

And, of course, once the doors are opened, what you have is a community bank, trying to make money in a Post-Franken-Dodd world chock-full of Maxine Waters, Elizabeth Warrens, and other "progressive" ideologues who will look over your shoulder 24/7/365 to "guide" you on the path to righteousness, if not necessarily to profitability.

Yes, Virginia, There Is A Regulatory Burden On Small Banks

2016-01-24T21:38:00-06:00

Preston Ash of the Federal Reserve Bank of Dallas, sent me (on New Years Eve, no less) an article co-authored by Preston and Christoffer Koch and Thoma F. Siems of the Dallas Fed, entitled "Too Small to Succeed?--Community Banks in a New Regulatory Environment." Notwithstanding my semi-inebriated initial misunderstanding as to whether or not Ash was calling me out for stealing his idea for an article, it quickly was made clear to me that the authors wanted to share their thoughts with me because we all are thinking along the same lines (as evidenced by my blog post of December 27, 2015) to wit: the regulatory burden on community banks is reducing their number.

An excerpt from their article:

In 1992, community banks accounted for 64 percent of $4.6 trillion in total banking assets. By 2015, their market share had dropped to 19 percent of $15.9 trillion in total assets (Chart 1). Despite this decrease, community banks still account for the largest share of small-business loans. Currently, small- and medium-sized banks hold 55 percent of small-business loans and 75 percent of agricultural loans.

In twenty-three years, total assets of financial institutions in the U.S. have nearly quadrupled, yet community banks share of that total has shrunk from nearly two-thirds to less than one-fifth. At the same time that the big banks were getting bigger, they were leaving it to the incredibly shrinking community banking segment to make the majority of small business loans and three-quarters of all agricultural loans. The large banks are growing ever larger, yet are failing to serve the majority of the nation's main job creators, small businesses, leaving that task to the ever-decreasing number of remaining community banks.

After noting what we (and many others) have observed, that the lack of new charters since 2008 is an "alarming" contributing factor to decreasing the total number of community banks, the authors state that from their own conversations with bankers in their district, bankers seem to believe that the top reason for the shrinkage is "regulatory burden." The authors ask, "Are their concerns justified?" Among the factors that lead them to conclude in the affirmative are the following:

Call reports have grown from 30 pages in the 1980s to 84 pages today.
"At the end of 1970, Call Reports contained 53 items that banks filled out; this past quarter's filing included 2,379 items, with recent additions of more off-balance sheet and memoranda items."
"From 2001-10, 10 major banking acts became law, totaling 1858 pages."
"Feldman, Schmidt and Heinecke (2013) at the Federal Reserve Bank of Minneapolis find that the median reduction in profitability (return on assets) for the smallest banks—those banks with assets less than $50 million—is 14 basis points if they have to increase staff by one-half of a person and 45 basis points if they increase staff by two people." In other words, the smaller the bank, the more of a proportionate burden it is to hire the staff to comply with increased regulatory compliance and reporting requirements.

The authors conclude that community bankers have a legitimate beef.

[S]maller community banks appear to have a valid concern that their compliance burden is rising and the playing field is becoming more uneven. Regulatory oversight should match the level of risk an institution poses to the financial system and economy at large. Otherwise, more banks may become too small to succeed.

It's not just bloviating bloggers who are sounding the trumpet for regulatory relief. Some actually responsible regulators are also playing the same tune. Of course, it's a presidential election year and the masters of gridlock in D.C. are not likely to cooperate on much until the grass crown is awarded to the next Cynic-in-Chief. Still, bank lobbyists need to use this ammunition to fire away at their senators and congresspersons, because this is a trend that will not likely reverse itself of its own accord.

2016: Year Of The Merger

2016-01-18T22:00:00-06:00

Respected bank analyst Dick Bove told CNBC last week that the United states is in for a tsunami of bank meregers in the coming year.

"In the United States, I think you will see a huge wave of mergers in banking in 2016," Bove, who is the vice-president of equity research at Rafferty Capital, told CNBC.

"The regional banks are going to be buying each other and I would expect to see 2016 being one of the biggest years for bank mergers that we have seen in the last decade," he later added.

If the activity that I have seen thus far in my little corner of the universe is any indication, you can take Bove's prediction to the bank. Community and regional bank M&A lawyers are going to be plenty busy in 2016.

In addition to customary reasons for consolidation that we've talked about over the past few years, including the crushing regulatory environment post-Franken-Dodd, there's another that I haven't heard discussed, but that ought to be thrown in the hopper of any bank owner who has been fantasizing about cashing out and sipping Margaritas in Mazatlan.

Bove was also bloviating last week (this time to CNN) about how problems in the oil patch spell trouble for banks that bank the "Awl Bidness," and that those kinds of problems have, in the not-so-distant past, spread beyond the oil states and caused a wider economic recession. There are differences this time around from the 1980s on Texas, but Bove is still "concerned" that even big banks outside of Houston and Dallas could feel the pinch. Chase's Jamie Dimon disagrees.

Even Wall Street banks are facing questions about the impact of falling oil prices.

While just a small fraction of their total loan portfolio is directly tied to energy lending, Bove estimates around 20% of their investment banking revenue comes from energy.

JPMorgan Chase(JPM) CEO Jamie Dimon, in a call with analysts this week, acknowledged there may be "slight negatives" for the bank related to commercial and real estate trouble in Dallas, Denver and Houston.

Yet the big banks are well diversified. That means they should benefit from the anticipated boost to consumer spending caused by lower oil prices.

The oil price slide is "not going to be a big deal" for JPMorgan, Dimon said.

Dimon did such a good job of calling the last recession in advance that I think that we all can rest easy based solely on his judgment, right? Yeah, that's what I thought, too.

Even if it's unlikely that oil-related industry woes will, alone, take the US economy down another black hole, you have to wonder whether, coupled with the global stock market retreat caused by China's reckless debt-funded economic expansion finally grinding to a halt and sliding backward, and what the ripple effects of that might be, if now might be the time to pull the plug, while the US economy, while not partying like it's 1999, sure as heck isn't slumbering like it's 2009. It's at least worth more than a passing thought.

A Generation Later Rapidly Approaches

2015-12-27T22:04:00-06:00

My last post, on small banks and credit unions doing "good works" for the communities they serve, prompted this email from the CEO of a community bank in the Midwest:

I recently read a quote from Margaret Thatcher where she said that if all the Good Samaritan had was good intentions he would not be remembered. He also had money. When privately owned banks go away, taking prosperous small businesses with them, who will remember a generation later? Very sad.

That post also prompted a credit union executive to unsubscribe from the blog, on the basis, I presume, that I ended mu post with "Merry Christmas" as opposed to "Happy Festivus."

While I didn't intend to anger or depress anyone, my community banking correspondent is correct to be pessimistic. The number of banks is decreasing rapidly, and the evidence is coming from all quarters.

Minnesota Business Magazine asks if the regulatory burden is "killing small banks" and answers itself in the affirmative.

In banking, numbers tell the story. If so, these numbers have the making of a tragedy: In 2000 there were 513 community banks in Minnesota. Now we have 332, a drop of 35% in just 15 years. What’s going on? There are two factors at play according to Joe Witt, president of the Minnesota Bankers Association. One is increased competition from large players like Wal-Mart entering the financial services industry and from tax-exempt organizations like credit unions. “Right off the top they’ve got a 30% or 40% operating cost advantage,” says Witt.

But the dominant factor that is causing small banks to sell out or close shop is what Witt calls the “cumulative effect” of government regulations.

[...]

The problem with adding regulation isn’t that small banks can’t adhere to the standards, it’s that they simply can’t keep up.

“We are getting paddled and beaten in terms of additional compliance responsibilities,” says Bill Patient, vice president of compliance at BankCherokee in St. Paul. “Everyone is in the same playing field and working with the same regulations.”

Patient says that beyond just the sheer pages of new documents, the hardest part for small banks is spending time to understand new rules and regulations. Compliance officers must sort through the new laws to figure out what they mean, how the rules work with current regulations and which rules apply to their institution. Many small banks have no compliance officers on staff, and the increased workload can be devastating for small institutions.

The article also notes other factors, like the difficulty of making a buck in banking with narrow interest rate margins and the Fed's artificially low rates, as well as the dearth of new charters since 2008 to replace banks failing or merging. Nevertheless, bankers believe its the regulatory burden that is the major factor driving the trend, a trend that has seen the annual rate of decrease in the number of banks in Minnesota double post-Dodd-Frank from 2% to 4%.

Several years ago Witt sent a letter outlining his concerns to the Federal Deposit Insurance Corporation. In the letter he quoted a banker who said, ”We used to do banking in compliance with the laws and regulations. Now we do compliance and hope that it allows us to do some banking.”

The magazine echoes my correspondent in its view of the collateral damage from this incredibly shrinking universe of community banking.

Losing community banks isn’t simply about less choice for consumers. In rural communities, the local bank can be the lifeblood of the town, and being a small town bank might not be worthwhile anymore, says David Reiling, president of Sunrise Banks in Minneapolis. “There’s a lot more risk and the return may be uncertain at best.”

Doing Well By Doing Good

2015-12-20T21:58:00-06:00

Since it is the season to be jolly, let's focus one of our last posts of the year on things that banks, and credit unions, do that might even cause Bernie Sanders to throw them a grudging compliment.

First up is Gesa Credit Union of Washington State, which lat year sponsored students at a local culinary center in preparing Thanksgiving dinner for residents and staff at a local teen homeless shelter. This year, the credit union approached the center's instructor with a proposal to do the same thing, only this year for Christmas. The students jumped all over it. This is called "proactive agape."

Next in line is Virginia-based community bank Southern Bank. They're the corporate sponsor for a Hampton Roads television station's annual "Operation Christmas List." The station collects and delivers toys to local children whose parents don't have the money to afford much more than a lump of coal. This beats the polar opposite type of story sometimes featured this time of year, especially over the past seven years, about a heartless bank kicking some family out of its home and into a snow bank (notwithstanding Fannie Mae's policy of suspending evictions for the holidays.

Finally, we have another Virginia community bank, Union Bank and Trust, teaming up with a Richmond-based television station and a local bookstore to give a little girl whose family just moved out of homelessness what I think is a priceless gift: a library. That will be a gift that will keep on giving.

If good publicity results from these efforts, then good for all concerned. Community banks and credit unions are part of the fabric of local community life, as are so many other local businesses. Their numbers are dwindling year by year. Whether or not you believe me, you'll miss them when they're gone.

Merry Christmas.

Clinton Promises to Fly Beyond Dodd-Frank

2015-12-13T21:52:00-06:00

Hillary Clinton, in trying to out-Warren Warren, is ensuring that many bankers, of whatever stripe, will have to take a moment to ponder what a Clinton presidency might mean for the entire banking business before pushing the lever for her in November 2016. Unlike many Republican candidates, who publicly promise to roll back Dodd-Frank's more onerous provisions (regardless of private intent), Hillary promises to take Dodd-Frank to places that even its most ardent supporters have only dreamed about.

But it’s not enough simply to protect the progress we have made," Clinton wrote. "As president, I would not only veto any legislation that would weaken financial reform, but I would also fight for tough new rules, stronger enforcement and more accountability that go well beyond Dodd-Frank."

On Clinton's wish list are the usual proposals to strengthen the Volcker Rule, reimpose Glass-Steagall, break up big banks, restrain "risky" derivative trading, put Jamie Dimon in thumb screws, and force Wall Street interns to entertain donors to the Clinton Foundation at various strip clubs, she gets into the ominous "bad bankers" proposals that threaten to turn a danger of "trickle down" of big-bank regulation onto community banks into a virtual Niagra Falls.

Extend the statute of limitations for major financial crimes to 10 years
Require financial firms to admit wrongdoing as part of settlements
Increase transparency about terms of settlement and fines actually paid to the government
Penalize executives when their firm pays a fine

She also wants the SEC and CFTC to be "independently funded," just like the CFPB. That way, behavioral psychologist and utopian intellectuals can team up to remove any checks-and-balances on the social engineering agendas of the Progressives that Hillary is courting in her bid to grab the grass crown. As King Richard and his minions have been attempting to do with the CFPB.

Her desire to insert "strong regulators" into bank regulatory agencies also bodes ill for community banks. If you love the way that for the last eight years, bank regulators have second-guessed executive decision making on a continuous basis, used regulatory power to attempt to choke off bank access to legal but politically and/or "morally" disfavored businesses, and pushed the envelope of theories like "disparate impact" to find discrimination where no one has ever found it before in order to reward favored constituencies, you'll love another eight years under the current president's "logical successor." At least she's giving you a "heads up" and not hiding the ball. Don't say you weren't warned.

Now, if the opposing party could only nominate something other than the south end of a horse traveling north to run against her. If they can find one, that is.

Disparate Impact: Full Speed Ahead

2015-11-11T22:04:00-06:00

The successor to the infamous Thomas Perez at the US Justice Department's Civil Rights Division, Vanita Gupta, has served fair warning that (as we predicted) the folks who run Justice intend to use the recent SCOTUS decision that validated "disparate impact" in the fair housing arena to pursue the statistically-proven racist scum in the quest to ensure that every one who wants one can get a home loan. She thinks that disparate impact discrimination is part and parcel with much broader abuses, like cops killing racial minorities and otherwise profiling minorities for disparate law enforcement abuse. America is racist, and Gupta's gonna root out racism wherever she can find the statistics to make her case.

“High-profile incidents across the country have thrust us into a national dialogue over the use of excessive force, racial profiling and stereotyping, officer and public safety and a festering lack of trust between police departments and the communities they service, particularly low-income communities of color,” said Gupta.

“But underneath so much of the unrest that we’ve seen in Ferguson, Missouri; Baltimore; New York; and cities across America," she said, "lies a foundation of systemic inequalities and discriminatory biases, built up over decades, not days."

She specifically pointed to lack of credit in affected communities as a root cause of this year’s troubles.

“To break down barriers to opportunity we must protect the rights of people to borrow money without bias or discrimination,” said Gupta. “Discrimination is a multiplying force. It can have a devastating domino effect on a person’s future economic prospects. And that is why equal access to credit is a fundamental part of our work. Credit provides the means for families to own a home, to buy cars so they can get to work, and to increase their earnings so they can invest in their own future.”

“Credit enables people to uplift their lives and build a brighter future,” said Gupta.

That's right: systemic racism in American society is rooted in a lack of credit availability for racial minorities, according to Gupta. If the federal government can ensure that every citizen can get credit, this country can overcome more serious problems which are the result of the "multiplying force" of that credit discrimination. How do they plan to do that? Suing banks on the basis of statistical analyses founded on flawed assumptions and squeezing cash out of them is only the tip of the enforcement iceberg. Gupta has much more "robust" remedies in mind.

“Whether mandating that a bank open a branch in a neighborhood neglected for years or requiring an auto lender to limit the discretion of its dealers, we recognize the value of resolutions that extend beyond the distribution of dollars,” said Gupta.

Of course, at the same time, Justice will use Operation Choke Point to drive payday lenders, auto title lenders, and other "high risk/high reward" lenders out of the market. That will leave all those great "small loan" programs that the FDIC tried to "encourage" banks to make a few years ago and that never gained traction because banks couldn't charge enough (most programs had a maximum APR of 36%) to justify the cost of administration and the serious problem of nonpayment. You can bet your life that they'll be resurrected, along with more creative solutions in the great game of credit redistribution.

And, of course, two guys named Guido and Louis (The Lip) will always be available on local the street corner to take care of the needs of the needy in an extra-judicial manner.

Are we having fun yet?

Hear Me Now and Believe Me Later

2015-10-29T22:01:00-05:00

In The Land of Liars, it's occasionally hard to separate the professionals from the merely proficient amateurs. However, when I'm in desperate need of affirmation that the spirit of the late, great Tommy Flanagan has not departed our nation's capitol, I need search no further than the latest news story about the Queen Bee of prevaricators, Hilarity Clinton.

Democratic presidential candidate Hillary Clinton would not bail out big banks to save them from collapse in the event of another financial crisis, she said on Tuesday.

During a late night television appearance with comedian Stephen Colbert, Clinton said her priorities were focused on raising the minimum wage and bolstering the middle class.

"If you're president and the banks are failing, do we let them fail?" asked Colbert.

"Yes, yes, yes, yes... " Clinton said.

No, no, no, no...

In 2008, when she was a beloved senator from the Empire State, Clinton gave a hearty thumbs up to bailing out the big banks. That was the smart move. As Hank the P warned us then and since, it was either TARP or "disaster."

In 2015, of course, she's running against an opponent who was one of the small minority of senators to vote against the bailout bill. Bernie was anti-big-bank then and he's never changed his tune. Lindsey Graham may have amusingly tweaked Sanders last night by claiming that he honeymooned in the Soviet Union and has never came back, but the dude has one thing that is rare in D.C.: integrity.

There's also the nettlesome problem that Lizzie Warren is the left's darling and she's opted out of the race this time around. To assure herself of the nomination, Clinton has to try to pull as many Spouting Bull supporters as she can away from the grumpy old man. Telling Colbert that she'd let the big banks fail plays well with a crowd that doesn't let reality get in the way of ideology. She's like Ted Cruz in that respect, I suppose.

If we ever were to face the prospect of the collapse of the banking system again and Clinton was at the nation's helm, she'd steer the ship full speed ahead into the bailout iceberg and be the first one in a lifeboat. Count on it.

She's not in Flanagan's class, but she's close. Really, really close.