Posted by: theoptimisticconservative | February 3, 2014

The Obama administration’s attack on the U.S. financial system

You might frown a little if you heard that the Inspector General of the U.S. Postal Service is worried about how much Americans are paying for check-cashing and payday-lending services.  What dog does he have in this fight?

Well, catch up, because the Obama administration and the leftosphere have the ball rolling on this.  They want Uncle Sam to take over the short-term financial services industry.  (Emphasis probably not needed, but added anyway.)

As luck would have it, yesterday a new government report detailed an innovation that would preserve one of the largest job creators in the country, save billions of dollars specifically for the poor, and develop the very ladders of opportunity that Obama has championed as of late. What’s more, this could apparently be accomplished without Congressional action, but merely through existing executive prerogatives.

What’s the policy? Letting the U.S. Postal Service (USPS) offer basic banking services to customers, like savings accounts, debit cards and even simple loans. The idea has been kicked around policy circles for years, but now it has a crucial new adherent: the USPS Inspector General, who endorsed the initiative in a comprehensive white paper.

“As luck would have it.”  Right.  The Obama administration has been preparing the groundwork for this for some time now.  How?  By knee-capping the private short-term financial services industry.  More on that below.

A maligned industry anyway; who cares?

Those who have been fortunate or disciplined or well-taught enough to do all their financial business, throughout their adult years, with solid, reputable banking institutions probably take a dim view of payday lenders.  I know I do.  I’ve never had occasion to borrow from one.  Once, nearly 30 years ago, I had to cash a check on an emergency basis at a retail check-cashing place.  This was back when one’s bank or credit union wasn’t networked with everyone else on the planet, and my credit union’s ATM system was down hard, on a Saturday afternoon.  It was horrible:  I had to write a check for $50 to walk out with $40.  Never again, I swore.

 

Nobody's favorite cuddly bear.

Nobody’s favorite cuddly bear.

But not all short-term financial services are about offering high-priced options to people with bad credit or sob stories.  For a lot of people, there is little point in maintaining a bank account, on which they would have to pay maintenance and check-writing fees anyway, because they wouldn’t keep the minimum balances that eliminate those fees.  There are multiple reasons why people sometimes make use of short-term financial services, whether they are cashing checks, loading up Visa check-cards, buying money orders, paying utility bills, or borrowing for short periods of time.

In her op-ed on this matter (see link above), Senator Elizabeth Warren (D-MA) of course describes such people as “underserved” by banks.  That is a misleading characterization; most of the people who use short-term financial services could use banks, if it made sense to them to handle their money the way people who use banks do.  Quite a few of them are young people, who in ten years will have bank accounts and credit histories.

But Warren’s narrative is how the case will be made that the U.S. federal government should become their banker.

The quiet attack by executive fiat: “Operation Choke Point”

The Obama administration hasn’t bothered to make a companion case that the private financial services industry has been performing badly, or that it needs reforming or reining in.  Such a case could undoubtedly be made concerning at least some companies.  New regulations could be proposed in Congress; the successful regulatory practices adopted by states could be studied.

But instead, starting about a year ago, the administration just began attacking the industry by cutting off its access to capital.  The method has been to threaten FDIC-regulated institutions – big banks – warning them to cut off certain customers or face regulatory reprisals.

The customers?  “Third-party payment processors” who handle the direct transactions with short-term financial services customers; i.e., owners of those store-front chains, or online lenders, that offer payday lending and other services.

The administration’s effort was dubbed Operation Choke Point, and unless you read the Breitbart article (link above) in early January, you’ve probably never heard of it.

Warren sounds in her op-ed for all the world as if she has just stumbled on the wonderful idea of making the Post Office a financial-services hub.  But she’s connected directly to Operation Choke Point through the FDIC, where the department involved is headed by a long-time Warren associate, Mark Pearce:

At the FDIC, the official in charge of ‘Operation Choke Point’ is Mark Pearce, a highly partisan operative with ties to Senator Elizabeth Warren (D-MA), the intellectual force behind the Dodd-Frank legislation whose nomination to head up the new Consumer Financial Protection Bureau was withdrawn because Ms. Warren did not have enough political support in the Senate at the time to obtain confirmation.

Pearce was named director of the FDIC’s newly created Division of Depositor and Consumer Protection in 2010. According to the agency’s press release, “The FDIC Board of Directors approved the creation of the DCP last August to help carry out its responsibilities under the Dodd-Frank Wall Street Reform and Consumer Protection Act.”

The Justice Department is in on Choke Point as well.  Thirty-one members of Congress, alarmed to realize what was happening, wrote to Eric Holder and FDIC Chairman Martin Gruenberg in August 2013 demanding to be briefed on the operation, which, the congressmen pointed out, was being conducted “outside [the agencies’] congressional mandate.”  The administration was not forthcoming (emphasis added):

In response to that letter, a Department of Justice official met with Congressional staff members at the Capitol in late September, but refused to answer any questions about the project. Sources with knowledge of the meeting tell Breitbart News that the official also told Congressional staffers that the Department of Justice was under no obligation to tell Congress anything about the program. The official also refused to state her name, which was discovered only after she left her business card on the table as she left the event.

Breitbart’s Michael Patrick Leahy quotes industry experts (emphasis added):

In an exclusive interview with Breitbart News on Monday, Richard Manning, Director of Communications for Americans for Limited Government, criticized the Obama administration’s efforts to destroy the payday loan industry. “Their intent,” Manning said, “is to create a government sanctioned means of driving private industry out of the business of providing payday loans. They’ve never shown a great willingness to be restrained by free market principles over the use of government sanctions.”

Peter Barden of the Online Lenders Association agrees that the Obama administration’s influence on bank regulators has overstepped its legal authority. “It should also send a troubling message to banks that at any point regulators can force them to stop processing legal transactions simply because they don’t like a particular merchant or industry,” he said.

What’s clear is that this is a coordinated campaign to curtail short-term financial services – make them less available from private industry, thus putting hurt on younger, poorer people – and then arrange for Uncle Sam to step into the “breach” artificially created.

Weaponizing government

Thomas J. Basile, writing a must-read article for Forbes on 31 January, refers to this kind of coordinated campaign as the “weaponization of government.”

Basile makes the following point about the members of Congress watching Obama during the SOTU address:

Everyone in the House Chamber knew something that the American people have yet to fully grasp and Republicans have yet to demonstrate an ability to combat – that their government has grown so large, so complex, so involved in virtually every aspect of their lives, that it is now being used as a weapon by a small segment of the ruling political class.

He’s right.  Congress hasn’t figured out what to do about these under-the-radar executive excesses.  And to date, the Obama administration’s targets have been mainly the kinds of smaller, less-organized businesses that don’t make national news.  The victims are principally poorer people: the wage workers who lose jobs in the industries that come under attack, or their customers.  Who’s going to mount a big moral crusade to defend payday lenders, after all?  And how many middle-class householders, with checking accounts and credit cards, would man the barricades to make sure such services remain available to day laborers, job-hoppers, etc?

Spreading the cancer of risk through the whole financial system

The Obama administration has counted on most of us not noticing its campaign to monopolize financial services for the poor.  But we should be concerned: the Post Office plan will not only increase the federal government’s power over the finances of millions of Americans, but will increase everyone’s liability for bad credit risks.

Right now, there is a big buffer – interest rates, fees, intermediaries – between the universe of solvent account holders and borrowers, and the other people who, by contrast, handle their finances poorly (or at least, at a given moment, present a higher risk).  When J.P. Morgan, one of the big financial houses targeted by Operation Choke Point, makes capital available to the payday and online lending industry, the capital comes from the bank accounts and debt balances of the responsible.  But the risk is assumed by J.P. Morgan and the payday lenders and check-cashers.  That risk is what the fees and higher interest rates are about.

Everyone can thus participate in the same financial system, but the responsible account holders are protected.  Should Obama’s Post Office proposal be implemented directly, however, the U.S. taxpayer will be fully exposed to the higher-risk pool of financial customers.  If the Obama administration encases the Post Office proposal somehow in an intermediate financial arrangement, it will be the banks involved, and their account- and share-holders, who assume the risk.  Obama is likely to extort companies representing almost all of the financial assets in America into a scheme like this.

One way or another, it’s going to be you assuming the risk.  Obama’s Post Office plan is a proposal to remove the firewall that keeps the interests on both sides of it in balance.  Without the existence of the payday lending industry – the firewall – you wouldn’t voluntarily participate in a financial system that exposed you to the higher-risk customers.  So Obama is going to force you to participate.

It’s clear from Mark Pearce’s connections, described in a brief passage in the Breitbart piece, that this is, in fact, the underlying idea (emphasis added):

As the FDIC press release announcing his appointment acknowledges, “[Mark] Pearce spent more than ten years with the Center for Responsible Lending in Durham, North Carolina, one of the nation’s leading sources of expertise in consumer protection in financial services.”

The Center for Responsible Lending’s operations have been very controversial. Financial journalist Lawrence Meyers, for instance, wrote in 2009 that “The Center for Responsible Lending (CRL) has a history of distorting the truth concerning payday loans (PDLs), used by 6 million Americans to meet short-term credit needs. However, the CRL is merely a front for the Self-Help Foundation, a credit union in direct competition with payday lenders, whose founders were principal purveyors of destructive subprime mortgages.”

The architect of Operation Choke Point has his background in the activist movement that forced unsound lending on the mortgage industry.  This is the point at which to issue a reminder: it doesn’t matter what the purpose of this kind of campaign is.  It may seem well-meaning, if muddle-headed, but that doesn’t matter.  The result will inevitably be to corrupt the market integrity and safeguards of the industry involved.  The sheer moral hazard created is big enough to drive a truck through.

Thomas Basile at Forbes focuses largely on Operation Choke Point, but he highlights the fact that Obama is “weaponizing” government against other economic targets as well (emphasis added):

Documents inadvertently leaked by the Department of the Treasury from a briefing on Operation Choke Point clearly show that the Administration is looking to significantly impact legal businesses because it believes the public needs to be protected from industries and customers deemed more likely to engage in criminal activity.  According to the Administration, those industries interestingly include ammunition sales, gun sales, home-based charities, gambling, pharmaceutical sales, short-term loans, raffles, Amway and Mary Kay-style sales businesses, and credit repair services.

And so much of this, to the gratification of the Obama administration, can be “accomplished through existing executive prerogatives.”

The Republic’s emergency alarm has been sounding for some time now.  We can’t afford to keep ignoring it.

J.E. Dyer’s articles have appeared at Hot Air, Commentary’s “contentions,Patheos, The Daily Caller, The Jewish Press, and The Weekly Standard online. She also writes for the new blog Liberty Unyielding.

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Responses

  1. Exposing the US taxpayer to the high risk of the short-term financial services industry is just one of the many ways in which the Obama administration is attacking and working toward the collapse of the financial sector.

    ,a href=”http://www.prnewswire.com/news-releases/congress-is-looting-federal-worker-military-retirement-funds-says-william-fruth-founder-of-10-amendments-for-freedom-84465732.html”>Congress Is Looting Federal Worker and Military Retirement Funds. “Congress continues to loot all of the federal government’s trust funds to pay for deficit spending.
    More money is now owed by the federal government to these two funds than what is owed to China.”

    In addition, quietly, behind the scenes, the groundwork is being laid for federal government confiscation of tax-deferred retirement accounts such as IRAs.

    Obama is also working at income equalization via a massive redistribution of suburban tax money to the cities.

    Obama’s own debt commission has reported that, just three programs — Social Security, Medicare, and Medicaid — consume 100 percent of federal revenue. Everything else is paid for with borrowed money.

    By continually raising the debt ceiling and using qualitative easing to have the Federal Reserve print money out of thin air, the conditions are being created that mathematically ensure Sovereign Bankruptcy.

    Financial collapse into sovereign bankruptcy will result in chaos and rioting. That will lead to the imposition of nationwide, near permanent martial law. Under martial law, there is constitutional precedent for the legal suspension of provisions of the Constitution. It doesn’t take a rocket scientist to foresee the ‘opportunities’, such a crisis would afford Obama and the left.

    • Thanks, GB. I’m not ignoring those threats, by any means. But people know about them already, and — especially in the case of the threat to personal retirement accounts — the potential avenue of attack is very direct, and easy for everyone to understand.

      The “Choke Point” avenue of attack is devious and under the radar, going for a weak spot in the financial system that most people have little regard for, and don’t even realize is connected to the middle class’s own finances.

      If you asked most people, they’d say there is no link between their bank accounts or lower-interest credit cards and the payday loan outlet down on the corner. They can afford to be this ignorant as long as private industry absorbs and manages the risks of the link, which does most definitely exist. If Obama kills that industry, it won’t be just our retirement accounts we have to worry about. It will be keeping money in banks at all.

      And, of course, as I know YOU see, with the continued attack on the currency through spiraling national debt, holding currency-denominated balances of any kind — even cash under the mattress — will be increasingly pointless.

  2. Barry’s Operation Choke Point is perfect, and perfectly circular, and perfectly perverse: Since he now has the college students enslaved to non-bankruptcy-avoidable (and, of course, useless) college loans, he’ll have those students take out short-term loans at the Post Office to pay each month’s loan payment. While the students will soon default on those short-term loans, they will be avoidable in bankruptcy. And you know that Barry’s Big Government would never be so mean as to sue the students for the default amounts. Or even so mean as to stop them from taking out the loans each week, even though they never repay them.

    Win, win, win — for Barry and the slugs of America. Lose, lose, lose — for the rest of us.

    The only problem: the wretched, consumer-hating service at those Post Office windows. And the banker’s hours that they keep.

    Ah, Kafka, Orwell, Kessler and Huxley: you were born 75 years too soon to see all your fiction become reality.

  3. off topic, but I thought you’d like to know – just in case you missed it.

    http://www.stripes.com/news/american-tanks-return-to-europe-after-brief-leave-1.264910

    This is just speculation, but.
    You know, it occurred to me, maybe that naval presence of ours in the Black Sea, isn’t there for the Olympics after all..

  4. Thanks, jgets. The number of tanks is very small, not enough for offensive operations. (Maybe enough to defend against a division of marauding Girl Scouts.) The tanks will be stationed in Germany and used for joint training.

    Here’s one for you. Are you by any chance able to provide a good translation of this?

    Παρά την αποστολή από τις ΗΠΑ υπερσύγχρονων και πάνοπλων πλοίων με επικουρική δύναμη πεζοναυτών για την παροχή βοήθειας, διαφαίνεται μία «ρωσική ενόχληση» διότι έως τώρα δεν έχει κατατεθεί κανένα αίτημα βοηθείας από την ρωσική πλευρά, αναφέρει ο ρωσικός τύπος στο σύνολο του.

    It comes from the tail end of a report about the USS Mount Whitney and USS Ramage going to the Black Sea for the Olympics. I gather the sense of it is that the Russians haven’t asked for America’s help, and there’s not an official coordination of the ships’ role in the Black Sea. But I’m pathetically Greek-less and don’t feel comfortable going forward without a competent translation.

  5. You’re welcome.
    On the armor. Sometimes its not the amount but the thought that counts.
    Having zero MBT’s on the continent was a dumb idea. Train as you fight, fight as you train, as they say. Now at least they can train in Europe.

    Translation, parentheses mine.
    Despite the USA’s deployment of advanced and well armed ships, along with an auxiliary contingent of Marines, for the provision of assistance (for the Games) – a “Russian annoyance” can be discerned.
    Due to, up until now, no request for assistance (from the US) has been submitted by the Russian side. This, according to all Russian press agency reports

    • Many thanks again. You’ll see an acknowledgment in my latest post, where your contribution may be reflected in a footnote, but is not the less important because of that. 🙂

      I agree it was dumb to have no tanks in Europe. I’m glad, in principle, that we have brought a few back quickly, before it got to the point where it would have been a big political signal to bring some tanks back. That said, the very few there are — literally only enough for a “battalion-minus” — are too few to do anything real-world with.

      Leaving a token presence like this reminds me of the consultation Barbara Tuchman wrote about between French and British general officers before World War I. A British general asked what was the smallest British force that would be of use to France, in service of their common interest in deterring Germany and protecting the Low Countries.

      The French officer said, “One British soldier. And we will make sure he is killed.”

      We know how that went. Britain thinking in those terms did NOT deter Germany or protect the Low Countries

      Our weird “missile defense” presence in Poland has a whiff of the “One British soldier” about it as well. We have a Patriot battery with no missiles in it, and about 100 soldiers.

      • Ah yes. A kind of ‘tripwire’ mentality. You’d think we would have learned by now.

        Notice the following terms mentioned in the Russian take on the MBT deployment. “Military exercises Latvia-Poland”, “very peculiar rotation scheme”. Looking at it from a Russian perspective, it isn’t negligible. Any number of Chinese tanks parked 400km from DC wouldn’t make us happy either.

        voiceofrussia.com/news/2014_02_04/US-prepares-for-tank-battles-in-Europe-5650/

        on another note. A lot seems to be weird, in addition to the missile shield.
        Personally, it’s discouraging to see the international players (all included), tasked with keeping the peace, degenerating into fifth grade schoolyard behavior again. At least, that’s what it looks like superficially. There is much opportunity for progress in this time frame. You would think they’d seize it. Instead, it’s being squandered, imho. Pity

  6. It seems like the Obama Administration is taking all the ideas that have been “kicked around for years” and finding innovative (another word here for illegal) ways to make them reality. Unfortunately seems to find a knack for doing it with the worst and most radical ideas.


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