FacebookTwitterRedditEmail

Ex Lax for Banksters?

Try as it might to pump money into the economy and spur hiring, the Fed’s policy ain’t working. Don’t blame Keynes. For the stim to be effective, the cash needs to get to small businesses: the primary source of jobs in our country. Trouble is, the Fed’s counting on banks to circulate the extraordinarily low interest rate money it’s spouting.

The banks are hoarding the dough. In a recent New York Times article, Richard H. Clarida, a Columbia University economist, confirms that “bank lending, much of it to small and medium-size enterprises, has collapsed to an extent unprecedented in previous business cycles and continues to decline more than a year into recovery.”

As a small business owner myself, I can vouch for that.

Rather than take steps to ease the blockage, Fed Chair Ben S. Bernanke’s answer is to shove even more cash into our bloated system, as if making economic foie gras. (It kind of puts a new twist on the pejorative “pig”.) On October 19th, Times reporter Sewell Chan wrote that the Fed is adopting a “radical” move to lower long-term interest rates in a desperate attempt to foster employment. These moves echo Bush era policies that hyped the economy with a potent combo of low interest rates and easy credit. But there’s no easy credit — in fact, far from it.

Now, don’t get me wrong. I’m not touting a return to the giddy nitwit days of Bush-era impulse lending. What I’d like to see is prudent lending conducted by banks interested in economic development and capable of assessing and pricing risks. That’s how it was before Clinton, late in his second term, got rid of the Glass-Steagall Act, which had successfully controlled speculation. (Clinton acted on the advice of Lawrence Summers, who just returned to Harvard after misdirecting Obama for two critical years.)

Thereafter, banks of all sizes traded long-established disciplines tied to local lending for fast profits and wanton practices. I was shocked to learn that even our seemingly staid little local bank had waded into exotic risks it barely understood, requiring a TARP bailout of over $100 million from us taxpayers.

Post-TARP, it’s like the banks have a really bad case constipation. In a ham-handed attempt to regain control of the banks, the government has created a double-bind. With money available to them at artificially low rates, if you’re a bank, the easiest thing is just to park that money in U.S. Treasuries. Why go through all the hassles of lending to local businesses? Plus, thanks to the government’s ill-conceived efforts to micro-manage its TARP recipients, my banker claims there are so many restrictions on lending that the banks are virtually incapable of putting money into circulation were they inclined to do so. He sounds sincere when he says, “In all my years in banking, this has been my least favorite time with my customers.”

Ditto. I mean, my company has been consistently profitable for 25 years, never missed a loan payment, and is growing like topsy. Yet, for reasons that are hard to comprehend, we recently learned that since becoming a TARP recipient, our bank shifted us into a high-risk “classified” category. That accounts for why a modest loan that we repeatedly requested to make safety improvements in our building was rejected over and over without explanation. It’s why our line of credit was subject to mysterious interruptions for days on end, throwing our ability to make timely payments to our vendors and employees into upheaval. Turns out, our “category” calls for a monthly freeze and review of our line of credit, but up until now our banker wouldn’t reveal what the heck was happening or why.

Taking a Guantanamo approach to risk management, TARP recipients were told “if you think it could be an eight, make it an eight,” according to our banker. At this point, neither he nor any of his peers at other area banks have a single business client above a level 5, with 10 being the lowest grade. Basically, at least in suburban Philadelphia, this means that no small to medium-sized businesses are deemed truly creditworthy. “We don’t have any 1 to 4-rated accounts; it’s crazy,” he says. To make matters worse, once you’re downgraded, it’s very difficult to get out. The banks are simply too occupied with the really bad risks to expend the considerable time and effort required to upgrade an account.

Compounding the problem, our banker explains that the line of credit renewal process is “backlogged at all the banks”. The government’s new reporting requirements have become so onerous, complex, and frequent that, he says, banks simply don’t have enough credit analysts to keep pace. (Guess that’s one way to create jobs.) Calling it “paralysis by analysis,” our banker complains that the process is bogged down by such requirements as monthly and quarterly analyses of companies that typically would have been subject to only annual reviews in the past. “We’ve gone too far on screening and due diligence,” he contends. “It’s certainly not helping the recovery.”

Look, they call it capitalism for a reason. To grow, small and mid-sized businesses need funds for facilities, equipment, marketing, and hiring and training, all of which capital quickly multiplies into more and more jobs. If the Obama administration had held the banks accountable for all that low-interest rate money, imposing clear directives to lend to fairly rated, viable small businesses, U.S. employment would be up considerably by now. Those workers and their bosses would be buying houses, cars, and refrigerators, furthering the recovery. They might even be voting Democratic.

But, perhaps because small businesses are seen as the domain of the Republican Party, the Democratic leadership has been impervious to our need for capital. Or, perhaps they were foolhardy enough to assume that the now-chastened banks would return to their traditional roles. Unfortunately, it’s evident that today’s banks have been deprived of their traditional tools, stripped of their expertise, and tempted by the many still legal lures of fast profits available through subprime mortgage bundling and other channels.

If we needed any proof, the decade of deregulation, culminating in the global financial meltdown, showed that when big bonuses are at stake, the banks have no interest whatsoever in acting responsibly towards their clients, their shareholders, and the general public. What we need is a return to the homespun values the Glass-Steagall Act embodied. But, what I fear we are likely to see instead after Election Day, is just another round of destructive deregulation.

Get ready for “Banks Gone Hog Wild II”.

BETSY ROSS it the pen name of a journalist and businesswoman who lives in the Philadelphia area, who contributes occasionally to ThisCantBeHappening!

More articles by:
bernie-the-sandernistas-cover-344x550
December 09, 2019
Jefferson Morley
Trump’s Hand-Picked Prosecutor John Durham Cleared the CIA Once, Will He Again?
Kirkpatrick Sale
Political Collapse: The Center Cannot Hold
Ishmael Reed
Bloomberg Condoned Sexual Assault by NYPD 
W. T. Whitney
Hitting at Cuban Doctors and at Human Solidarity
Louisa Willcox
The Grizzly Cost of Coexistence
Thomas Knapp
Meet Virgil Griffith: America’s Newest Political Prisoner
John Feffer
How the New Right Went Global — and How to Stop It
Ralph Nader
Why Not Also Go With “The Kitchen Table” Impeachable Offenses for Removal?
M. K. Bhadrakumar
Sri Lanka Continues Its Delicate Dance With India
Robert Fisk
Meet the Controversial Actor and Businessman Standing Up Against Egypt’s el-Sisi
Dahr Jamail
Savoring What Remains: Dealing With Climate PTSD
George Wuerthner
Bison Slaughter in Yellowstone…Again
Scott Tucker
Premature Democratic Socialists: Reasons for Hope and Change
Julian Rose
Polish Minister of Health Proposes Carcinogenic 5G Emission Levels as National Norm
Dean Baker
Coal and the Regions Left Behind
Robert Koehler
Envisioning a United World
Weekend Edition
December 06, 2019
Friday - Sunday
Jeffrey St. Clair
Eat an Impeachment
Matthew Hoh
Authorizations for Madness; The Effects and Consequences of Congress’ Endless Permissions for War
Jefferson Morley
Why the Douma Chemical Attack Wasn’t a ‘Managed Massacre’
Andrew Levine
Whatever Happened to the Obama Coalition?
Paul Street
The Dismal Dollar Dems and the Subversion of Democracy
Dave Lindorff
Conviction and Removal Aren’t the Issue; It’s Impeachment of Trump That is Essential
Ron Jacobs
Law Seminar in the Hearing Room: Impeachment Day Six
Linda Pentz Gunter
Why Do We Punish the Peacemakers?
Louis Proyect
Michael Bloomberg and Me
Robert Hunziker
Permafrost Hits a Grim Threshold
Joseph Natoli
What We Must Do
Evaggelos Vallianatos
Global Poison Spring
Robert Fantina
Is Kashmir India’s Palestine?
Charles McKelvey
A Theory of Truth From the South
Walden Bello
How the Battle of Seattle Made the Truth About Globalization True
Evan Jones
BNP Before a French Court
Norman Solomon
Kerry’s Endorsement of Biden Fits: Two Deceptive Supporters of the Iraq War
Torsten Bewernitz – Gabriel Kuhn
Syndicalism for the Twenty-First Century: From Unionism to Class-Struggle Militancy
Matthew Stevenson
Across the Balkans: From Banja Luka to Sarajevo
Thomas Knapp
NATO is a Brain Dead, Obsolete, Rabid Dog. Euthanize It.
Forrest Hylton
Bolivia’s Coup Government: a Far-Right Horror Show
M. G. Piety
A Lesson From the Danes on Immigration
Ellen Isaacs
The Audacity of Hypocrisy
Monika Zgustova
Chernobyl, Lies and Messianism in Russia
Manuel García, Jr.
From Caesar’s Last Breath to Ours
Binoy Kampmark
Going to the ICJ: Myanmar, Genocide and Aung San Suu Kyi’s Gamble
Jill Richardson
Marijuana and the Myth of the “Gateway Drug”
Muzamil Bhat
Srinagar’s Shikaras: Still Waters Run Deep Losses
Gaither Stewart
War and Betrayal: Change and Transformation
FacebookTwitterRedditEmail