Concluding remarks : entrepreneurship in low and moderate income communities

Community development

Too LIBOR, Too Late: Time to Move to a Market Rate

Barclays has been fined, the British have issued their report, and now the market is anxious for everything to go on as usual with the London Interbank Offer Rate (“LIBOR”). I think that would be a serious mistake. The U.S. and British investigations into rate-fixing by Barclays revealed a widespread culture of pervasive, deceitful conduct in the setting of the most important private sector benchmark for over $300 trillion in derivative contracts and$10 trillion in adjustable-rate loans. It is highly unlikely that Barclays was the only major bank engaging in this conduct, and public investigations and private lawsuits against a range of participants in LIBOR rate-setting are likely to reveal further misconduct in the months ahead. The basic structure for the setting of LIBOR is fundamentally flawed. It permits banks with obvious conflicts of interest to skew the LIBOR rate in order to benefit their own firm. Barclays, for example, was alleged to have attempted to manipulate LIBOR to benefit its traders and to hide its growing costs of borrowing in the financial crisis. The LIBOR structure also facilitates collusion among the rate-setting banks, in violation of the antitrust laws. Barclays, for example, was alleged to have attempted to manipulate LIBOR in collusion with other firms to benefit particular trades over a number of years. Both public antitrust investigations and a range of private lawsuits are likely to be pursued with vigor in the coming months

Minority and Women Entrepreneurs: Building Capital, Networks, and Skills

The United States has an enviable entrepreneurial culture and a track record of building new companies. Yet new and small business owners often face particular challenges, including lack of access to capital, insufficient business networks for peer support, investment, and business opportunities, and the absence of the full range of essential skills necessary to lead a business to survive and grow. Women and minority entrepreneurs often face even greater obstacles. While business formation is, of course, primarily a matter for the private sector, public policy can and should encourage increased rates of entrepreneurship, and the capital, networks, and skills essential for success, especially among women and minorities. In particular, this discussion paper calls for an expanded State Small Business Credit Initiative and an enlarged and permanent New Markets Tax Credit to encourage private sector investment in new and small businesses. These capital initiatives should be complemented with new federal support for local business networks, and for local skills acquisition initiatives, to make it more likely that small businesses will form, survive, and grow. For the United States to continue to grow, to innovate, and even more importantly to generate jobs, we need to expand our rate of business formation and improve the prospects for survival and growth of young and small businesses. Increasing the rate of minority and female entrepreneurship may help to reduce the race and gender wealth gaps, to reduce income and wealth inequality, and to increase social mobility. With the United States becoming more heterogeneous, increasing business formation by minority and female entrepreneurs is critical to improving the rate of entrepreneurship overall. Thus, if we are to grow as a country, create jobs, and make progress on correcting income and wealth inequality, we need to help minority and female entrepreneurs succeed

Mandatory Arbitration in Consumer Finance and Investor Contracts

This chapter focuses on the use of mandatory pre-dispute arbitration clauses in a subset of consumer contracts – those involving consumer finance and investor products and services. Arbitration clauses are pervasive in financial contracts – for credit cards, bank accounts, auto loans, broker-dealer services, and many others. In the wake of the recent financial crisis, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). Dodd-Frank authorises the new Consumer Financial Protection Bureau (CFPB) and the Securities and Exchange Commission (SEC) to prohibit or condition the use of arbitration clauses in consumer finance and investment contracts, respectively. This chapter outlines the need for increased regulation over mandatory pre-dispute arbitration clauses and suggests the need for key reforms. This paper begins by exploring arbitration clauses in consumer finance and investor contracts and then highlights the problems caused by mandatory pre-dispute arbitration clauses. A full treatment of potential solutions to these problems is beyond the scope of this chapter

Credit Where It Counts: Maintaining a Strong Community Reinvestment Act

The Community Reinvestment Act (CRA) has helped to revitalize low- and moderate-income communities and provided expanded opportunities for low- and moderate-income households. Recent regulatory steps aimed at alleviating burdens on banks and thrifts are unwarranted, and may diminish small business lending as well as community development investments and services. This policy brief explains the rationale for CRA, demonstrates its effectiveness, and argues that the recent regulatory proposals should be withdrawn or significantly modified

Accountability and Independence in Financial Regulation: Checks and Balances, Public Engagement, and Other Innovations

Financial regulation attempts to balance two competing administrative goals. On the one hand, as with much of administrative law, accountability is a core goal. Accountability undergirds the democratic legitimacy of administrative agencies. On the other hand, unlike with much of administrative law, independence plays a critical role.\u27 Independence helps to protect financial regulatory agencies from political interference and-with some important caveats-arguably helps to guard against some forms of industry capture. In addition, with respect to the Federal Reserve (the Fed), independence serves to improve the credibility of the Fed\u27s price stability mandate by insulating its decisionmaking from politics and, in particular, from the political pressure in favor of easy money during election cycles. These values, of course, are in tension. Too much accountability-at least in some forms-may reduce independence. Too much independence-at least in some forms-may reduce accountability. Moreover, steps to meet one or the other of these goals may also affect the efficacy of the organization. Having a financial regulatory system that properly balances accountability and independence, but fails to protect households from abuse and the real economy from the catastrophic failure of the financial sector, cannot be anyone\u27s goal

Policies to Expand Minority Entrepreneurship: Closing Comments

This essay is based on comments delivered at the Conference on on Entrepreneurship in Low- and Moderate-Income Communities, November 3-4, 2005. This has been a productive conversation. In my closing comments, I want to shift our focus somewhat, from entrepreneurship in low-income communities to minority entrepreneurship generally. I want to do so because many minority entrepreneurs are connected to or hire from low-income communities, and because minority entrepreneurs face critical barriers even when they attempt to create and grow firms outside of distressed communities. In this comment, I want to highlight key barriers and suggest five steps for Congress, the banking regulators, and business leaders that may help the United States benefit more fully from the talents of minority entrepreneurs

Access to Financial Services in the 21st Century: Five Opportunities for the Bush Administration and the 107th Congress (Symposium on Poverty and the Law).

Noticeably absent from debate over President Bush\u27s agenda is any discussion of a central question for equality of opportunity in the 21st century. Access to financial services is the passport to our modem economy, as former Treasury Secretary Lawrence H. Summers oft said, but despite the enormous progress that has been made over the last decade, too many families in the United States still are left out of the financial services mainstream. There are five key opportunities that the Bush Administration, working with Congress and the private sector, can seize in order to continue to democratize access to financial services: expand access to capital under the Community Reinvestment Act, invest in New Markets, combat predatory lending, bank the unbanked and build assets for the poor