Friday, October 08, 2010

How Bankers Think

If you want a full dose of  the "not my problem" bank mentality, you could do worse than to assimilate this letter from this week's Economist which pretty well sums up all the excuses, evasions and blame-somebody-else undertakings that you are likely to hear in this environment:
The right way up

SIR – You suggested allowing bankruptcy judges and special trustees to write down balances of loans for homeowners in America who are upside down in their mortgages (“Are we there yet”, September 18th). This ignores the fact that a loan balance represents dollars belonging to someone, either an investor or bank depositor, used to support the purchase of collateral property. Who would absorb the shortfall if this was allowed?
As a banker, I’m sympathetic to those borrowers who are in this upside-down situation. We try to help our customers through these troubled times. But there is a great difference in our attempts to assist these borrowers and any situation which would give them an entitlement to have their loan obligation reduced. There has always been a moral, as well as a financial, obligation to repay loans. If we begin to take steps to set aside that moral obligation, the troubles we see today will pale in significance.
Joe F. Ferguson
Chief executive
Stephens Federal Bank
Toccoa, Georgia
 Let's restrain ourselves from a full-panoply discussion of what banks (heh!) know about the "moral, as well as financial, obligation to repay loans."  Let's cut to the fact that Stephens Federal Bank itself as of June 2010 was carrying a troubled-asset ratio  of 77.10--this against a national average of--this against a national median of 15, so exceeding the median by a factor of five (see the analysis from the American University School of Communication Investigative Reporting Workshop).   I can't imagine how any bank can lend itself into that big a hole other than intentionally--that is, well knowing that it wouldn't be able to collect a lot of the money it was putting out and budgeting (or relying on government guarantees) accordingly.  So if Stephens  never expects to collect more than (notionally) 80 percent of its loans--and if by some mischance it actually collects 100 percent, then aren't they being overpaid by a (notional) factor of 25 percent?  And where, exactly, is the morality in that?

2 comments:

they call me trouble said...

Pretty glaring letter, really. What about the moral obligation to not lend to people who likely can't repay?

William A. Sigler said...

How fortunate I egotistically have emailed back to me my own comments (to Patrick's blog this time), for otherwise I would never have discovered your wild-card witty, world-weary winsome, scarily erudite musings.

Nice work here keeping it simple and real. My mother, who I would vouchsafe is approximately the same age as yourself (only her Fuller Brush salesman knows for sure) casts a cold eye on all manner of the "conspiracies" I propose, be it biofeedback, free energy, channeling, secret history, deconstuctionism, Edward de Vere, the 16th amendment, poetry, but she's hip to this one, perhaps the ne plus ultra of conspiracies. I think everyone is, but few can articulate it. I suspect people also know that fighting it is literally the same as taking on the entire system, and that pitchforks on DC, say, would create as savage and unreported a response at that visited on the citizens of Fallujah (what was it, seven times the radiation as at Hiroshima?!?). Maybe it's time to take a longer historical view and conclude that the debt system, important in earlier stages of human economic development, has run its course. When one sees things like farmers seeds, child care, water, air rights and dirt monetized, one must conclude there isn't a whole lot more out there that would compel a 300% return on investment. Fixing the problem is easy -- all it takes it literally everyone to stop paying on their debt, including taxes (kind of a big gulp Iceland). That, however, would require an evolutionary change in how man perceives himself, as something bigger and more important than a commodity. But stranger things have happened.