Thursday, February 28, 2019

New Bill Could Help Black Banks Raise Capital, Cut Costs, and Attract Black Investors

Article by Jeff McKinney in Black Enterprise describes HR 41, "the Rescue Act for Black and Community Banks. The bill–initiated in January 2019–aims to, along with other measures, bring regulatory relief for black banks from Congress, boost wealth-building for black consumers and businesses, and help save black banks from failing."


Tuesday, February 26, 2019

A Conversation with Chang-Tai Hsieh on Crony Capitalism with Chinese Characteristics. Lanxi He (Georgetown), Scott Knewitz (American), Impact Investing Analysts

On February 25th, The Becker Friedman Institute for Economics (BFI), the Chicago Economics Society (CES), and the Booth Alumni Club of Washington, DC, held a cocktails and a conversation event titled "Crony Capitalism with Chinese Characteristics."

The speaker was Chang-Tai Hsieh, Phyllis and Irwin Winkelried Professor of Economics, Chicago Booth School of Business. David Rank, former Deputy Chief of Mission and Charge' d'Affaires at the U.S. Embassy in China, moderated.

Professor Hsieh discussed China’s fast-paced growth over the past three decades, stating that China's economic growth has been unprecedented, defiying economic theory. One reason for this growth is the focus of the political apparatus - communist party leaders search for investments that earn high profits. 

According to the professor, China has developed crony capitalism at the local level that has promoted business development. This approach relies on the fundamental dependence of small firms on the discretion of local party officials. These firms need the approval of local party officials to start a business. This is a deterrent to other potential entrepreneurs who do not have political connections. This may be an issue for sustained growth.

In the professor's view, Communist party leaders are "in bed" with local companies. These firms do not want competition, so party leaders have a direct interest in keeping competition from threatening favored firms, since officials benefit financially from "special dealings" or special arrangements with select local companies. While these types of "special dealings" are common in Western society, they are not as prevalent as they are in China.

By the conclusion of the talk, Professor Hsieh gave us a better understanding of China’s fast-paced economic growth. One conclusion may have been that competitive markets created by local political leaders can drive economic growth.

Friday, February 22, 2019

Bill to Support Black and Community Banks

New federal banking legislation,"H.R.41 - RESCUE Act for Black and Community Banks" was introduced by Congressman Bobby Rush (D-Il) on January 3, 2019.

We worked, along with the Financial Services Innovation Coalition (FSIC), to draft this new legislation, which contains many of the ideas we have been working on for some time. Recently, FSIC sponsored a letter of support. To add your name, please see:
  hashtag The bill is designed to take a focused approach to saving and expanding the number of Black-owned banks operating in the US. This legislation is designed to meet the needs of the Black community, not just serve bankers. Our contributions were part of a collaborative effort in the overall national interest.

The bill, which has just started the legislative approval process, contains the following provisions:

1. Establishes in the Office of the Comptroller of the Currency the "Office of Black and Community Banks".

2. Seeks to partially or completely exempt Black banks and community banks from Federal banking statutes and regulations, to the extent the Comptroller determines it appropriate without endangering the safety and soundness of such banks.

3. Seeks to have the Securities and Exchange Commission issue regulations to reduce the regulatory burden applicable to Black banks and community banks—
(i) under the amendments made by the Jumpstart Our Business Startups Act;
(ii) issuing mortgage-backed securities; and
(iii) issuing securities backed by loans guaranteed by the Small Business Act.

4. Provides a crowdfunding exemption for Black and Community Banks under the JOBS Act.

5. Reestablishes the federal Minority Bank Deposit Program.

6. Expands federal agency use of Black and community banks.

7. Gives specific consideration under the Community Reinvestment Act (CRA) for majority institutions that partner with Black and community banks.

8. Calls for a study on the use of New Markets Tax Credits by Black an community banks.

Community banks in general and black banks in particular, have suffered in the decade since the great recession. Black banks have almost become extinct with barely 20 banks left. These declines have had especially devastating effects on black communities. Black home-ownership is less now than it was in 1968, and black wealth is unchanged over that same period of time, with some predicting black wealth will be zero by 2053.

African Americans are excluded, with the exception of token representation, from owning regulated institutions in the financial services industry, without access to the prosperous and dynamic activities of banking, venture capital and investing. The combined assets of all black banks were less than $6 billion as of 10/31/18 according to the Federal Reserve Board. It is well known that less than 1% of VC money finds its way to minorities and women. This is evident by the small size of black banks as compared to their non-minority counterparts. Wells Fargo has $11 trillion in assets. In fact, the 600th richest person in the world is worth over $5 billion and the 10th richest venture capital (VC) firm is worth roughly $5 trillion.

Remedial action is clearly a necessity and we are glad someone with Congressman Bobby Rush's stature and history is leading this fight. Contact us for more information. To see the full text of the bill, visit:

Saturday, February 16, 2019

Recap of testimony at the Feb 14 IRS hearing on Opportunity Zones

On Thursday, February 14, 2019, the IRS held a hearing on Qualified Opportunity Funds. Two hundred (200) experts and interested parties gathered at the IRS auditorium in Washington DC while 200 others waited.

My testimony focused on the general goals, regulations and fairness of the Opportunity Zone (OZ) Program. I started with a review of our performance:

•             On July 3, 1993, I wrote to Mary Schapiro, the former Chair of the US Securities and Exchange Commission (SEC) about correspondence dated July 2, 1993 from an “officer” of the Nigerian Ministry of Finance. I requested the SEC immediately warn the public. A timely warning was not issued to the investing public. (In response, the SEC launched retaliatory regulatory actions against Mr. Cunningham.)

•             In 1992, I designed the first mortgage security backed by 1 to 4 family home mortgage loans to low and moderate income persons and originated by Asian, Black, and Hispanic-owned banks.

•             On June 15, 2000, I testified before the House Financial Services Committee concerning H.R. 3703, the Housing Finance Regulatory Improvement Act. I warned that ethical issues at government sponsored enterprises (GSE’s), Fannie Mae and Freddie Mac may significantly damage the home mortgage marketplace. Both entities declared bankruptcy in 2008.

•             In 2001, I helped design a mortgage refinancing and investing vehicle for victims of predatory lending that led to the creation of targeted community development investments.

•             On December 22, 2003, statistical models I created using the Fully Adjusted Return ® Methodology signaled the probability of system-wide economic and market failure.

•             Our June 11, 2016 forecast predicted the election of Donald J. Trump: Why Trump Will Win.

As part of our analysis, we reviewed the performance of the Trump Administration:

“Twice as many farmers in Illinois, Indiana and Wisconsin declared bankruptcy in 2018 compared to 2008, according to statistics from the 7th Circuit Court of Appeals. Bankruptcies in states from North Dakota to Arkansas leaped 96 percent, according to figures from the 8th Circuit Court of Appeals. Farmers are being harmed by sinking commodity prices — and stiff tariffs from China and Mexico in retaliation for Trump’s tariffs on imports.”

Millions of Americans are currently experiencing a tax refund decrease. The average American’s tax refund was 8.4 percent lower in the first week of 2019 than it was one year ago (under the pre-Trump tax code).

A real estate investment firm co-founded by President Donald Trump’s son-in-law and adviser, Jared Kushner, may benefit from the administration’s Opportunity Zone program. This is a violation of the Emoluments Clause (Article I, Section 9, Clause 8 of the United States Constitution). We expect to see a community group file a request for an injunction halting the allocation of Opportunity Zone tax benefits.

In general we are concerned that the OZ program diverts needed tax revenue from the public and places this revenue in the hands of a wealthy and white demographic unrepresentative of the US population as a whole. Given the desperate condition of the communities selected, this is inappropriate.

Further, we note the lack of performance of other programs that were supposed to help low income populations by energizing investments, specifically the CDFI Fund and the New Markets Tax Credit (NMTC) program. The bulk of the societal and monetary benefits derived from these "community development" programs are being captured by real estate developers, accountants, lawyers, and consulting firms, not low income community residents.

Creative Investment Research has applied for NMTC funding during several rounds. Our applications ranged in size from $2 million to $200 million:
  • In 2003, we applied for $2 million in NMTC funding to purchase and renovate a vacant commercial office building located in the Minneapolis Empowerment Zone. The application was not funded.
  • In 2004, Creative Investment Research partnered with the City of Minneapolis to develop a NMTC application. The application sought $120 million in community development funding.
  • In 2008, we applied for NMTC funding to invest in minority and community development banks. 
  • We have applied to create an online lending portal and an online resource guide for women and minority firms. None of our applications have been funded. 
During my testimony, I focused on two solutions: 1) I recommended regulations that would prohibit the President, senators, congressmen, and state governors from personally benefiting from the program; and 2) I suggested using the Ethereum blockchain to track and report Opportunity Zone investment social impact. I pointed out two young, African American technology interns who accompanied me to the hearing as sources of possible assistance in this effort.

I concluded by noting that many communities of color are at risk for rapid dislocation due to the Opportunity Zone program.

Tuesday, February 5, 2019

Introduction to Blockchain and Why it Matters by Lanxi He, Research Analyst Intern, Creative Investment. Georgetown University

On February 4th, the Chamber of Digital Commerce and Members of the Congressional Blockchain Caucus sponsored a lecture titled "Introduction to Blockchain and Why It Matters." The panelists were (left to right) Amy Davine Kim, Chief Policy Officer, Chamber of Digital Commerce and moderator, Jeremie Beaudry, Compliance and Regulatory Affairs Counsel, BitPay, Mark Fisk, Partner, IBM Digital, Public Service Blockchain Leader, IBM. Eamonn Maguire, Global Financial Services Lead, KPMG Blockchain Services, and Randy Bishop, General Manager, Energy Infrastructure, Guardtime.

The panelists reviewed blockchain applications, defined what blockchain is, discussed why it is important and closed by talking about how blockchain impacts business, government and consumers.

A blockchain is a distributed ledger technology that organize data into sections, or "blocks" that are “chained” together chronologically by a cryptographic hash function and confirmed as authentic using a consensus mechanism. Applications such as e-mail, e-commerce, and business process can be supported by blockchain.

One of the critical features of blockchain is its potential to create transactional efficiencies in transferring value and recording transactions. Panelist discussed blockchain use cases in trade finance and in the supply chain.

Supply chain blockchain implementation, in particular, can improve the identification of the source and path of food and produce. In fact, food safety is one of the most important applications. Firms can use this technologies to track the path of the food from origin to the table.

Blockchain technology can also be applied to securities, healthcare, insurance and so on.

This technology can be used to enhance the effectiveness of government regulation in many areas, including financial institution regulation and insurance company regulation.

Blockchain has really important impacts on innovation and economic growth. These applications of the technology need support from policymakers.

Sunday, February 3, 2019

Open: The Progressive Case for Free Trade. Scott Knewitz, Policy Intern. Graduate student, American University

On Friday, February 1, 2019, Kimberly Clausing, Thormund Miller and Walter Mintz Professor of Economics at Reed College, sat down with a panel at the Brookings Institute in Washington D.C. to discuss her new book, Open: The Progressive Case for Free Trade and Globalization. 

Clausing and the other panel members (above, from left to right): Lori Wallach, director of Public Citizen’s Global Trade Watch, Soumaya Keynes, U.S. economics editor for The Economist, and Kimberly Elliot, visiting fellow at the Center for Global Development, with David Wessel, discussed the current issues facing Americans of middle and lower incomes.

In the book, to be published on March 4th of this year, Clausing addresses claims from both sides of the political spectrum, which cite globalization as a destructive force, whether for its perceived effect on the most vulnerable and impoverished peoples of the word or that of reducing wages for American workers.  On the contrary, she points to globalization as a force for good – if utilized correctly – and in this respect, calls for a more open global economy.  For example, tariffs, she points out, are an economically ineffective tax on trade, the burden of which is often placed on consumers, as companies are either forced to pay the tariffs or seek higher priced substitutes from elsewhere leading to higher consumer prices. 

Clausing also discusses the dangers of reducing immigration, from both moral and economic perspectives.  She states that it is both un-American and foolish economically to turn away asylum seekers, noting there is no serious evidence to support the claim that immigration is in any way a cause of America’s current economic dilemmas.  In fact, she makes the case that immigration remains one of America’s greatest strengths, essential to economic growth, innovation and entrepreneurship.

So, how does one overcome the  discontent, backlash, nationalist and isolationist sentiment present in the U.S.?  Clausing seeks to use domestic economic policy to address issues of inequality and, in turn, discontent.  She points to more equitable means of distribution through a progressive tax policy, and greater emphasis on infrastructure as solutions. She believes these are required if America is to maintain international competitiveness. 

Clausing's most pronounced critic on the panel was Lori Wallach, of Public Citizen’s Global Trade Watch, who pointed not to America’s economic policy as the most direct cause of our inequality but to trade policy as the cause. Her viewpoint is that our trade agreements distribute an unequal share of profits to major multi-national corporations, who operate without having the public interest in mind.

At closing, Clausing, Wallach, and the other panel members all agreed that to retreat to nationalism would be a grave mistake, and that the solution may be a more open economy that supports the development of all people while providing greater equality.

Saturday, February 2, 2019

Small Business Policy Expo. Scott Knewitz, Policy Intern. Graduate student, American University

The 2019 Small Business Policy Expo & Ready to Launch Congressional Reception took place on Wednesday, January 30, in Washington D.C.  The event brought together leading small business advocates and Congress members, as well as current administration officials to address questions concerning the needs of American small business owners.  Given recent changes on Capitol Hill, the panelists and guest speakers sought to provide insight concerning potential policy proposals that could have an impact on entrepreneurship and small business in the US.

The policy areas receiving the most attention were taxes and healthcare.  On taxes, panelists and guest speakers alike emphasized not only the need to reduce taxes on small business owners, but also to simplify the tax process – citing time as the small business owner’s most valuable asset, an asset too valuable to spend deciphering complex details of the current tax code.  This is a clear extension of the political right’s attempt to spur economic growth through reducing taxes on businesses, in anticipation that the additional profits earned will increase employment and domestic investment. 

Given the right-leaning nature of the hosting organization, it should be of no surprise that most panelists and speakers were against the political left’s enthusiasm for Medicare-for-all. Event organizers claimed such a system would be terrible for small business owners, but the fact remains that such a medical care system would allow small business owners to direct fewer of their resources to navigating a complex system of employee health insurance.  In this respect, Medicare-for-all would enable small business owners to focus on core business goals, yielding them more of their previously mentioned most valuable asset, time.  In fact, Warren Buffett has referred to employer-provided health care as the “tapeworm of American competitiveness,” because it forces small and large businesses alike to bear a costly burden not shared by their foreign competitors.

To summarize, the policy areas of focus for small business in 2019 are taxes and healthcare. We expect no significant changes in either. The best we can hope for are small tax reforms, given the current state of politics in Washington and the divisions within the newly sworn-in 116th Congress.

Friday, February 1, 2019

DC Econ UNPLUGGED Lanxi He, Research Analyst Intern, Creative Investment. Georgetown University

On January 31st, the Office of The Deputy Mayor For Planning And Economic Development presented DC Econ UNPLUGGED, which connected fashion, arts, entertainment, housing, transportation and others sectors to DC’s economic development. Event attendees shared opinions, thoughts and suggestions, and also enjoyed wonderful food and music.

First, a panel consisting of DC's fashion leaders - Kristopher Johnson-Hoyle, Editor, Chairman of the Mayor's Commission on Fashion, Arts and Events; Deidre Jefferies, Owner/Creative Director of ESPION Atelier, CFAE Commissioner; Mariessa Terrell, Fashion Attorney, Howard Law School IP Law Clinic Supervising Attorney, and CFAE Commissioner; Roquois Clark, Co-Creative Director, District of Fashion Runway Show, DowntownDC BID - talked about the impact fashion entrepreneurs have  on DC’s economy and ecosystem.

A second panel - Ernest Chrappah, Interim Director of DCRA; Shawn Townsend, Director of Nightlife and Culture; Fred Moosally, Director of ABRA; Jeff Marootian, Director of DDOT - discussed how DC’s nightlife is related to DC’s economy. Nightlife has always been seen as qustionable, even as something bad. Some perceive nightlife as being all about drugs and strip clubs.

A report by Patrick Sisson cites organizations that support nightlife-based industries. "Nightlife adds value and human capital," said Mirik Milan, Amsterdam’s Night Mayor. “Investing in the community, and in these subcultures, is now popular and important.” Other organizations point out that we need to focus more on how creative nightlife contributes to a creative city.

At the DC Econ UNPLUGGED event, Director of Nightlife and Culture Townsend also talked about why nightlife is important and how it generates revenue for the city. Mr. Chrappah discussed creating and maintaining a safe nightlife environment.

By the conclusion of the event, the panelists gave me a better understanding about how nontraditional services and resources grow DC’s economy.