The nation’s banks are facing tough new regulations already adopted by the U.S. House of Representatives, and most Americans believe that is exactly what they deserve. In fact, it is highly probable that many Republican lawmakers who formed a solid wall in opposition privately would agree, probably not with the exact language but with what my mother used to call the doctrine of comeuppance.
After being a major factor in the irresponsibility that turned the American dream into a horrific nightmare, the Wall Street financial wizards have pretty much made a mockery out of the bailout that saved them, refusing now to lend the money that would undoubtedly speed the recovery. While it is true that home mortgage rates, for instance, are at nearly a century low (excluding a short period in World War II) try and get approval.
Without a note from the people at Ft. Knox, Ky., the response from the moneychangers is likely to be “fogeddaboutit!” Refinancing seems especially difficult even when those seeking it have paid their monthly bills on time and when the savings would relieve them of pressures that ultimately might undercut their future financial viability.
In the meantime, the big boys of the industry - and that is where most of the trouble lies - are rushing to pay back all the taxpayer money, not necessarily because it is the responsible thing to do but because they don’t want any government interference with their outrageous compensation packages. Goldman Sachs recently decided that perhaps over-the-top bonuses might be so unseemly as to pour fuel on an already enflamed public. The company said its top executives would not get cash bonuses, just stock that would not be redeemable for several years.
Not since the days of John Dillinger and Pretty Boy Floyd have these guys been as despised. A friend with a good credit rating and a sterling record of on-time mortgage payment called me recently threatening to thrash on sight any banker, including one with whom he has dealt for years. His attempts to refinance had come to nothing over a negotiating period of months that thoroughly exhausted him.
“Why should they refinance? They know I’m good for the money. I probably would have been much better off skipping three months of payments. That would have brought them over in a hurry,” he said.
While that was merely frustration talking on his part, more and more homeowners pressed hard to make their monthly bills have turned in desperation to such tactics. This refusal is going to get worse before it gets better. The Federal Reserve’s program of buying up mortgage-based securities will expire this spring, and predictions are that the rates are going to go up precipitously from today’s lows in the 4-percent rage to the 6s. Then it would be easier for people like my friend, who has a good job and savings to refinance, but not those who really need relief.
Whether or not the House’s adoption of the new regulations has legs in the Senate will depend on several factors including the banking industry’s willingness to reduce voluntarily its tight-fisted policies and President Obama’s success in jawboning the leading institutions into concessions. Even if that is the case, the House version of Mr. Obama’s new regulatory proposals is likely to be modified. The president met with the top members of the industry recently but has been sharply denouncing their lending practices for some time.
There is little doubt that what is going on now is the result of horrible excesses of a decade that led to the economic turmoil of the past two years. Lenders, who abused the system, have now made a complete reversal in what can only be seen as a rampant paranoia. Once again to quote my mother, who had a wonderful way of twisting cliches, they forgot to check for the baby when they threw out the bathwater.
The infamous but highly successful Willie Sutton, when asked why he robbed banks, replied simply because that is where the money is. Well, even the talented Sutton would have trouble getting anything out of the vault these days.
Dan K. Thomasson is the former editor of the Scripps Howard News Service.