The Trump administration has been accused of being a threat to the rule of law but in at least one very important respect, it has restored the rule of law. The Department of Justice recently announced the end of operation Choke Point. Choke Point was a program by which the Obama administration through the Department of Justice and banking agencies discouraged banks from lending to whole classes of businesses. Not surprisingly, two of the industries targeted, pay day lending and gun sellers, were ones that the Obama administration disliked but could not persuade Congress to shut down or harass.
The problem with this program is that the government lacked authority to try to attack certain industries by impairing their access to capital. To be sure, the government can prohibit banks from doing business with particular companies that are engaged in money laundering or where there is evidence that that there is high risk of their doing so. But the government did not have the substantial evidence that whole industries engaged in money laundering to justify handcuffing completely innocent enterprises. The Obama administration also tried to bolster its case by arguing that banks would damage their reputation by lending to these companies, as if the government has the general authority to figure out what burnishes the reputation of banks.
While the Obama administration was lawless in other respects, Operation Choke Point was particularly dangerous. Banking lies at the commanding heights of the economy. By occupying it, the government can take control.
For most people who see The Big Short, what it teaches about the 2008 financial crisis will likely be the sum total of their knowledge about the event. And that is troubling. The movie is entertaining and offers a good description of securitized mortgages and similar financial instruments but oversimplifies the cause of the crisis as the greed of bankers. Worse still, it omits important facts that about the crisis that are at odds with this explanation.
The Big Short has been nominated for Best Picture. Its great commercial and critical success may portend Hollywood’s growing capacity to manipulate public opinion, because the film perfects a smoothly innovative form—the hybrid fact-fiction documentary. Except for Michael Burry, the characters are fictional but loosely based on real people. This fictionalization creates a powerful mechanism for spinning the facts to support a tendentious and politically motivated thesis.
The movie’s most important omission is the role of government in creating the crisis.
Labor Day (as I write this) invites a prayer of petition for the un- and under-employed—and an equally heartfelt prayer of thanksgiving for anyone in this country who is still willing and able to work. Considering the output of our public institutions, that’s a bona fide miracle. E.g., recent news reports suggest that bankers are either idiots or saints. People who work for them or buy their shares aren’t far behind.