We’re confused.
We know that the economy took a huge smackdown because the lending system went off on a steroids binge. We bulked up our loan pools and passed out money to anyone breathing. Could they pay it back? We didn’t care. Would they honor their obligations? Didn’t matter. Loans were cheap, easy and available on every street corner, it seemed.
That was a long way from the more modest kind of mortgage lending that had long served the nation. Those kind of loan rules wanted borrowers to be able to show they could repay the loan. There were standards of down payments, to ensure the borrower had skin in the game. There was an expectation that, no matter the business cycle, the borrower had at least a moral obligation to try to satisfy the mortgage.
But hoarding mortgage money wasn’t good for the economy. What was good was putting money out there in the hands of consumers. They’d buy homes, and all the goods that went with them. That stimulated the economy and provided jobs. So it was a good thing to relax standards – even throw them away! – because it meant the economy would be better off for it.
Until, just like any athlete whose performance is too dependent on the juice, it all came crashing down. And it did so in spectacular fashion. Absent government intervention, we would not have much of a financial industry left right now.
So the lesson to be learned, it seems, is not to be swayed by the illusion that putting cheap money out there to stimulate economic growth is a good long-term bet. It seems that it’s not the kind of thing that we should be encouraging. Shouldn’t we, after all, have learned our lesson? Shouldn’t we be encouraging lenders to be judicious, to be moderate, to be prudent in their lending standards?
Government and business leaders, though, are calling for anything but that. President Barack Obama got a lot of press for his televised comments deriding the “fat cat” bankers. But it was Lawrence Summers, his chief economic adviser, who made even more pointed remarks on the Sunday morning talk show circuit. Summers denounced bankers for not opening their vaults and letting Main Street businesses come in and help themselves.
The Obama administration and Congressional leaders may well be frustrated by the economic problems facing the country. But the answers to those problems will not come by exhorting lenders to shell out loans to businesses whose situations don’t qualify them to borrow. Despite the call that companies need financing to grow – and that, if they get it, the economy will grow with them – there is little talk about the reality that many businesses will fail despite having a line of credit at the local community lender.
That’s why we’re not the only ones who are confused. Local bankers are also scratching their heads. Publicly, they’re vilified for not lending more. Privately, they’re lauded for keeping their books clean of defaulting loans.
At a recent gathering of area bankers, a speaker asked the assemblage how many of them had been told by their regulator to go out and make more loans. Not a single hand went up. That’s because while political figures score points for stumping for the little guy, regulators want a safe and sound banking system. You don’t have that if bankers are lending with abandon.
And yet every local banker we’ve spoken with asserts that capital remains available in abundance for qualified local businesses. What’s at issue is perception. Every company thinks it’s qualified for a loan. That’s not what local bankers see.
Our area banks are ready, willing and able to lend. But they want to do so to companies that are likely going to pay back the money. That’s what will really help our economy, not shelling out for every entrepreneur looking for a loan. The politicians might not have learned that lesson, but the bankers certainly did. There’s no confusion about that.
