Don’t Blame The Banks!

I must be feeling particularly brave this week.  Monday, I took a bit of a jab at the public uproar surrounding the BP oil spill.  Unfortunately, I only received a few hate mails for that one, which isn’t nearly enough.  To that end, I’m going to write another sure-to-be-unpopular article about the banks (inspired by this recent article on Yahoo Finance).  Turns out, they really aren’t all that bad, after all.

Now it’s important to note I’m not talking about banks of the too-big-to-fail variety here.  Many of the largest banks that took the most reckless risks with their derivatives portfolios probably deserved to die.  Then again, some that did die probably didn’t deserve it, but I digress…

In the context of this article, I’m talking about the little guys.  The community banks, credit unions, small regional banks and other bit players.  They didn’t take leverage their balance sheets 50 to 1, retained a large portion of the mortgages they underwrote, and extended credit to local businesses like the good little community members they are.  Or were, if you believe the current rhetoric.

But, But, But, The Banks Aren’t Lending…!

Shut up, yes they are.  As well as they are able.

If you frequent mainstream financial websites like I do (CNN Money, Yahoo! Finance, etc) you undoubtedly know what I’m talking about:  some reasonable, balanced, well-researched article will point out that hey, perhaps the media’s chosen villain (the banks) aren’t completely responsible for the mess we’re in.  Maybe there’s something else going on here.  Maybe, just maybe, that savings and loan across the street from grandma’s house doesn’t wield supreme economic power (only Obama, OPEC, and Mel Gibson possess that power).

Sounds reasonable, right?  It is.  But then you get to the comments section of the article.  Now I don’t know what it is about mainstream websites, but the average commenter on these types of articles have the IQ of a lobotomized french poodle.  Perhaps it’s that the mainstream appeal of the site serves to lower the average IQ of its readers.  Sure, intelligent people still read it, but they tend not to comment.  Comments on smaller sites such as this blog tend to garner far more intelligent comments. Anyway, the most comment on article such as these goes something like this:

“The ekonimy is dun bad bcuz the greedy banks rnt lending any $$$! Insted of lending $$$ to lcal bizness to cre8te jobs, they are hording all tha profits fer themselves!”

Words cannot describe the idiocy of the above argument.  And I’m not exaggerating, either.  I’ve heard the above argument almost verbatim at least a few dozens times over the past year.  People really do believe this, somehow.

Look, banks are businesses.  Businesses are in business to make money.  What is a bank’s business?  Lending money!  If a bank can’t make loans, it eventually shrivels up and dies.  And I use the word “eventually” very generously, since a non-lending bank would be lucky to last 6 months.  So let’s walk through this:  if bank’s need to make loans to survive, you can be damn sure they are probably going to make as many loans as they are reasonably able.  If there are so many credit-worthy borrowers out there (like Ben Bernanke claims), why aren’t the banks lending to them?  As it turns out, that’s a stupid question.  Of course banks would be lending to any credit-worthy borrower they could find!  They’re desperate to make loans!  If banks aren’t lending, it’s not because they are greedy, it’s that there are so few businesses worth lending money to.  I mean, if you just lost half your value in a killer recession, would you loan to a marginal business?  Of course not!

So give the banks a break, man.  Banks are people too.