Big Banker: Government Needs To Quit Helping Big Banks

New York Times:

And let's not hear another word about how government control is somehow a move towards socialism. Tough times requires touch choices and difficult decisions. And they also require that bad behavior be curtailed and good behavior monitored. Right now the banking industry needs more government regulation and oversight. And it needs enforceable guidelines on how and under what criteria banks should make loans. To the headline writer of Joe Nocera's column on Saturday I say, "Banks don't give loans," (as the headline read) they make loans. "Give" implies that the money does not need to be repaid. And that is at the very core of this issue. We need to ensure that the banks apply reasonable lending criteria, but still criteria that encourages them to make loans to the many, many borrowers in this recession who remain credit-worthy, despite declines in revenues and profits. To do that, banks need to re-establish the old standards and verification processes that served the banking system so well for so long. And they need to once again look the borrower in the eye instead of relying on a credit scoring system that is doing far more harm than good.

If we make the bailout funds available to the community bankers, I promise they will know what to do with the money. They will lend it and they will make prudent lending decisions, based on direct and comprehensive knowledge of the borrower. So what are we waiting for?

Read the whole story: New York Times

Comments

[anastasiabeaverhousen]

Hoover threw money at the banks, as well. Didn't work then and it won't work now. Why? Treat the root cause, not a symptom.

[Erdgeist]

Cactus writes on Angry Bear http://angrybear.blogspot.com/2008/10/welfare-queen.htmll]

"The reason the bail-out won't succeed, like Iraq, is that it doesn't address a real problem. Banks going under is not a problem. Bankers having incentives to make risky decisions is a problem, and this bail-out will do nothing to stop it. (Non-voting shares, remember?) My guess is that we'll find some entities (and I would bet money Goldman Sachs will be on that list) will be found to be gaming the system. There will be a tsk-tsk when that comes to light, but they will not have to pay back the gubmint for gaming the system."

[PT6]

I agree with you that Goldman Sacks is the most LIKELY to GAME the SYSTEM and they have already PROVED that!

This firm needs the BULK of attention and resouces in a Full Investigation of the Wall Street Collapse! They attacked Lehman and drove it into Failing with illegal Naked Shorts and damaged many others!

[PT6]

Let the Banks drop out so they can KEEP their $100 Million Christmas Bonuses!

But don't come crawling back after Christmas for Taxpayer Money!

That provides money to Convert the Auto Companies to "GREEN Power!"

That also provides more money to stop the real problem which is "Homeowner Walk-Aways" which are happening at a record rate!

If a Bank participates it needs to reduce Bonuses and other EXTRAS to ZERO as their contribution to saving the BANK!

[sposton]

Bailout money is being used by banks for acquisitions of smaller banks.

http://www.msnbc.msn.com/id/27405089

At the end we will have fewer but bigger banks, exactly the opposite what is desirable for real economy. I think there is something fundamentally wrong with what we are doing. The government does not $700 billion;every cent for this bailout is borrowed.

OK, perhaps we cannot afford for banks to fail because the systemic risk is even larger. But why then not work towards a more desirable outcome of a larger number of smaller but healthier banks, instead of fewer and bigger banks?

[SilentShout]

The basic idea of credit worthiness - that someone who has a lot of debt and is maintaining it is a better credit risk than someone with very little debt - is illogical on it's face. Credit scores are really a measure of how profitable a debtor is to a creditor, not a measure of how financially responsible a creditor is.

I'm thrilled to see the credit score system breaking down. Credit scores are being applied to hiring decisions and apartment rental decisions, as if they were a marker of the value of a person. Should someone really not be able to get a job or an apartment because they haven't taken on enough debt in their lives?

They really killed the golden goose on this one. They dinged everyone's credit for anything they could and got themselves into a situation where everyone has bad credit. They've poisoned their own well by manipulating numbers into meaninglessness.

[iambusto]

its about debt to income ratio. If someone has a lot of debt and misses payments, he is never goign to have a good credit score.

easy to distort the truth isnt it.

btw, nothing wrong with hiring decisions guided by credit scores. an example.

If you work as a cashier at a bank, janitor at a jewellery store etc your credit score is a very important part of your criteria for eligiblity.

If you are a bus driver for local school, its not.

see the difference? if you have a lot of debt, you might not be the best person to be working at a place where there could be temptation.

[SilentShout]

I disagree. I would say one of the most responsible financial decisions a person can make (especially a poor person) is to live within their means and not use credit if they can avoid it. People who don't use credit and therefore don't have a credit record are treated as if they have bad credit. People who have a lot of debt are actually seen as a better credit risk because they've proved their ability to maintain that debt. That's how people end up with $70,000 in credit card debt. They make their payments and get more credit until they can't make their payments any more.

If I were hiring someone at a jewelry store I'd be much more comfortable hiring someone with no debt than someone with a lot of it. The more credit-worthy person actually has more reason to steal. And as for bus drivers, they get their credit checked too, because good credit is thought to be the sign of a good, responsible person. Of course, it's not.

"If someone has a lot of debt and misses payments, he is never going to have a good credit score." This is true. But that person was once a good credit risk or else they would not have been able to acquire so much debt. Credit scores are just a way for creditors to find people who aren't yet tapped out.

[darthdarcy]

I have to agree for this reason with the potential of hundreds of billions in bail out money looming these banks had no reason to even consider a reasonable fair resolution of the crisis prior to those such as Lehman failing..!

The banks and lending institutions could have easily collectively Reset these Mortgages to a fixed rate the home owners could have afforded...and still made money and gotten paid back along with forgiving all penalties to date 1/2 of which or more are illegal..anyway as reported..

All it appears our government and Paulson has done is reward the worst most irresponsible behavior and practices without any repercussions for those who did the lending...

Remember these people the vast majority can pay a Mortgage at 6-6.5% they just cannot pay these ridiculous rates of from 11-14% even more that is forcing them to walk away from their homes...

Especially those who's Mortgages is on their single primary place of dwelling..

It's a terrible irresponsible waste anything but "conservative" just as the deregulation was not in any definition or manner at all "conservative" there is and has never been anything conservative about these so called "Conservatives"...QED..!

[TrooAmerican]

INteresting.

its getting worse and worse. This bailout of wallstreet with AIG leading the pack of idiots, has been turnin into a taxpayer's Worst Nightmare.

Paulson was the wrong pick for Sec of Treasury. Period.
Then he picks another former Sachs guy to oversee the funding. what the heck man?

I think our government should stop allowing people to just "appoint others to posts" and "hire anyone at any time for anything they want"..... and create a new cabinet post for hiring and managing ALL federal employees from the top down, give qualifications reviews, summary conclusions on prospects, and based on position guidelines just like any fortune 500 company might do.

[AlligatorShuz]

They should have let National City Bank, Comerica Bank, Hunington Bank , Fifth third Bank all should have failed. They have never let the new start up buisnesses have any loans and I think they should not have been bailed out because they are not going to give any loans to any new start up businesses.

[PaulL2]

Here in North Carolina, all the local banks and credit unions, many mid-size banks, and a few larger ones as well, are taking out big newspaper ads, some as big as full page, stating that they did not originate subprime mortgages nor do they hold the toxic paper; that they are ready to take deposits and to make loans. Sounds like they don't need bailout money, they just need customers that are qualified to repay the loans. This suggest to me that the bailout is literally that -- a way for the big banks, through their crony Paulson, to be bailed out at taxpayer expense. Like many economists have suggested, we would have been better off letting the big banks fail, be taken over by a new version of the RTC, and be broken up and sold off to the local and regional banks. The "bailout" money could then be used, in smaller amounts, to support those local banks that bought up the pieces, and agreed, on penalty of nationalization and criminal prosecution of the executives, to uphold economically rational lending standards. And to get the economy going again, we need a jobs and public works program badly. The rest will follow.

[SilentShout]

This is so sad. As someone who helps run a small business and works hard to maintain it's integrity I really feel for these smaller banks that were responsible and careful with their loans. Imagine slowly building a business over your whole life, watching the credit glut rise, watching your competitors making money hand over fist while you restrain yourself and fall further behind, and then watch your innocent business be tarred with the same brush as the big boys who didn't play fair. These small banks can't even get access to the bailout money because they're not publicly traded! (the gov't is handling the bailout by buying preferred stock so banks that don't have shares of stock can't access it! Nice right?) This is such a great example of moral hazard. These small banks KNEW no one was going to bail them out and so they behaved responsibly.

[EinChicago]

"And they need to once again look the borrower in the eye instead of relying on a credit scoring system that is doing far more harm than good."

Ding ding ding. Iworked for one the three NCRAs for years and I can say that the credit scoring system is not only a joke, it is a scam. It was invented not because it was actuarially sound or because it is particularly predictive but because the bureaus lost revenue when the FCRA stopped them from selling header data to marketing companies and they needed to invent a new product to make up the lost revenues.


The "black boxes" used to calculate credit scores are educated guesses at best. And FICO is by far the most arbitrary and unreliable score, but because it was the cheapest, it is the most commonly used.

[iambusto]

credit scoring in itself is not to blame. its how people have used it.

btw, those days are over that loan officer goes through each line item by line item, and makes a decision on case by case. the volume of credit applications led to the rise of credit scoring.

its sort of like standardized testing. its not the perfect solution, but cant be removed until there is a suitable alternative.

give us an alternative to credit scoring model then eh?

[SilentShout]

Credit scoring is worse than no system at all because it's not accurate. Better to know you don't know than think you know and be wrong.

[WIpatriot]

So Paulsen's Poison Plan is exactly what we've been saying it is...there's news.

Support your local credit union.

[HamletsMill]

"Tough times requires touch choices and difficult decisions. "

They also require proofreading before you click post.

[Shrinath]

LOL. Yeah. Otherwise, the article is properly spelt and error free.