Socialism: say who can take the bank to court, what a judge can order, and where that runs out

Co-Authored-By: Claude Opus 5.5 <[email protected]> Claude-Session: https://claude.ai/code/session_01QWPs69B8nQZjtPEUXMKzZx
2026-09-25 23:43:11 -06:00
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@@ -113,7 +113,7 @@ Unlike the Export-Import Bank, this bank can't be frozen by leaving board seats
 - **Standing authority for smaller loans.** The board appoints senior credit officers and gives them authority to approve loans up to $1 million under the filed standards. That authority doesn't lapse when board seats go empty. Any board can take it back, publicly, but it can't disappear by default.
 - **No quorum means an acting chair, not no one.** If the board can't meet, the Treasury Secretary, or an acting official named under the normal federal vacancy law, can act for it on loans too big for staff.
- **Applications can't be buried.** A complete application gets a decision within 120 days, yes or no, with reasons. The clock pauses while the bank is waiting on information it asked for. The rule forces an answer, not a yes.
+- **Applications can't be buried.** A complete application gets a decision within 120 days, yes or no, with reasons. The clock pauses once, while the applicant answers the bank's one round of follow-up questions ([below](#who-can-go-to-court)). The rule forces an answer, not a yes.
 - **A second check during vacancies.** Any loan over $500,000 approved while the board lacks a quorum is cleared by the independent auditor before any money goes out.
 ### Where the money sits
@@ -135,6 +135,32 @@ Future stages of a loan that haven't been paid out are *not* promised. The contr
 If a later law tried to change the terms of money already lent, there's precedent for the government owing damages. In *United States v. Winstar* (1996), Congress changed banking rules in a way that broke promises regulators had made to savings-and-loan companies that took over failing ones. The Court's lead opinion held that Congress was free to change the law, but the government still owed damages for breaking its contracts ([Winstar, 1996](https://www.law.cornell.edu/supremecourt/text/518/839)). It's only partial protection. There was no single majority opinion, the damages cases dragged on for years, and it only helps where the contract clearly puts the risk of a change in the law on the government. So the loan contracts say that explicitly.
 ### Who can go to court
 Most of the rules above work without a judge. The verdict's wording follows the reviewers' findings, and the reviewers are paid in advance. The reports don't need a court either: if the bank doesn't publish its figures on time, the reviewers, who get the same data, publish them. But a few rules only work if someone can enforce them: deciding applications within 120 days, making the new decisions the [rejection audit](#when-rejections-mean-not-tested) requires, and paying out loans already signed. If a hostile board simply ignores them, someone has to be able to take it to court, and win something more useful than money years later.
 Recent cases show the risk. In 2025 the Supreme Court said claims to restore cancelled research grants likely belonged in the Court of Federal Claims, which can award money but can't order a program to keep running ([NIH v. American Public Health Association, 2025](https://www.law.cornell.edu/supremecourt/text/25A103)). In the green-bank case, a panel of the D.C. Circuit said the same in 2025. In August 2026 the full court voted 6 to 4 to keep the order blocking the grants' cancellation, and the government is taking the case to the Supreme Court ([D.C. Circuit judgment, 2026](https://media.cadc.uscourts.gov/judgments/docs/2026/08/25-5122-2186441.pdf)). Which court can hear these cases, and what it can order, is itself being fought over. So the bank's law settles it for this bank instead of leaving it to the general rules.
 **What a court can order.**
 - **Only duties with a deadline.** The law says the bank *must* decide a complete application within 120 days, and must make each new decision the audit calls for within 60 days. Courts can order an agency to take a specific action the law requires of it ([Norton v. Southern Utah Wilderness Alliance, 2004](https://www.law.cornell.edu/supremecourt/text/03-101)). A court checks whether the duty was met on time, never whether a rejection was right. The reasons are checked by the [rejection audit](#when-rejections-mean-not-tested), not by judges. The one exception is a new decision after the audit. The law already says the answer there is yes unless the reviewers confirm a disqualifier, so a court can order the bank to follow that rule.
 - **No endless paperwork.** Whether an application is complete is judged against the bank's published checklist. The bank gets one round of follow-up questions, and the application is complete once the applicant answers them. Otherwise the 120-day clock could be stopped forever and there'd be nothing for a court to order.
 - **Signed loans, from money that's still there.** A borrower can make the bank pay out a stage of a signed loan once that stage's written conditions are met. Those conditions have to be objective and written into the contract, not left to the bank's judgment. The court can order payment only from the bank's own capital. If a later law, including a rider in a spending bill, bars the payment, no court can order it ([OPM v. Richmond, 1990](https://www.law.cornell.edu/supremecourt/text/496/414)). That's the same line drawn [above](#loans-already-made-keep-their-terms).
 - **The right court.** The law lets the government be sued for these duties in federal district court, which can order the bank to act, not only award money, even where the general rules would send the case to the Court of Federal Claims. Congress decides where the government can be sued and for what. It hasn't been tested, and a later Congress could repeal it, but only by passing a law.
 **No friendly settlements.** No court order or settlement can require the bank to approve a loan, apart from following the audit's own rule, or change a filed standard. Every settlement is published and reported to Congress. That stops a friendly board from inviting a lawsuit and agreeing to loosen its own standards, and it stops a hostile one from settling its duties away.
 **Who can sue.** Applicants and borrowers who were harmed. Since 2025, a court's order usually helps only the people who sued ([Trump v. CASA, 2025](https://www.supremecourt.gov/opinions/24pdf/24a884_8n59.pdf)). Class actions may still be possible against a bank-wide practice, like a freeze on all decisions, but probably not over many different files. The federation can sue for a member co-op that was harmed, as membership groups already can, but that doesn't help groups that aren't members. Courts must hear deadline cases quickly, since a founding group waiting on a decision can break up long before a normal lawsuit ends.
 **Legal costs.** A founding group can't afford to sue a federal bank. Small businesses and co-ops that win against the government can sometimes recover their lawyers' fees, but at capped rates, and not if the government's position was "substantially justified" ([28 U.S.C. § 2412](https://www.law.cornell.edu/uscode/text/28/2412)). So when the bank has missed a deadline, which is a plain fact, it pays the winner's reasonable fees in full. All of the bank's legal costs count against its money test, win or lose, like any other running cost.
 **If the government won't defend the law.** Someone could challenge the bank's law itself, and a hostile Justice Department could decline to defend it, or settle. The Attorney General already has to tell Congress within 30 days of deciding not to defend a law ([28 U.S.C. § 530D](https://www.law.cornell.edu/uscode/text/28/530D)). The bank's law adds settlements to that, and requires notice to the federation, the lock-holders and every borrower. After that, the options are weak:
 - The House defended the Defense of Marriage Act in 2013, but the Supreme Court never decided whether it had the right to. The Court has since held that one chamber of a state legislature can't appeal on its own to defend a state law ([Virginia House of Delegates v. Bethune-Hill, 2019](https://www.law.cornell.edu/supremecourt/text/18-281)), and one house of Congress would likely be treated the same way. And a hostile House wouldn't try.
 - Private people can't appeal to defend a law just because they care about it ([Hollingsworth v. Perry, 2013](https://www.law.cornell.edu/supremecourt/text/12-144)). Borrowers with signed loans probably have enough at stake to defend their own loans. The federation and applicants may not.
 **Why the bank doesn't get its own lawyers.** Some federal lenders can go to court in their own name. Here that would add little. After *Slaughter* the President controls the board, and a board that doesn't want to defend the bank won't. Going to court for the government is also an executive power, so lawyers allowed to fight the President in court would be challenged themselves. The power to enforce these rules sits with the people they protect, not with the bank.
 ### The lock doesn't depend on Washington
 [The lock](the-lock.md) lives in each co-op's own charter and is enforced by an independent lock-holder, not by the bank. So repealing the bank's law doesn't unlock a co-op in ordinary times. There's one big exception. The lock only holds in bankruptcy if federal bankruptcy law is amended (see [When a Locked Co-op Goes Bankrupt](bankruptcy.md)), and a Congress that repeals the bank could repeal that amendment too.
@@ -172,4 +198,4 @@ The electric co-ops show the longer-term defense. If the test passes and the sec
 - **A board that's merely timid.** The rules stop a freeze and expose rejecting good applicants. They can't make a hostile board eager, stop it hiring timid staff, or stop it pulling back the credit officers' authority in public.
 - **A small constituency.** At pilot scale, around 400 co-ops employ perhaps several thousand people. That's nowhere near enough to defend anything politically. The electric co-ops became defenders after decades and hundreds of co-ops. Until this sector is large, durability comes from the co-ops' own charters and money, not from votes. How long it could take to get large is worked through in [After a Pass: How Big, How Fast](scale.md).
 - **Pressure outside the law.** Other banks refusing to work with co-ops, co-ops shut out of government contracts, targeted inspections. The federation and co-op-friendly lenders like credit unions are the only real answers, and they take time to build.
- **The courts.** How far *Slaughter* reaches, and whether damages follow when a later law breaks a loan contract, will be settled by judges, not by this design.
+- **The courts.** How far *Slaughter* reaches, whether damages follow when a later law breaks a loan contract, and whether the Supreme Court sends cases like these to the Court of Federal Claims despite the bank's own law will be settled by judges, not by this design. Lawsuits are also slow, both sides can use them strategically, and even with fees paid, the people with the most reason to sue are founding groups with the least time to wait.
@@ -19,7 +19,7 @@ An honest list of what the model hasn't solved yet, most dangerous first.
 5. **Scale.** *(Partly answered.)* Even a total success at pilot scale leaves most workers in conventional firms. The labor-market effect needs a sector large enough to move wages, and nobody knows how long growth to that size takes, if it happens at all. That's the price of not forcing it. [After a Pass: How Big, How Fast](scale.md) works through the numbers: even growing at twice the recent pace every year, co-ops would take about 19 years to reach 1% of today's private jobs. Growth after a pass comes in capped stages sized to demand the reviewers certify, and the labor-market effect gets its own test, by lottery, in local markets where co-ops could become a large share of one kind of work. Still open: the closest evidence cuts both ways (big retailers paying more didn't lift other employers' pay; hospitals hiring nurses did), the local test can only find fairly large effects, and co-ops may never become a big enough share anywhere to find out.
-6. **Political durability.** *(Partly answered.)* Gradual construction invites gradual repeal. [Making It Last](durability.md) builds the bank to survive a hostile government: the lending standards and the test are fixed in law, board vacancies can't freeze lending, the verdict says "not tested" rather than "failed" if the bank turns away applicants who meet its own standards (every rejection is re-scored, the line is more than 1 in 10 clear passes turned away, and the result has to be one those applicants could have changed; see [the line](durability.md#when-rejections-mean-not-tested)), and repeal can't unlock the co-ops. Still open: after the Supreme Court's 2026 ruling any president can replace the bank's board; money not yet lent can be taken back in a budget bill; the lock's bankruptcy protection depends on a federal law that can be repealed; and at pilot scale the sector has no real constituency. The 1-in-10 line is a judgment call with no benchmark behind it.
+6. **Political durability.** *(Partly answered.)* Gradual construction invites gradual repeal. [Making It Last](durability.md) builds the bank to survive a hostile government: the lending standards and the test are fixed in law, board vacancies can't freeze lending, the verdict says "not tested" rather than "failed" if the bank turns away applicants who meet its own standards (every rejection is re-scored, the line is more than 1 in 10 clear passes turned away, and the result has to be one those applicants could have changed; see [the line](durability.md#when-rejections-mean-not-tested)), and repeal can't unlock the co-ops. Still open: after the Supreme Court's 2026 ruling any president can replace the bank's board; money not yet lent can be taken back in a budget bill; the lock's bankruptcy protection depends on a federal law that can be repealed; and at pilot scale the sector has no real constituency. The 1-in-10 line is a judgment call with no benchmark behind it. The bank's law lets applicants and borrowers sue to enforce its deadlines and signed loans ([Who can go to court](durability.md#who-can-go-to-court)), but that's untested, lawsuits are slow, and if the Justice Department won't defend the law itself, the people left to defend it may not be allowed to.
 7. **Growth and dilution.** *(Partly answered.)* Softened by the tenure ramp, not eliminated, and federal tax law softens it less than the founding plan expected: by default, the part of a share new members haven't reached goes to the reserve, not to other members ([How a Locked Co-op Is Taxed](taxes.md#the-tenure-ramp)). In steady state, an equal split per head still means a marginal hire must generate the average surplus to break even for incumbents. Capital-intensive expansion into lower-margin lines will face internal resistance conventional firms don't have. [When Growing Means Sharing](growth.md) makes Mondragon's answer the standard path: a lower-margin line becomes its own locked co-op, funded from the parent's reserve as a finite, voteless investment, under rules that stop it being used to push existing workers out or move money through insider deals. Still open: growth that can't be split off still dilutes, spin-offs create richer and poorer co-ops (the groups can pool profits, but don't have to), and the evidence comes from co-ops that could hire non-members, so it probably understates the problem under the lock.