Isaac Solomon was the majority shareholder in the Baxter County Bank (BCB)1. Solomon had always prided himself in keeping interest rates low and steady to help citizens in the community obtain the loans they needed for personal necessities. He worked with borrowers to ensure that they could fulfill their loan obligations. As a result, the default rate for BCB loans was exceptionally low.
This strategy worked well until the mid-1970s. Inflation was at an all-time high and the Federal Reserve had taken unprecedented steps to curtail the money supply. Interest rates skyrocketed to a level that Solomon felt unconscionable. BCB profits were not at the level as other banks, but Solomon held firm to his policies.
The FDIC threatened action against BCB. They used peer comparisons with other banks to insist that BCB raise its interest rates. Solomon felt that the peer comparisons were a bogus measure since they were heavily influenced by large national banks. Solomon felt very strongly that community banks should be treated differently.
Solomon felt that the regulatory authorities were insisting that he run his bank in a way that he thought was “morally evil”. Solomon was against “compulsions by any government agency…to seek the highest annual profit, rather than the most reasonable profit over the period of the several years of the ups and downs of each business cycle.”
Solomon became deeply depressed and decided to give the bank to the federal government. Should the federal government decide to sell the bank, the proceeds from the sale should be used to reduce the federal debt. The federal government subsequently sold the bank to another bank who would comply with banking regulators.
Was this an appropriate role for government? Should government agencies have the authority to tell individuals how to operate an enterprise? What justification should be necessary for such a role to be appropriate? Are peer comparisons sufficient? What proof of risk to others should be required? And finally, how might a person with limited resources ever be able to resolve legitimate disagreements with the federal government with its vast resources?
Just imagine how balance might be achieved between legitimate policies designed to protect society from policies which are authoritarian in administration, if not intent? Just imagine how we might provide oversight of the administration of policies so that the execution of policies doesn’t stray from the original intent? Just imagine how we might avoid “one style fits all” federal policies which can be very damaging at the local level?
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“I believe in trying to get a balance between individual freedom on the one hand and social responsibility on the other.” – Chris Patten (British politician)
1 Isaac Solomon and Baxter County Bank are not real names, however the substance of this situation is real.