When Has It Not Been Politicized?

I laughed out loud when I read the title of Phil Gramm and Michael Solon’s Wall Street Journal op-ed: “The Plot to Politicize Banking”. Here’s a snippet of the piece:

To resist President Trump’s campaign of economic reform and deregulation, his critics usually attempt to portray long-overdue, common-sense policies as assaults on the poor. A good example is the controversy regarding the Community Reinvestment Act, or CRA, which requires banks to meet the “credit needs” of their “entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institutions.” The media howled at a plan to rein in abuses of the law—despite its role in fueling the subprime crisis—setting off a fight among regulators.

Bank regulators started using the CRA in the mid-1990s to pressure banks to make subprime loans. Congress used quotas to force government-sponsored enterprises to buy these loans, and regulators set capital standards to induce banks to hold them. By 2008, roughly half of all outstanding U.S. mortgages were high-risk, as measured by down payments and creditworthiness. The federal government itself guaranteed, issued or held 76% of subprime loans. The term “subprime” originated from the implementation of the CRA.

To curb this abuse and encourage sounder lending, the comptroller of the currency proposed new benchmarks last month to measure CRA compliance and require full reporting and accountability. His reforms represent an essential step toward relieving the pressure banks face to lend to politically favored, uncreditworthy entities—the policies that helped cause the subprime crisis.

Yet after the proposal was tarred by the media as an attack on poor neighborhoods, a Federal Reserve Board member proposed an alternative that largely preserves the Obama CRA policy. Disputes among bank regulators are rare, and President Trump should help resolve this one by publicly supporting the comptroller’s reforms.

While policy makers fight over CRA abuses, another effort is under way to politicize credit. This time, instead of steering credit to the favored uncreditworthy, activists want to deny credit to the disfavored creditworthy. Banking was used as a weapon against legal, solvent businesses by the Obama administration during Operation Choke Point, a program to deny the disfavored access to banking services. The Federal Deposit Insurance Corp. labeled certain businesses “high risk,” including firearms and ammunition dealers, check-cashers, payday lenders and fireworks vendors. Unelected regulators, not Congress or courts, marked these industries as “dirty business” and made it “unacceptable for an insured depository institution” to offer them banking services.

When has the banking industry not been politicized? The financial sector as a whole spends $2 billion per year on lobbying, by far the most of any sector of the economy. It’s paid off. The purpose of FICA and all of the other banking regulations are not to protect consumers. They’re to protect the banks. They give people confidence to continue relying on banks and prevent upstart competition.

Had the federal government done what it should have during the financial crisis of 2007-2008 is would have nationalized the big banks and liquidated them as Sweden and Iceland did during their financial crises. We would have recovered much faster as they did. Instead not only did we preserve the big banks, we went after a bunch of smaller banks and forced them to liquidate, allowing them to be absorbed by the big banks which because that much bigger.

Obviously, Sen. Gramm and Mr. Solon aren’t worried about politicization. They’re worried about the type of politicization. I’m all for depoliticizing banks. Ban branch banking.