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Why the banks won't lend you money
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If you are wondering why you cannot get a loan or your credit cards hit the stratosphere or your equity line was cut or why your refinance did not go through--here is the reason: the banks don't need you anymore. A little thing happened this week that most people don't even know about. FHA loans which are Government loans for homeowners just upped their loan requirements from a FICO requirement of 620 to a 640. This small move will keep out thousands of borrowers from the housing market. And so why is this a big deal? It is a big deal because the government loan is the last refuge of the middle class. It is their last chance to get credit because the banks really don't need us anymore--they got bailed out and like the man who is perpetually full, they no longer need food.
Imagine if someone came to you and just gave you billions of dollars. Your motivation for making widgets would fall to the floor. You make create widgets and you may sell a few to customers whom you like but you have no real motivation anymore. And that is what happened with the monstrous AIG/TARP bailout. It effectively killed the banks motivation to lend. Strange irony isn't it? That the very act that was supposed to get the banks lending again killed their incentive. But that is what happened.
Banks lend to whom they want now. Safe bets. Sure things. They do not have to take risks when they have effectively been insured against failure. Look at a tenured teacher. They have lost their motivation to achieve excellence because they know whatever happens they will keep their jobs. Capitalism works on distress. We have distress and so we work harder, sell more, market more, find new markets, new ways to do things more efficiently. What motivation do the banks have to lend to the middle class? None.
If they had not been bailed out. If AIG had failed. What would have happened. Economic chaos. Panic. Or would other banks moved in? Would someone found a better way to make a wheel? Isn't that where innovation begins. Necessity is the mother of invention and we have lost that in our banks by sticking them on life support to the tune of billions. They have done what any business would do when they are hit with a scare then bailed out...they batten down the hatches and take only the safe bets. That is not capitalism. It is certainly not in the American spirit of taking risk. Someone is going to have bet on the middle class again and soon.
William Elliott Hazelgrove writes in Ernest Hemingway's attic.
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