Tag Archives: banking

UPDATE: On Cities As Victims

In November, we brought you news of the Supreme Court’s decision to consider whether a municipality could be  treated as an individual victim of the banking crisis.

This week, the court sided with the city, 5-3.

In other words, Miami, FL is free to pursue the banks for damages to its tax base.  The precedent will likely reverberate for years to come.

The city was finally vindicated in its 2013 move to sue Wells Fargo, Bank of America, JPMorgan Chase and Citigroup.  Miami claims the banks violated the 1968 Fair Housing Act (which prohibits racial discrimination in real estate transactions) by intentionally issuing high-risk loans to African Americans and Hispanics.  Later, there was a surge of foreclosures and lost property value.

It is unclear whether other cities around the country will now follow suit.

What did remain in doubt was the claim that the banks could know the future damage; the court did not believe the city sufficiently proved this.

From a conservative standpoint, the broadening of the scope of victimhood is troubling.  It feeds the litigious society that is eroding American values of personal responsibility.  Any individuals who are allegedly discriminated against ought to be the sole agents and benefactors of justice–not governments.

Cities As Victims

On Tuesday, November 8th, there was other news besides the shocking election of Donald Trump as President.

The US Supreme Court reviewed a lawsuit brought by the city of Miami, FL against banks  Wells Fargo and Bank of America, claiming that, under the Fair Housing Act (part of the Civil Rights Act of 1968), the banks’ negligence and prejudice was responsible for the area’s 2008 housing market collapse.

Specifically, the suit claims that subprime mortgages given to minorities contributed to falling property values, lost property tax revenue, and foreclosures and the crimes those vacant properties can bring.

A successful case like this has the potential to set a precedent of municipalities using laws intended only for individuals.

The justices’ discussion was wide-ranging, from questioning if the effects were too remote, to acknowledging the cumulative effects of bank actions on the city and public.

“The statute doesn’t prohibit decreasing property tax values, ” said Justice Kennedy.

As reported in the NYTimes, “A 4-4 tie in the Supreme Court, which seemed a viable prospect on Tuesday, would leave the appeals court’s ruling in place, handing a victory to Miami but setting no national precedent.”

So, do you think an entire town or city can claim victimhood by corporations?

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Next Stop for Disruptive Innovation: Banking

60 Minutes just aired a piece on the M Pesa mobile payment service in Kenya, Africa.  Safaricom administers the money transferring service that allows users to pay for goods and services, without cash, by texting.  While the service exists in other places in the developing world, Kenya is the success story.

The reach and the business model are breathtaking and inspiring.  Kiosks that exchange money for an M Pesa balance are ubiquitous, often appearing in or next to other high-traffic businesses.  19 million people, or 90% of the adults, use it, although more transactions still take place in cash.

The service was developed in England, but the thinking it has inspired in Kenya has given rise to the nickname, the “Silicon Savannah.”

The service uses PIN protection and can cover bills and taxes, salary deposits, and loans, with less interest because of the significantly reduced overhead.

The real story is what this user-friendly microfinancing has done to increase the standard of living for the poor, especially in rural areas. It means access to personal services and self business development that were before, out of reach.

So, what does this mean for us in the US?  Disruptive technologies like Uber face barriers from the existing taxi service, and the banking lobby is obviously opposed to M Pesa.  So it seems that the absence of a strong, existing supplier of a service is a boon, but it is harder to come by such holes of unmet need in the developed world.  But if and when you do, the spoils will be yours for the taking: MPesa generates $250,000,000 a year in service transactions in Kenya alone, proving the old saw that it is easier to sell a million items for a dollar, than one item for a million dollars.

We Can Chill Out Now About the Megabanks

Politico’s new effort, The Agenda (asking, “How do we connect the dots between the robust debates in the war of ideas and the policy proposals actually on the table here in Washington?”) offers insightful, yet reasonably short pieces on future-focused topics.  ModCon looks forward to referencing it in an ongoing manner.  Its best feature just might be the running bar at top-left that shows the reader how far into the article they are.

The new piece about Bernie Sanders’ idea to break up megabanks, aka the “Too Big to Fail, Too Big to Exist Act,” is an indictment of the idea that bank size directly correlates to risk-taking, which the author warns we could see from many 2016 Democratic candidates when discussing economic policy.

Splitting our large US banks up would make us lose a competitive edge in the realm of global financial services.  Also, we needed the biggest banks in 2008 (BOA, Wells Fargo, Morgan Chase) to absorb the mid-tier, busted banks like Lehman, Bear, and Merrill Lynch, because the biggest ones were the only stable ones with ability to do so.  Furthermore, over 900 community or regional banks benefitted from TARP, meaning the ideas of moral hazard and behaving under the assumption of a federal bailout cannot have much to do with size.

In conclusion, as the next presidential campaign gets going do not buy into the idea that strict limits to company size and assets will make banking safer for the American public.  Regulations are unfortunately needed, but amputation is not.

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