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A Banker Takes a Mulligan

A Banker Takes a Mulligan

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August 15, 2011

Thomas Depping makes money by helping others make money: He’s in the business of lending to small businesses. From dentists to truck drivers, his customers have used his money to buy the equipment they need to provide valuable services. The federal government wants him to do less of this—so he’s found a way to do have less to do with the federal government.

Thomas Depping

Depping (at right), The Wall Street Journal reports , bought Main Street Bank, of Kingwood, Texas, with some investors in 2004. Since then, the bank has specialized in financing equipment purchases by small businesses. It made profits—and presumably, so did its customers, only a very small percentage of whose loans turned out to be uncollectable.

But then the FDIC ordered the bank to reduce its loans to small businesses from about 90 percent of its portfolio, to about 25 percent, and hire a new executive. From the perspective of a regulator, this may make a limited kind of sense: The FDIC is charged with protecting bank depositors from risks, including by insuring bank deposits, and Main Street Bank’s focus on small business gave it heavy exposure in that sector. But from the perspective of human achievement, the FDIC’s order was destructive.

To produce value, one has to think—and since thought requires freedom, so does production. Depping had found a way to produce value for himself, his investors, and his customers—because he had identified a need and found a way to meet it at a profit. But the federal bureaucrats who regulate the banking industry—and the legislators who empowered them to do so—decided to take away the freedom he needed to produce the way he specialized in producing.

But freedom is a value, and a value, as Ayn Rand said, is something “one acts to gain and/or keep.” And as important as it is to pursue freedom politically, that’s a long-range project, and if you want to gain freedom quickly, other methods may be more effective.

Thomas Depping found one: He got out of the banking business. But instead of emulating Midas Mulligan, the vanishing banker of Atlas Shrugged, he merely decided to take a do-over on his regulatory classification.

The Main Street Bank is selling its business loans to a new lending outfit that is not a bank and, therefore, not subject to the same regulations. It’s called Ascentium Capital, and instead of attracting deposits, it’s being backed by investors including Microsoft co-founder Paul Allen. The bank branches, meanwhile, are going to another bank.

Thomas Depping will run his lending business. And the FDIC . . . will not.