Barack Obama’s idea to weaken banks

Barack Obama will be having a meeting with CEO’s from the banking industry. One of the topics he will address is their need to lend more. Yes, you heard correctly! If you think this is a little odd, you’re not alone”

“The White House’s political people like [senior adviser David] Axelrod tell us to lend more,” said one banking official. “But the regulators are saying the exact opposite. They’re saying, ramp up your capital ratios, and if you see default risk on the horizon, cut back on lending.”

The recession has been serious, and it was was caused by a myriad of problems. Some of those problems were related to banks extending credit to people who shouldn’t have received a loan, and irresponsible borrowers who took on too much debt. Let’s also remember that many of these financial institutions were under-capitalized. Now that things are slowly starting to improve, what does the administration want to do? Lend more!

Barack Obama is pushing banks to increase lending so more people will have access to money, which would be used to start or expand businesses, buy homes, or purchase a new car. I agree that this would boost the economy, but do you want to risk building an economy that is built like a house of cards? If banks extend credit to questionable buyers, that’s exactly what they will be doing. A few years ago, it was pretty easy to get a no-doc mortgage with no money down. If you try getting one now, you probably won’t have much luck. That’s a good thing, since smart lending will be good for the banking industry and encourage borrowers to be responsible.

I fear that if banks listen to Barack Obama and drastically increase lending, it could lead to more bad loans, especially at a time when so many people are losing their jobs. This is not the time to have banks take on additional risk.