America’s regulatory state is failing — we can’t even give money away

Top U.S. banks have threatened to give the federal government’s small-business rescue program a miss on concerns about taking on too much financial and legal risk, five people with direct knowledge of industry discussions told Reuters…

Their main concern is that the Treasury Department has said it expects lenders to verify borrower eligibility, and take steps to prevent fraud, money laundering and protect customer information under the Bank Secrecy Act, sources said. Banks are worried they could face regulatory penalties or legal costs down the line if things go awry in the haste to get money out the door, or get blamed for not moving funds fast enough if they perform due diligence the way they would in ordinary times, the sources said.

Here is the full story.


Republicans are finally getting what they wanted - a government to drown in the bathtub.


In any case, handing out "loans" is not really giving away money. These "non-essential" businesses should be compensated for their losses under the takings clause (not under some massive and poorly-drafted stimulus bill). More details here:

California's EDD = massive fail

I learned in the '89 quake we are on our own.

California's government is basically a pension fund.that sometimes does something, usually damage.

This is literally the opposite of what happened

I don't know about other states, but Alaska was swift to pass legislation guaranteeing government employees would not face furloughs, and even making sure there would be no freezes or delays in scheduled raises.... no support for the public though.

What we have got now is a private sector that can be drowned in a bathtub.

From the article, it looks as though bad guidance was issued by the Treasury Dept.

Additionally, the unnecessary limbo the banks find themselves in could have been avoided through better law-writing via the bill process. Though, you have to imagine the drafters were under incredible pressure to write it up as soon as possible. Still, if the whole point was to ensure the spice(money) still flows, and debt markets liquid, you would have thought that they were have precluded normal lending requirements in the bill, or at least eased them.

Is it fraud for banks to say the loans will be forgiven when the largest number of small businesses are in hospitality paying workers $2.13 per hour?

If the business brings workers back and pays them their normal wages, eg $70-100 a week, then the $25,000 loan to pay workers $5000 and $20,000 in real estate rent, equipment lease, business/property taxes, franchise rents, debt payments, will be forgiven.

But any honest tipped worker will instead want to be unemployed because the Federal rules supersede State rules and they will get much more in unemployment benefits based on W2 wages of $500-1000 a week in wages plus tips which result in 60% of the $1000 a good waitress with the good high traffic shifts due to longevity, sleeping with the boss.

The honest worker will screw the boss by making the loan just $25,000 more debt instead of a gift from Trump/Mnuchin. And he'll just go out of business using the $25,000 to work with property owners on the terms for a new contract under a new DNA, with the SBA and bank stuck with $25,000 in bad debt. And the SBA and/or oversight investigators claiming bank fraud in making bad loans for an obvious failed small business.

1) If you report tipped wages, then you can pay the employee their wages + tips.

2) Many states have tipped wages well above $2.13/hour at this point. Most of the coastal states are $12+ with tips on top of that.

It still may be the case in the Deep South that for non-tip reporters, you're right.

With the extra $600 per week unemployment insurance payment from the CARES Act - to be clear, that's in addition to whatever a person is entitled to get under normal unemployment insurance - I'd think that lots of tipped workers would rather be laid off.

$600 per week is $15 per hour for a 40 hour week. Add that to normal UI, and a lot of waitstaff and bartenders would make more from unemployment insurance than from their employer paying them their normal income.

something like bringing the horse to water but you cant make him drink...

You can lead a whore to Vassar, but you can't make her think.

They suffer regulatory and seigniorage transaction fees that are increasingly passed down to the retail end of banking. Retail banking has been rolling up and replaced by the shadow bankers since the last crash. This the unaccounted for leakage in the 'stimulus' theory of banking; the central banker's gain returned to government becomes a consumer fee at the bottom of distribution.

I sat in on a loan committee meeting for a bank this week. They are supposed to start taking applications for the SBA bailouts on Friday. The banks have no idea what the criteria is supposed to be, who is going to be responsible for the funding, and what the terms will be. It’s gonna be soooo much fun.

Why not to anyone they think can pay it back just as if it were their own borrowed money? As indeed it should be.

Then why would we need the government backing the loans? The whole point of the stimulus is to give money to businesses that banks wouldn't lend money to.

I hope the nut-case wasn't allowed to drive passenger trains. Or goods trains carrying, oh I dunno, propane and stuff.

Are train drivers checked for mental stability, boozing, or drug-taking?

I certainly would have assumed train engineers are tested in a similar fashion to commercial vehicle operators, at a minimum. Which is either evidence for America's regulatory state failing, or possibly a serious gap in the American regulatory state.

I do love the Navy Times understated snark regarding trying to smash a train against a white painted ship with red crosses visible from all angles - "Phillip Sanfield, spokesman for the Port of Los Angeles, said the locomotive never came close to the Mercy.

“It would have had to have gone several hundred yards through a parking lot and cross a water channel to reach the ship,” Sanfield said. “The tracks are nowhere near the Mercy.”

Train drivers are generally unionized, and ought to be assumed incompetent and under the influence unless found otherwise.

Another model for the widespread infection/low CFR theory:

I wonder has the president considered the effect on his vote share if 200,000 voters over the age of 70 die before November?

Interesting link.

To answer your question, probably not that much.

About 2.8 million Americans die each year. Of those, 1.5 million are 75 or older, and an additional 500,000+ are between the ages of 65 and 74.

If you look at things in that context, an extra 200,000 deaths simply doesn't make much difference on the demographic make-up of the population.

The regulatory problems abound, and government deserves lots of blame.

However, in addition to this, shame on companies for sticking to their usual risk aversion rather than just doing the obvious best thing that helps the situation.

From banks refusing to lend, to hospitals refusing non-standard PPE because they are afraid of getting sued, corporate America is also responding in disappointing fashion. It's not just government.

They're behaving rationally. What do you expect? This is the arrangement Republicans have desired since at least Reagan.

Lawyers gotta eat though. Easy to have no skin in the game and be an internet tough guy, but you try risking your neck for five to ten years of litigation.

Sorry but when the lawsuits start flying only the lawyers win.

Republicans are the party of tort reform and the plaintiff’s bar votes Democrat. I think it is safe to say that if conservatives had their way, shakedown lawsuits would be practically banned.

Our financial system is so antiquated stuck in the 20th century. This is what happens when the last time we had bailouts none of it went to improving our financial infrastructure. We need a new payments system that includes micro-transitions, a new, speedier interbank transfer system, and a publicly run account system for every citizen even if they lack a bank account.

India's UPI system is a good example here. It's so streamlined that even Google made recommendations to the Fed last year:

Also, learn some things from China as they are the world leader in electronic payments. Learn but don't copy everything from them. I still like paper money and my privacy.

Estonia is also pushing the frontiers of efficient bureaucracy through digitalization. Your schooling, taxes, and banking can be all online and they famously offer e-residency to non-residents.

Oh look, yet another prior post, that's unrelated to the topic and is just odd nit picking at American.

What happened prior? Did everyone in Germany finally decide that you weren't worth worthy conversing with?

Yeah, just another conspiracy theorist intentionally crashing a train, nothing to see here.

Hey, from the good news (unless you're the domestic partner of a frustrated terrorist) department, school shootings are way down!

Metafilter still exists?


According to alexa -

Metafilter ranks 9,760 In global internet traffic and engagement over the past 90 days and 2,542 in the US

Marginal Revolution ranks 49,438 in global internet traffic and engagement over the past 90 days and 8,567 in the U.S.

Responses like this are why I refer to you as autistic.

If the weighted blanket fits...

And it isn't just corporate America either. When I first saw the article, I asked another person in the house whether it could make sense, somehow, that an American citizen trying to smash a train against a hospital ship was not really a crime against humanity because it was a USN hospital ship, and that he would never have actually think to attack another nation's white painted and red crossed hospital ship?

I am surprise that very few people have noticed that the U.S. is now at a point where managers and leaders are incapable of managing the organizations that they control. There are too many layers of managements. There are too many choke points. It is obvious that too many decisions are being made at the highest levels of management instead of somewhere lower in the organization. There are too many people who could not quickly realize the world has changed and they need to change with it.

Look at how a healthcare system that promotes mangers who control costs and keep patient satisfaction scores high has failed to quickly adjust to the new reality. Look at how local and state health departments that were used to the world of TB and Measles have been overwhelmed by Covid-19 and have been very slow to adjust. Look at how many local and state politicians have become indecisive or just plain stupid when faced with a rapidly changing situation.

The incompetence, stupidity, laziness, and short-sightedness of Americans is beginning to make Italy look like it is effectively lead country.

That laws and regulations to health small business could not be quickly and effectively be staffed by a government that employs millions of individuals means that people dying of communicable diseases in high numbers and a fragile healthcare system might just become the new normal with no long term resolution.

in a viral pandemic
its a little early to make all those bold claims so confidently

More people died from H1N1 (2009) than COVID-19 so far while the GDP fall and unemployment was far higher. At this point in the 2009 pandemic, testing was much higher, while the GOP was working hard to block cash to businesses or unemployed workers.

No one was bitching government regulation was preventing Obama from getting help to the workers and businesses, but rather that obama and Democrats were trying to give money and jobs to businesses and workers who did not deserve it.

And at this point in the pandemic, commercial tests plus vaccines had FDA approval and an order for 100 million vaccine doses issued. In the end, government bought over 300 million H1N1 vaccine doses in 2009 for a virus first discovered in April.

Wasn't Trump the one who said "I alone can fix this"? What happened to his promise to "use his pen" to get things done?

And he and the GOP had two years to fix health care, including getting rid of regulations, patents, trade secrets, that prevent cheap drugs curing everything available to everyone in the world.

mulp, the democrats have been fighting tooth and nail to keep their cash cow that is the federal government going. Obama treated the federal government as a piggy bank for friends and donors and it paid now that he is out of office and snagging multi-million dollar deals for his family.

The dems are continuing to fight against the idea of helping anyone but the wealthy if they don't get their pet projects and friends funded.

This sucker is going down....

We apparently can't do bailouts unless they are for Wall Street banks, Big Agriculture, Detroit, Big Oil, or defense. Socialism for the rich and connected who fail due to criminal incompetence is ok. Socialism for the little people who don't want their small businesses to fold due to acts of God is a bridge too far.

Yes bailouts are bad. Not sure why that should be a template to run everything.

I think it's more like socialism/bailouts for the rich is easy and fairly simple to implement. Here, it all seems so complicated. Not sure why they didn't just send everyone with a social security number a check asap, then solve the problem of people with lots of money getting checks on their 2020 tax returns (possibly with up to 100% tax rates on the payment).

Clearly your synapses aren't rusty.

"When people accept futility and the absurd as normal, the culture is decadent. The term is not a slur; it is a technical label."
-Jaques Barzun

Almost seems like Ross Douthat was onto something.

I thought that the absence of an effective welfare state apparatus was a plus not a minus. Cowen needs to make up his mind. In more advanced countries (advanced in the sense of a well-developed welfare state apparatus) avoid the complexity, delays, costs, and fraud resulting from channeling the funds through employers by simply paying the employees directly who have been terminated or furloughed. Duh.

For those, like the Georgia governor, who are clueless, the intent of the loan program is to induce employers to maintain their payrolls: the loan will be forgiven if but only if used to maintain payroll. Making the employers the middleman is an invitation to fraud. Duh.

Is fraud so undesirable in this instance? Helicopter money is helicopter money.

+ 1 on why do you need the middlemen. Plus, with anything other than $ to people (checks or unemployment insurance), it's very unclear to me in this complicated system how to bail out the "right" companies without still getting a cascading effect. This isn't just some banks who made terrible bets on MBSes.

Sounds like a reason to oppose raising any minimum wages in America. Just imagine those bankers being paid 15$ a hour for such incompetent work.

I do not think this is a real issue as most small businesses/non-profits are working with their routine banks on this. The verification will be easy. Have any of you talked to a real business person about this? Have you seen the form? It is pretty user friendly. Guidance not great yet, but this will work and likely be way oversubscribed. Government intention is to save jobs so they will move quickly.

I'm a real business person, and I've spent the last three days trying to fill out the forms that have been offered up by the Treasury and SBA. The big problem is that the two agencies are giving different guidance as to the time period to be considered for calculating average monthly payroll costs, the basis of determining the loan amount.. The text of the law says:

"the average total monthly payments by the applicant for payroll costs incurred during the 1-year period before the date on which the loan is made, except that, in the case of an applicant that is seasonal employer, as determined by the Administrator, the average total monthly payments for payroll shall be for the 12-week period beginning February 15, 2019, or at the election of the eligible recipient, March 1, 2019, and ending June 30,2019;"

The sample application form on the SBA website has this to say:

"For purposes of calculating “Average Monthly Payroll”, most Applicants will use the average monthly payroll for 2019, excluding costs over
$100,000 on an annualized basis for each employee. For seasonal businesses, the Applicant may elect to instead use average monthly payroll
for the time period between February 15, 2019 and June 30, 2019, excluding costs over $100,000 on an annualized basis for each employee."

No explanation for the discrepancey, and I'm sure this is freaking the banks out. In the real world, using 2019 is the only practical alternative, as nobody knows what the loan issue date will be and so going back 12 months doesn't work. My bank said to use the period from April 1 2019 to March 31 2019. But they also ask for 941s to document the amounts, and Paychex hasn't calculated 941s yet.

I'm trying to come up with documentation for both time period alternatives, and doing it across two years is a giant pain in the ass.

Contrast the current instructions to banks on how they should allocate credit to the real economy with those reflected in the risk weighted bank capital requirements… and one can only conclude that America’s regulatory capacity has been failing for decades.

Why the whole $2 trillion should have just been sent in equal checks to all Americans.

+1. Banks are right to be concerned about their liability but Republican adherence to "giving money directly to people is wrong" is wrong. America needs to build up it's welfare state exactly for times like this.

At first glance, the story seems dubious. Some anonymous sources from within the banking industry that don't even name the banks who are concerned or go into details on what the concerns are.

Although the story speculates that Wells Fargo may be among the banks that are concerned. That's rich -- a bank that engaged in blatantly illegal conduct just a few years ago is now (allegedly, maybe) concern trolling about needing to do basic due diligence for business loans.

Maybe there is a legitimate concern somewhere but something smells rotten here.

This is a real problem. Not fake at all. I work with many businesses attempting to access the process. The banks are being given two conflicting directives: 1) get the money out the door fast and 2) make sure there is no fraud, verify all the information on the application, build a web portal, use the government's "sure to crash" online system to process loans, figure out all the legal issues (intercreditor, etc...), and do it in two days.

The application itself is simple. The process is not.

Did no one realize that such circumstances would occur when this program was created or did those same legislation writers just not care that they were creating an unworkable program?

Answer: they did not care. At least one (un-named here) Senate leader is already pumping his role in the 'rescue' in his campaign for re-election.

They negotiated and wrote the law very quickly. They tried to piggyback on an existing program and infrastructure (SBA). The people writing the law figured that the Treasury/SBA could come up with the specific rules for how the program would work. Given time, this is reasonable. They gave the Treasury/SBA a few days (Friday to Tuesday).

I suspect that those same peole at Treasury/SBA are also working remotely/from home and are having much lower productivity versus the normal office situation. Once again, leadership and management cannot seem to understand the current situation.

Isn't that how banks are supposed to be run ?

No, not really. Generally, if you apply for a loan from a bank, it takes weeks, if not months, to work through the approval process. This process is being compressed to 2-3 days (SBA/Treasury "guidance" Tuesday afternoon; loan submission Friday).

Any thought to maybe eliminating IOER/going negative?...seems like there’s not a lot urgency in making a loan vs being penalized for holding the loot

Bet the covid trials. Take your stimulus check and find the next coovid trials market, read the marketing reports on hot new trials, buy stock in my green tea company. Learn enough, then find pros who now it better. Make some bets, buy some future dosage now, get government to open the market.

"One source said banks are also seeking a written assurance from the government regarding their legal liabilities and obligations before they agree to participate in the program."

The one issue I thought was obvious from the start. Anyway, better get going.

It's hard to give money away, you might just paying someone to stand on a corner with there hand out.

But direct lending by the government was a crazy idea from the beginning. The Fed if it does its job of keeping up aggregated demand -- essentially NGDP targeting -- will be flooding the system with liquidity which will give the banks the means and incentive to finance business, including re-floating Chapter 11 bankruptcy firms.

We should rely on a better system, something we ARE very good at: not collecting taxes. Tax credits for paid sick and family leave, A bigger EITC, holiday for FICA taxes, etc.

Yet oddly enough neocon neolibs think the US is competent enough to shape any culture and region to its liking via its military and proclaim freedom to that country.

Comments for this post are closed