Shakedown street

Almost five years after the fabulous "Republican Revolution" that, in January 1995, finally ended a half century of congressional hegemony by the Democrats, the Republican Congress finally got around to repealing something enacted under President Franklin D. Roosevelt. A bill shepherded through Congress last week by Sen. Phil Gramm (R.Tex.) repealed the depression-era Glass-Steagall Act, as well as portions of the Bank Holding Company Act of 1956.

To give you an idea of what a monstrosity the GlassSteagall Act was, FDR called it "the most important and farreaching legislation ever enacted by the American Congress'" It was passed on the same day as the National Industrial Recovery Act-which itself was so "important and far reaching" that the Supreme Court declared it unconstitutional.

The principal effect of the repealed law was to divide commercial banks, investment banks and insurance companies-and to provide layers of government regulation for protection. The Federal Reserve, the Federal Deposit Insurance Corp., and the Comptroller of the Currency regulate all aspects of banking, including government-approved extortion.

Ballistic Democrats

The legal restrictions on banking mergers were lifted last week. The legal methods of extorting banks were not. Indeed, the bill repealing Glass-Steagall was almost derailed because of Gramm's proposed modifications to the extortion racquet. He demanded that the legal shakedowns be made public. This sent Democrats through the roof.

In that fair-minded nondemagogic way he has, President Clinton summarized the dispute this way: "[U]nbelievably enough, when we are proving it is working, the Community Reinvestment Act is under fire again." Gramm responded, "CRA is not under attack; bribery is."

The bribery is contained in the "Community Reinvestment Act of 1977" (CRA)described by one law professor as "old world Sicily brought into the U.S., but legitimized and given the patina of government support." CRA is premised on the idea that bankers frequently forgo profitable lending opportunities-as soulless capitalists are wont to do--based on their crazed and uncontrollable prejudices against poor minorities. The federal government was forced to step to the plate to compel the banks to grant loans to the poor and minorities.

The problem with the scheme is--well, first, it is based on a false, not to say laughable, premise. But if all the CRA did was force banks to make risky loans to the poor and minorities, it would not be much stupider than a lot of legislation, for example, the Internal Revenue Code.

More insidiously, the CRA gives charlatan "community leaders" a legal, say, governmentally enforced club to force banks to offer up demand money, jobs and other "investments in the community."

The way the federal regulators determine whether a bank is riven with racist hatred before approving proposed mergers, expansions. new ATM machines. and so forth, is to call for "public comment." It took the shakedown artists about 30 seconds to see the beauty in this scheme, particularly as long as their own role could remain hidden.

Self-appointed "community groups"--or "community lending activists" as the New York Tunes dubs them-file formal complaints with federal regulators who are required by law to take public comment into account when considering applications for bank mergers and new branches. They show up chanting and protesting at official meetings between the banks and federal regulators... unless the bank buys them off with "investments" in the "community."

This is not impotent posturing, like college students protesting on sunny days. The federal regulators are required by law to take into account these "public comments" whether real or not. And the regulators have the power to prevent the merger or expansion altogether.

ACORN Rakes It In

Among the usual roster of "community activists" materializing whenever a bank needs the approval of federal regulators is the radical Association of Community Organizations for Reform Now, or ACORN. Propose an expansion and ACORN activists will come, disrupt the meeting, stomping their feet and chanting such useful information as, "No B.S!" and "We're fed up! We won't take it no more!"

As "community activist" and ACORN chapter president Beulah Labostrie once explained, "Merger time is the best time to strike." Accurately stating the law, she continued, "When we protest, they can't finish the merger."

The fastest way-perhaps the only way-for a bank to complete the merger is to buy off the "community activists." Not by agreeing to do something of any value to the community itself, but by direct payments to the activists.

It's difficult to ascertain exactly how much of these "investments in the community" are comprised of direct payoffs to the "community activists" because, amazingly, the agreements between the banks and "community groups" are private. Even the chairman of the Senate Banking Committee could not see who was being extorted for how much.