Thursday, February 5, 2009

Reality Banks

Another source of indignation regarding the bailout is that, rather than keep shoveling money out the door in the form of loans as fast as the government shovels it in, banks are actually tightening lending standards. This proves (as if any proof were needed) that they are indeed smarter than the government regulators and bureaucrats, and it also proves that they may see the current crisis as a window of opportunity to start acting responsibly again, rather than bowing to any and all pressure groups that insist that anyone who walks in the door be given a loan, provided they have the right “victim” credentials. In other words, banks may be doing what they would like to have done all along, but feared doing because of the wrath it would arouse among liberals in the bureaucracy. And there is a kind of depressing justice in all this. If the banks felt coerced before, they also feel entitled to payback for all the trouble they went to and for the results... and what they do with that payback is not, if they can help it, going to be the same as what they were forced to do the first time around. See, my feeling is that they always knew better, but they preferred to take the path of least resistance – and in the face of overwhelming bureaucracy and regulatory zeal, who wouldn't? I mean, these guys are bold, but they aren't suicidal. So yes, they knew it was a bad idea, and yes, they saw the meltdown coming, and damn it, they decided to just let it happen in order to teach various financial geniuses on Capitol Hill a lesson. Well, of course the lesson Congress and the Executive took from it was not the correct one, namely what happens when government intervenes in the free market, but that it was the free market itself – or at least the financial part of it – that was fatally flawed. So what the bankers might have thought would provide a means to set back regulation to a reasonable level has done just the opposite – it has made them, for all intents and purposes, into government employees, albeit highly-paid. “Oops.” But yet, they apparently retain enough autonomy so that they can control lending standards, maybe even to a greater extent than before. So the banking industry might regain some health after decades of a low-grade infection... only to find that it's owned by the government after all. “Too little, too late.” Of course the people who granted the bailout never got to the root of the problem, and never will – call it invincible ignorance. Surely it wasn't the government that caused these evil, greedy bankers to fall on their collective faces! Well actually, in a way it was. Everyone is guilty to some extent – everyone is guilty of short-sightedness and preferring expediency to principle. But I can't believe that the banks were all being run by people who washed out of Harvard Business School – things just don't work that way. These were guys who were, basically, piloting the Titanic, and when it ran into a government iceberg, emptied out the purser's safe and headed for the lifeboats. Self-centered? Tacky? Sure. But just human nature – which the government is ever loath to admit into its calculations.

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