That Kool-Aid sure is hard to undrink!
Primary tabs
#1 at The Obama 527 Formerly Known as Daily Kos as of 6:19PM EST, a diary that so... so exemplifies... Well, let me just quote this gem: "... the frustrated rantings of has-been regulator William K. Black...". All under the headline -- and I'm glad, glad, glad that irony is so not dead -- Please be smarter than the Freepers.
Alrighty, then.
Nice article in back in September on the bailouts in the Nation by Jamie Galbraith and William K. Black -- just to make the point that Black has stature in the field, despite the smears of the OFB that we are, by now, well accustomed to.
NOTE Say, you know what I heard? I heard that Black's son worked for the campaign of She Who Must Not Be Named.
UPDATE Actually, the post is attempting to make a serious argument. I'm not a lawyer, so statutory interpretation isn't my area of expertise. Nevertheless, here's the portion of the Prompt Corrective Action Law that everyone's looking at. (The relevant portion that the first Kos writer (#1) cited is italicized, and this is the only portion of the statue that the second Kos writer (#2), answering the first, addressed).
(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.
(B) Periodic redeterminations required
Any determination by an appropriate Federal banking agency under subparagraph (A)(ii) to take any action with respect to an insured depository institution in lieu of appointing a conservator or receiver shall cease to be effective not later than the end of the 90-day period beginning on the date that the determination is made and a conservator or receiver shall be appointed for that institution under subparagraph (A)(i) unless the agency makes a new determination under subparagraph (A)(ii) at the end of the effective period of the prior determination.
(C) Appointment of receiver required if other action fails to restore capital
(i) In general Notwithstanding subparagraphs (A) and (B), the appropriate Federal banking agency shall appoint a receiver for the insured depository institution if the institution is critically undercapitalized on average during the calendar quarter beginning 270 days after the date on which the institution became critically undercapitalized.
(ii) Exception Notwithstanding clause (i), the appropriate Federal banking agency may continue to take such other action as the agency determines to be appropriate in lieu of such appointment if—
(I) the agency determines, with the concurrence of the Corporation, that (aa) the insured depository institution has positive net worth, (bb) the insured depository institution has been in substantial compliance with an approved capital restoration plan which requires consistent improvement in the institution’s capital since the date of the approval of the plan, (cc) the insured depository institution is profitable or has an upward trend in earnings the agency projects as sustainable, and (dd) the insured depository institution is reducing the ratio of nonperforming loans to total loans; and
(II) the head of the appropriate Federal banking agency and the Chairperson of the Board of Directors both certify that the institution is viable and not expected to fail.
(i) Restricting activities of critically undercapitalized institutions
To carry out the purpose of this section, the Corporation shall, by regulation or order—
(1) restrict the activities of any critically undercapitalized insured depository institution; and
(2) at a minimum, prohibit any such institution from doing any of the following without the Corporation’s prior written approval:
(A) Entering into any material transaction other than in the usual course of business, including any investment, expansion, acquisition, sale of assets, or other similar action with respect to which the depository institution is required to provide notice to the appropriate Federal banking agency.
(B) Extending credit for any highly leveraged transaction.
(C) Amending the institution’s charter or bylaws, except to the extent necessary to carry out any other requirement of any law, regulation, or order.
(D) Making any material change in accounting methods.
(E) Engaging in any covered transaction (as defined in section 371c (b) of this title).
(F) Paying excessive compensation or bonuses.
(G) Paying interest on new or renewed liabilities at a rate that would increase the institution’s weighted average cost of funds to a level significantly exceeding the prevailing rates of interest on insured deposits in the institution’s normal market areas.
#2 argues that, based on the bolded or that William Black is "lying" when he says that:
WILLIAM K. BLACK: 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: 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.
But if the law reads " (A)(i) ... appoint a receiver ... or (A)(ii)... take such other action...," #2 asks, where's the mandate?
To begin with, it's no surprise that the OFB call Black a liar; they do that all the time to anyone for any reason. But on the off-chance that I'm discounting #2's argument unfairly: Put aside the facts that Black supported Obama, is an expert in the field, and a former prosecutor. Put aside also the fact that my central point, that the President has violated his oath to take care that the laws be faithfully executed, still stands: No action at all has been taken.
First, if you read on to section (B), you find that the "other actions" pointed to by #2 at (A)(ii) are constrained by a requirement for periodic redetermination. It's clear that (A)(i), receivership, and (A)(ii), "other actions," are not equally balanced alternatives, as #2 would have it, but that receivership is the default, which can only be forestalled by continued redetermination.
Second, look at section (C): "Appointment of receiver required if other action fails to restore capital." It looks to me like this boils down to requiring receivership if The Big Shitpile has been shitty for 270 days, which is more than likely the case, given how long the crisis has continued. That makes Black right.
BTD addresses another one of #2's points, but I think the crucial point is the one above.
- lambert's blog
- Log in or register to post comments
Comments
geekesque has a point that you and btd are missing
which is that the FDIC-insured bank[s] that citi holds are in good shape, and do not need to be taken over. it's the rest of citigroup that is in trouble, and FDIC cannot take over those parts [it's true, FDIC doesn't take over investment banking, insurance, etc].
but i think all y'all are looking at the wrong paragraph[s]. it looks to me like black is referring to this [from your link] --
apparently the fdic can require bank holding companies to divest themselves of other companies [stock brokerages, insurance companies, etc] if those threaten the health of the insured depository institution [our FDIC banks where we keep our pitiful savings and checking accounts].
geekesque is arguing that the FDIC insured bank[s] held by citigroup are in good shape [which they may well be]. black appears to arguing [And it requires them to close these institutions] that the rest of the affiliates [to use citigroup as an example] are in bad enough shape to take down the FDIC insured banks and that therefore FDIC can require citigroup et al to get rid of or close down their non-retail-bank businesses. i'd say he's right on the money on that one.
i haven't read through the entire title 12, so there may be more that applies.
It's not the "or" that makes it mandatory
It's the "shall."
Lawyers? I think the "or"...
is what might make receivorship not mandatory. That's the issue, as I understand. I agree that some action must be taken and none that we know of has, so we are in rule of law territory. However, that's not what Black says.
What am I missing? Can you give a construal? Any lawyers on the site?
um...
zuzu is a lawyer.
Yep.
And if you *shall* do A *or* B, it means that you have to do at least one.
And in this case, A is receivership, and B is something pretty damn equivalent to receivership, though you have to show your work as to why it would accomplish the purpose of the section better than receivership.