"Please be smarter than the Freepers. "

Emit

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Sat Apr-04-09 04:52 PM
Original message

"Please be smarter than the Freepers. "

Lol, I was just making an OP about this same topic, but thought since this Kossack already put a great deal of effort into it...

When we read extraordinary claims that President Obama is flagrantly violating the law, as claimed by an egregious disgrace of a diary on the top of the Recommended List, we need to engage in critical thinking instead of letting our emotions take us for a fool's ride.

~snip~

The diary, channeling the frustrated rantings of has-been regulator William K. Black, accuses the Obama administration of illegal conduct.

Black, who supported the presidential campaign of Barack Obama, excoriated both President Obama, and former President Bush, and their Treasury Secretaries Timothy Geithner and Hank Paulson, respectively, for deliberately and consciously violating the law. Specifically, the Prompt Corrective Action Law, passed after the savings and loan crisis, which mandates that severely undercapitalized banks be promptly put into receivership (i.e., nationalized).

~snip~

Now, it is true that the diarist got this lie from Black himself, and may have been merely negligent in passing it on:

WILLIAM K. BLACK: Well, certainly in the financial sphere, I am. I think, first, the policies are substantively bad. Second, I think they completely lack integrity. Third, they violate the rule of law. This is being done just like Secretary Paulson did it. In violation of the law. We adopted a law after the Savings and Loan crisis, called the Prompt Corrective Action Law. And it requires them to close these institutions. And they're refusing to obey the law.

BILL MOYERS: In other words, they could have closed these banks without nationalizing them?

WILLIAM K. BLACK: Well, you do a receivership. No one -- Ronald Reagan did receiverships. Nobody called it nationalization.

BILL MOYERS: And that's a law?

WILLIAM K. BLACK: That's the law.

BILL MOYERS: So, Paulson could have done this? Geithner could do this?

WILLIAM K. BLACK: Not could. Was mandated�

BILL MOYERS: By the law.

WILLIAM K. BLACK: By the law.

Again, let me repeat. This is a lie.

And quite a lie it is. It is a lie on at least two levels.

First, the Prompt Corrective Action ("PCA") law does not give the FDIC (or OCC or Federal Reserve) the ability to take over any Bank Holding Company ("BHC"). BHC's are regulated and governed by the Federal Reserve, pursuant to The Bank Holding Act of 1956. The PCA applies to insured depository institutions, i.e. the retail bank operation as opposed to the investment bank and bond trading desk.

Amongst the financial institutions that are thus not subject to the PCA are:

JP Morgan Chase
Citigroup
Bank of America
Wells Fargo
HSBC
Goldman Sachs
Morgan Stanley

And, of course, the PCA also does not apply to AIG, which is an insurance company and not involved in banking at all. So, pretty much all of the really big players don't fall under the PCA in the first place. Their commercial banking subsidiaries very well may, but your local Bank of America branch is not at the root of this crisis. We can seize the banking units that aren't the problem, but we can't seize the banking units that are the problem.

Second, the diary is a blatantly inaccurate because it states an impossibility. What? It claims that Obama is breaking the law by not nationalizing a bunch of banks, when the language of the statute explicitly gives the government considerable discretion in deciding whether to do . The PCA does not mandate that the FDIC take over any bank .

Incredibly, the diary in question actually links to and quotes the Prompt Corrective Action Act.

TITLE 12 > CHAPTER 16 > � 1831o

� 1831o. Prompt corrective action

(d) Provisions applicable to all institutions
(2) Management fees restricted
An insured depository institution shall pay no management fee to any person having control of that institution if, after making the payment, the institution would be undercapitalized.

SNIP

(3) Conservatorship, receivership, or other action required
(A) In general
The appropriate Federal banking agency shall, not later than 90 days after an insured depository institution becomes critically undercapitalized�

(i) appoint a receiver (or, with the concurrence of the Corporation, a conservator) for the institution;

OR

(ii) take such other action as the agency determines, with the concurrence of the Corporation, would better achieve the purpose of this section, after documenting why the action would better achieve that purpose.

~snip~

http://www.dailykos.com/story/2009/4/4/716470/-Why-cant-people-here-be-smarter-than-Freepers

To recap...

The Prompt Corrective Action law does NOT mandate severely under capitalized banks be put into receivership. The law (Title 12 of the US Code, chapter 16, section 1831o) grants the appropriate banking authority the power to EITHER put a "federally insured depository institution" into receivership OR come up with a plan to keep it solvent. Obama, Geithner and the Administration chose the latter.

This Law concerns "federally insured depository institutions"

AIG is a nondepository financial institution - a financial institution that funds their investment activities from the sale of securities or insurance

According to this article, Geithner recognizes that and the need for more regulation to address this, in terms of putting a major institution under conservatorship, and even points out that AIG is a non-depository financial institution:

Geithner, in prepared testimony before the U.S. House of Representatives Financial Services Committee, said Congress should approve legislation giving the government the ability to step in to put a major institution under conservatorship and avoid a damaging bankruptcy.

"As we have seen with AIG, distress at large, interconnected, non-depository financial institutions can pose systemic risks just as distress at banks can," Geithner said. "The administration proposes legislation to give the U.S. government the same basic set of tools for addressing financial distress at non-banks as it has in the bank context."

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/24/AR2009032401000.html

Lastly, consider this, from a comment at Moyers' blog:

Also note the term "federally insured depository institution." Thanks to Gramm-Leach-Bliley -- which repealed the Glass-Steagall Act and thus allowed banks to get into investment banking and insurance -- entities such as Citicorp and Bank of America (both bank holding companies and not federally insured depsitory institutions) are now so tangled up in financial dealings outside of banking, there is a real question as to whether the law covers them at all. At least, a very credible legal argument could be made that they don't; therefore, had the President done as Mr. Black suggests, there would have been an army of lawyers beating down the doors of every courthouse in America, contesting the action and seeking to enjoin any action the government might make to (in effect) nationalize these institutions. This would only have prolonged the crisis, making things much worse than they are now. And lest you think the President could just take them over anyway, google "Youngstown Sheet & Tube Supreme Court" and see what happened the last time. (And don't even think about eminent domain: The government would still have to compensate the shareholders of these giant corporations, which would prompt long legal battles over what compensation is "just" under the Fifth Amendment to the US Constitution and would probably end us up with about the same dollar figure as we're spending now.)

It appears, Mr. Moyers, you may have been had.

Posted by: John Warne | April 4, 2009 6:25 AM

http://www.pbs.org/moyers/journal/blog/2009/04/sharing_the_blame_for_the_econ.html#comments