I admit to being rather pleased when I first read that a number of “actors” in pornographic films had been told by their banks that their business was no longer welcome. It seems the banks had determined that such persons posed a “reputation risk.” Too distracted by other things to pay much attention, I assumed this might mean that some banks finally had determined a means by which they might uphold common decency within their contractual obligations.
I should have known better, of course. The banks (surprise!) were not acting out of any concern for morality or public decency (in fact, as I should have remembered, there are laws on the books preventing them from doing precisely that). The banks were, rather, obeying the latest dictates of Eric Holder’s Department of Justice. In an essay posted here that includes links to relevant materials, Todd Zywicki details some of the ham-fisted (and, initially, quite secretive) machinations of Eric Holder’s Justice Department to “choke off” the financial services that are as necessary to businesses as air is to people. The goal? To get rid of perfectly legal businesses the Holder Justice Department doesn’t like.
Let’s begin with the argument “for” this latest power grab: there are a number of businesses, including online gambling operations and ponzi schemes, that often (though not always) break the law. Yet banks often provide financial services, at times including loans, that enable them to continue operating. Well, if we can’t track down these online fraudsters, why not push the banks to act more responsibly, check into their accounts a bit, and protect their own customers from the risk to their bank’s reputation involved in doing business with these people?
This sounds like hardball, but the kind of hardball the feds have been playing for some years, particularly in dealing with drug traffickers. We allow them to manipulate banking rules, intended only to safeguard people’s money, to make banks serve their policy ends because we are frustrated at how difficult it is to catch the bad guys in other ways.
Uncomfortable yet? Now let us add to the equation other businesses, like pornography and short-term “payday” loans. The courts foolishly and in contempt of our Constitution declared pornography largely beyond the reach of the law, so most of it is legal. Payday lenders charge horribly high interest rates and many of them operate on or over the edge of ethics and the law, but again, in both cases the business is legal.
So, how does Holder’s Justice Department justify bullying banks into refusing to do business with such legal operations? Many of us might be ambivalent, here, wishing the government were capable of doing something about all the bad eggs in these industries—or something about these industries altogether—without resorting to these kind of tactics. But some of us might be thinking that perhaps, given that banks already are highly regulated, and prone to ignoring their public duties, the ends here might justify the means.
And this is where the danger lies. We have become so accustomed to the idea that bad conduct should be illegal and, if not, should at least be discouraged by the government that we are willing to accept actions that show an increasing contempt for the rule of law. We can’t get rid of every business of which we disapprove. In some cases the damage to others would be too great. For example, payday loans are a very bad deal, but where else are poor people supposed to look for emergency money? Charitable and community organizations sometimes try to pick up the slack, but are we so certain it would be a good thing to simply close down an entire business because it is unpleasant? Apparently we do not, because we haven’t made that business illegal. And this is precisely why the Holder Justice Department has no right to be targeting payday lenders in the way it is.
Yes, there is too much fraud in the payday loan industry. Yes, the “adult film” industry is a form of prostitution that enjoys no genuine Constitutional protection and should be subject to the regular laws of our several states. But, no, the government should not be in a position to “discourage” law-abiding businesses from doing business with other law-abiding businesses and individuals simply because we do, or should, disapprove of what they do. The reason is simple: as soon as you cede to the government the power to make these kinds of distinctions, that government will start deciding that other “obviously bad” activities also need to be discouraged in the name of preventing “reputation risk.”
You doubt me? This is no typical slippery slope argument where we have to wait a few years for the bad precedent to produce horrible, ridiculous results. The horrible and the ridiculous were a part of “operation choke point” all along. The list of “bad” businesses whose financial air needs to be choked off included, from the beginning, coin dealers, travel clubs, and sellers of items like tobacco, fireworks, and ammunition.
Perhaps you don’t like some of these types of businesses (I’ve always had a problem with those coin dealers myself—never trusted ‘em). Certainly, like all online businesses, these allow for the possibility of fraud and other forms of abuse. But we’ve come a long way from ponzi schemes.
And then there is another category of business the Holder Justice Department is pressuring banks to target: “racist materials.” I can’t say as I’m terribly fond of the sorts of businesses that peddle race hatred for a profit, or that I would cry any tears at their going out of business—including because their banks found them too distasteful to do business with. But we have laws on the books that actually keep banks from making these kinds of moral decisions about their customers. Instead, we have Holder’s Justice Department pushing banks into making the decision on grounds of “reputation risk.”
And who defines this risk? What’s more, who defines “racist materials?”
To be clear, we are not, here, in the troublesome area of legislation regarding things like “hate speech.” No, statutes regarding hate speech reach the height of due process and clarity compared to the netherworld into which the Holder Justice Department is dragging us in pursuing “racist materials” and other things it does not like. It is quite literally operating outside the law. Far from enforcing specific statutes, the Holder Justice Department is using consent decrees to bully banks into policies and practices it gets to choose on its own.
A brief explanation: when a bank gets sued by the government for, say, violating rules about looking into the source of a customer’s funds when there is a suspicious transaction, the government can “let them off the hook” if they agree to pay a fine and/or sign a decree agreeing to engage in certain kinds of practices dictated by said government. This is an extremely powerful weapon for the government, which can file charges on fairly flimsy grounds and drive the bank into bankruptcy if it really wants to. So, most banks will take the easy way out and agree to “choke off” money to certain classes of customers, as defined by the Holder Justice Department.
Of course, there is nothing to fear from these bullying tactics because, after all, the Holder Justice Department is filled with Good People who will look out for What is Right. We already know, thanks to Mr. Zywicki, that they are helping banks maneuver around all those pesky laws and regulations keeping them from providing services to businesses engaged in marijuana sales. What’s more, so far at least, they haven’t put Tea Party organizations or pro-life groups on the choke list. So, obviously, they wouldn’t even consider going after groups whose political and moral views they find displeasing. We can trust them, right? Right?
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