The President v. The Bankers

There’s an irony afoot in Washington. President Obama doesn’t seem to care for the big lending institutions and their behavior. Recently, he even referred to them as “fat-cats” and said that he didn’t run for president to help them out. Yet he also told them to make more loans. Let’s see, didn’t the financial meltdown supposedly occur because of risky lending and bad loans? Weren’t the banks and Wall Street chastised for making too many loans? Wasn’t the Troubled Asset Relief Program (TARP) rescue plan hatched to save them because of their bad loans?

The Business of Banks

The fact is, banks make money by lending money. It’s not that complicated. Banks are in the business of lending money, but they are also in the business of collecting on those loans. So why is the president of the United States getting involved, telling bankers to lend more while demonizing them on the public stage? In an ironic twist, they are damned if they do and damned if they don’t.

The background on the original TARP plan is that it was designed to buy up toxic assets from banks. In other words, banks had made so many bad loans that they were failing and the entire financial system was at risk. After looking at it further, Secretary Paulson changed the plan to simply loan money to the banks to rescue them and keep the financial system from collapsing. The entire TARP program was designed solely as an emergency effort and was strictly to prevent financial collapse of the entire banking system. Government intervention at this level was unprecedented.

Secretary Paulson deserves credit for stipulating that the program was a “loan” and was to be paid back, with interest, to the taxpayers. It was money that was borrowed by the government to begin with. Indeed, the money didn’t exist. It had to be borrowed, then loaned, with the expectation of a payback plus a return. We were assured that, while it was a gamble, it was not “spending,” and if the program worked, the American taxpayers may even make a profit in the end.

A year later, it actually is working, to some extent. Some of the larger banks are now paying back the money. So should we conclude that the program is working the way it was sold to us? Wrong. Our president is referring to the payback as “savings” or “less losses” and now he wants to spend it. This is not only wrong, it is reprehensible. Either President Obama doesn’t understand economics, or he is being dishonest. In either case, he wants to spend money that is not his. This president must not get it, and you and I are being taken to the cleaners.

The (True) Responsibility of Banks

The bullying of the bankers is also taking on another ironic twist in that the president is telling them that, since they took TARP money, they are responsible for rebuilding the economy. Why do banks owe a debt to rebuild the economy? The banks had a debt to the American taxpayer, and those that have re-paid their TARP loans (with interest) have paid their debt, and do not owe anything to the American taxpayer. The banks are publicly traded companies. In other words, their responsibility is not to the government or the taxpayers but to their shareholders. Banks have a responsibility to adhere to the laws of the land, and hopefully they make a profit for their shareholders. They have a moral responsibility to their employees as well. Since when are companies to be held responsible for the American economy?

Dangerous Trends Are Emerging

This is a very important and dangerous trend occurring. If your president and your government intervene and start telling financial institutions what they can and can’t do, what is to stop them from telling other industries and companies what they can and can’t do? We are only starting to see this pattern emerge, and it is gaining momentum. Where is the “free” in “free enterprise”? Publicly traded companies who follow the law have absolutely no responsibility to take on the mandate of “fixing the economy.” These bank leaders who have repaid their loans should show some real leadership and tell Mr. President to back off and do his job, not theirs.

Citizens Contributed to Economic Woes

America is a nation in debt. Our economy suffers because of all the bad debt that our citizens took on irresponsibly. I don’t recall ever seeing a mortgage loan placed on a property without the owners signing and agreeing to the terms. While it is true that mortgage brokers and loan originators were guilty in selling loans to people who couldn’t afford them, there were just as many borrowers who lied about their income and chased cheap money without thinking about the consequences. In fact, there were far more predatory borrowers than predatory lenders.

The Silver Lining

Fortunately, Americans are seeing the error of their ways and are “de-leveraging.” De-leveraging is a fancy way of saying they are reducing their debt. This is a good thing. America used to be a nation of savers. Fortunately, in recent months, we have seen the savings rates of Americans increasing. Reducing debt and increasing savings is the only true way back to prosperity. I think our people are finally starting to realize this. I wish our president and our political leaders would realize it too and even encourage it.

Brad Bradley is the former CEO of Senderra Funding in Charlotte, North Carolina. He now runs a private investment company and is a member of the CJS Board of Directors.

The CJS Forum seeks to promote an open exchange of ideas about the relationship between faith, culture, law and public policy. While all the articles are original and written especially for the CJS Forum, they do not necessarily reflect the views of the Center for a Just Society.

Picture above from Flickr user zoonabar licensed under Creative Commons Attribution ShareAlike 2.0 License.