Treasure Islands - Nicholas Shaxson [122]
The same Times article noticed something else. “Many legislators say they did not read the 61-page bill before agreeing to sponsor it and did not understand the complicated measure before voting on it.” Harris B. McDowell, the majority whip for the Democrat-controlled Senate, said he was told at the last minute. “I confess I have no expertise in the banking area,” he said. “I am mystified by the bill.” He voted for it on a promise that it would create jobs. Others said the only hearing for the bill, which lasted just three hours, was handled and timed in ways that prevented many legislators from attending and inhibited rebuttal. Delaware’s Consumer Affairs Department never saw the bill before its passage, a deliberate exclusion that Kenton defended by saying that he and du Pont shared the “bias” that “banks should charge what they want in fees.”
“I didn’t see any sense in running that fundamental principle by anybody who doesn’t agree with it,” he added.
This pattern will be familiar to offshore legislators worldwide. In Delaware, bankers had found a small and malleable legislature, used special legislative tricks to stymie bothersome objectors from other stakeholders, worked hard to keep objectors in the dark, reassured bamboozled legislators that all would be well, and created “ring-fences” giving special exemptions to outsiders that were not available to locals.
Most important was this typically offshore feature that made all these things possible. “It’s small, you can get the leadership together because of that,” Biondi said. “The leadership was accessible at the governor’s office but also in the legislature and in the business community.” Du Pont made exactly the same point. “I used to say to them, if you’ve got a problem, you come on in and around this one table, we can put together all the people we need to solve your problem, whatever it may turn out to be. And we’ll talk about it. We’re small enough. We can move fast. We can get things done.”15 Swayze agreed and added a detail. “There were significant forces in the New York legislature opposed to this,” he said. “Delaware took advantage of the fact that New York couldn’t turn the dreadnought around in the harbor. We’re small, we take advantage of opportunities, and we can fill that void.”16
In other words, we can give the bankers what they need, faster than anyone else. Delaware is a legislature for hire.
Once Delaware fell, the banks then wielded it as a crowbar against other states. Thomas Shriver of the Pennsylvania Bankers Association warned that Delaware is “a very viable option if the Pennsylvania Legislature doesn’t enact a bill we have proposed.” Robert Erwin, head of Maryland’s consumer protection division, warned that if other states gave in to the “pressure” from Delaware, “then it becomes a game of Russian roulette among the 50 states, trying to outdo themselves.”
With interest rates caps removed, the credit card industry took off, and Americans splurged on debt. By mid-2007, as the global financial crisis emerged, U.S. consumers owed nearly $1 trillion on their credit cards17—and that is not to mention loans people took out against their homes to pay the credit card bills. Not a single one of those interviewed for this book who were involved in the passage of the Financial Center Development Act showed any signs of doubt that it was a very good thing.
The respected liberal lawyer Thomas Geoghegan points to the significance of this episode.18 “Some people still think our financial collapse was the result of a technical glitch—a failure, say, to regulate derivatives or hedge funds,” he wrote. “No, the deregulation that led to our Time of Troubles was of a deeper, darker kind. The problem was not that we ‘deregulated the New Deal’ but that we deregulated a much older, even ancient, set of laws . . . the laws against usury, which had existed in some form in every civilization from the time of the Babylonian Empire to