Obama Can’t Have It Both Ways

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Free Market Should Dictate Lending Practices

President Barack Obama seems to be uncertain about how he wants to deal with U.S. bankers—sending them directly conflicting messages about their lending practices—and his inconsistency is causing a continuing problem for consumers and small businesses who can’t get the credit they need, especially those in the powersports industry.

On the one hand, he beats up bankers for making so many bad mortgages and creating such a mess that we taxpayers had to bail them out. Shame on you, you greedy bankers, he says, for making so many lousy variable rate mortgages to people who couldn’t make their payments when the new rates kicked in.

That seems like a reasonable position. I think there were a lot of lenders and Wall Street pros who got caught up in spinning mortgage paper, quickly shifting loan packages off their desk and on to the next greedy investor before he could look at the underlying poorly structured loan. While Wall Street bankers bear the brunt of the blame for packaging these loans, the real blame has to come back to the originator— the local banker who approved the so-called NINJA loans for people with no income, no job and no assets. Main street bankers were far from innocent in the entire sub-prime housing mess.

Of course what none of the White House folks are talking about is the Community Reinvestment Act (CRA), which was promoted by Presidents Carter and Clinton as a way to get banks to stop the practice of redlining—avoiding making mortgages in certain neighborhoods— and to make more mortgages to minorities. A noble goal. The problem here is that regulators under Clinton tied minority mortgages to a bank’s performance record, often pushing individual banks into making unsafe loans.

Duh. What are the worst words a businessman can hear: How about, “I’m from the federal government and I’m here to help you.”?

So, lots of banks— and other lenders— made lots of bad loans to lots of unqualified borrowers and we ended with a housing crash and the worst recession since the Great Depression. At which time Mr. Obama told bankers they were irresponsible and had done a miserable job and now the government would have to help them out. OK, it’s something that had to be done. I agree with that.

Not surprisingly, the bankers tightened up credit criteria and stopped making marginal loans or even loans that weren’t solid gold. As an example, all you consumers with high scores and clean credit might notice that your credit card interest rates have jumped in the last several months, even though you haven’t missed payments, or bounced checks, or come close to your credit limits.

So, now Mr Obama calls the bankers in for a chat and tells them, that by gosh, I think you really have to help the economy get rolling again. Since we helped bail you out, (forgetting for the moment, that it was Washington that helped push the bankers into trouble in the first place) now you have to help us out by making more loans. We want you, says the White House renter, to make more loans to consumers and to businesses.

In other words, let Washington micro-manage your business and push you into making marginal loans that eventually could affect your profitability and safety. But that’s OK, we know what’s best for you. Does this sound familiar?

I didn’t vote for Mr. Obama, but I applaud the way he moved aggressively to shore up the financial system. I don’t like the way he is spending the country into bankruptcy and I certainly don’t like the way he is meddling in private business.

I know that lack of consumer and business credit is hurting our industry; I’ve written about it before. But to have the president lecture bankers about how to make loans doesn’t make sense to me, either. Bankers make loans to borrowers when they think they can get back their money. Brow-beating and threatening them into making loans they think are unwise certainly doesn’t seem to be the best way to solve our credit problems. In fact, it was that attitude toward lenders by the White House in that past that got us into this mess.

More than 100 banks have failed this year and many are suffering. Unfortunately, when the economy is bad, banks are unwilling to loan money freely and as long as banks don’t lend money, the economy isn’t going to improve. Even though we need more credit, pushing bankers into making marginal loans isn’t going to help anybody. If you were a banker, would you be looking for extra risk right now? Probably not.

So, President Obama, let the free market decide how loans should be made—without government intervention. It may take a bit longer for cash to flow and the economy to recover, but we’ll all be better off in the long run. JD

Contact me with news tips and story ideas at 952/893-6876 or joe@powersportsupdate.com

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