FICO introduced the FICO Score in 1989. The FICO score has since become the de facto measure for measuring an individual’s creditworthiness, with 90% of top lenders using it to make billions of credit-related decisions each year.
Once the coronavirus hit the U.S., the Consumer Financial Protection Bureau (CFPB) noticed an alarming uptick in the number of complaints by consumers. The CFPB saw a noticeable jump in the number of complaints relating to mortgages and credit cards mentioning the keyword “coronavirus.”
“In March and April 2020, the Bureau’s Office of Consumer Response received approximately 36,700 and 42,500 complaints, respectively – the highest monthly complaint volumes in the Bureau’s history,” the CFPB said.
This may not seem like much of a big deal, but can be interpreted as a leading indicator signaling credit scores could be deteriorating.
As a result, FICO introduced a new credit measure yesterday—the FICO Resilience Index, which will complement the FICO Score and “helps lenders, borrowers, and investors make more informed and precise decisions in assessing risk during rapidly changing economic cycles.”
The FICO Resilience Index will take into account similar metrics, such as credit usage, payment history, number of accounts, credit history and current balances, to determine a borrower’s ability to withstand a period of economic disruption. The Index will rank borrowers on a scale of 1-99, with 1-44 being more resilient and 70-99 being very sensitive to shifting economic conditions.
The FICO Resilience Index is a result of research conducted by FICO on more than 70 million consumer credit files from the Great Recession, which found that those with lower FICO Scores paid their credit obligations under double-digit unemployment and low consumer confidence.
Using the new FICO Resilience Index will benefit both lenders and borrowers, by enabling credit to better flow during periods of economic disruption. The tool is designed to provide insight into “latent risk” that is not evident in a strong economy but shows up during downturns.
“It turns out there are tens of millions of consumers that have lower FICO scores, below 700, that do relatively well in a recession,” FICO Scores executive vice president Jim Wehmann said. “For the very first time, we can help lenders and consumers identify those who are going to be more sensitive to the downturn and those that are going to be just fine.”
FICO will initially distribute the FICO Resilience Index scores to lenders that are already using FICO Scores. FICO is also planning to enable consumers to view their FICO Resilience Index score so they can determine how they can improve it.
With various lenders already tightening credit standards amid the coronavirus, hopefully this new measure from FICO will prevent consumers who can weather deteriorating economic conditions from being cut off from borrowing.
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Goldman: We “Don’t Love Risk/Reward Up Here… Starting To Worry About Valuation” Tyler Durden
Tue, 06/30/2020 – 14:40
By Tony Pasquariello, global head of HF Sales at Goldman Sachs
The dominant narrative of the week was a return to trading COVID headlines, as the worst period for US case growth since April served as disruption for those expecting business-as-usual trading conditions this summer.
Along the way, stock operators absorbed another heavy dose of deal supply — adding to what will be a record month and record quarter for US new issue — with quarter end looming. On the week, S&P lost 2.9%, although one can reasonably argue the market traded with decently thick skin.
In fact, when you get below the hood of the major indices, there were a number of sub-plots that were patently bullish — witness the breakout in biotech or the ongoing (and blistering) surge in high valuation software stocks.
In the end, I think you have to be a little impressed with the market’s ability compartmentalize the risk factors and manage through some genuine headwinds.
At the same time, however, it’s getting harder to dismiss the argument that certain parts of the equity complex are approaching bubble territory … more on all of this below, which a chart heavy note that you can get through in less than five minutes.
* * *
1. Market direction: I admit to not loving risk/reward up here. one can see the tactical argument quickly turning to “quarter end is nigh, the fast hands in retail are very long and it’s naïve to think the reopening will be a smooth process.” when coupled with the news on case growth, and a growing set of known unknowns, it’s not crazy to expect some struggle around current prices (notably, a confluence of key levels). That said, the dangerous thing about being short risk assets right now is the Fed is still going full throttle; so too is one segment the largest holder of domestic equities, the younger vintage of US households.
As a wise macro trader recently said, stocks follow liquidity — recall that GIR expects zero rates for 4-5 years (and another $1.5tr of fiscal support this summer; link). in the end, if you strip everything else out of the equation, you’re left with two dominant investment forces right now: the Fed and the US retail investor. They are both driving very fast in the same lane. Yes, I’m concerned about how this story ends — but, note the following chart, a simple overlay of the Fed’s balance sheet and NDX. We started the year at $4.22 tr. GIR expects to end the year at $7.75tr and to end 2021 at … $8.9tr (link).
2. Flows/positioning. A mark-to-market on some key actors:
i. quarterly derivatives expiry has come and gone, in the process we burned off ~ $2tr of open interest in S&P options. To an extent, the print lived up to its billing with a very high SQ (3161 in SPX). again, I’m a believer that one needs to respect the occasional power of expiry to mark inflection points, so I tend to think 3161 becomes a level to watch overhead in the near-term. I don’t want to make too much of quarter end rebalance — it’s exceptionally well socialized — but, it does suggest some programmatic selling needs to be absorbed.
ii. Within the institutional trading community, systematic funds are generally inconsequential at current market levels (link). Discretionary funds are still decently risked up, more with respect to net exposure than gross exposure on our books (and noting the micro community is more sanguine than the macro community, where sentiment remains perceptibly negative). All taken together, I don’t see any big asymmetry in hedge fund land.
iii. The bifurcation continues within the retail community. Again, an older generation continues to make sales via mutual funds and ETFs (link); a younger generation continue to trade stocks like it’s 1999 (“free trades, jackpot dreams lure small investors to options”; link). At some point, the $64,000 question is … where are we in the retail cycle? Having lived through the late 90’s, I tend to think the recent euphoria can persist a bit longer.
iv. The market continues to do a commendable job of absorbing round after round of record corporate new issue (which is to say, $230bn in the past seven weeks, with half of that in the US). It’s totally remarkable to me that the dynamics around corporate supply-and-demand have changed so enormously in the past three months, and yet the market has largely powered through it all.
v. To pull a few positioning angles together, this chart tells a certain story. The dark blue line is US equity index futures positioning (non-dealers), as reported by the CFTC. the light blue line is the number of distinct positions open on the Robinhood trading platform in S&P 500 stocks (credit Ben Snider, GIR). These are apples and oranges … we’re comparing $’s vs line items here … And, it’s by no means an all-inclusive capture of all market participants … But, I do think this illustrates a stark disjunction between one segment of the professional trading community and one segment of the retail trading community:
3. Volatility: the market has obviously recovered hugely from the lows of March. That said, volume and volatility remain elevated. Put another way, S&P over 3000 and VIX over 34 is not something many would have predicted just a few months ago. So, as you can see in the clever chart below from GIR (link), implied volatility has remained sticky in a very unusual way. Is this a signal or is this noise? I suspect it’s reflective of a handful of factors:
i. The market continues to realize a decently high level of actual volatility. While clearly things aren’t as unhinged as they were in March — when three consecutive days featured +9% / -12% / +6% moves — the fact is 1-month realized volatility is still 32%.
ii. While the broader market feels a bit complacent to me on the US election, the vol market isn’t necessarily. Again, November expiry features the peak of both term structure and put-call skew.
iii. Furthermore, intuit what the current VIX level mathematically implies. Bluntly speaking (i.e. more back-of-the-envelope vs deeper math), a 34 VIX signals 2-in-3 odds the market will be +/- 34% from here over the next one year. it also implies for the next month an average daily move of around 1.7%. I don’t think this is so off-market given the range of possible outcomes.
iv. On flow-of-funds, it seems quite reasonable to assume the dynamics around the supply of volatility are very different today than they were at the start of the year.
v. The moral of this story: vol is high. As you can see here, it’s been sticky in a very aberrational way. My guess is that while yield hunters ultimately find their way back to the supply side, the current story persists a bit longer. GIR: “the potential for the current high vol regime to linger for longer remains high, in our view. As we have written before, volatility tends to cluster: since 1928 there have been several high and low vol regimes during which S&P 500 realised volatility has clustered for prolonged periods of time (at least six months) in the bottom (<10%) and top (>18%) quartile, and on average such high vol regimes lasted 26 months. our volatility regime model, which aggregates macro, macro uncertainty and markets indicators suggests close to a 100% probability of a high volatility regime in the near term” (link).
4.Quick Points:
i. Economics: GIR’s updated profile for US GDP growth: Q2 -33%, Q3 +33% and Q4 +8%. That rolls up to FY ’20 -4.2%, an upgrade vs the previous forecast of -5.2%. further note that US GDP returns to the pre-virus base level in mid-’21 (that doesn’t sound so bad, does it). the full note: link.
ii. A steady and significant decline in market liquidity has been an inconvenient truth of the past ten years. Like many things, that decline went into overdrive during the collapse. I find that discussion of illiquidity receives a lot of air time when markets are breaking down. by comparison, it receives much less attention on the way back up … but, that shouldn’t suggest it isn’t a contributing factor to price action in rallies.
iii. Maybe I shouldn’t have been surprised by this, but I was (emphasis mine; feel free to visualize the chart of asset growth in money markets as you’re reading this): “the third implication is that the private sector may react to the increase in cash and deposit holdings forced on it by the Fed by seeking other, riskier higher yielding assets. in fact, this is a major motivation of quantitative easing. by reducing the supply of safe assets and increasing the amount of deposits that the private sector must hold, the Fed generates a demand by the private sector for more risky assets. the result is a rise in financial-asset valuations and an easing of financial conditions. the Fed’s asset purchases change the mix of assets available to be held by private investors and this influences asset valuations.” Bill Dudley, “A $10 Trillion Fed Balance Sheet Is Coming” (link).
iv. I didn’t favor European assets coming into the crisis, and I don’t favor them now. For the sake of balance, however, this from GIR is notable: “we therefore expect a steeper and smoother rebound from the coronacrisis in Europe than the US. although we have recently upgraded our forecasts on both sides of the Atlantic, we now look for significantly stronger growth in the Euro area than the US over the next two years. while much of this reflects the unwind of the sharper activity drop in Europe, a sustained period of European growth outperformance has not been seen since 2006-07. consistent with this, our markets team expects European assets to outperform over the next year. our equity strategists see more upside in Europe than the US in coming months and raised European equities to overweight in our asset allocation, although they are less convinced that Europe can outperform longer term. on the fixed income side, we expect the Euro to strengthen against the dollar, reaching 1.17 in twelve months, and see a more gradual sell-off in Bunds than Treasuries” (link). here’s one simple compare/contrast … US GDP profile: -4.2% ’20, +5.8% ’21, +3.2% ’22. EU GDP profile: -9.4% ’20, +8.8% ’21, +3.6% ’22.
* * *
5. The attached note from Peter Oppenheimer is a treasure trove for market aficionados. here are three charts that stuck out to me:
i. sales & trading colleague Brian Friedman and I have a long-standing debate about how much of the post-crisis equity rally has been driven by the multiple (as influenced by lower real rates) and how much has been more “genuine.” I think this graph allows us both to claim victory. yes, P/E expansion has been the single largest factor in the rally; that said, P/E expansion accounts for less than half of the total rally:
ii. On the topic of US vs Europe, again the story of US outperformance largely traces back to an EPS differential (driven by a sector differential):
iii. You’ve seen this before, and it continues to speak for itself:
6. As a wise macro trader once said, lower-for-longer is very stimulative for the multiples of secular growers. This reminds me a little of the amplifier discussion from This Is Spinal Tap: “these go to eleven.” “does that mean it’s louder?” “well, it’s one louder isn’t it?” … (link). to circle back to where this email started, yes, I’m starting to worry about valuation in certain parts of the market. If the Fed keeps expanding their balance sheet and pressing real rates lower, however, it’s not obvious to me that the normal rules will apply in the near-term. The blue line here is inverted US 10yr real rates; the blue line is NDX:
Source for charts: GIR, Bloomberg
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This morning, the Supreme Court issued its decision in Espinoza v. Montana, striking down Montana’s state constitutional Blaine Amendment, which forbids state aid to “any church, school, academy, seminary, college, university, or other literary or scientific institution, controlled in whole or in part by any church, sect, or denomination.” The decision overrules a Montana Supreme Court decision striking down a state school choice program that had provided tax credits on an equal basis to students attending both religious and secular private schools. The ruling is an important victory for religious freedom, specifically the principle that government policy should not discriminate between private organizations and citizens on the basis of religion.
The decision is a close 5-4 ruling, split along ideological lines with the five conservative justices in the majority, and the four liberals all dissenting. To my mind, that is unfortunate. Striking down blatant government discrimination on the basis of religion should not be so controversial and divisive.
While there are a number of complexities in the case, Chief Justice John Roberts’ majority opinion effectively captures the main issue:
The Free Exercise Clause, which applies to the States under the Fourteenth Amendment, “protects religious observers against unequal treatment” and against “laws that impose special disabilities on the basis of religious status.” Trinity Lutheran….Those “basic principle[s]” have long guided this Court….
Most recently, Trinity Lutheran distilled these and other decisions to the same effect into the “unremarkable” conclusion that disqualifying otherwise eligible recipients from a public benefit “solely because of their religious character” imposes “a penalty on the free exercise of religion that triggers the most exacting scrutiny….”
Montana’s no-aid provision bars religious schools from public benefits solely because of the religious character of the schools. The provision also bars parents who wish to send their children to a religious school from those same benefits, again solely because of the religious character of the school. This is apparent from the plain text. The provision bars aid to any school “controlled in whole or in part by any church, sect, or denomination.” Mont. Const., Art. X, §6(1). The provision’s title—”Aid prohibited to sectarian schools”—confirms that the provision singles out schools based on their religious character….
When otherwise eligible recipients are disqualified from a public benefit “solely because of their religious character,” we must apply strict scrutiny. Trinity Lutheran…
The Blaine Amendment doesn’t exclude only those religious schools which fail to meet neutral educational standards, or have some other kind of flaw. They are barred from receiving state assistance for which similar secular institutions are eligible. That is clearly discrimination on the basis of religion, if anything is. The opinion goes on to explain that the Blaine Amendment cannot possibly survive strict scrutiny, as there is no narrowly tailored state interest that can justify a categorical ban on aid to religious schools, while simultaneously permitting aid to otherwise similar secular ones.
The dissenting justices argue that state governments must be free to discriminate against religious institutions in at least some instances, in order to avoid Establishment Clause programs. Here, for example, is a relevant passage from Justice Sotomayor’s dissent:
Contra the Court’s current approach, our free exercise precedents had long granted the government “some room to recognize the unique status of religious entities and to single them out on that basis for exclusion from otherwise generally applicable laws…..”
Here, a State may refuse to extend certain aid programs to religious entities when doing so avoids “historic and substantial” antiestablishment concerns. Locke [v. Davey], 540 U. S., at 725…. Indeed, one of the concurrences lauds petitioners’ spiritual pursuit, acknowledging that they seek state funds for manifestly religious purposes like “teach[ing] religion” so that petitioners may “outwardly and publicly” live out their religious tenets. Ante, at 3 (opinion of GORSUCH, J.). But those deeply religious goals confirm why Montana may properly decline to subsidize religious education. Involvement in such spiritual matters implicates both the Establishment Clause, see Cutter, 544 U. S., at 714, and the free exercise rights of taxpayers, “denying them the chance to decide for themselves whether and how to fund religion…”
This is a longstanding argument offered by defenders of discriminatory exclusion of religious institutions from government education programs. But it is dangerously flawed. If there is a violation of the Establishment Clause or the Free Exercise Clause any time the state provides assistance that helps religious people engage in “spiritual pursuits,” then the same argument can be used to justify excluding religious institutions from virtually any government service or tax credit. If the government provides police and fire department protection to religious institutions on the same basis as secular ones, that facilitates worshippers’ “spiritual pursuits” and denies taxpayers ” the chance to decide for themselves whether and how to fund religion.” The same point applies if the government gives tax exemptions to religious charities on the same basis as secular ones (as both the federal and state governments routinely do).
You don’t have to adopt many conservatives’ unduly narrow interpretation of the Establishment Clause (which they interpret as barring only the establishment of an official church or as directly coercing people to take part in its services) to recognize that nondiscrimination is not establishment. Even if government endorsement of religion also qualifies as an “establishment,” merely treating religious institutions the same as secular ones does not count as such an endorsement. For example, no one claims that the government endorses religion when it gives legal effect to religious wedding ceremonies on the same basis as purely secular ones.
There is an in-depth debate between the majority and the dissenters over whether Espinoza can be distinguished from the Court’s 2004 decision in Locke v. Davey, which upheld a state law denying scholarships to students pursuing degrees in “devotional theology” for the purpose of studying for the ministry. I think Roberts has the better of this debate, but I will not try to cover it in detail here. I would note, however, that there is an obvious difference between refusing to fund studies for a degree devoted to a specific subject matter, and categorically denying funding to all students attending religious institutions, even if they meet the curricular standards required for secular schools to be eligible for assistance.
Funding of education necessarily requires some criteria for determining which subjects have to be taught in order to qualify. Otherwise, the state would end up subsidizing attendance at institutions that only teach material that is completely irrelevant to the state’s educational objectives—for example a school whose curriculum consists solely of training to repair obsolete typewriters. Imposing neutral curricular requirements in a scholarship program is different from categorically barring participation by religious schools, even if they cover the subjects required by the state just as well as secular ones do.
Two of the dissenters—and many of Montana’s supporters in the legal academy—argue that there is no actual discrimination on the basis of religion here, because the net effect of the Montana Supreme Court’s ruling enforcing the Blaine Amendment was to invalidate the entire school choice program, thereby denying aid to both religious and secular private schools. For example, Justice Ruth Bader Ginsburg argues that Montana simply “put all private school parents in the same boat.”Roberts has a good response to that point:
The Montana Legislature created the scholarship program; the Legislature never chose to end it, for policy or other reasons. The program was eliminated by a court, and not based on some innocuous principle of state law. Rather, the Montana Supreme Court invalidated the program pursuant to a state law provision that expressly discriminates on the basis of religious status. The Court applied that provision to hold that religious schools were barred from participating in the program. Then, seeing no other “mechanism” to make absolutely sure that religious schools received no aid, the court chose to invalidate the entire program….
The final step in this line of reasoning eliminated the program, to the detriment of religious and non-religious schools alike. But the Court’s error of federal law occurred at the beginning. When the Court was called upon to apply a state law no-aid provision to exclude religious schools from the program, it was obligated by the Federal Constitution to reject the invitation…. Because the elimination of the program flowed directly from the Montana Supreme Court’s failure to follow the dictates of federal law, it cannot be defended as a neutral policy decision..
Imagine that a state legislature enacted a school choice program similar to Montana’s, and that the state supreme court then struck it down because it violated a provision in the state constitution barring state aid to racially integrated schools. The state could then argue there was no racial discrimination here, because the end result of the ruling was that students attending both segregated and integrated private schools are denied tax credits. Few would deny that the state government would be acting unconstitutionally in such a case, because the denial of tax credits was the result of a provision in state law that explicitly discriminates on the basis of race. The Montana Supreme Court ruling enforcing the Blaine Amendment in Espinoza qualifies as discrimination on the basis of religion, for exactly the same reason.
Montana remains free to deny state assistance to all private schools alike. But it cannot do so on the basis of a state law that requires discrimination on the basis of religion, and thereby leads to the invalidation of tax credit programs that do not themselves discriminate in this way.
Finally, it is worth mentioning the fact that Montana’s original Blaine Amendment was enacted in 1889, as part of a nationwide Blaine Amendment movement motivated by bigotry against Catholic immigrants. Justice Alito discusses the relevant history in some detail in his concurring opinion. Normally, this kind of bigoted motivation would be enough to strike down a government policy, even if it was ostensibly neutral on its face. Here, the issue of motivation is not crucial, because the Blaine Amendment does in fact discriminate on the basis of religion on its face. It explicitly discriminates against religious schools, relative to secular ones.
However, I also agree with the argument that the bigoted motivation behind the law provides an independent basis for striking down Blaine Amendments. If the enactment of a seemingly neutral law or policy is motivated by unconstitutional discrimination on the basis of religion (or some other forbidden criterion), it should be invalidated unless the government provides strong evidence that it would have enacted the same law or policy even in the absence of unconstitutional motives. I have defended this principle in other contexts, such as the Trump travel ban case, and it applies here too. It is unfortunate that both liberal and conservative justices seem to apply it inconsistently, depending on whose ox is being gored in the particular case at hand.
In the case of Montana, this is is admittedly complicated by the fact that the Blaine Amendment was reenacted in 1972, as part of the process of drafting a new state constitution. The 1972 framers arguably did not have the same bigoted motives as those who enacted the 1889 version.
This raises the issue of whether the reenactment “cleanses” the taint created by the bigotry of the 1880s. I cannot fully do justice to this complicated issue in a blog post that is already too long. But I will say that such “cleansing” can only occur if the reasons for reenactment are not themselves tainted by unconstitutional motives. In this case, such a standard will be difficult to meet, because the Amendment discriminates on the basis of religion on its face. Thus, the motives for reenactment necessarily involve some form of discriminatory hostility towards religious institutions, even if no longer focused primarily on Catholics. In his opinion, Alito makes some additional points on why the 1972 reenactment remained tainted by unconstitutional motives. He also (correctly) points out that the reenactment issue does not arise in the case of the many states that still have Blaine Amendments dating back to the original 19th century Blaine movement, and not reenacted since.
Ultimately, the issue of motive isn’t crucial in this case. It is enough that the Montana provision discriminates against religious institutions on its face.
While I am happy about the result of this decision, I am troubled, though not surprised, by the 5-4 division along ideological lines, which replicates the one that happened in the 2018 travel ban case (with the exception of Justice Kennedy, who has since retired from the Court). The conservative justices who turned a blind eye to religious discrimination in the travel ban case consider it imperative to strike it down here. The liberal justices, for their part, have the opposite bias. That ideological division is likely to be replicated in commentators’ reactions to the ruling, as well. It is, I fear another example of how both liberals and conservatives are often inconsistent in their approach to issues of religious discrimination.
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The House of Representatives voted on Friday to recognize the District of Columbia as the 51st state.
The bill, H.R. 51, passed 232-180, predominantly along partisan lines. Every Democrat but Rep. Collin Peterson (D–Minn.) voted for it, while most Republicans—and Libertarian Rep. Justin Amash (Mich.)—voted against it. Nineteen Republicans abstained.
The bill would rename the District of Columbia as the Douglass Commonwealth, a tribute to Frederick Douglass that keeps the D.C. abbreviation. The new state would be granted two representatives and one senator with full congressional voting rights—a privilege the District does not currently enjoy. It would also carve out a much smaller federal district consisting of a cluster of government offices and buildings.
An earlier D.C. statehood bill, also titled H.R. 51, made it to the floor of the House in 1992, but failed in a 153-277 vote.
A surge of attention to contemporary racial justice issues has prompted a renewed interest in the cause. Racial minorities are a majority of D.C.’s residents, and some advocates have come to view the District’s lack of congressional representation as a form of racism.
While the House vote marks a huge win for advocates and brings D.C. closer than ever to statehood, there are still significant obstacles ahead.
Some critics argue that D.C. statehood may require a constitutional amendment. According to Cornell’s Legal Information Institute, the District was created to be “removed from the control of any state” under the jurisdiction of Congress. Although the House bill ostensibly corrects for this by outlining new, smaller borders for a federal district, Cato Institute legal scholar Roger Pilon argues that because the Constitution draws no distinction between the seat of government and the federal district, the current borders must remain intact.
Other critics dismiss the push for D.C. statehood as a ploy to increase Democratic sway in Congress. “D.C. will never be a state,” President Donald Trump told the New York Post. “Why? So we can have two more Democratic—Democrat senators and five more congressmen? No thank you. That’ll never happen.”
One way to alleviate such concerns would be to create two new states, one that leans Democrat, the other that leans Republican. A proposal by RealClearPolitics columnist Frank Mieli argues that both the District and a predominantly Republican region, such as eastern Washington state, be granted statehood.
Still other critics of D.C. statehood argue that most of the District’s current land could be retroceded to its northern neighbor, Maryland. Under such a plan, the residential areas of the District would become Douglass County.
D.C. has retroceded land in the past to Virginia, and the city was built on territory gifted by Virginia and Maryland. Because this proposal does not involve adding any new members to Congress, it would avoid upsetting the current political balance in that body.
The idea of granting statehood to D.C. is very popular among residents of the city, but most of the rest of the country remains either opposed or indifferent to the issue. Indeed, a Hill-HarrisX poll found that 52 percent of Americans reject the idea. While support has jumped from 29 percent last year, the statehood movement still has many hearts and minds to win over.
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This morning, the Supreme Court issued its decision in Espinoza v. Montana, striking down Montana’s state constitutional Blaine Amendment, which forbids state aid to “any church, school, academy, seminary, college, university, or other literary or scientific institution, controlled in whole or in part by any church, sect, or denomination.” The decision overrules a Montana Supreme Court decision striking down a state school choice program that had provided tax credits on an equal basis to students attending both religious and secular private schools. The ruling is an important victory for religious freedom, specifically the principle that government policy should not discriminate between private organizations and citizens on the basis of religion.
The decision is a close 5-4 ruling, split along ideological lines with the five conservative justices in the majority, and the four liberals all dissenting. To my mind, that is unfortunate. Striking down blatant government discrimination on the basis of religion should not be so controversial and divisive.
While there are a number of complexities in the case, Chief Justice John Roberts’ majority opinion effectively captures the main issue:
The Free Exercise Clause, which applies to the States under the Fourteenth Amendment, “protects religious observers against unequal treatment” and against “laws that impose special disabilities on the basis of religious status.” Trinity Lutheran….Those “basic principle[s]” have long guided this Court….
Most recently, Trinity Lutheran distilled these and other decisions to the same effect into the “unremarkable” conclusion that disqualifying otherwise eligible recipients from a public benefit “solely because of their religious character” imposes “a penalty on the free exercise of religion that triggers the most exacting scrutiny….”
Montana’s no-aid provision bars religious schools from public benefits solely because of the religious character of the schools. The provision also bars parents who wish to send their children to a religious school from those same benefits, again solely because of the religious character of the school. This is apparent from the plain text. The provision bars aid to any school “controlled in whole or in part by any church, sect, or denomination.” Mont. Const., Art. X, §6(1). The provision’s title—”Aid prohibited to sectarian schools”—confirms that the provision singles out schools based on their religious character….
When otherwise eligible recipients are disqualified from a public benefit “solely because of their religious character,” we must apply strict scrutiny. Trinity Lutheran…
The Blaine Amendment doesn’t exclude only those religious schools which fail to meet neutral educational standards, or have some other kind of flaw. They are barred from receiving state assistance for which similar secular institutions are eligible. That is clearly discrimination on the basis of religion, if anything is. The opinion goes on to explain that the Blaine Amendment cannot possibly survive strict scrutiny, as there is no narrowly tailored state interest that can justify a categorical ban on aid to religious schools, while simultaneously permitting aid to otherwise similar secular ones.
The dissenting justices argue that state governments must be free to discriminate against religious institutions in at least some instances, in order to avoid Establishment Clause programs. Here, for example, is a relevant passage from Justice Sotomayor’s dissent:
Contra the Court’s current approach, our free exercise precedents had long granted the government “some room to recognize the unique status of religious entities and to single them out on that basis for exclusion from otherwise generally applicable laws…..”
Here, a State may refuse to extend certain aid programs to religious entities when doing so avoids “historic and substantial” antiestablishment concerns. Locke [v. Davey], 540 U. S., at 725…. Indeed, one of the concurrences lauds petitioners’ spiritual pursuit, acknowledging that they seek state funds for manifestly religious purposes like “teach[ing] religion” so that petitioners may “outwardly and publicly” live out their religious tenets. Ante, at 3 (opinion of GORSUCH, J.). But those deeply religious goals confirm why Montana may properly decline to subsidize religious education. Involvement in such spiritual matters implicates both the Establishment Clause, see Cutter, 544 U. S., at 714, and the free exercise rights of taxpayers, “denying them the chance to decide for themselves whether and how to fund religion…”
This is a longstanding argument offered by defenders of discriminatory exclusion of religious institutions from government education programs. But it is dangerously flawed. If there is a violation of the Establishment Clause or the Free Exercise Clause any time the state provides assistance that helps religious people engage in “spiritual pursuits,” then the same argument can be used to justify excluding religious institutions from virtually any government service or tax credit. If the government provides police and fire department protection to religious institutions on the same basis as secular ones, that facilitates worshippers’ “spiritual pursuits” and denies taxpayers ” the chance to decide for themselves whether and how to fund religion.” The same point applies if the government gives tax exemptions to religious charities on the same basis as secular ones (as both the federal and state governments routinely do).
You don’t have to adopt many conservatives’ unduly narrow interpretation of the Establishment Clause (which they interpret as barring only the establishment of an official church or as directly coercing people to take part in its services) to recognize that nondiscrimination is not establishment. Even if government endorsement of religion also qualifies as an “establishment,” merely treating religious institutions the same as secular ones does not count as such an endorsement. For example, no one claims that the government endorses religion when it gives legal effect to religious wedding ceremonies on the same basis as purely secular ones.
There is an in-depth debate between the majority and the dissenters over whether Espinoza can be distinguished from the Court’s 2004 decision in Locke v. Davey, which upheld a state law denying scholarships to students pursuing degrees in “devotional theology” for the purpose of studying for the ministry. I think Roberts has the better of this debate, but I will not try to cover it in detail here. I would note, however, that there is an obvious difference between refusing to fund studies for a degree devoted to a specific subject matter, and categorically denying funding to all students attending religious institutions, even if they meet the curricular standards required for secular schools to be eligible for assistance.
Funding of education necessarily requires some criteria for determining which subjects have to be taught in order to qualify. Otherwise, the state would end up subsidizing attendance at institutions that only teach material that is completely irrelevant to the state’s educational objectives—for example a school whose curriculum consists solely of training to repair obsolete typewriters. Imposing neutral curricular requirements in a scholarship program is different from categorically barring participation by religious schools, even if they cover the subjects required by the state just as well as secular ones do.
Two of the dissenters—and many of Montana’s supporters in the legal academy—argue that there is no actual discrimination on the basis of religion here, because the net effect of the Montana Supreme Court’s ruling enforcing the Blaine Amendment was to invalidate the entire school choice program, thereby denying aid to both religious and secular private schools. For example, Justice Ruth Bader Ginsburg argues that Montana simply “put all private school parents in the same boat.”Roberts has a good response to that point:
The Montana Legislature created the scholarship program; the Legislature never chose to end it, for policy or other reasons. The program was eliminated by a court, and not based on some innocuous principle of state law. Rather, the Montana Supreme Court invalidated the program pursuant to a state law provision that expressly discriminates on the basis of religious status. The Court applied that provision to hold that religious schools were barred from participating in the program. Then, seeing no other “mechanism” to make absolutely sure that religious schools received no aid, the court chose to invalidate the entire program….
The final step in this line of reasoning eliminated the program, to the detriment of religious and non-religious schools alike. But the Court’s error of federal law occurred at the beginning. When the Court was called upon to apply a state law no-aid provision to exclude religious schools from the program, it was obligated by the Federal Constitution to reject the invitation…. Because the elimination of the program flowed directly from the Montana Supreme Court’s failure to follow the dictates of federal law, it cannot be defended as a neutral policy decision..
Imagine that a state legislature enacted a school choice program similar to Montana’s, and that the state supreme court then struck it down because it violated a provision in the state constitution barring state aid to racially integrated schools. The state could then argue there was no racial discrimination here, because the end result of the ruling was that students attending both segregated and integrated private schools are denied tax credits. Few would deny that the state government would be acting unconstitutionally in such a case, because the denial of tax credits was the result of a provision in state law that explicitly discriminates on the basis of race. The Montana Supreme Court ruling enforcing the Blaine Amendment in Espinoza qualifies as discrimination on the basis of religion, for exactly the same reason.
Montana remains free to deny state assistance to all private schools alike. But it cannot do so on the basis of a state law that requires discrimination on the basis of religion, and thereby leads to the invalidation of tax credit programs that do not themselves discriminate in this way.
Finally, it is worth mentioning the fact that Montana’s original Blaine Amendment was enacted in 1889, as part of a nationwide Blaine Amendment movement motivated by bigotry against Catholic immigrants. Justice Alito discusses the relevant history in some detail in his concurring opinion. Normally, this kind of bigoted motivation would be enough to strike down a government policy, even if it was ostensibly neutral on its face. Here, the issue of motivation is not crucial, because the Blaine Amendment does in fact discriminate on the basis of religion on its face. It explicitly discriminates against religious schools, relative to secular ones.
However, I also agree with the argument that the bigoted motivation behind the law provides an independent basis for striking down Blaine Amendments. If the enactment of a seemingly neutral law or policy is motivated by unconstitutional discrimination on the basis of religion (or some other forbidden criterion), it should be invalidated unless the government provides strong evidence that it would have enacted the same law or policy even in the absence of unconstitutional motives. I have defended this principle in other contexts, such as the Trump travel ban case, and it applies here too. It is unfortunate that both liberal and conservative justices seem to apply it inconsistently, depending on whose ox is being gored in the particular case at hand.
In the case of Montana, this is is admittedly complicated by the fact that the Blaine Amendment was reenacted in 1972, as part of the process of drafting a new state constitution. The 1972 framers arguably did not have the same bigoted motives as those who enacted the 1889 version.
This raises the issue of whether the reenactment “cleanses” the taint created by the bigotry of the 1880s. I cannot fully do justice to this complicated issue in a blog post that is already too long. But I will say that such “cleansing” can only occur if the reasons for reenactment are not themselves tainted by unconstitutional motives. In this case, such a standard will be difficult to meet, because the Amendment discriminates on the basis of religion on its face. Thus, the motives for reenactment necessarily involve some form of discriminatory hostility towards religious institutions, even if no longer focused primarily on Catholics. In his opinion, Alito makes some additional points on why the 1972 reenactment remained tainted by unconstitutional motives. He also (correctly) points out that the reenactment issue does not arise in the case of the many states that still have Blaine Amendments dating back to the original 19th century Blaine movement, and not reenacted since.
Ultimately, the issue of motive isn’t crucial in this case. It is enough that the Montana provision discriminates against religious institutions on its face.
While I am happy about the result of this decision, I am troubled, though not surprised, by the 5-4 division along ideological lines, which replicates the one that happened in the 2018 travel ban case (with the exception of Justice Kennedy, who has since retired from the Court). The conservative justices who turned a blind eye to religious discrimination in the travel ban case consider it imperative to strike it down here. The liberal justices, for their part, have the opposite bias. That ideological division is likely to be replicated in commentators’ reactions to the ruling, as well. It is, I fear another example of how both liberals and conservatives are often inconsistent in their approach to issues of religious discrimination.
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If history is any guide, we could be heading toward $4,000 gold. This according to analysis by US Global CEO Frank Holmes.
Holmes recently appeared on Kitco News and showed how the price of gold has historically correlated with the expansion of the Federal Reserve’s balance sheet. We’ve already seen the balance sheet balloon by over $3 trillion in response to the coronavirus pandemic and it currently stands at over $7 trillion. Holmes said he thinks the central bank will likely grow its balance sheet to $10 trillion before all is said and done. Given the historical trends, that’s extremely bullish for gold.
In the next three years, if we look back, if [history] repeats itself, from 2008, 2009 to 2011, that three year run from ’09 saw gold go from a $750 – $800 range up to $1,900. If we forecast that because we have the same expansion of the balance sheet of the Fed then it would project, if cycles are exactly the same, gold could go to $4,000.”
Holmes said there was a significant difference in the run-up to the 2008 crash and the years leading up to the current crisis. Before ’08, G20 finance ministers and government agencies were generally pro-growth and pro-trade. Ever since the ’08 crash, policy has revolved around synchronized taxation and regulation.
Now it’s synchronized money printing, monetary, fiscal stimulus that we’ve never seen.”
Consider this: when Alan Greenspan left the Fed, the central bank’s balance sheet was about 6% of GDP. Today, it has risen to 33%.
And this is how much money that Powell has to throw at this because of the coronavirus and the synchronized shutdown of the world. This is unprecedented. So, I think hard assets trade higher.”
Holmes used the word “unprecedented” to describe the Fed’s actions several times during the interview. He noted that the central bank has gone far beyond the QE programs during the Great Recession and is now buying corporate ETF’s and even individual corporate bonds.
They’re doing everything to maintain interest rates, not just corporately, but also from the government, low and negative so they can get this economic engine turning. And I think bad news ends up being good news when you look at the world of gold because the government is going to continue to print money.”
Peter Schiff has been warning we’re on the verge of a dollar crisis, recently saying, “There is nothing to stop the dollar from collapsing.” Holmes agrees with Peter. He didn’t use the term “dollar crisis,” but he did say he expects the greenback to see “a correction adversely related” to the $4,000 run in gold.
Holmes also said he sees price inflation in our future.
I think what will happen is the government will be slow and reluctant to raise rates while CPI trades higher, and therefore more and more government bonds have negative real rates of return. And remember, I said to synchronize, the cartel, the G20 finance ministers, that means we’re going to get a scenario which is greater than last August when there’s so much negative real bonds around the world. That will soar gold over $2,000. … I think by Christmas.”
via ZeroHedge News https://ift.tt/2AlWPPw Tyler Durden
Antifa Terrorist Fires Handgun Into SUV During Utah BLM Protest Tyler Durden
Tue, 06/30/2020 – 14:00
At least one shot was fired into a white SUV at a Provo, Utah BLM rallyon Monday, reportedly putting a 60-year-old man in the hospital.
Footage shows a white Ford Excursion pushing its way past a group of protesters blocking the intersection of Center Street and North University. As the driver is nearly free of the group, a masked man dressed in black-bloc attire can be seen firing a handgun into the cab.
Zoomed in and slowed down video of the anti-police militant firing a handgun into the vehicle as it attempted to escape the mob. pic.twitter.com/qsAIb24NG2
A video of the confrontation with the white Excursion was captured by a Daily Universe student journalist, Lisi Merkley. In the video, the vehicle can be seen pushing through protesters attempting to gather in front of it, picking up speed as it goes while protesters cry out. At least one person falls to the ground before the SUV speeds away.
Another video by KSL-TV shows what appears to be a man in a mask pointing a gun at the passenger side of the white Excursion as it pushes forward. A loud popping sound is heard and a flash is seen from the barrel of the gun.
Protester Betsy Croft, who witnessed the incident with the SUV, claimed that there were “three to four cars that have been trying to run into the groups of people that are congregating at the main intersections in Provo,” adding “This is a peaceful protest so that kind of action is unwarranted and clearly an attempt to be violent.”
Peaceful indeed, Betsy.
The 60-year-old man underwent surgery and has non-life threatening injuries, according to KUTV. Police have yet to locate a suspect.
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The U.S. Supreme Court delivered a major victory today for both school choice and religious liberty advocates. “A State need not subsidize private education,” declared Chief Justice John Roberts. “But once a State decides to do so, it cannot disqualify some private schools solely because they are religious.”
The case is Espinoza v. Montana Department of Revenue. It centered on a 2015 scholarship program created by the Montana legislature “to provide parental and student choice in education.” The program functioned by offering a tax credit to individuals and businesses who donated to private, nonprofit scholarship organizations, which used those donations to fund educational scholarships. Qualifying families could then use the scholarship dollars to help send their children to a “qualified education provider,” including religiously affiliated private schools.
But the Montana Supreme Court killed the scholarship program in 2018, holding that it violated a provision of the Montana Constitution which bars the use of public funds “for any sectarian purpose or to aid any church, school, academy, seminary, college, university, or other literary or scientific institution, controlled in whole or in party by any church, sect, or denomination.”
The Montana Supreme Court acknowledged that U.S. Supreme Court precedent—which has upheld the constitutionality of similar school choice programs—cut against its decision. But “we conclude that Montana’s Constitution more broadly prohibits ‘any’ state aid to sectarian schools and draws a ‘more stringent line than that drawn’ by its [federal] counterpart.” The state court, in other words, charted its own path in opposition to the federal jurisprudence laid down by SCOTUS.
Today the Supreme Court reversed the state court. “The Montana Supreme Court invalidated the program pursuant to a state law provision that expressly discriminates on the basis of religious status,” Chief Justice Roberts wrote for a 5-4 majority. That decision “burdens not only religious schools but also the families whose children attend or hope to attend them. Drawing on ‘enduring American tradition,'” he continued, “we have long recognized the rights of parents to direct ‘the religious upbringing’ of their children. Many parents exercise that right by sending their children to religious schools, a choice protected by the Constitution.”
“Given the conflict between the Free Exercise Clause and the application of the no-aid provision here,” Roberts concluded, “the Montana Supreme Court should have ‘disregard[ed]’ the no-aid provision and decided this case ‘conformably to the Constitution’ of the United States.”
The Supreme Court’s ruling in Espinoza v. Montana Department of Revenue is available here.
Read the Reason Foundation’s amicus brief in support of Kendra Espinoza here.
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Nearly a third of the 3,500 inmates incarcerated in San Quentin State Prison in California have tested positive for the coronavirus as of Monday.
California is one of the states seeing new spikes in COVID-19 infections, with nearly 225,000 infections across the state and 6,000 deaths as of Monday. Total deaths in the state still rank well below New York, which has had more than 31,000 deaths, but California is seeing new highs in the daily number of new infections as well as number of new deaths.
Nowhere is the spike more obvious than at San Quentin State Prison, north of San Francisco in Marin County. The prison accounts for half of all new COVID-19 infections among the state’s inmates. Up until May, San Quentin had managed to go without any reported infections at all. Now they have more than 1,000. A representative for the California Department of Corrections and Rehabilitation told USA Today that the prison is setting up tents within the prison to serve as triage space for handling new infections.
In a press conference on Monday, Gov. Gavin Newsom said it’s possible that the infections came to San Quentin via the transfer of prisoners from Chino, formally known as the California Institution for Men, located in San Bernardino County. According to NPR, the 122 prisoners who were transferred from Chino to San Quentin in late Maywere not tested before being moved. This is particularly foolish since prisoners were moved to San Quentin due to Chino’s own coronavirus outbreak and related overcrowding. (Currently, Chino has more than 500 active COVID-19 infections and has had 16 deaths.)
Newsom says California has released 3,500 inmates and has identified another 3,500 who could potentially be let out in order to reduce the level of crowding and thus the chances of the coronavirus spreading. The state has identified 110 inmates at San Quentin that could potentially be released soon. According to daily population data from California’s prison system, the state prison population is down more than 11,000 inmates from this same time last year.
Despite the new spike and California’s high prison population, the state’s prison system is still seeing fewer infections than in states like Texas and Ohio. Though The Marshall Projectnotes that 585 inmates in state and federal prisons have died of COVID-19 as of June 25, California has seen comparatively fewer prisoner deaths so far. Hopefully the prison system will learn from this disaster caused by poor planning in its prison transfers and will avoid creating new infection outbreaks. You can’t blame this one on bars and beachgoers.
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The U.S. Supreme Court delivered a major victory today for both school choice and religious liberty advocates. “A State need not subsidize private education,” declared Chief Justice John Roberts. “But once a State decides to do so, it cannot disqualify some private schools solely because they are religious.”
The case is Espinoza v. Montana Department of Revenue. It centered on a 2015 scholarship program created by the Montana legislature “to provide parental and student choice in education.” The program functioned by offering a tax credit to individuals and businesses who donated to private, nonprofit scholarship organizations, which used those donations to fund educational scholarships. Qualifying families could then use the scholarship dollars to help send their children to a “qualified education provider,” including religiously affiliated private schools.
But the Montana Supreme Court killed the scholarship program in 2018, holding that it violated a provision of the Montana Constitution which bars the use of public funds “for any sectarian purpose or to aid any church, school, academy, seminary, college, university, or other literary or scientific institution, controlled in whole or in party by any church, sect, or denomination.”
The Montana Supreme Court acknowledged that U.S. Supreme Court precedent—which has upheld the constitutionality of similar school choice programs—cut against its decision. But “we conclude that Montana’s Constitution more broadly prohibits ‘any’ state aid to sectarian schools and draws a ‘more stringent line than that drawn’ by its [federal] counterpart.” The state court, in other words, charted its own path in opposition to the federal jurisprudence laid down by SCOTUS.
Today the Supreme Court reversed the state court. “The Montana Supreme Court invalidated the program pursuant to a state law provision that expressly discriminates on the basis of religious status,” Chief Justice Roberts wrote for a 5-4 majority. That decision “burdens not only religious schools but also the families whose children attend or hope to attend them. Drawing on ‘enduring American tradition,'” he continued, “we have long recognized the rights of parents to direct ‘the religious upbringing’ of their children. Many parents exercise that right by sending their children to religious schools, a choice protected by the Constitution.”
“Given the conflict between the Free Exercise Clause and the application of the no-aid provision here,” Roberts concluded, “the Montana Supreme Court should have ‘disregard[ed]’ the no-aid provision and decided this case ‘conformably to the Constitution’ of the United States.”
The Supreme Court’s ruling in Espinoza v. Montana Department of Revenue is available here.
Read the Reason Foundation’s amicus brief in support of Kendra Espinoza here.
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