The Government's Secret War on Small Business

Operation Choke Point was meant to stop fraud. So why is the program going after legitimate business?

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This story first appeared on Reason.com on August 21, 2015. 

Banks are sending notices of account closure out to small businesses across the country, to clients they've done business with for years, even decades. The reason? They often don't provide one.

But a growing number of business owners believe they know why they're being cut off from the financial system. It's Operation Choke Point, ostensibly an attempt to crack down on fraudulent businesses, but in reality a dragnet that has ensnared innocent entrepreneurs unfairly classified as "high-risk" players.

Earlier this year, Federal Deposit Insurance Corporation (FDIC) chairman Martin Gruenberg told Congress that Choke Point was over, but many business owners believe the FDIC and the Department of Justice have passed enforcement duties along to a newly created independent agency: the Consumer Financial Protection Bureau (CFPB), the brainchild of progressive senator Elizabeth Warren (D-Mass.). The CFPB operates under the guidance of the Federal Reserve and doesn't rely on Congress for funding, which critics say allows it to operate without any meaningful checks on its power. 

Reason TV profiled two business owners who believe they've been targets of Choke Point and its legacy: a payday lender in Southern California and a hookah seller in North Carolina. Brian Wise of the U.S. Consumer Coalition, an organization that's been compiling Choke Point stories from across the nation, also appears in the video.

Watch the video above for a deeper look into the covert financial regulation affecting small businesses across the nation.

Approximately 10 minutes. Produced by Zach Weissmueller. Camera by Alex Manning, Josh Swain, Todd Krainin, and Weissmueller. Music by Podington Bear and Chris Zabriskie.

Scroll down for downloadable versions of this video. Subscribe to Reason TV's YouTube channel for daily content like this.

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  1. OT: https://www.youtube.com/watch?v=nkEVDnV0-LE

    SJW declares that any criticism of her is censorship and should not be allowed in a university. She claims that when someone ‘misgenders’ a trans person they’re engaged in a ‘discourse of censorship’ therefore it’s okay to censor them because the expression of their opinions somehow is censorship.

    Indeed. This is apparently the level debates at Oxford have sunk to.

    It’s actually hard to listen to because she won’t stop yelling and nothing she says makes sense. It’s like Tumblr made manifest in flesh.

    1. Even better, apparently she was arguing against Brendan O’Neill of Spiked (who’s also written here) and Peter Hitchens.

      Peter Hitchens: https://www.youtube.com/watch?v=trRdlNTbe0k

      Brendan O’Neill: https://www.youtube.com/watch?v=BtWrljX9HRA

      Compare their openings to hers. It’s a pretty sound ass kicking.

      1. British Parliamentary-style debate is a national treasure. So much more entertaining than the milquetoast American style.

      2. I have to give the win to Shami Chakrabarti, though…”Victimhood is a terrible thing. It turns people into, I don’t know, pedophiles, and jihadis, and columnists”

        #rekt

        1. wow, she nailed it. I like how she points out that Muslim women should be allowed to wear hijabs if they want to and that in some places they aren’t allowed to because it’s ‘offensive.’ That’s a particularly great argument because SJWs can’t counter it without potentially looking ‘Islamophobic.’

        2. Her concluding remark in the clip was also excellent:

          “This freedom of speech and these human rights were paid for by generations long ago, and they were paid for in courage and in blood. They were designed to make us comfortable; they were designed to keep us free.”

          1. The blood of Europeans steeped in masculinity, patriarchy, and Western ideals, who tried to export their culture through conquest and colonization, who enslaved Africans and massacred natives around the globe, and for all those reasons institutions like freedom of speech and rule of law should be abolished.

            1. Anytime leftist acquaintances of mine start this whole thing up about how only white males of European heritage need to held accountable for their sins of the past and maybe even paying retribution to their victims all over the world is a good idea, I have found the ultimate response.

              I tell them that if we’re going back 150 years, why stop there? Let’s just go back as far as we possibly can. Homo Sapiens of which ALL modern humans are descended from literally wiped out to extinction an entire species of hominid known as Neanderthal, around 40,000 years ago. So if we’re going to play this game, let’s do it right, I probably have 2-4% Neanderthal genes, so pay up bitches!

              1. I always say that we should also go to Africa and hold all of the indigenous populations that sold their rivals (or just bystanders, as the case was) into slavery should suffer alongside the Europeans who made use of the slaves.

                But that always gets me stamped as a “racist.” I haven’t quite been able to figure out why.

                1. Well, much like the aboriginals in the New World, all of these African tribes had always lived in peace and harmony forever, until whitey arrived. It’s well known that there was no violence in the new world until whitey arrived. All that talk of the Incas and Mexicans violently subjugating their neighboring peoples and engaging in bloody human sacrifice is all lies made up by whitey and sustained by the efforts of the Koch brothers.

            2. While I assume this is irony, I still want to point out that the individualist perspective blows the collectivist perspective out of the water.

              Collectivists paint western Europeans with the broad brush that you’ve portrayed. To them all westerners are guilty of all crimes committed by individual westerners. But individualists recognize that only some westerners were directly involved in conquest and slavery while other westerners were fighting against this orthodoxy–some against conquest and slavery, and others fighting to open up western society to human rights.

              Collectivism is for small minds that strain to notice and understand political and economic nuance. Individualism allows for a more complex view but also for one that holds individuals responsible for their actions while exonerating the group they happen to belong to for the sins of the individual. Therefore, the collectivist perspective is not only wrong, but it is unfair, bigoted, and unable to reach any accurate understanding of any and all political issues.

              Collectivism is for dummies.

      3. It’s an ass kicking, yes. And those of us who have reason and logic, can easily see that. But for the shrieking harpies? Those words are meaningless to them. They do not think, they only emote.

  2. “The CFPB operates under the guidance of the Federal Reserve and doesn’t rely on Congress for funding, which critics say allows it to operate without any meaningful checks on its power.”

    Abolishing the CFPB is one of the first things a libertarian President would work to eliminate. It’s especially dangerous for a number of reasons. For one, we can usually expect what I would call the credit regulation cycle to follow the credit cycle itself. Normally, as the economy improves and more people want things like home and car loans, credit standards relax. Once the economy turns south and banks and other institutions start failing, Congress heaps regulation on the financial system–making it more difficult for marginal borrowers to get or refinance loans. Then the credit regulation cycle starts again.

    Once the economy improves, that new regulation tends to be circumvented, abolished, etc.–what sane politician wants to stand between his or her constituents and the loans they want? The ability of the credit cycle to crush the plastic cage of the credit regulation cycle is a feature–not a bug. But if the CFPB is more unresponsive to Congress than it has been in the past, then that feature is muted. The more divorced regulators are from Congress, the more sluggish they will be in getting rid of stupid regulation that limits the availability of credit to marginal borrowers.

    1. I should say, people start businesses, etc. with the equity in their homes by means of home loans, and the idea that we would squash such engines of economic growth by way of an unaccountable regulatory board–toward the bottom of the business cycle and at times when we need such growth the most –is incredibly stupid.

      There is no need for the CFPB when we could just let banks that lose too much money on bad loans go bust. Very little threatens the long term stability of our economic system as much as the stupidity of the CFPB. If you thought the exaggerations of our boom and bust economic cycles were bad because of the Federal Reserve’s ridiculous attempts to set interest rates properly, just wait ’til you see the long term effects of letting some unaccountable regulatory body decide whether people should even qualify for loans from willing lenders–never mind where the Fed is setting interest rates.

  3. CLOSE THE HOOKAH LOOPHOLE!

  4. It’s not a war on small businesses. It’s a war on unfavored businesses.

    1. Yep.

      I don’t know why the people targeted don’t just incorporate under a new banal name – Puppy lovers inc. or whatever, and open their account under that name.

      1. Well, Hookers and Blow can be a subsidiary of Puppy Lovers Inc.

  5. Who wants some Chipotle?

    Given that Chipotle already causes diarrhea, is the norovirus really even that noticeable?

    1. It’s GMO-free norovirus. Because Chipotle cares that much about its dumbass customers. Care for some Chipotlaway?

  6. Never mind those ISIS clowns- this is what worries me.

    The BDS analysis reaffirms similar findings published by Kauffman earlier this year. The group’s latest entre?pre?neur?ship activity index showed that 0.32 percent of adults created a business per month last year ? a 5.9 percent drop from 2010 but still slightly higher than pre-recession levels. Moreover, new business formation rates among both immigrants and native-born inidividuals as well as that of all races and ethnicities tapered off between 2010 and 2011.

    Those across-the-board declines suggest the country is growing steadily less entrepreneurial, and according to Litan, the trend must be reversed in order to strengthen the United States’ economic recovery.

    “If we are to achieve and sustain a hearty recovery, policymakers, educators and organizations that help entrepreneurs commercialize their technologies must be willing to address every obstacle that stands in the way of new business formation,” Litan said.

    Who needs wealth creation, when you can just rob Peter to buy Paul’s vote?

    1. Those across-the-board declines suggest the country is growing steadily less entrepreneurial

      Who needs explanation why? Tony?

      1. I blame racism, Bush, and climate change in that order.

    2. the country is growing steadily less entrepreneurial

      Well, yes that is what cronyism does. It’s a feature not a bug.

    3. “If we are to achieve and sustain a hearty recovery, policymakers, educators and organizations that help entrepreneurs commercialize their technologies must be willing to address every obstacle that stands in the way of new business formation,” Litan said.

      I imagine that a policy of “Just Leave Them The Fuck Alone” is not how they will address every obstacle. No, the only prescription for the ills of crony capitalism is more crony capitalism.

    4. Over my life I’ve chickened out on several possible businesses, mostly my own ideas, but in 1 case not before I’d lost many $ thousands with preliminaries & exploratory activity; you can see its remains at http://users.bestweb.net/~robgood/lather.html . The others I spent a little $ on but mostly time exploring.

      I did have one that made a high profit margin (disingenuously selling tryptophan powder as a science kit) on a small volume that I resisted the urge to try to expand. In retrospect I got out of that at the right time, just before 5-HO-trp came into play as a dietary supplement.

      Mostly my problem has been that salesmanship is the critical factor. Could I have made substantial $ making & selling electrophoresis tanks? Sure, if I could sell them. Could my foaming formula have become the dominant one in bubble baths? Sure, if I could sell the industry on it. Could my friend’s idea (that I could’ve become an investing partner in), terminals with chem info to satisfy on-site disclosure requirements for chemical hazards, made big $? Probably, if we’d been able to sell them.

      1. OMG!!!

        I used to have an account at Bestweb back in the bad old days of dial-up! Didn’t know they were still around.

        1. I started with them because they could provide me with a Bourne or bash-like Unix shell that I could dial into. Inertia keeps me there so I can keep my e-mail address & URL; I don’t even make a PPP connection thru them nowadays.

          I found out about them thru a glossy color trifold they left at the Sea Star diner in White Plains, where some Libertarian Party fx were held.

  7. Apparently, we have Hammerhead sharks in LA now…
    http://www.hollywoodreporter.c…..ibu-820755

    1. If this is in the Hollywood Reporter, it’s got to be a tease for the next installment of Sharknado.

  8. So why is the program going after legitimate business?

    Because fuck you, that’s why.

    1. That is what I came here to say.

      1. I’m glad I beat people to it. :-p

  9. Poverty and joblessness

    Clearly, if America’s anti-poverty policy framework is founded on work in the paid labor market, and if that labor market doesn’t provide the necessary quantity and quality of jobs, public policy must make up the difference. If this sounds radical, consider the following: Policy makers are quite comfortable spending literally trillions of dollars to reflate credit markets when they fail, based on the notion (a sound one, I’d argue) that the economy cannot function without adequate credit flows. Well, neither can it function without enough jobs, so if the Federal Reserve is the “lender of last resort,” then the government must be “the employer of last resort.” Edin and Shaefer smartly propose to scale up a useful employment program that worked well during the Recovery Act.

    Edin and Shaefer teach us that we in America live amid deep poverty, privation of a level that would be perfectly at home in an emerging economy with a per-capita income that’s a fraction of our own. Yet we also live in an era of political dysfunction, where a large and dominant part of our politics insists that reduced government is better government, and any expenditures to help the poor merely blocks them from picking themselves up and taking advantage of the fulsome set of opportunities they’d face if only they sought them out.

    1. Interesting. I wonder if the book explains why employing people in busy work would be better than simply giving them $. I can think of a few possible reasons:

      1) The work is simply a disincentive, so

      (a) only people who really need it will take it, and/or
      (b) only those who are really worthy will get $.

      2) Working itself imparts skills (even if no particular training other than showing up & following directions) that might enable some people to eventually get real jobs.

      3) Getting $ w/o working for it is undignified?an insult to the recipients. That assumes, of course, that they won’t discover it’s just busy work. The more creatively that fact is to be hidden, the more elaborate, hence the greater the cost.

      4) The author supposes it won’t be busy work?that although the utility of the effort will be less than its market worth, it will still net out greater than 0, especially if the workers’ opp’ty costs are 0 or close to 0. Once the program is under way, its existence will also discourage private investment in whatever the projects are.

    2. “we in America live amid deep poverty, privation of a level that would be perfectly at home in an emerging economy “

      Stop this. No we do not.

      1. What we call poverty in America would be considered incredible wealth and luxury in many of the emerging economies of the world. When such things as heat and indoor plumbing are not even a possibility for you, the idea that people with air-conditioned homes with flat screen tvs, cars, computers, and cell phones are considered to be in deep poverty must be really insulting.

  10. Maybe the government (at every level) should stop destroying jobs and erecting barriers to work and self sufficiency.

    It’s a crazy idea, but what the fuck- let’s give it a shot.

    1. Barack Obama: You didn’t build that.

      Hillary Clinton: Don’t let anyone tell you that it’s businesses and corporations that create jobs.

      This is the future, according to progressives. But don’t worry, those jobs will be created with magical pixie dust.

  11. Let’s say I, as a business owner, have a short term “spring cleaning” project. Something requiring no specific qualifications other than a reasonably strong back and willingness to work for a few days. You know, the sort of work once known as casual labor. Am I, in this regulatory regime, willing to risk potentially crippling fines for sliding some smelly bum fifty bucks and a few lunches for the work, rather than calling in a credentialed cleaning service, or getting somebody from an officially sanctioned temp agency?
    There are places which go after peole who hire day laborers with the same vigor some towns go after johns in prostitution stings.
    If Jared Bernstein wouldn’t do it, it’s not an honest, honorablr job. Nobody should have to do it.

  12. Am I, in this regulatory regime, willing to risk potentially crippling fines for sliding some smelly bum fifty bucks and a few lunches for the work,

    That is why you use Mexican illegals. You pay them $50 and lunch, and you don’t have to worry about them squealing to the authorities because illegal immigrants want nothing to do with the authorities.

    1. Or you use friends & relatives.

      I do a lot of stuff that’s too much bother to get done strictly as volunteer work, but my friends couldn’t afford to pay professionals to do.

      1. Oh dear, I remember being “volunteered” to do spring cleaning for my grandparents.

      2. Nice for you that you still have relatives and friends who will lend a hand. Mentioning work to my relatives and friends will make them disappear for an amount of time that they believe will ensure that said work is over with.

        1. And that’s when you spring the surprise.

          1. And that’s when one of their many nagging maladies suddenly flare up again.

            1. I told you I have allergies, damnit.

        2. I’m the one lending a hand, doing stuff not necessarily gratis but for much less than a pro would charge.

  13. I’ve been saying for quite awhile that the main target recently has been the upper middle class, of whom small business people would comprise a substantial portion. Huge minimum-wage jumps can be accommodated by big chains and major industries, but destroy the mom-and-pop businesses. Essentially the richest of the rich have great allies in the Occupy movement and current progressive thought, who push policies that increase taxes, regulations and costs onto their so-called ‘rich’ — effectively, people making over $80 K a year, and the businesses they struggle to operate — while barely making a dent in the truly wealthy’s bottom line. Add in rent control, eminent domain, government contracting rules, etc, and you have a world in which it’s much more difficult to move up from upper middle class to the higher echelons, and thus those higher echelons are protected from any real competition or threat much of the time.

    1. I was just looking at a chart the other day on the intertoobz. Apparently I’m in the top 20% of income in the USA. I guess I’m a target. Funny, I don’t feel rich.

      But it all makes sense, you have to go where there are more turnips to squeeze blood from, and the upper middle class are that bountiful harvest. MD a while back here when O’Malley was still governor, passed, in the middle of the night on a holiday weekend, a new tax on the filthy rich families making more than 100k. 100k for a family barely gets you into the middle class in MD.

  14. “And who will help me plant the wheat?” asked the little red hen.
    “Not I,” said the rat.
    “Not I,” said the horse.
    Et cetera.

    1. 2015 ending:

      “And that’s when the rat, horse, and frog whined to the farmer, and he told the hen, “you didn’t bake that” and took the cake at gunpoint. Then he gave the rat, the horse, and the frog equal portions of it. And cake inequality was vanquished forever.

      The End.”

  15. And then the weasel came and flashed his badge, and in a very loud and officious manner of speaking inquired, “WHERE IS YOUR BREAD-BAKING LICENSE, LITTLE RED HEN? HAVE YOU FILED AN APPLICATION WITH THE ARMY CORPS OF ENGINEERS TO PLOW THAT WETLAND TO GROW WHEAT? HAS THE EPA AUTHORIZED YOUR WATER USE AND RUNOFF PLAN? I THINK YOU HAD BETTER HAND OVER THAT BREAD AND COME WITH ME. YOU ARE IN SERIOUS TROUBLE.”

    1. I lol’d. That was good.

  16. The Affordable Care Act also brings unconstitutional regulation to small business….

    1. Why do you hate the children?

    1. Godzilla?

  17. Over my life I’ve chickened out on several possible businesses, mostly my own ideas, but in 1 case not before I’d lost many $ thousands with preliminaries & exploratory activity; you can see its remains at http://users.bestweb.net/~robgood/lather.html . The others I spent a little $ on but mostly time exploring.

    I did have one that made a high profit margin (disingenuously selling tryptophan powder as a science kit) on a small volume that I resisted the urge to try to expand. In retrospect I got out of that at the right time, just before 5-HO-trp came into play as a dietary supplement.

    Mostly my problem has been that salesmanship is the critical factor. Could I have made substantial $ making & selling electrophoresis tanks? Sure, if I could sell them. Could my foaming formula have become the dominant one in bubble baths? Sure, if I could sell the industry on it. Could my friend’s idea (that I could’ve become an investing partner in), terminals with chem info to satisfy on-site disclosure requirements for chemical hazards, made big $? Probably, if we’d been able to sell them.

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