Treasure Islands - Nicholas Shaxson [121]
Biondi’s firm Morris, Nicholas, Arsht & Tunnell represented both Chase and JP Morgan, and both he and his firm are frank about their role in the local bonanza. “The Chase Manhattan and J. P. Morgan banks hired Morris, Nicholas’s Frank Biondi to draft the law,” the firm’s official history notes, “and help convince the state legislature to adopt it.”8
Biondi himself adds, “Did I lobby the state legislature? You’re damn right I did.”
So Chase and JP Morgan, in effect, wrote the law through their local representatives. The New York Times noted later that it was drafted without any written analysis by a Delaware official, and that Biondi’s drafts got their primary reviews from other bank attorneys.9 Biondi denies any conflict of interest, saying he disclosed his connections to all parties.
On November 4, 1980, du Pont was reelected as governor of Delaware, and the draft legislation was unveiled in public two months later, on January 14. Du Pont’s administration gave the state general assembly the deadline the banks demanded: pass the bill by February 4 or the deal was off.10
The bill sailed through on February 3, and du Pont signed the Delaware Financial Center Development Act two weeks later.
Delaware was to remove interest rate ceilings on credit cards, personal loans, car loans, and more. Banks would have powers to foreclose on people’s homes if they defaulted on credit card debts; they could establish places of business overseas or offshore, and they got a regressive state tax structure to boot. And crucially, because Delaware law could now be “exported” to other states, this was to be rolled out across America.
Two hundred years of legislation capping interest rates in the United States had now lost all force.11
Despite the timing—the bill was passed less than a week before Ronald Reagan took office as U.S. president—all interviewees stressed that this came purely from Delaware and the New York bankers, not from Washington. “Lawmakers quickly realized,” wrote du Pont’s biographer, “that the Financial Center Development Act was favored by almost everybody in the state’s power structure—and by the powers most likely to contribute significantly to their future election campaigns.”12
Out-of-state banks flooded into Delaware, and the credit card industry took off. Within months the credit card giant MBNA had opened its first office in a vacant supermarket; within a decade it had over $80 billion in outstanding credit card debt. “Every night helicopters took off from here carrying receipts and paperwork from all the credit card business,” said du Pont. “It gave us 25 years of growth and revenues growing every year.” Before 1980, Delaware’s revenue just from the bank franchise tax had trickled in at just $3 million–odd per year. By 2007 it was taking $175 million.13
Just as Ronald Reagan prepared his assault on America’s unions, American workers began to trade their union cards for credit cards.
Two months after the bill’s passage, the New York Times summed up.14 “To bankers and their supporters the law is modern and comprehensive, drafted in a thoughtful manner. To some state officials, legislators and consumer advocates, both in Delaware and elsewhere, the bill was stampeded through the Delaware Legislature, is one-sided and, as one critic put it, a banker’s ‘dream.’”
“Bankers say the possibility that the Delaware plan could be enacted in other states is a sign of healthy competition among the states and a reflection of the current emphasis on states’ rights,” continued the article. “Their critics say it illustrates the ability of powerful