"Letting Bankers Walk" Not A Bad Idea

In the article “Letting Bankers Walk," liberal New York Times columnist Paul Krugman continues his assault on bankers, stating that we let them get away with far too much. The article is full of claptrap that has been greatly responsible for creating a huge rift among lawmakers and social classes. It is time to draw a line in the sand and expose Krugman’s outrageous assertions.

In his opening statement, Krugman indicates that the “central principle of United States policy" is to "go easy on the bankers.” Nothing could be further from the truth as exhibited by Sen. Carl Levin’s (D-Mich.) three-ring circus during which he unprofessionally flayed banking CEOs, and President Barak Obama, who continues to call bankers “fat cats” and blame them for our failing economy.

Seemingly, liberal lawmakers would be pleased if a large bank would go bust or incur severe financial problems. The fact is that many have experienced hard times: Lehman Brothers and a number of small banks have gone bankrupt, and Merrill Lynch was forced to merge with Bank of America. None of these events has been good for our economy. The earnings of almost all banks are down along with their stock prices. All this has resulted in a reassessment of compensation in the industry and forced large institutions to cut back certain investment activities. In fact, proprietary trading — a highly risky yet profitable business — has been greatly restricted.

The “lifelines,” or loans extended to banks during the darkest and most dangerous times were not provided as a favor to banks or their employees; they were forced upon institutions to ensure their survival. The potential alternative — widespread bank failures — would have resulted in global economic Armageddon. Most of these loans have been repaid, and taxpayers were well compensated for their accommodations.

To suggest that Wall Street has political influence among the current powers in Washington is absurd. Bankers, who have historically been supporters of liberal causes, now revile Obama and his liberal colleagues in Congress for their relentless attacks.

Regardless of what Krugman, liberal politicians, or the president tell you, the “mortgage mess” that our country is still experiencing was not created exclusively by Citibank, JP Morgan, Bank of America, and the investment banks. It has been stated many times and confirmed by Rep. Barney Frank (D-Mass.) that the crisis was a perfect storm, with many groups culpable. 

A Democratic-controlled Congress encouraged Fannie Mae and Freddie Mac to lower application standards. The result was unqualified borrowers received mortgages they could not repay.

Community banks also reduced their lending standards and believed they could sell mortgages into the exploding securities market. The mortgage securities market collapsed and many banks were left holding sub-prime mortgages on their balance sheet. The rating agencies were totally inept at evaluating mortgage-backed securities. This led to securities that should never have been sold being purchased by investors who thought they were buying highly rated paper.

And finally, the public. Why do Obama and liberals insist on blaming bankers for the current situation when none of this would have occurred if borrowers had not gambled on housing prices? It just goes to show you that excessive credit availability is seductive, be it in the form of credit cards, auto loans or mortgages, and it is a clear and present danger to the stability of our economy. This is where regulators should focus their efforts. Where are the days when banks required a 20% down payment to buy a home, along with a one-week salary that equals one mortgage payment? The people who fraudulently signed papers that indicated they could repay loans are the most culpable of the entire lot.

Krugman considers the “rush to settle” with bankers inappropriate. In spite of this, many pundits believe that putting this sordid experience behind us will benefit the economy. In this regard, we should expect an ongoing restrictive credit market if the government stretches out the painful settlement process. The overhang of doubt and the threat of hyper regulation will only serve to make banks more hesitant to ease credit for worthy individuals and companies — keys to lowering unemployment and improving economic conditions.

Interestingly, Krugman is at odds with those who have a similar mindset. As Obama and Congress have questioned the wisdom of subsidizing existing problem mortgages, Krugman is urging them on. He wants the same people who lied or stretched the truth to receive aid, our tax money. I am all for helping those who submitted accurate mortgage applications, but not for those that cheated.

Krugman says the banks are in fine shape and it's time to end federal safeguards. Wrong, wrong, wrong. Strong banking performance is an important key to a sustained recovery. The health of the banking industry is critical to Americans as they provide the capital to grow, to market, and to hire.

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