OSD 213: Nice company you’ve got there. Be a shame if something happened to it.

Amidst last week’s cleanup of the shutdowns of Silicon Valley Bank and Signature Bank, a crypto-related detail didn’t get much attention:

Leo Schwartz @leomschwartz

Now I think we can safely say that (crypto) Signet is done

And lo, Signature’s buyer did indeed end the bank’s crypto support:

nic carter 🌠 @nic__carter

A characteristic of the American legislative process is that it’s very difficult to pass a law. See “OSD 195: Majority rules” for more on that.

A characteristic of administrative law is that it’s very easy to pass a new rule. See “OSD 105: The ATF is giving out machine guns, whether you want one or not” for more on that.

Those characteristics are regarded as features, not bugs, by the advocates of each system. Those characteristics are at odds with each other, which is why each system’s advocates view the opposite system with suspicion:

• Person who likes the traditional legislative process’s promiscuous distribution of veto power: “Why would you want to make it easier for the government to do whatever it wants?”

• Person who likes the speed and technocracy of administrative law: “Why would you want to make it harder for the government to do what it thinks is best?”

The administrative law people have an advantage: it’s fast. You can process Signature Bank’s insolvency, force it out of the crypto business, and sell the ashes to a willing buyer all before Congress even holds a hearing. In law, most of the time, done beats right. Administrative law creates facts on the ground, and those facts quickly start to have second-order effects.

That can coerce private businesses into doing things that it’s illegal for the government to do directly. That coercion usually isn’t explicit. It arrives in the form of a letter on official letterhead, offering friendly “guidance”.

In the gun space, Operation Choke Point is the best-known example. In that program, which ran from 2013 to 2017, the Department of Justice picked a number of disfavored industries and sent letters to banks reminding them of the laws regulating those industries.

For example, in November 2013, payday lenders were in Choke Point’s crosshairs:

“The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation issued a warning to banks that offer deposit advance loans, saying that small-dollar loans need to be affordable and that the borrower's ability to repay needs to be taken into consideration when issuing these loans. The two agencies said they would examine the banks' products to see if they meet these requirements.”

And wouldn’t you know it, two months later several major banks coincidentally decided to drop that business altogether.

It’s illegal for an administrative agency to ban banks from doing payday loans. But it’s legal for an agency to send banks a letter saying, “We noticed you’re doing x, and as you surely know, there are a number of laws surrounding x. It’s very easy to make a mistake on those laws, and the penalties for doing so are severe. You seem like a nice company, so it would be really sad if something happened to you after making a mistake in the x business.” And then if that makes the bank ban itself from doing payday loans, then hey, that was the bank’s voluntary choice, right?

See also: in 2020, New York’s Department of Financial Services sent an open letter to the banking industry warning about the dangers of seeming too gun-friendly. The DFS is a powerful agency with jurisdiction over every bank that operates in New York, which essentially means every significant bank in the US. Their “Guidance on Risk Management” letter included this passage, in which you can just about hear the regulators cracking their knuckles:

The tragic devastation caused by gun violence that we have regrettably been increasingly witnessing is a public safety and health issue. Our financial institutions can play a significant role in promoting public health and safety in the communities they serve, thereby fulfilling their corporate social responsibility to those communities. They are also in the business of managing risks, including their own reputational risks, by making risk management decisions on a regular basis regarding if and how they will do business with certain sectors or entities. In light of the above, and subject to compliance with applicable laws, the Department encourages its chartered and licensed financial institutions to continue evaluating and managing their risks, including reputational risks, that may arise from their dealings with the NRA or similar gun promotion organizations, if any, as well as continued assessment of compliance with their own codes of social responsibility. The Department encourages regulated institutions to review any relationships they have with the NRA or similar gun promotion organizations, and to take prompt actions to managing these risks and promote public health and safety.

This is the context in which to read the ATF’s recent “zero tolerance” policy about FFL rule violations. Beyond the letter of the policy, the second-order effect is that it nudges FFLs into making up their own rules to avoid making a business-ending mistake.

For example, here in Austin, TX one of the largest FFLs in the city has stopped selling guns to people on nonimmigrant visas. Legally, those folks have to have a valid hunting license in order to possess a gun. It’s an arcane requirement of the Gun Control Act of 1968. Easy to abide by, but also easy to make a mistake on. And rather than risk making a mistake, this FFL has been nudged by the ATF into washing their hands of the whole problem — and making it harder for people to become gun owners in the process.

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This week’s links

3D-printed bump helmet

h/t MidWesBlue on our Discord

Interview with Delta Force vet Chris VanSant

Good interview by Shawn Ryan.

Federal district judge strikes down California’s requirement that handguns have loaded chamber indicators, magazine disconnects, and microstamping

Reminder that microstamping is an existing technology in the same way that flying cars are an existing technology. Theoretically possible, and some prototypes exist, but there is no path to it coming to market.

“These regulations are having a devastating impact on Californians’ ability to acquire and use new, state-of-the-art handguns,” Judge Cormac wrote. “Since 2007, when the [loaded chamber indicator] and [magazine disconnect safety] requirements were introduced, very few new handguns have been introduced for sale in California with those features. Since 2013, when the microstamping requirement was introduced, not a single new semiautomatic handgun has been approved for sale in California.”

…

The preliminary injunction is set to go into effect in two weeks. California can appeal the ruling to the Ninth Circuit Court of Appeals during that time and seek a stay in order to continue enforcing its restrictions as the case moves forward.

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