Goliath Leans on David

The reason to engage in commerce is to make profits; as Milton Friedman put it, the “business of business is business.”  However, the primary business of government is confiscation.  At the federal level, officials accomplish this by employing a two-pronged attack against productive Americans, confiscatory taxation and oppressive regulation.  Some prudent business owners counter these intrusions with adaptation and innovation.  One small bank in Texas is escaping strangulating regulation by giving up its banking charter.

This WSJ article by Robin Sidel describes one result of progressive-style regulation.  Main Street Bank lends most of its money to small businesses and is earning decent profits.  But the Kingwood, Texas, bank is about to get out of the banking business.  Receiving an enforcement order from the Federal Deposit Insurance Corporation motivated Thomas Depping, Main Street’s chairman,to seek alternatives to the government’s tightening regulatory noose.

The bank’s business practices have been successful, making $11 million over the past year by lending primarily to small business owners.  At the same time, Main Street’s charge off rate was significantly lower than the national average.  Making money outside the tight constraints of federal regulators’ demands ruffles bureaucratic feathers; consequently, the FDIC slapped Main Street with a 25-page order to boost its capital, strengthen its controls and bring in a new top executive.

Under the Progressive President, the nanny state has taken over the Human Resources department of this relatively tiny bank.  The same hooligans who made Bank of America fire its CEO for complaining about being forced to accept an unwanted loan from the federal government perpetrated this travesty also.  They are the same dullards who caused mass bank failure by forcing lending institutions to give mortgages to unemployed welfare recipients.  Most federal banking regulators would starve if they were forced to work in private sector banks.

Main Street made credit decisions based on a combination of the borrower's personal-credit and business-credit histories, among other factors.  We felt that servicing small business is something the country needs and that we're really good at it.  I thought the model was working just fine, Mr. Depping says, apparently far too well for the current profit-averse administration.

The bank is becoming Ascentium Capital.  The new entity won't be regulated and won't be able to offer federal deposit insurance—but doesn't want to attract deposits.  These business people will continue making loans according to their own standards.  They are also thumbing their collective nose at regulators and avoiding La Mordida, the cut that the federal thugs demand for protection from their own regulators.  Hopefully, the new business can stay afloat until after the 2012 elections.

May your gods be with you.