The front page of today’s Wall Street Journal reports on a federal sting operation that led to the arrest of 31 doctors, 7 pharmacists, 8 nurses, and other health care professionals including dentists for distributing more than 32 million prescription opioid pills to patients in five Appalachian region states.
Federal prosecutors described doctors handing out pre-signed blank prescriptions in exchange for cash. In some instances, doctors provided prescriptions in return for sexual favors. One Alabama doctor allegedly recruited prostitutes to become patients and let them use drugs at his house. Dentists performed unnecessary teeth extractions on cooperative patients so they can have a legal excuse to prescribe them the opioid pills they desired. Some doctors knowingly sold prescriptions to nonmedical drug users and then billed Medicare and Medicaid for the evaluations and tests they performed as a cover.
Brian Benczkowski of the Department of Justice told reporters, “When medical professionals behave like drug dealers, the Department of Justice is going to treat them like drug dealers.”
Mr. Benczkowski is right to consider these professionals “drug dealers.” This is just the latest and most graphic example of how prohibition fuels the so-called opioid crisis. In 2017 the DOJ arrested 412 doctors, pharmacists, and others for engaging in similar schemes in Florida.
As I have written here, drug prohibition creates lucrative black market opportunities for people willing to sell drugs illegally. Prescription pain pills sell for a much higher price on the black market than they do legally at the pharmacy. The lure of easy money tempts corrupt doctors, dentists, nurse practitioners, and pharmacists to leverage their degrees to nefarious ends, especially because they can use the third party payment system to “double-dip:” they get paid by drug dealer middlemen for churning out and filling prescriptions which then get sold on the black market, and at the same time get reimbursed for their “services” by Medicare, Medicaid, and insurance companies.
Prohibition brings out the worst in people. It provides the corrupt and the corruptible with irresistible money-making opportunities.
Meanwhile, desperate chronic pain patients, already the civilian casualties in the government’s war on opioids, are justified in their concern that politicians will react to the latest news with further crackdowns on opioid prescribing while more doctors will abruptly taper their chronic pain patients or abandon treating pain altogether out of fear they might risk being the next target of law enforcement wrath.
If lawmakers, policymakers, and the press want to know where to place the blame for the ugly facts revealed by this latest sting operation the answer is obvious: blame prohibition.
Look on my works, ye Mighty, and despair!
Mar 2000: Palm Pilot IPOs at $53 billion
Sep 2006: “Everyone’s always asking me when Apple will come out with a cellphone. My answer is, ‘Probably never.’” – David Pogue (NYT)…
Jun 2007: iPhone released
Nov 2007: “Nokia: One Billion Customers—Can Anyone Catch the Cell Phone King?” (Forbes)
Geoffrey Manne and Alec Stapp at Truth on the Market have written a brief history of impregnable tech monopolies that were pregnable after all, in fields from personal computers to video distribution to social media. Sen. Elizabeth Warren and others are now arguing that the government should break up and closely regulate tech giants Google, Amazon, Facebook, and Apple "claiming they have too much power and represent a danger to our democracy." Manne and Stapp offer examples of sector after sector in which what was seen as structural, inescapable tech monopoly turned out to be not so unassailable. Here's music distribution:
Dec 2003: “The subscription model of buying music is bankrupt. I think you could make available the Second Coming in a subscription model, and it might not be successful.” – Steve Jobs (Rolling Stone)
Apr 2006: Spotify founded
Jul 2009: “Apple’s iPhone and iPod Monopolies Must Go” (PC World)
Jun 2015: Apple Music announced
IBM, Microsoft and Nokia were not beaten by companies doing what they did, but better. They were beaten by companies that moved the playing field and made their core competitive assets irrelevant. The same will apply to Facebook (and Google, Amazon and Apple).
And why "we will not be stuck with the current crop of tech giants forever":
With each cycle in tech, companies find ways to build a moat and make a monopoly. Then people look at the moat and think it’s invulnerable. They’re generally right. IBM still dominates mainframes and Microsoft still dominates PC operating systems and productivity software. But… It’s not that someone works out how to cross the moat. It’s that the castle becomes irrelevant. IBM didn’t lose mainframes and Microsoft didn’t lose PC operating systems. Instead, those stopped being ways to dominate tech. PCs made IBM just another big tech company. Mobile and the web made Microsoft just another big tech company. This will happen to Google or Amazon as well. Unless you think tech progress is over and there’ll be no more cycles … It is deeply counter-intuitive to say ‘something we cannot predict is certain to happen’. But this is nonetheless what’s happened to overturn pretty much every tech monopoly so far.
Stephen Moore and Herman Cain, the two recent nominees to the Federal Reserve Board of Governors, have in the past suggested returning to a gold standard (although Moore now says he favors merely consulting a broad range of commodity prices as leading indicators). In response, a number of recent op-eds criticized the idea of reinstating a gold standard. The critics unfortunately show little theoretical understanding of the mechanisms by which a gold standard works, and consult no evidence about how the classical gold standard worked in practice.
I don’t seek to defend the nominees, who I think are poor choices on other grounds that have been enumerated by Will Luther. And I don’t seek here to answer many common criticisms of the gold standard, since I have tried to do that here and here. I want to focus on one novel criticism. It stems from imagining that a gold standard regime works like our present regime in the sense that the central bank uses a short-term interest-rate target to steer the economy toward its long-run goal. The only difference is that the central bank pursues a constant dollar price of gold rather than another nominal goal like a gradually rising price-level or nominal-income path.
Thus a Washington Post reporter, Matt O’Brien, declares that a gold standard is “a disaster” and “might be the worst guide to setting policy.” That he sees the gold standard as a “guide to setting policy” already signals a misconception. O’Brien comes to the “disaster” conclusion by starting from the false premise that the wild price volatility of today’s demonetized gold tells us how volatile the price of gold would be under an international gold standard absent domestic central bank action. To offset that potential price volatility, he supposes, the central bank would have to undertake wild and often inappropriate swings in its interest rate policy. If you look at the track record of the classical gold standard, however, you don’t find such wild central bank policies. In the United States, you don’t even find a central bank.
In a classic article on “Econometric Policy Analysis: A Critique,” the Nobel-laureate monetary economist Robert E. Lucas enunciated what has come to be known as “the Lucas Critique.” The Critique warns us against assuming that a statistical relationship observed under one policy regime would persist under a different policy regime. Under the regime of the classical gold standard, a newly minted US $10 dollar coin contained .48375 troy ounces of gold. Alternatively put, the gold definition of the dollar equated 1 troy oz. of gold to $20.67. The dollar price of gold in the US did not vary from that par value (except within the narrow band around parity set by the cost of shipping gold in or out, estimated at less than ±0.33% of par value) despite the absence of offsetting central bank policy. Matt O’Brien’s view is inconsistent with the historical record of the classical gold standard.
Where did O’Brien get his initial false premise and its incorrect implication about monetary policy under a gold standard? He refers to a piece by the economist Menzie Chinn on the blog Econbrowser that asks the question: “What Would It Take to Implement Cain’s Gold Standard, Interest-Rate-Wise?” As its title suggests, Chinn’s piece takes it for granted that a gold standard is implemented by having a central bank adjust interest rates as necessary to maintain a constant nominal price of gold. This is an odd conception of a gold standard because, as already noted, the United States didn’t have a central bank while it was on a gold standard before 1914. The mechanism for maintaining the dollar-gold parity was something quite different: The redeemability of dollar deposits and banknotes for gold coin or bullion, and international transfers of gold, enabled the quantity of money to adjust endogenously to bring about monetary equilibrium at the given parity. The redemption was performed mostly by private commercial banks before 1914.
With the founding of the Federal Reserve (which opened in 1914), and after the 1933 mandate that all commercial banks and individuals turn in their monetary gold to the federal government, the right to redeem dollar-denominated claims to gold could now be exercised only by foreign central banks, and only against the US Treasury. The decentralized automaticity of the classical international gold standard was gone, and central banks ruled the roost. In the mid-1960s President Johnson began restricting foreign redemption of dollars, and in 1971 President Nixon ended it. Since then the dollar price of gold has been free to fluctuate as the public hedges against fiat-money inflation and speculates about a variety of other risks.
Chinn’s piece does not look at the classical gold standard period in the US. He plots data on the dollar price of gold only from 1968 to the present, then regresses the dollar price of gold during that non-gold-standard period on a short-term Treasury bond yield. In disregard of the Lucas Critique, he then quite remarkably draws conclusions about the working of a gold standard. He writes:
Stabilizing the price of gold in US dollars requires adjusting the interest rate (akin to how the exchange rate is managed). … [A] return to the gold standard would imply that the Fed funds rate would have to be about 15 percentage points higher than it was in January 2000 in order to keep the dollar’s value stable at January 2000 levels — a rate 18 percentage points higher than actually recorded in March 2019.
Chinn’s estimate of the required Fed funds rate is based on the coefficients produced by his regression of recent gold prices on a Treasury yield rate. He reports the following point estimate of the relation between “the log price of gold and the real 3 month Treasury yield, estimated over the 1968M03-2019M02 period”:
pgold = 6.423 – 10.210 fedfunds
He infers from the negative sign that the Fed can raise interest rates to lower the price of gold. To maintain a constant dollar-gold parity, he then supposes, the Fed must raise interest rates (its only policy tool considered) to offset what would otherwise be a rise in the dollar price of gold. But that is plainly not how the parity is or was maintained under a gold standard as conventionally defined or as historically experienced. Rather, the parity is maintained by redeemability of dollars into coined gold at the defined par rate. The dollar money stock endogenously adjusts—either via the price-specie-flow mechanism a la David Hume or via goods arbitrage a la McCloskey and Zecher—until it is consistent with the quantity of money demanded at the defined parity.
Chinn’s idiosyncratic conception of how a gold standard works is inconsistent with at least two historical facts. First, as a recent working paper by Christopher Hanes shows, the Bank of England, which did vary its discount rate to manage gold flows, never had to raise its rate above 7 percent during the classical period 1880-1913. There is nothing remotely like a 20 percent rate to be seen. Second, as already noted, the United States maintained a fixed dollar-gold parity over the same span without any central bank. A central bank varying an interest-rate policy target obviously cannot be the key to explaining how the US maintained a fixed dollar-gold parity before 1914. Having a central bank adjust the interest rate can hardly be a requirement for keeping the dollar at its defined par value with gold. Although there is no central bank policy rate to track, the observed range of rates on prime commercial paper in the United States remained between 3 percent and 6.5 percent during 1888-1914, as shown in a published paper by Gene Smiley.
The Lucas Critique may not always be pertinent criticism, as found by a paper that Professor Chinn has cited. But the Critique provides a highly relevant warning against extrapolating from the behavior of the dollar price of gold under our current fiat regime to the behavior of the dollar price of gold under a gold standard regime. As already noted, the dollar price of one troy ounce of gold does not vary under a gold standard (except within the very narrow band between the gold import and export points). Rather, the dollar sticks to its definition in terms of gold due to redemption and equilibrating money flows. If one were to repeat Chinn’s exercise with data from the classical gold standard, regressing the log dollar price of gold on a constant plus the real 3-month Treasury rate, I venture to predict that he would find very different coefficients. Namely, the constant would be the log of $20.67, and the coefficient on the Treasury rate would be zero.
Whatever the demerits of Stephen Moore and Herman Cain as potential Federal Reserve Governors, the working of a gold standard should not be misunderstood or misrepresented as part of the argument against them. As Tyler Cowen has noted, one of the nominees’ chief shortcomings is their loyalty to a President who gives partisan monetary policy advice, whereas a great merit of an automatic gold standard system is that it provides a barrier against partisan manipulation of money. Both supporters and critics of the nominees should make a real effort to study the self-adjusting mechanisms and track record of the classical gold standard before they absurdly proclaim it a disaster.
 George Selgin and I have explained why redemption by private commercial banks, constrained by competition and the rule of law, is more reliable than redemption by monopolistic bodies with sovereign immunity.
[Cross-posted from Alt-M.org]
“This is like declaring ‘ecstasy’ as a WMD,” an anonymous source from the Department of Defense counter-WMD community commented incredulously. This source was quoted by a Task and Purpose reporter investigating a Department of Homeland Security internal memo discussing designating the synthetic opioid fentanyl as a weapon of mass destruction. This is just the latest example of how misinformation and hysteria inform federal and state policy regarding the overdose crisis.
Policy makers maintain their state of denial about the role of prohibition in the overdose crisis. Denial fosters vulnerability to misinformation and “alternative facts” to prop up falsely held views. Denial that the war on drugs is responsible for most of the death and destruction surrounding illicit drug use makes policymakers susceptible to claims about fentanyl that are not based in reality.
Misinformation about fentanyl leads to avoidable stress and overreaction among first responders. But misinformation about the causes of the opioid overdose crisis causes much more harm.
Lawmakers and policy makers continue to believe the overdose crisis was caused by doctors too liberally prescribing pain pills. This ignores the government’s own data that shows there is no correlation between the number of pills prescribed and the incidence of nonmedical use or pain reliever use disorder. It ignores evidence that nonmedical drug use was on a steady exponential increase well before the doctors began prescribing more liberally, and is showing no signs of letting up. As I have written before, the main driver of the overdose crisis has always been prohibition. Policies that fail to recognize this and focus on reducing prescriptions only serve to drive nonmedical users to more dangerous drugs and make patients suffer in the process.
The WMD hypothesis probably derives from a lone instance in 2002 when fentanyl was pumped into a Moscow theater by Russian police to end a hostage crisis, resulting in nearly 200 deaths. The means by which it was aerosolized have never been made public. Much remains secret. American authorities believe a second disabling substance might have been mixed in with the fentanyl. And Russian doctors complained that delays in entering the building and the failure to have naloxone available contributed to the deaths.
However, a 2017 position statement from the American College of Medical Toxicology states, “At the highest airborne concentration encountered by workers, an unprotected individual would require nearly 200 minutes of exposure to reach a dose of 100 mcg of fentanyl… evaporation of standing product into a gaseous phase is not a practical concern.”
The urban myth that even minimal skin contact with fentanyl or an analog can cause a drug overdose has been difficult to eradicate. Because it not easily absorbed through the skin it took years of research before pharmaceutical companies finally devised a means to deliver fentanyl trans-dermally using a skin patch, now one of the most common ways it is prescribed in the outpatient setting. In its position paper, the ACMT also affirms that even extreme skin exposure to fentanyl “cannot rapidly deliver a high dose” of fentanyl.
Yet reports abound of first responders being rushed to emergency rooms after manifesting overdose symptoms upon exposure to fentanyl, only to be cleared and released upon evaluation. This may be attributable to the nocebo effect, an exquisite example of the power of suggestion that has a neurochemical explanation. Guidelines on preventing occupational exposure from the Centers for Disease Control and Prevention and first responder alertsfrom the Drug Enforcement Administration that state, “Exposure to an amount equivalent to a few grains of sand can kill you,” only serve to enhance the nocebo effect and feed the hysteria.
The DEA states almost all of the fentanyl it seizes is "illicit fentanyl"—fentanyl and fentanyl analog powders made in clandestine labs in Asia and now in Mexico. It is often purchased on the “dark web” and shipped to the US in the mail. Fentanyl’s appearance in the underground drug trade is an excellent example of the “iron law of prohibition:” when alcohol or drugs are prohibited they will tend to get produced in more concentrated forms, because they take up less space and weight in transporting and reap more money when subdivided for sale.
Licit fentanyl is an excellent drug, not usually produced in powdered form, and is used in many different clinical settings, not the least of which is in the operating room as an anesthetic adjunct.
Illicit fentanyl is mainly used to enhance the strength of heroin and as an additive to cocaine (for "speedballing"). Drug dealers also use pill presses to press fentanyl into counterfeit prescription pain pills and sell them to unsuspecting drug users.
The Drug Enforcement Administration recently moved several illicitly produced analogs of fentanyl to Schedule 1 (no known medical use), thus banning them.
This will do nothing to stop the fentanyl trade. The DEA already claims that almost all of the fentanyl seized is illicit fentanyl. Making it schedule 1 will not cause these labs to shut down or the cartels to stop their already lucrative trade. Dozens of fentanyl analogs have been developed and more are on the way. They are as easy to make in the lab as making meth from Sudafed or P2P.
As they develop scenarios and contingency plans for weaponized fentanyl, policymakers refuse to see that the actual weapon of mass destruction is America’s endless war on drugs.
Blaine Amendments—adopted by many states starting in the late 1800s as an anti-Catholic measure—prevent states from using public funding for religious education. Thirty-seven states currently have the amendments, and some courts have interpreted them excluding religious options from state school-choice programs—that is, preventing access to otherwise publicly available benefits purely on the basis of religion. In other words, Blaine Amendments let some states practice religious discrimination.
Montana created a program where people who donated to private-school funding organizations received tax credits. The program both encouraged school choice and allowed people to spend their own money how they saw fit. However, the Montana Department of Revenue used the state’s Blaine Amendment to exclude those donors whose money found its way to religious private schools, and, at the same time, it allowed non-religious private-school donors to benefit. During the ensuing legal challenge, the Montana Supreme Court not only ruled against the religious families that challenged the discrimination, it struck down the entire program, meaning both religious and non-religious donors wouldn’t receive tax credits.
Our friends at the Institute for Justice have petitioned the United States Supreme Court to hear the case, and Cato has filed a brief in support. Both Cato’s Center for Educational Freedom and the Robert A. Levy Center for Constitutional Studies have an interest in this case, so we teamed up to cover both the constitutional and policy angles of the issue. We argue that the Court should correct the Montana Supreme Court’s flawed reading of the First Amendment’s religion clauses and reaffirm that states cannot erode the Free Exercise Clause in the guise of strengthening the Establishment Clause. The Religion Clauses work together to help protect the freedom of conscience, not to prohibit school-choice programs that help both religious and non-religious schools.
The First Amendment’s Establishment and Free Exercise Clauses prohibit laws “respecting an establishment of religion, or prohibiting the free exercise thereof.” As Cato explained in a recent brief, the two clauses work together to protect individual freedom of conscience. However, states like Montana often use the Establishment Clause to justify the existence of Blaine Amendments. They argue that Blaine Amendments are necessary to prevent “an establishment of religion” by strengthening the wall of separation between church and state. But in the modern world, where government is so involved in giving public benefits like tax credits, it is impossible to maintain a complete wall of separation without discriminating against religion (as Blaine Amendments do), which is not what the Framers intended. Instead, the government must remain neutral toward religion and not disfavor religious people or organizations. In this sense, the Establishment Clause is a shield protecting the people from state religion, not a sword enabling government to discriminate against religious faith.
At the same time, school-choice programs help prevent the forced ideological conformity that is inevitable in public schools. Tax-credit programs like Montana’s allow parents to select schools that share their values, reducing the need to impose those values on others. In so doing, they improve our nation’s social and political cohesion and reduce conflict. Cato’s Public Schooling Battle Map tracks how public schools create conflict by forcing uniformity onto ideological diversity. Blaine Amendments merely fan the flames of the ideological conflicts that currently engulf public education.
Despite all these considerations, the Montana Supreme Court declined to properly consider the First Amendment implications of the state’s Blaine Amendment. Instead, it gave the Montana Department of Revenue a slap on the wrist for exceeding its procedural authority and destroyed the entire tax credit program rather than contend with the unconstitutional discrimination inherent in Montana’s Blaine Amendment. As school choice becomes more popular around the country, the question of religious discrimination and Blaine Amendments will become more salient. The Montana decision was just the latest in a series of federal and state courts decisions that are divided on the issue. That divide will continue without guidance from the Supreme Court. The Court should take this case to clarify that the Constitution requires religious neutrality, not discrimination.
The Consumer Financial Protection Bureau has been controversial since its creation. As an executive agency enjoying Federal Reserve funding independent of the Congressional appropriations process—and run by a single director removable only for cause—the Bureau is unusual and possibly unconstitutional. In its first years of existence, the CFPB gained a reputation for its exceptional activism and anti-industry agenda. Curiously, many of its enforcement and rulemaking activities focused on areas that were explicitly outside of its regulatory remit—such as auto lending, federal student loans, and credit providers historically regulated at the state level, such as payday lenders.
When Mick Mulvaney replaced Richard Cordray as CFPB Director, he vowed to stop “pushing the envelope” in its approach to regulation. Progressive fans of the Bureau took this as a sign that Mulvaney would terminate the CFPB’s enforcement activities altogether, an expectation that subsequent developments belie. Still, the financial industry, wary of the Bureau’s exceptional powers, breathed a sigh of relief that the Cordray-era modus operandi of attempting to change industry practices, even legal ones, through threats of lengthy and expensive enforcement actions might be over.
Now Mulvaney’s replacement Kathy Kraninger has the unenviable task of crafting a policy agenda for the CFPB that raises consumer welfare and promotes choice, competition, and innovation in the provision of credit. To assure regulatory certainty, her agenda should fall within the Bureau’s regulatory mandate and be compatible with the rule of law. Kraninger will undertake her task in the face of both Democrat hostility and Republican skepticism that the Bureau should even exist. Added to that, designing effective policy changes will also require Kraninger to keep current CFPB staff motivated and to recruit new economists and lawyers who share her vision.
Despite the challenges, Kraninger’s tenure has started auspiciously. The CFPB’s new Office of Innovation is launching a regulatory “sandbox”—an approach that has delivered moderately successful results in Britain and Singapore—and a revised no-action letter policy. Both may make it easier for lenders to try out new ways of providing financial services. Furthermore, the Bureau intends to create an Office of Cost-Benefit Analysis, which could improve the rulemaking process in addition to serving as a gesture of goodwill toward the consumer credit industry—which the CFPB has long seemed to view as all cost and no benefit.
As Director Kraninger settles into her new role, here are five concrete, positive steps she can take to increase the credit options available to consumers.
1. Make it clear that the Bureau won’t suppress small-dollar loans.
In 2013, the Office of the Comptroller of the Currency (OCC) published guidance effectively directing depository institutions to stop offering deposit-advance products. These were short-term credit products offered to bank depositors. Only a handful of banks offered these short-term loans at the time, but the OCC’s stern admonition caused them to beat a hasty retreat. At best, the regulator’s actions moved small-dollar borrowers to the payday lending market; at worst, they cut off households’ access to short-term credit altogether.
The OCC has since rescinded its guidance. Indeed, regulators have made a U-turn, with the FDIC now aiming to encourage banks to offer more small-dollar credit products as a competitor to payday loans. Some have begun to re-enter the market, including U.S. Bank, which last year launched its Simple Loan. But most are wary of heeding the FDIC’s call, lest the pro-competitive drive of recent appointees end when a new administration names different financial regulators.
As the agency in charge of preventing unfair, deceptive, and abusive acts and practices (UDAAP) in the consumer financial sector, the CFPB already plays a vital role in creating a secure environment for competition and innovation. It could do so even more effectively by releasing its own guidance protecting small-dollar products in compliance with existing regulations from becoming the target of new enforcement actions. The Bureau should also encourage banks to request no-action letters for proposed small-dollar products. In doing so, Kraninger’s CFPB will not only reassure lenders, but her intellectual leadership will serve to guide other agencies that defer to the Bureau on matters of consumer protection.
2. Publish the CFPB’s econometric methods for evaluating fair lending compliance.
A particularly embarrassing moment during Cordray’s directorship occurred when the House Financial Services Committee released a report on the CFPB’s assessments of “indirect” auto lenders’—that is, dealers’ creditor partners’—compliance with fair lending rules. These are the regulations stemming from the 1974 Equal Credit Opportunity Act (ECOA), which bans racial and other forms of discrimination in lending when such discrimination is unrelated to the borrower’s creditworthiness.
The House Committee’s report uncovered evidence that the Bureau had set out to castigate auto lenders even before research revealed any wrongdoing. The empirical results followed the CFPB’s predetermined conclusion, which is the opposite of the way that good enforcement should work. Indeed, the econometric analysis that allegedly confirmed auto lenders’ discriminatory practices wouldn’t pass muster in an undergraduate module, ignoring as it did key factors such as a borrower’s income and existing debt burden.
To avoid future instances of such sloppy analysis, Kraninger’s CFPB should commit to publishing a detailed outline of the methods that it plans to use in evaluating fair lending cases. This will make compliance easier and allow independent analysts to compare the Bureau’s evaluation with their own. Publishing the CFPB’s analytical framework needn’t tie the Bureau’s hand in cases where alternative assessment methods might be appropriate. But it would place the onus on the CFPB to show which alternatives it had employed, and why.
3. Conduct a cost-benefit analysis of BSA-related regulations in consumer payments.
The CFPB regulates domestic and international electronic fund transfers, such as those made via Western Union, for consumer protection. Since 2013, it has regulated remittances–-international money transfers—by mandating that they disclose the exchange rate and foreign-currency amount of transactions to customers before completing any transfer of funds. According to the Bureau’s five-year assessment report, this rule placed an initial compliance burden between $86 million and $92 million, with ongoing costs of up to $102 million, on remittance providers.
The CFPB should conduct a comprehensive review of the regulatory costs its mandates place on remittance providers. That should include the cost of compliance with Bank Secrecy Act (BSA)-related regulations, which aim to tackle money-laundering and other illicit financial activities. The BSA is in fact the most onerous financial regulation for community banks, and defensive BSA reporting imposes significant regulatory costs for questionable national security benefit.
While illicit finance laws are outside the CFPB’s remit, its review should consider how BSA compliance costs might adversely affect low-income, minority, and immigrant communities’ access to banking and remittance services. These groups are particularly likely to use remittance services to send money abroad, and even though the nominal BSA thresholds for transactions are high, defensive reporting encourages financial institutions to flag up transfers far below the statutory limit, especially for funds transferred into or out of the United States.
Regressive regulation remains one of the toughest barriers to access and choice in financial services, especially for the communities who need it most. Director Kraninger should use her tenure at the CFPB to tackle these impediments head-on.
4. Facilitate the emergence of a federal market for fintech loans.
A growing share of consumer credit, and especially of credit going to minority and low-and-moderate-income (LMI) borrowers, comes from nonbank lenders. Many of these lenders are relatively new providers that use credit-scoring technology to improve underwriting in a way that makes credit more available and less expensive, while also reducing borrower default rates.
But regulatory uncertainty is holding back further growth in innovative lending. The 2016 Madden v. Midland decision overturned the long-standing valid-when-made principle, whereby loans made lawfully by a bank remain lawful when sold to a third party. The Court’s decision has already resulted in a decline in credit availability and a rise in personal bankruptcies. Given the ruling’s inconsistency with legal precedent and the Supreme Court’s refusal to take up the case, it seems that only legislative action codifying the valid-when-made principle, for banks and nonbanks alike, will permanently settle the issue. The OCC’s new fintech charter also offers protection from Madden, but take-up has been slow owing to pending state lawsuits.
In the meantime, however, the CFPB, which regulates fintech lenders, banks with assets above $10 billion, and debt collectors, should make it clear that it will not launch UDAAP enforcement actions against regulated institutions that purchase loans from banks in states subject to the Madden ruling. Through this commitment, Kraninger’s CFPB will facilitate the emergence of a liquid national market for consumer credit. This, in turn, will encourage competition and increase the financial inclusion of low-income consumers—a goal with which neither progressives nor free-marketeers should take issue.
5. Conduct a review of the regulatory barriers to nationwide mobile money accounts.
Despite a gradual reduction in the number of U.S. households without even a basic bank account, 6.5 percent (8.4 million families) remain unbanked. Some politicians have suggested postal banking as a way to reach these households. But that solution misunderstands the problem: most unbanked households do not lack nearby bank branches, but rather find the accounts on offer prohibitively expensive. They also tend to distrust financial institutions more generally. Survey findings from the FDIC echo University of Pennsylvania urban development professor Lisa Servon’s argument that many unbanked Americans—typically immigrant, minority, and low-income—find banks slow and opaque, and as a result often prefer so-called alternative providers: check cashers, payday lenders, and others.
Elsewhere in the world, unbanked rates have recently plummeted thanks to the spread of mobile money accounts (MMAs). Kenya’s M-Pesa is the best example, with its model having spread to other African countries, Latin America, and Asia. Safaricom, a telecommunications company, operates M-Pesa, taking advantage of Kenya’s widespread cell phone ownership. Adoption has been rapid because the Kenyan government allowed Safaricom to open customer accounts without a banking license. The government also helped by waiving some AML/ KYC regulations for low-value—and thus low-risk—customer accounts.
The Bureau should ask how it might facilitate the provision of mobile money accounts. 81 percent of Americans own a smartphone, and another 13 percent own a more basic cell phone. Allowing providers familiar to unbanked but “wired” Americans to offer these populations money transmission and other basic banking services might help unbanked communities overcome their distrust of traditional financial institutions and save them the account maintenance costs associated with traditional banking services.
The steps proposed here will allow Director Kraninger’s Bureau to play a major role in shaping the future of the U.S. market for consumer financial services—one that promotes innovation and competition. Instead of pitting consumers against financial services providers, and those providers against regulators, this agenda recognizes that a competitive environment and regulatory certainty can support a marketplace in which providers have strong incentives to adequately serve and protect consumers. The CFPB can achieve that without “pushing the envelope.” What’s not to like?
[Cross-posted from Alt-M.org]
The Libya tragedy that Barack Obama’s administration unleashed with a U.S.-led NATO military intervention in 2011 has entered yet another violent phase. Forces loyal to Field Marshal Khalifa Haftar, a one-time CIA asset that Washington now opposes, are waging an offensive against the so-called Government of National Accord (GNA), based in Tripoli. Both the United Nations Security Council and the European Union support the GNA and have passed resolutions demanding that Haftar’s troops cease their advance and adhere to the cease fire and plan for nation-wide elections that French President Emmanuel Macron negotiated last year. It is highly uncertain whether Haftar or his adversaries will heed such calls. More than 120 people have perished already in the new conflict, and fierce fighting continues, especially in and around Tripoli.
Libya’s violent reality is a sharp contrast to the optimism that U.S. officials and its news media allies trumpeted when NATO helped a motley rebel coalition overthrow Muammar Qaddafi. Western leaders and pundits believed that Libya would enjoy a much better future as a result of U.S. and Western ministrations. As Qaddafi fled the capital, President Obama intoned: “Tripoli is slipping from the grasp of a tyrant.” He added: “The people of Libya are showing that the universal pursuit of dignity and freedom is far stronger than the iron fist of a dictator.” Senators John McCain (R-AZ) and Lindsey Graham (R-SC) were equally gratified and optimistic. “The end of the Gadhafi regime is a victory for the Libyan people and the broader cause of freedom in the Middle East and throughout the world,” they concluded. The two senators, along with colleagues Mark Kirk (R-IL) and Marco Rubio (R-FL), proclaimed during a visit to “liberated” Tripoli that the rebels had “inspired the world.”
Washington’s hopes for an orderly transition to democracy in Libya proved as illusory as they had been in Iraq. Just weeks after Qaddafi’s fall, the insurgents began to fragment, largely along tribal and regional lines. The western tribes started to coalesce around a power center in Tripoli, whereas the eastern tribes generally supported a rival movement headquartered in Benghazi. Haftar gradually gained control over the latter faction, whose armed fighters became the so-called Libyan National Army (LNA). Egypt and Saudi Arabia have provided support to that group, while the Western powers threw their support to opposing factions based in Tripoli.
The outcome has been years of low-intensity civil strife, frequently involving local militias under little more than tenuous control by the two rival governments. That chaos has produced a humanitarian catastrophe. Hundreds of thousands of Libyans have been displaced internally, while hundreds of thousands more desperately try to flee across the Mediterranean in overcrowded, leaky boats.
It is probable that Haftar is now making a bold bid to control the entire country, not just the eastern portion where the LNA has been dominant for several years. His offensive may be a blessing in disguise, though, since it has the potential to end the country’s political and military fragmentation. Haftar is no heroic armed, democratic insurgent. One of the reasons that Washington declined to back him during and following the 2011 revolution is that U.S. officials believed that he merely wanted to replace Qaddafi as Libya’s new dictator. That assessment may well be correct. But even a new autocrat might be preferable to the ongoing bloody chaos. Washington has done more than enough harm already trying to “save” Libya. The United States, the European Union, and the United Nations should back off and let the Libyan civil war reach a conclusion, regardless of which faction proves victorious.
As I document in a new article in Mediterranean Quarterly, if there was ever a case demonstrating that good intentions in foreign policy are not enough, the 2011 U.S.-led military intervention in Libya is it. U.S. policymakers sought to prevent a slaughter of innocents, overthrow a brutal dictator, and help a new, democratic regime come to power. But policies must be judged by their consequences, not their intentions. Indeed, the observation that the road to Hell is paved with good intentions is all-too-true in Libya’s case. The consequences of U.S. meddling in Libya have been nothing short of hellish and continue to be so.