Same Credit, Different Day

If you're a financial institution, it has become a little easier to borrow money. But for most of the rest of us, borrowing is tougher than ever.

Two months ago, the freeze-up of the wholesale lending markets used by banks to fund day-to-day operations caused the financial system to break down. That crisis has eased significantly, thanks to government loan guarantees and lots and lots and lots and lots of taxpayers’ money shoved into big bank coffers.

The problems didn’t go away, of course; they just changed ownership. It’s not the banks’ problem anymore; it now rests squarely on the shoulders of American tax-payers. Since bank lending practices now broadly restrict credit to only those who can really afford it, businesses and consumers are hard-pressed to get loans. Since our society is no longer accustomed to paying-as-we-go, the new reality of less free-flowing credit is intensifying the global economy's downward spiral.

About 85 percent of domestic banks told the Fed they had imposed stricter lending standards on large and mid-size commercial borrowers, while 75 percent said they had done so for small businesses. At the same time, 60 percent indicated they had tightened criteria for credit cards, and 65 percent clamped down on other consumer loans. The government doesn’t like it, but they can’t figure out how to force banks to lend in a way that doesn’t stink of socialist or dictatorial policy. You know… reality.

Frustrated, Massachusetts Democrat Barney Frank (chairman of the House Financial Services Committee), warned that the banking industry faced congressional ire if it used bailout money to pay dividends and bonuses or buy out other institutions. I find this interesting because what’s being said behind closed doors does not even remotely resemble what’s being said in public.

The mixed signals and continued economic slide are making an already paranoid and panicky public downright schizophrenic. They want answers. I really think it’s time for honesty here, because folks have just about had it with the crap Washington has been making up. It might actually be time to tell the American people that nobody knows how deep the trouble is, how long it will last, or worse… what might make things feel even the tiniest bit better.

Bankers argue that it's legitimate to use public money to buy securities such as corporate debt, because those markets also were shut by the credit lockdown. And they say allowing strong banks to buy weak ones also serves the public good because it means taxpayer money wouldn't be needed to pay off depositors at failing institutions. They point to JPMorgan Chase's takeover of insolvent Washington Mutual in September, carried out without use of Federal Deposit Insurance Corp. funds. They don’t mention it was done that way because the FDIC was insolvent as well, and could never have covered for the huge amount of toxic debt that choked WaMu’s balance sheets so badly.

Actually, there’s lots of credit available; you only need three things to get it: good credit, proof of income and money for a down payment. That seems sensible to me. That seemed sensible to most banks before they lost their damn minds lending money to anyone with a heartbeat on the foolish notion that property values could never deflate. I’m glad banks returned to more sensible lending practices. They should have thought of it sooner. If they had, we would all be in much better shape. Instead, the mess is staring back at us, its eyes hungry and yellow, nostrils flared and quivering from the smell of fresh and frightened prey.