Bank on it

Earlier this month, USA Today founder Al Neuharth visited the Great Plains Bank in his old hometown of Eureka, South Dakota. He apparently came away with a renewed understanding of the simple logic that seems to escape big city bankers: lending institutions should loan money only to the people who can afford what they’re buying and who will be able to repay the loan.

Neuharth wrote about this experience in Why our little banks don’t need bailouts.

With tons of taxpayer money now going to help bail out big banks that didn’t have the good sense to remain true to the above axiom, we’re confronted with another sad fact. Big banks are getting bigger, and their wallets will likely get fatter with our hard-earned tax monies that are simple subsidies.

We’ve railed about media consolidation, and there’s little reason to believe that huge bank consolidations are any less smelly. The last-minute takeover of ailing Wachovia Bank allows Wells Fargo to join Bank of America and JPMorgan Chase Bank as financial behemoths that will eventually stifle good local service. The corporate mentality of maximizing the bottom line at all costs will work to blur the judgment of these banks, and “local service banks” will become harder and harder to find.

Bank on it.

The House of Representatives?

I’m disappointed with the $700 billion financial bailout passed by Congress and signed by the President. It seems to me that the fat cats on Wall Street and the big banks used scare tactics to get what they wanted. The House finally blinked this morning and passed the revised proposal, which still wreaks of greed, no matter how many sweet-smelling modifications they attach.

I remain perplexed about the provision to increase Federal Deposit Insurance Corporation (FDIC) protection from $100,000 to $250,000. Most Americans will never see six figures in their savings accounts, a fact that seems lost on most members of Congress.

The FDIC’s insurance fund is at a historically low level, according to the Wall Street Journal, with only about $1 backing every $100 of insured deposits. Isn’t this the kind of fast and easy voodoo economics that blew the bottom out of the mortgage market?

The three largest banks in the country are now even bigger (Bank of America, J.P. Morgan/Chase, and CitiBank) following the Wachovia and Washington Mutual bailouts. Many independent community banks are likely to be gobbled up by the big three. Does that really make anyone on “Main Street” back home feel better?

Perhaps most disturbing is the fact that House members largely ignored what their constituents were telling them to do – listening instead to the financial whiz-kids and geezers on Wall Street. Too many members of Congress, particularly the old timers, are beholding to financial institutions that stand to gain by the bailout. Take a bow Barney Frank.

And to claim they passed this bailout for the folks back home on Main Street is unbelievable.

We really do need "change"

We shouldn’t be surprised by the financial meltdown at Lehman Brothers, AIG, and Merrill Lynch. Banks involved in the “sub-prime” mortgage crisis took a big hit. They were loaning money to folks who couldn’t really afford the huge mortgage payments they were assuming. There wasn’t enough collateral or ability to re-pay the loans, and the sheer volume of this risk began a snowballing of no confidence in those mortgage papers.

Others involved in this chicanery, from investment banks to insurance companies, are now feeling the impact.

For decades, “financial institutions” have been sending out credit cards to anyone with body temperature, not to mention canines, felines, and other varied critters. Dealing with high volume, they worried very little about individuals who found themselves upside-down in indebtedness they could ill afford. South Dakota was a witting enabler for the charlatans purveying this crap.

Mortgage lenders, fueled by a government and social environment that suggested everyone should own a nice home – whether or not they could really afford it – were warmly greeted by the masses and gained good traction.

Alas, that good traction eventually lost ground quickly on the slippery slope of sub-prime loans. By that time, the greedy lenders determined that their customers wouldn’t be able to re-pay the burgeoning collective debt encompassed in the sub-prime loans. The jig was up.

We all recognize that our federal fiscal health is on the critical list. Why would we expect otherwise, when federal policies promote “spend, spend, spend,” within both government and the private sector? Didn’t we all just love those “stimulus” checks this year?

The notion of “saving” rather than “spending” went out of vogue more than 30 years ago. It’s time we embrace the common-sense approach that you shouldn’t spend more than you have.

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More than that, we should hold our government accountable to adopt fiscal policies that reflect common sense. Perhaps that’s too much to expect of the U.S. Congress, but we shouldn’t give up the struggle.