The following story from the 9/10/09 N.Y. Times tells how a large national bank, operating in many States, was directly involved with lending money to real-estate developers.
I guess this is, at the root, illegal if the lending bank has a financial interest in the building ventures. That would probably be in violation of its charter -- but it would be a terrific temptation for every bank to focus on what they perceive as good investment areas. How could any aggressive businessman fail to see this as a wonderful opportunity to use essentially free money?
If the bank and the builders -- or real estate company are linked -- the money that the bank can create is essentially free money that can generate an infinite % return on investment -- because the money is essentially free to the bank in accordance with its apparently Constitutional right to create money. That right flows from (A) specific words in the Constitution that gives the right to "Coin money, regulate the Value thereof" (Ed. note - The Constitution, Article 1, Section 8 only grants this power to Congress) through (B) The Federal Reserve act of 1913 that basically subcontracts that right to create money to the Federal Reserve System which are in interlocking group of privately owned banks and (C) the right of any bank within the Federal Reserve System (that is almost all banks) to create money through loans.
If the bank and the venture are not linked through ownership in any way, and the bank is giving legal advice to the venture, as they are generally allowed to if there is no ownership linkage or preferential treatment , that is essentially outlawed by the prohibition of a lawyer lending money to a client --- thus (1) ending an arm's-length relationship that is probably required by bank regulations between a bank and it's borrower-clients and/or (2) establishing the possibility of an adversarial relationship between the lawyer and the client should the project and/or the loan get into trouble.
In any event -- a close relationship between a bank and a client -borrower should be very suspect.
September 10, 2009 Market Place In Florida, Vestiges of the Boom By ERIC DASH / Copyright 2009 The New York Times Company
On the corner of Flamingo Road and Pink Flamingo Lane, beyond the putting green, the crystalline lagoon and the Sawgrass Mills mall, a soaring monument to the great condominium bust bakes under the Florida sun. The Tao Sawgrass, as the twin-towered complex is known, was built on the western fringes of Fort Lauderdale with easy money from the now tottering condo king of American finance: Corus Bancshares of Chicago.