The President Meets with the Fat Cat Bankers
President Obama is meeting with the Fat Cat Bankers to encourage them not to lobby against legislation being introduced to overhaul the financial system, and to encourage the bankers to get off their duff and lend, lend, lend. Does the financial system need overhauling? Absolutely. Will the government create the wrong solutions? Most Likely.
As a commercial banker that specializes in lending to small business owners, I'd like to address the push to lend:
Lending to small businesses has become far more challenging in recent times for 2 reasons. First, many small businesses do not have the profit and loss statements (profitability) or the company balance sheets (assets) to warrant new credit, sad but very true.
In the world of business lending, all banks get audited by the FDIC, and they usually want to see banks make business loans to businesses who financially demonstrate a viable method to ultimately make payments and/or have the ability to repay the loan. Not exactly a hard concept to get one's head around.
And, with the recent down turn, many small businesses reflect diminished or negative profit and/or cash flow, and weakened balance sheets, and no longer demonstrate the financial means to repay a loan. Again, sad but very true. Only Fannie Mea and Freddie Mac (government) lend to those who don't have the ability to repay, and we know how that turned out.
Secondly, many small business owners are required to guarantee the loans made to their business, and their personal net worth is often considered in addition to their business net worth as a repayment source for any business loan. So, when a small business is struggling, and the owner's personal net worth is sharply down because their real estate holdings and stock market investments have been decimated, they offer very little substantive guarantor support for a business loan. Again, sad but very true.
Either you have the financial means to qualify for business credit or you don't, and many small businesses do not have the means to qualify like they did in 2006 and 2007.
Is the President suggesting that business lending banks make ill-advised loans like that of Fannie and Freddie, which may go bad? Didn't we already go through a wave of ill-advised lending stimulated by the treasury printing and distributing huge sums of money coupled with overly easy federal reserve policy. Is he really suggesting that we create another lending/bank problem by going down the very same recent path of poor lending standards? Or, does he not understand the real world on the business lending front? Or, is it just more politic spin for his core constituents?
I'm by no means an MBA economist, but if memory serves me correctly, the economy grows and business activity expands and then companies borrower to support growth and the economy. It's only in the recent bubble, that we had a credit/lending driven economy supported by a bubble in assets prices supported by a bubble in Treasury and Federal Reserve policy, which ultimately was supported by politicians. Is President Obama suggesting that we return to the very same environment and create the very same problems as the recent past?
Is it me, or is he totally focused on the wrong end of the business cycle? It's not the business lending banks that create economic growth, they simply respond to it when economic expansion occurs. Again, not a hard concept to get one's head around.
The FDIC is forcing many banks to get more conservative in their lending habits to protect the bank's balance sheet and their capital. They are forcing banks to be more conservative to ideally have fewer banks to shut down in the future in this process of credit contraction, and have a more prudent and healthier banking system.
Yes, in some ways, it's an FDIC led credit contraction, which is having a negative impact on the economy, but if we are to have a sound and healthy economy, we need a sound and healthy banking system, so it's seems like the FDIC is on the right track. Again, not a hard concept to get one's head around. Again, sad but very true.
And, aren't they part of the same bloated federal government? And doesn't the President talk to them so the left hand and the right hand know what each is doing? Its pure insanity, to ask the Fat Cat Bankers to lend more, while the FDIC is asking them to be far more conservative. Its pure insanity to ask Fat Cat Bankers to lend more when many of their own impaired balance sheet don't allow for it. I guess stupid is as stupid does.
Mr. President, your popularity has been falling like a stone because you keep pushing ideas that don't work, fragment this country down party lines, and in many cases you are pushing this country towards a socialistic society and away from what made this country so great.
Yes, you inherited this problem from what will be one of the worst presidents in history, but your solutions so far provide very little substantive assistance. I image the founders of this country are spinning in their graves, and the rate of their spin correlates to the intensity of government insanity. They're very dizzy and need a break.......as we all do.
It's absurd to comingle the need to reform the financial system, America's frustration towards bonus pay, and the push to lend more. If you want to reform the financial system, how about starting with the Treasury and Federal Reserve, the real culprits behind the problem. Or, how about politicians pushing Freddie and Fannie to lend in-appropriate ways. If you want to curb bonus pay, do it and get it over with.
However, your recent attempts to encourage Fat Cat Bankers to lend more is pure insanity, and reflects either politic arrogance, economic ignorance, or voter pandering, any of which is an insult to Americans, many of whom probably voted for you. Don't you want a prudently managed and healthy banking system? Is it not in the best interest of the country?
Hope all is well