The P.A.

A weekly address from Patrick Adams,
President of St. Louis Community Credit Union

If You Want To Put The Kibosh On Something, Cut Off The Money Supply

On October 15th, 2013, posted in: Uncategorized by

Do you know one of the ways that Homeland Security catches terrorists in this country? A first line of defense is to cut off the money supply. As a result, financial institutions become a prominent piece in tracking deposits, who made them, where they came from, etc. When we get a deposit that matches to a database of bad guys, the Feds kick into gear and the wheels of police protection begin turning. Usually, the assets are “frozen” and access for withdrawal is stymied. Now you know.

Now, I am not going to equate other types of “cutting off the money supply” to terrorism, but anytime you want to stop something, put a stranglehold on the money. Sadly, so many of the small businesses that went away during the most recent recession and the stagnant recovery thereafter (that is still huffing & puffing), was the effect of frozen credit lines at the lender level. Everybody got scared, including banks, and like a turtle, they pull in their heads and wait out the storm. It happens. Look what has happened at our country’s national parks: the government shuts down, i.e. the money supply is turned off, and BOOM, no more visitors.

I recently read an article in The Wall Street Journal (WSJ) in which J.P. Morgan Chase has cut off the “money supply” to one of the largest payday lenders in the country. Oh boy, this is great news. I was so elated, I wrote the editor. This is what I said in my comments to the editor of The WSJ:

J.P. Morgan has unwittingly joined the fight to do what so many are doing around the country: attempting to eliminate payday lenders and check cashers (“J.P. Morgan to Cull Business Clients,” Money & Investing, Oct. 9, page C1). By cutting off the money supply to these organizations, maybe – just maybe – we will slow their ubiquitous presence in communities that can ill afford their usurious loan rates and charges. Nobody likes these wolves that prey on those who are unbanked or under banked. A lack of legislation and regulation have ensured that the payday lenders’ approach to larceny has gone unchecked much too long.

As the article puts forth, if reputation is what J.P. Morgan is attempting to recover, this is a good first step. Now, if you give Mr. Dimon some Community Reinvestment Act (CRA) credit for investing in low/moderate income communities, other banks may follow his lead as well, and that can’t be a bad thing.

A couple of thoughts to chew on: Eliminating payday lenders that strip our communities of their wealth is the equivalent to a major investment to the communities in question. Their absence from the communities in which they prey is the equivalent of sustainable community reinvestment. Banks could do more, but if all banks started by cutting off the money supply to payday lenders, they would disappear as fast as a park ranger at Yellowstone and the world would be a better place because of it.

The Community Reinvestment Act (CRA) is interpreted by banking regulators with a very narrow approach. I’m not questioning that banks must comply and must do more, but giving them credit for doing things that are creative ways to give back might – just might – be the encouragement for them to do more. And that has to be a good thing!

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