Obama to banks: Show “gratitude” by losing money on loans

posted at 10:55 am on December 14, 2009 by Ed Morrissey

After the debacles of the overall housing bubble and the Ginnie Mae rerun last week, one might think that government might reconsider the notion of demanding that banks make marginal loans on a large scale.  Last night’s interview with Barack Obama on CBS shows that populists have a particular problem in learning from experience.  Obama blasted banks for showing ingratitude for resisting further government intrusion into their industry and refusing to increase loans to marginal borrowers:

President Obama, who lashed out Sunday at “fat cat bankers” who “still don’t get it,” plans to gather the heads of major banks at the White House on Monday to urge them to make more loans and to accept the necessity of greater regulation.

Obama convened a similar meeting with bank executives in March, and the need for a replay highlights the lack of progress in the interim. The banking industry has reduced lending for five consecutive quarters, even as it has regained profitability thanks to vast public aid.

The administration’s success in rescuing banks stands in starker contrast every day with the financial problems of many Americans, most of all the lack of new jobs, and Democrats made restless by the disparity are mounting pressure on the White House.

Meanwhile, the prospects for financial reform legislation have been clouded by industry groups that convinced moderate and conservative Senate Democrats that some proposals would unduly suppress financial innovation and limit economic growth.

The problem is that the Obama administration and its populist allies like Barney Frank and Chris Dodd see reducing lending and increasing profitability as unlinked.  Banks have to assess risks in lending, and when they have less money to lend, they get more conservative in their risk-taking.  That leads to better profitability, which taxpayers should be praising instead of decrying, as it makes it much more likely that we can recover our bailouts investments in these banks.  Until banks return to fiscal stability, they should be more conservative in taking risks.

In fact, the entire instability of the financial system came from government pressure and incentives to do what Obama is demanding now.  The government first used a beefed-up CRA to cajole bankers into making marginal loans, then had Fannie Mae and Freddie Mac buy up paper from these subprime loans and convert them into mortgage-backed securities.  Fannie and Freddie sold these bonds to banks and other investors, who assumed (wrongly) that the government backing meant that they were safe investments.  Meanwhile, the explosion of cheap and unqualified lending drove housing prices up artificially, and buyers bet that the Ponzi scheme would go on forever.  When the housing bubble collapsed, so did the MBS market, neither of which would have happened if government hadn’t interfered in the first place.

With that in mind, it’s not difficult to see why banks don’t necessarily feel “gratitude” for government ameliorating a disaster it caused in the first place.  They don’t trust government interference, having been shown (twice) that government attempts at social engineering via the lending industry means utter financial chaos in the long run.  And since this particular Congress and administration seems hell-bent on giving themselves more power to achieve these same results, it’s no surprise at all that banks are reluctant to lend today to anyone who doesn’t show the ability to pay back their loans.


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Comment pages: 1 2

I hate this POS president.

rlwo2008 on December 14, 2009 at 1:13 PM

I hate this POS president.

rlwo2008 on December 14, 2009 at 1:13 PM

I feel the same way but admire you for being able to come right out and say it. I lack the courage/honesty. Instead I like to snipe from the sidelines. But, we also serve who only snipe and wait?

jeanie on December 14, 2009 at 1:18 PM

We are in BIG TROUBLE folks!

LonelyMassRepublican on December 14, 2009 at 1:20 PM

***
The Community Reinvestment Act forced banks to loan to unqualified / dishonest / non citizens and guaranteed the bad loans. This brought on the 2008 economy crash when Fannie May and Freddie Mac had their “chickens” come home to roost.
***
It worked so well then–let’s do it again and MONITOR FOR A TREND! Like hammering on the nose of an artillery shell to see what happens next! Maybe it was just a random coincidence when it blew up last time some fool tried it out.
***
John Bibb
***

rocketman on December 14, 2009 at 1:26 PM

POS precedent is a marxist, just like mommy, daddy, mentor and preacher. This super-genius’s cartoon version of capitalism is going to cause much more suffering. Not that Obamao cares. Like all Marxists, he hates people and enjoys the spectacle of human suffering.

Kalapana on December 14, 2009 at 1:27 PM

Mark to Market was suspended… making bank balance sheets look better.

Romeo13 on December 14, 2009 at 11:55 AM

The Sarbanes-Oxley rules (mark to market) were NOT suspended.

Puddleglum on December 14, 2009 at 1:27 PM

And…the Gov doesn’t have the cash to guarantee the bad loans. But, you’re right, that won’t stop Obama and Barney. We here were not hit too badly during the first wave of loan defaults, but we are being hit now. All around me are folks who have stopped paying their mortgages or who have gone into voluntary bankruptcy. The Obama administration’s version of trickle down economics I guess…beware the second(or is it the third)wave.

jeanie on December 14, 2009 at 1:32 PM

One of the biggest morons I have ever seen in my life. Hillary’s statement that he wasn’t ready to be prezbo was one of the biggest understatements of the decade.

ultracon on December 14, 2009 at 1:38 PM

Good luck with that Mr. Precedent. Ha, ha, ha…you silly, foolish little dolt.

redwhiteblue on December 14, 2009 at 1:40 PM

I don’t think he’s a moron or even terribly stupid. What I do think is that he is the wrong man with the wrong attitude, education and life experiences–in the wrong job for the wrong reasons and supported by the wrong people. Now, if you asked me if he should be liberal talk show host, a used car salesman or a TV evangelist preacher or such, I would applaud. He is a marked and monumental failure in the WH.

jeanie on December 14, 2009 at 1:45 PM

The government first used a beefed-up CRA to cajole bankers into making marginal loans, then had Fannie Mae and Freddie Mac buy up paper from these subprime loans and convert them into mortgage-backed securities. Fannie and Freddie sold these bonds to banks and other investors, who assumed (wrongly) that the government backing meant that they were safe investments. Meanwhile, the explosion of cheap and unqualified lending drove housing prices up artificially, and buyers bet that the Ponzi scheme would go on forever. When the housing bubble collapsed, so did the MBS market, neither of which would have happened if government hadn’t interfered in the first place.

Ed, you wingnut, you. Didn’t you read Krugman? Who are you going to believe – him, or the facts?

Vashta.Nerada on December 14, 2009 at 2:02 PM

I get it… bankers should help save our economy by running their businesses into the ground with imprudent loans made at the behest of the government (never mind that imprudent loans made at the behest of the government is what got us into this mess).

morganfrost on December 14, 2009 at 2:30 PM

ZeroHedge says: “As it stands, banks’ unwillingness to recreate the cheap credit bubble by lending to anyone who has a pulse and can walk is the only thing that is so far preventing America’s name change to the United States of Zimbabwe.”

Rae on December 14, 2009 at 2:37 PM

This has a “Whip Inflation Now” air of desperation about it. Can the buttons be far behind?

Planet Moron on December 14, 2009 at 2:44 PM

The Sarbanes-Oxley rules (mark to market) were NOT suspended.

Puddleglum on December 14, 2009 at 1:27 PM

On March 16, 2009, FASB proposed allowing companies to use more leeway in valuing their assets under “mark-to-market” accounting, a move that could ease balance-sheet pressures many companies say they are feeling during the economic crisis. On April 2, 2009, after a 15-day public comment period, FASB eased the mark-to-market rules. Financial institutions are still required by the rules to mark transactions to market prices but more so in a steady market and less so when the market is inactive. To proponents of the rules, this removes the unnecessary “positive feedback loop” that can result in a deeply weakened economy.[19]

On April 9, 2009, FASB issued the official update to FAS 157[20] that eases the mark-to-market rules when the market is unsteady or inactive. Early adopters were allowed to apply the ruling as of March 15, 2009, and the rest as of June 15, 2009.

Companies can use the new guidance when issuing their first-quarter financial statements.[21] Such changes could significantly boost banks’ statements of earnings and losses[22]. The FASB changes, however, are for acceptable accounting standards applicable to a broad range of derivatives, not just banks holding mortgage-backed securities.

Excuse me, they were “eased”… and amazingly enough banks suddenly started showing a profit.

Romeo13 on December 14, 2009 at 2:48 PM

OMG

Rae on December 14, 2009 at 2:37 PM

Somebody else who reads ZeroHedge!! Woohoo! If you all want to really understand just how bad our economy is (with not only BOTH parties to thank but also all the TooBigToFail Banksters), ZeroHedge is the best.

Also recommended: Jesse’s Cafe Americain and Mish’s Global Economic Analysis

Obama is smart; he’s says anything he needs to keep himself politically viable. Truth is, he, our Congress and the banksters are running our economy off a cliff on their current path.

Geofizz on December 14, 2009 at 3:58 PM

The embolism that was CRA isn’t killing the patient (America) fast enough. So Dr. Kervokian Obama wants to force another CRA down the patient’s throat.

baldilocks on December 14, 2009 at 4:02 PM

The J-word…

abobo on December 14, 2009 at 4:24 PM

Geofizz on December 14, 2009 at 3:58 PM

I hit all those every day, mah brothah, along with Nathan’s Economic Edge, Denninger’s Market-Ticker, Chris Martenson, and Max Keiser.

Obama is smart; he’s says anything he needs to keep himself politically viable. Truth is, he, our Congress and the banksters are running our economy off a cliff on their current path.

It’s really hard to watch this train wreck, especially since it’s going to destroy the middle class.

Rae on December 14, 2009 at 4:57 PM

Let’s not forget that new loan demand has dropped dramatically. While there are definitely small businesses that are having a harder time getting capital, banks are rightly determining the credit-worthiness of all borrowers before they lend – which is what they would have been doing if it weren’t for Frank et al who, for years, has used the banking industry as their personal ATM with which to instill “social justice.”

I’m not here to defend or to vilify bankers, but they didn’t “cause” this mess. The feds did and the bankers merely obliged.

redfoxbluestate on December 14, 2009 at 5:27 PM

Last night’s interview with Barack Obama on CBS shows that populists have a particular problem in learning from experience

Hey, I think you’d better define “populists,” Ed. If you said “liberals” or “progressives” it would make sense.

disa on December 14, 2009 at 6:19 PM

Like all Marxists, he hates people and enjoys the spectacle of human suffering.

Kalapana on December 14, 2009 at 1:27 PM

He despises “the people” – he only likes other lefty elites (and even they are only bit players on his egocentric stage. Since he’s a cold fish, he’s unmoved by suffering.

disa on December 14, 2009 at 6:34 PM

This erks me to no end. I have no credit card debt, no car payments and the mortgage was paid off last summer. Now these so called leaders want me to pay off debts for the irresponsible ones. I’m so screwed.

chemman on December 14, 2009 at 7:27 PM

This ObaMao stunt of attacking banks/bankers is just another Alinsky trick of picking a target and freezing it with a false narrative and name-calling “fat cats”.

He is playing his same ACORN tricks that he learned so well in threatening banks that were cautious in lending via the CRA.

When foolish consumers bury themselves in debt with the purchase of the latest toys or bling with their credit cards or with a home mortgage that is well beyond their means, then it is not the banks or credit card companies that should be bearing the onus of responsibility or blame.

onlineanalyst on December 14, 2009 at 7:49 PM

It’s obvious that ObaMao has no business nor economic experience or understanding. His whole attitude is that there is a huge “pie” out there that he feels that he himself is entitled to and that “social justice” means redistributing the wealth of others.

The cavalier way that he is lavishing on himself personally in his role as a candidate, an inauguree, and as president gives one indication of his sense of entitlement. The massive debt and the skyrocketing deficit that he has contributed to mightily is another indication. One has the sense that he intends to default on all of our obligations just as the uncreditworthy folks that he defends do.

The unaccounted spending in his “stimulus” bill and wasteful profligacy with no positive outcomes when ObaMao was involved in the Woods Foundation/Annenberg Challenge education programs in Chicago reveal how careless ObaMao is with other people’s money.

Have any banking institutions or politicians confronted ObaMao and his Democrat henchmen with the damage that their government interference has caused? Has anyonce seriously and repeatedly connected the dots for these charlatans?

onlineanalyst on December 14, 2009 at 8:10 PM

The president is an evil, anti-american man. No one can credibly argue with either statement. He is also a disgusting person.

proconstitution on December 14, 2009 at 8:27 PM

Barack “Madoff” ObaMao is the Boy King who will kill the goose that lays the golden egg and destroy the middle class and investing class that pay the freight provide the productivity.

onlineanalyst on December 14, 2009 at 9:24 PM

History repeats its self but I didn’t think it would be this quickly.

mixplix on December 15, 2009 at 6:45 AM

The government first used a beefed-up CRA to cajole threaten bankers into making marginal loans, then had Fannie Mae and Freddie Mac buy up paper from these subprime loans and convert them into mortgage-backed securities.

FIFY

Amendment X on December 15, 2009 at 10:01 AM

Comment pages: 1 2