We enter the dialogue to hear a discussion of the problems associated with government regulation and bank failures.
Q: Didn't Professor George Kaufman of Loyola University in Chicago come up with a plan calling for quick closure of troubled banks while there are still resources to pay depositors and creditors Ñ when the bankÕs net worth is zero rather than sub-zero?
A: "Timely closure" would allow more equal treatment of banks regardless of their size, location or nature of their business.
Q: Does that mean no bank would be too large to fail?
A: It may have meant all banks, large or small should have help to survive. I see the challenge as not to eliminate bank runs, but to harness consumer power in such a way that the financial system will be both safer and more efficient.
Q: First National Bank & Trust Co., Oklahoma City; M Corp of Dallas and First Republic (TX) and Bank of New England were all considered "too big to fail". Their size made it highly unlikely that they would be purchased and absorbed by other banks.
A: Well keep in mind that it cost less than a billion dollars or about 3.5 percent of the FDIC's total insurance losses during a five year period to protect the deposits that exceeded the $100,000 insurance limit in those institutions.
Q: Economists fear that a large bank failure could result in adverse macroeconomic consequences and instability in the financial system.
A: Don't get over dramatic. After all about ninety percent of small-bank failures are resolved through P&A, purchase and assumption transactions. In a P&A, all the deposits are assumed by a healthy take-over bank. Of the 169 banks that failed in 1990, only 20 were resolved through a payout of insured deposits. Naturally a P&A is less costly to the FDIC than is a liquidation.
Q: Are you saying it is impossible for large depositors to lose now days?
A: That's not what I am saying. The National Bank of Washington (NBW) failed in August 1990 and all depositors were protected, but when the minority owned Freedom National Bank folded, depositors with accounts exceeding the $100,000 FDIC protection limit were losers.
Q: That sounds suspicious to me. It sounds like the depositors in NBW had clout. Who were the depositors at Freedom Bank?
A: There were people with "clout". Included were the United Negro College Fund, the National Urban League, many churches and the campaign committee of Democratic Congressman Charles Rangel (who should have known better). But it wasn't a matter of "clout". NBW had deposits of $1.1 billion and was "too-big-to-fail" whereas the deposits of Freedom National totaled only $91 million so regulators apparently figured its liquidation wouldn't damage the banking system or the nation's economy.
Q: So Freedom's big depositors lost out?
A: I said the decision not to pay the large insured accounts was not based on "clout" but I didn't say clout didn't play a part in the outcome at Freedom Bank. The New York congressional delegation pressured the FDIC so at the end of 1990 it announced that it would pay off about half of the $15 million in Freedom National's uninsured deposit claims.
Q: Let's cut to the chase. The concern is that the federal government (read here taxpayers) may end up bailing out all the banks.
A: Absolutely. You can bet there will be more banks as well as savings and loan bail outs in the future and the FDIC---Federal Deposit Insurance Corporation--- may not be able to afford to pay off all the insured accounts.
Q: So here we are at the end of 1991. Legislation was actually passed in November which included strict capitalization requirements and higher fees to finance the $70 billion replenishment of the FDIC. (The FDIC Improvement Act of 1991.)
We got an FDIC bailout measure without the hoped for banking reforms which would make banks more profitable and competitive. Proposals to allow banks to establish branches nationwide and to engage in insurance and securities operations with the flexibility now allowed many other financial businesses were tossed. Compare the reality to the hopes circulating earlier in the year.
A: A variety of proposals were circulating. Under one Treasury proposal, regulation of government-backed insured banks would have been increased and the activities that could be carried on inside the bank would have been limited. Riskier activities would be carried on in separately capitalized entities not backed by the FDIC. The proposal required risk-based deposit insurance premiums and emphasized the need for adequate capital while allowing for supervisory "early intervention" in undercapitalized institutions. Then there's the Rinaldo amendment to H.R. 6, the Deposit Insurance Regulatory Reform Act of 1991. As argued in the fall of 1991, the amendment would have allowed commercial non-banking entities to purchase failed banks as long as they put in the best bid.
Q: Last summer (1991) I heard 96 failed S&Ls had already been purchased by non-banking entities with no problems. Right?
A: That's true. However banking committee members John Dingell, Henry Gonzalez and Jim Leach all were adamantly against the Rinaldo amendment. Mr. Dingell complained that it would set up two categories of banks. Paul Volcker, former Federal Reserve chairman, testified before the committee. He expressed fear that such a concentration of power in the American economy would be bad for banks, bad for business and bad for consumers. He felt finance-commerce combinations could be costly to stockholders and not in their best interests.
Q: No takers, eh?
A: That's not true. William Seidman, former head of FDIC and RTC (Resolution Trust Corp.), argued that allowing this additional source of capital would reduce the eventual cost of the bailout for taxpayers. Representatives Norman Lent and Barney Frank thought that anything that would save the taxpayers money was great.
In the spring of 1991 I brought up the plan that I told you about earlier that was proposed in 1984.
Q: You mean the proposal to create a new Federal Banking Agency inside the Treasury Department?
A: Right. Remember the new agency was supposed to oversee savings and loans and federal banks while the Fed would oversee state banks. William Seidman, then head of the FDIC, was highly critical of the proposal. But then you have to realize the FDIC, his agency, would have been stripped of its regulatory power and been reduced to merely accepting deposit insurance premiums and paying claims.
Q: "Then head of the FDIC"? Does that mean he has been replaced in that position?
A: In October, 1991, William Taylor became Chairman of the FDIC. You might be interested in a press conference held in December 1991 by the Shadow Regulatory Committee consisting of George Bentson of Emory University, Kenneth Scott of Stanford, Edward Kane of Ohio State University, George Kaufman of Loyola, Franklin Edwards of Columbia, Paul Horvitz of the University of Houston and Scott Aspinwall.
Q: What in the world is the Shadow Regulatory Committee ?
A: The Committee was set up to make recommendations regarding banking reform. Members discussed minimum capital ratios, the too big to fail concept, disclosure and other regulations and concluded that the government agencies have to make the actual decisions.
Q: Oh well, that conclusion justifies the effort of setting up a committee.
A: Hold on! Professor Edwards thought some relaxation of expensive, useless SEC disclosure rules was in order; scandals occur regardless of regulation. He considered markets to be the best regulators and thought the FDIC should review regulation vis a vis foreign markets and competitors with the idea of allowing foreign stocks on U.S Exchanges.
There seemed to be a consensus for diversity and a recommendation to expand bank branches nationwide. It was suggested that Glass- Steagall be repealed and banks be allowed to sell insurance and so forth. According to Professor Bentson:
Professor Kane claimed "$30 billion won't be enough" .
Q: I thought $16 billion was budgeted in 1991?
A: That's right; and $10 billion in 1992, $8 billion in 1993, $7 billion in 1994 and less in 1995 and 1996. These are not full costs. There is a need to oversee the government overseer.
The members of the Shadow Committee agreed that contingent liabilities need to be considered and a fair market value assigned to them. Professor Kaufman pointed out that there was no failure of really large banks before FDIC. Diversity and lots of branches prevents failure--only when the bank was small and localized and dependent on a small local economy did they fail.
Q: We discussed that earlier. Paul Muolo, author of Inside Job: the Looting of America's S & Ls, thinks banks shouldn't be allowed to engage in securities underwriting which has long been outlawed by the terms of the Glass-Steagall Act anyway. He doesn't believe the Treasury line that the reason banks aren't making profits is that others are stealing their business. He claims that if banks are losing lines of business to money market funds and securities firms that make bridge loans, maybe it's time to impose reserve requirements or other restrictions on those companies. They benefit from sales to the public but don't pay deposit insurance premiums.
A: Well Mr. Muolo should be happy with the passage of H.R. 6. Many members of the Shadow committee were not. Professor Scott asked, "Is it worth $200 billion to ensure no losses for any depositors ever?" He told his listeners that we had choices in this country up until 1964 with no problems.
Q: That's not exactly true.
A: I guess it depends on how you define "trouble". He mentioned the tendency of those that are "in" to make it tough for those that are "out."
Q: When are we going to learn that government regulation does not work---has not, will not and cannot!
A: The same abuses that destroyed the S & L industry--- risky investments, self-dealing and accounting shenanigans---are now showing up at insurance companies.
Take Guarantee Security Life Insurance Company in Florida whose recent collapse left many of the 57,000 policyholders in 40 states defrauded. Guarantee paid lavish commissions to get independent agents to sell their policies, offered low minimum premiums to folks of modest means shopping for security and paid ultra-high interest rates to attract investor dollars. Of course they ended up playing the junk-bond market in order to pay the exorbitant interest offered. Because state law limited insurer's exposure to junk bonds to 20 percent of assets, the company temporarily swapped, at least on paper, hundreds of millions of dollars of junk bonds for U.S. Treasuries.
Q: It sounds like they had something up their sleeve besides safety.
A: You've got it! Government regulations exempt companies who invest in Treasuries from setting aside reserves to cover potential losses.
Q: Why didn't regulators spot these problems and prevent the collapse?
A: Way back in 1986 state examiners noticed big swings in Guarantee's portfolio, but they failed to understand their significance. Four years later Guarantee was in such bad shape, with the collapse of the junk bond market, that it curtailed writing new insurance policies. The state postponed a scheduled examination and by the summer of 1991 it was all over.
Q: What did the insurance commissioner have to say?
A: There were things that should have caused us to look into things earlier and more in-depth. Obviously, if I could do it over, I'd do it differently.
Q: I think the commissioner's statement highlights the inability of state regulators, who are simply not sophisticated enough to spot problems when complex deals are involved. The people conducting exams and those supervising them are no match for elaborate white-collar schemes.
A: I think this is another example of government action causing the problem. The changes in the 1986 tax law, especially in reference to capital gains, dealt the death blow to speculative bonds---nick named "junk bonds" after government action made certain they became "junk".
This really infuriates me because it is repeated over and over in all segments of our society. If bankers listened to legislators they would find themselves in the same straits as those jumpers dangling at the end of a bungee cord, jousting now this way now the other.
Q: I happen to agree. Washington has been giving conflicting signals and inconsistent messages heaped on top of natural fluctuations in economic cycles can, and has, spelled disaster.
A: During good times bankers can safely lower their lending standards, safe in the knowledge that any poor lending decisions will be redeemed by the rise in the price of assets. In bad times, even good decisions are marred by the possibility that a drop in the price of assets could make an otherwise well secured or well considered loan risky. It's a round robin with the credit crunch spawning more hard times, creating a greater contraction of capital producing more hard times and so forth. Called loans, tight credit and deflating asset values all add to the problem.
Q: I would think this would be the time to retire debt or at least refinance when interest rates are low.
A: Many businesses are doing just that. But when they buy back their debt they don't use the newly created liquidity to expand and upgrade. This means that in hard times the economy is denied the shot in the arm it so desperately needs. Even individual consumers adopt more frugal lifestyles.
Q: This hurts restaurants, hotels, and the retail and the leisure industry. It's no longer acceptable to simply standby and let the market purge inefficient businesses. This creates a clamor for more government intervention even though benign neglect may be the best course.
A: And even though government intervention may have been the main culprit in the first place.
Q: Not only that, in 1991 as corporate and individual debt went down government debt increased at an accelerated rate. The federal deficit just for one year---fiscal year 1992---was predicted to be $425 billion.
A: Sometimes it looks like consumer debt is rising because when interest rates are lowered, as they were at the end of 1991, home mortgages are refinanced or new ones are taken out and credit cards are used "to get by" rather than for consumption.
Q: What's wrong with stimulating the economy by getting banks to lower their standards and make more loans during bad times?
A: Any government stimulation would make consumers, bankers and the financial markets in general that much more on edge. Uncertainty is the enemy. It is natural to hang back and take a timid attitude when government intervention can strike and ruin plans without notice.
Consider for instance what you would do if there was talk of reducing the tax on capital gains or instituting a nice credit for first time home buyers, or reinstituting the investment tax credit? You'd delay your plans in the hopes that by waiting for the legislation to be enacted you would save money. Government action or inaction skews decisions and puts a brake on the economy.
Q: There's another side to this. A certain kind of government intervention can sometimes do a lot of good.
I had a minority friend with a wife and three kids, who was a city employee with little debt, a steady income and equity in his home in a poor inner-city area. He searched high and low for a home-repair loan and finally found a mortgage lender to give him $35,000 at an outrageous interest rate--34%! When he couldn't pay the loan off at the end of two years he refinanced with other high-rate lenders and finally was evicted from his home of 16 years by the third lender.
A: That's a story that, I'm afraid, is repeated far too many times across the nation. However, the re-telling of unfortunate stories should do more than make us feel compassion, it should encourage us to find a solution.
Q: I know the solution. This would never have happened if my friend had been able to find a decent bank loan in the first place. We should make banks become more even handed in their lending practices.
A: Make? Through legislation, I suppose. Is this the good government intervention you had in mind? Bring in the power of the police state?
Don't get me wrong. I certainly have sympathy with your friend---in fact empathy---I've been in similar situations. But what bothers me is the solution you derive from the incident. There is another lesson to learn.
Q: What lesson?
A: The need to assume responsibility. Your friend took on a risky loan and then when he was unable to perform he looked outside himself to place blame.
Q: There's another side to this. A certain kind of government intervention can sometimes do a lot of good.
I had a minority friend with a wife and three kids, who was a city employee with little debt, a steady income and equity in his home in a poor inner-city area. He searched high and low for a home-repair loan and finally found a mortgage lender to give him $35,000 at an outrageous interest rate--34%! When he couldn't pay the loan off at the end of two years he refinanced with other high-rate lenders and finally was evicted from his home of 16 years by the third lender.
A: That's a story that, I'm afraid, is repeated far too many times across the nation. However, the re-telling of unfortunate stories should do more than make us feel compassion, it should encourage us to find a solution.
Q: I know the solution. This would never have happened if my friend had been able to find a decent bank loan in the first place. We should make banks become more even handed in their lending practices.
A: Make? Through legislation, I suppose. Is this the good government intervention you had in mind? Bring in the power of the police state?
Don't get me wrong. I certainly have sympathy with your friend---in fact empathy---I've been in similar situations. But what bothers me is the solution you derive from the incident. There is another lesson to learn.
Q: What lesson?
A: The need to assume responsibility. Your friend took on a risky loan and then when he was unable to perform he looked outside himself to place blame.
Q: Let me tell you something. There have been studies that show that in a group of otherwise almost identical loan applicants, minorities were found to be turned down for mortgages between two and four times as often as the majority population. This despite civil rights laws and the CRA---Community Reinvestment Act.
A: What do you know about the CRA?
Q: Not much; only that it requires banks to meet the credit needs of low-income neighborhoods.
A: I'd like to take a minute or so to tell you a little something about the well-meaning but ill-conceived CRA.
The Community Reinvestment Act (CRA) was enacted in 1977, supposedly to encourage the banking industry to actively participate in economic development activities at the community level.
Q: That's what I said.
A: In effect it provided a legitimate avenue for blackmail. The CRA provides the umbrella under which groups protest the merger and expansion of financial institutions. The protests are generally designed, not so much to deny, but to delay the Òrevenue-generating endeavorsÓ of institutions. According to William Harvey, professor at IndianaÕs University School of Law and former chairman of the Legal Service CorpÕs board:
Demands usually include an assorted menu of below-market interest-rate loans, specific geographical and dollar-amount lending targets, minority business loan emphasis, and outright cash grants to the protesting coalition. Such demands benefit specific interest groups, to the detriment of the community as a whole.
Unfortunately the banking community has found it cheaper to give in to the protestors' demands than to fight them.
Q: It seems to me that if victims kept caving in, it would encourage and increase extortion attempts.
A: Exactly right. Federal Reserve Board statistics show the number of CRA protests filed in 1987 was more than 10 times the number of all protests lodged in 1984.
According to Professor Harvey, although the Legal Services Corp. is private it received more than $2.5 billion in direct Congressional appropriations during Ronald Reagan's presidency. The Professor claims the worst part of the situation is the fact that taxpayer-funded attorneys (funded by the Legal Services Corp. so ultimately by the taxpayers) not only represent protestors in many CRA cases, but often initiate the protests themselves and get paid. These protests often amount to nothing more than straight transfers of wealth from a productive sector to a non-productive set of individuals.
Q: Assuming your information is correct, I admit it is possible that the activities of the CRA may bear some responsibility for the higher cost of banking which is one more economic hardship that the poor can ill afford.
A: One more example of the law of unintended consequences.
Q: And what would you do about redlining?
A: Let's first define "redlining".
Q: Fine. What's your definition?
A: Redlining is a pattern of discrimination in which financial institutions refuse to make mortgage loans, regardless of the condition of the property or credit of the loan applicant but simply because the property falls into an economically depressed neighborhood. Lenders used to outline these areas with a red pencil. Federal legislation was passed outlawing such practices.
Q: I'd like to expand the definition to include discrimination on the basis of race, income and gender as well as location. As one of the provisions in the 1989 savings and loan bailout legislation, lenders were required to document, for the first time in 1990, the race, gender and income of of mortgage-loan applicants . All earlier studies were lacking this information. A Federal Reserve study released in October, 1991 and showing a bias against minorities by lenders was based on this new information.
A: I don't believe police power is the answer.
Q: What is?
A: Understanding and goodwill.
Q: What have we got here----little Miss Naive Idealist?
A: Fleet, the largest bank in New England recently stopped doing business with 38 high-rate lenders and set up an $11 million fund to refinance 550 outrageous mortgages in the Boston area. Most of the mortgages were part of the portfolio taken over when Fleet absorbed the Bank of New England. Fleet is careful to evaluate the mortgage lenders with whom it does business. Although it looks for profitable companies it severs its relationship immediately with any company it determines is operating unethically
Q: I don't suppose ethically means altruistically?
A: I can tell you what John Strickland, president of the unit which purchases home-equity loans and second mortgage said on the subject, according to the Wall Street Journal (10-21-91)
Q: CustomersÑ meaning those high-rate 2nd mortgage lenders.
A: That's right. But when all the abuse and misery came to light, most banks admitted they were sloppy in looking only at mortgage yields and not checking into the real life situations that were represented by the paper.
Q: You expect me to believe that bankers see their role as "social worker" along with the business of banking?
A: That is the difference between us. I have absolute faith in the innate goodness of most people, and believe it is both desirable and possible to solve most of society's ills by voluntary cooperation and with the police power of government only being called upon to correct or punish abuses. Ordinary people, through their innate goodness and creativity, I believe will come up with more and better solutions than all your stilted and "one-kind-fits-all" pieces of legislation.
Q: Oh Please!! Tell it to the 77 year old lady who had her home of 39 years foreclosed upon because of a $5,000 20 percent loan she took to cover medical expenses.
A: You're bringing up the most outrageous and pathetic cases you can find as an emotional appeal. We can do this forever---you blaming me for being naively optimistic about human nature and my accusing you of appealing to emotion in order to gain control over other people's lives.
A: Let me make the first move towards getting this conversation back on a rational basis by suggesting that we agree that some banking practices need to be scrutinized by society and the banking industry.
Q: Such as?
A: The self-serving practice of the larger reputable banks of extending credit to high-interest lenders and then purchasing their notes on the secondary market.
Q: In otherwords, like godfathers, they make collections through henchmen without getting their own hands dirty.
A: Something like that. Many cut-throat mortgage lenders couldn't make it without backing from the reputable banks and access to the legitimate secondary mortgage market. The banks don't want to look beyond the high profit to the misery the transaction may encompass.
Q: You are talking about passive neglect rather than active wrong doing---right?
A: Exactly. I believe if the men and women who run these larger institutions were enlightened, most would refuse to play, and even, as Fleet did (see previous file: Banking 12), attempt to do something constructive about the problem.
Q: I know you believe that people are like that, but I'm not so sure.
A: I have a great deal of trouble with the rapid advance of lender liability law. Acts which are perfectly legal and common practice one day are illegal and a cause of action the next.
Q: To tell you the truth, I've never even heard the term "lender liability" used as a field of law. When did this start?
A: I guess you could trace the first lender liability case to 1982 when a California jury awarded $7.5 million to a borrower who suffered foreclosure by a bank on his delinquent loan. Then a couple years later a Texas jury awarded $18 million in damages to a clothing manufacturer who was able to show his firm was essentially destroyed by the takeover by incompetent bank managers. In State Nat. Bank v Farash Mfg. Co., the court ruled the lenders conduct was legal and had a legitimate business interest, but it failed to meet "standards of fair play". Now you tell me whether or not that is ambiguous?
Q: That's why we have judges and juries rule on the ambiguities.
A: Nevertheless the Texas Federal Appeals Court Justice decided "social benefits derived from permitting the lenders' interference are clearly outweighed by the harm to be expected there-from". Consequently the lender was liable for damage and lost profits suffered because of the incompetent management the lender installed in a borrower's faltering firm.
Q: What's the problem?
A: I clearly have trouble with one-man's decision that the benefits to society outweigh private property rights and the discipline of a free market. Someone, albeit a judge. . .
Q: "Albeit a judge"? Don't you agree that as members of a civilized society we must defer to a system of law which embodies judicial decisions?
A: Of course. But I can and will criticize that decision. This judge has mandated that the collective good takes precedence over the rights of an individual and, in my mind, has set us back thousands of years.
Q: I wish I'd brought my violin.
A: This is no joking matter. Both judges and legislators are depriving citizens of the right to contract guaranteed in our Constitution. Lender liability is being found due to duress, bad faith breaches, fraud, fiduciary relationship and other theories. Liability that was non-existent in many instances, less than ten years ago.
Q: Duress has always been an affirmative defense.
A: Fine; but now courts are ruling that when a borrower is faced with either financial ruin or taking the loan tendered, the bank may be guilty of duress. Forget all that went before in getting the borrower into such a condition. A borrower's mere fear of economic loss can make the lender liable if the borrower accepts a bank loan and later regrets his own decision. How can we live together and have business dealings when such absolute nonsense is given credence----more than that---sanctioned in our courts?!
In 1985 a grocery business in Tennessee was awarded $7.5 million by a jury who found the lender breached his "obligation of good-faith performance" and that same year $37 million was awarded apple growers in California who were able to show that the calling of their loans forced them out of business.
Q: Hold on there. I read about that apple grower case and an appeals court threw it out for insufficient evidence.
A: True, but I was just documenting the expansion of this area of law and showing the mood, of juries, at least. After all have you ever met anyone who could not tell his own personal story of arrogance, insensitivity , incompetence or just plain negligence by a lending institution? It's little wonder juries are so willing to award large damages to borrowers. But this expansion of liability is as chilling to the banking industry as the expansion of product liability is to manufacturing. Anything that puts the brake on commerce and industry hurts our competitiveness in the world market.
Q: Are you saying you would rather sacrifice the interests of individual borrowers for the good of the banking industry?
A: I am saying that the interests are tied together. If banks are afraid to lend, borrowers suffer. I believe adequate avenues of redress are available to borrowers under existent theories of contract law without this expansion into a new field called "lender liability".
Q: Well you'll surely get an argument from the legal industry. Every expansion of liability makes more business for attorneys. Before they take any action business people are being advised to consult with specialists in environmental law, product liability law, civil rights law, employment law,and now lender liability law.
A: Congressman John LaFalce introduced a bill in 1990 that would protect lenders from the large cleanup bills for chemically contaminated sites acquired through foreclosure. Gas stations, electric platters, metal finishers, wood product manufacturers and dry cleaners---all users of hazardous materials in their processes, have found that banks are understandably reluctant to loan money to them or to consider their real estate as collateral.
The Maryland Bank & Trust Co. foreclosed on a defaulted $335,000 loan and acquired 117 acres of land. After the foreclosure the EPA found drums of chemicals and contaminated soil on the site and cleaned up the mess, collecting $500,000 from the bank that had nothing whatsoever to do with creating the problem.
An Indiana bank told a congressional committee that "recent court decisions on environmental liability could prevent it from financing that community's only auto body shop, its only gas station, its only fuel dealer and much of the area's farm land."
A Massachusetts chemical company had to pay $20,000 for soil testing and legal fees before a bank the company had used for 20 years would give it a loan.
Q: I've got a story or two of my own. John Shontz, attorney for the tiny Miner's Bank of Butte, Montana, in testimony before a congressional committee in the fall of 1990, asked if legislators were anxious to make small banks insolvent and reminded them that taxpayers (constituents) would end up with the tab. He referred to the situation where government was holding the Miner's Bank partly responsible for the $10 million cleanup of a site which it owned for only three months after it foreclosed on a failed business which had chemically treated and preserved wooden telephone poles. The Montana bank only had working capital of $2.5 million and this government imposed liability would no doubt sink it.
A: In May, 1990 the 11th Circuit Court of Appeals held a lender liable because the bank could have influenced a company's waste disposal decisions if it had chosen to do so.
Q: Could have but didn't? That's stretching! I know you think there should be limits on liability.
A: Environmentalists oppose efforts to limit the liability of lenders.
Q: What do you think about the recent proposal made by James Strock, an officer of the Environmental Protection Agency? He claimed "a new rule should require that they (lenders) try to determine whether real estate accepted as collateral contains hazardous waste."
A: Requiring lenders to determine the potential environmental liability on property before making a loan will impose one more burden on the already heavily burdened business sector. It will slow up the economy in terms of time and money as inspection services emerge to exact another toll on our overregulated society.
Q: Well, Mr. Strock thinks the LaFalce bill offers blanket immunity to lenders.
A: The potential cost of cleaning up hazardous waste in the U.S. could run up to $500 billion over the next 50 years and as things stand, banks could be liable for at least 20 percent of the cost.
Q: That's some potential liability!