Goodbye Old Building and Loan

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In Friday’s Boston Herald:

“As unintended consequences go, it’s a doozy.

The end result of the crackdown on big banks – the alleged villains of the financial crisis – is fewer small banks.

The number of FDIC-insured institutions has fallen below 7,000 for the first time since federal regulators began keeping track, during the Great Depression. The banks that have disappeared are almost exclusively those with less than $100 million in assets – a lot of money for a human, but small change for a bank.

Tellers and lenders at the kind of banks fondly recalled this time of year by the movie “It’s a Wonderful Life” are now out of jobs thanks to high-minded but misguided laws like the Dodd-Frank Wall Street “reform” act, which is routinely cited by community bankers as the intestinal parasite that consumes whatever profits they manage to make.

It wasn’t supposed to work out this way, but the road to small business hell is paved with the best of government intentions.”

Funny thing about selective memories: it was the government who urged banks to make mortgage loans through the Community Reinvestment Act, to people who had no business qualifying for a mortgage, because their income couldn’t support their student loan financing, their credit history was less than even borderline and property values were goosed to make it all happen. All at the Department of Housing and Urban Development’s insistence.

And when the house of cards came tumbling down? That’s right. There was the federal government standing there again with about $700 BILLION in goodies to lure the banks to bail out the government. That’s right, the banks weren’t bailed out, the government was.

          But because the banks succumbed to the temptation of “free” money at ridiculously low interest rates and a government buy-in of stock to the accepting banks, under fear of an FDIC audit, the government was able to turn the tables.
          The problem is that a rising tide of regulation sinks small craft first. Big banks have the scale to weather the added costs that each new wave of regulation sends over their bows. The little banks that served as life boats for fee-conscious consumers have been swamped by the 2,319 pages of Dodd-Frank and its Grand Inquisitor, the Consumer Financial Protection Bureau, the brainchild of U.S. Sen. Elizabeth Warren, when she was part of the Obama administration.
          This autocratic agency has taken the incentive to try and fix the industry so much away, that bankers like me have decided to walk away from the industry they lived and loved, and let the government deal with its folly. Obviously, political appointees have no business telling bankers what might make sense in an industry that has its basis in people’s life savings. I will admit, bankers are not innocent pawns in this debacle. After all, many savings banks, savings and loans, and small community-based banks set up holding companies to sell stock to raise their net equities after the Savings and Loan disaster of the late 80s.
          And of course, the government, the media and the Occupy Wall Street movement tried to rewrite history by blaming the banks for the “99%-ers” lot in life, when in fact, it was the government and its stooges in the media which were active participants in this whole debacle. After all, in the 90s in the early 2000s, the media kept “shaming” the banks into making horrible loans at the HUDs insistence.
          Sadly, the Bailey Building and Loan, and real institutions like it, don’t and won’t exist anymore. But then neither does the Potter Bank. Why? Because the incentive to be a start-up or an independent bank is all but gone. All due to government interference and regulation. Only the big banks like Chase, Citi, Wells Fargo and the other top banks will be able to weather the continuing storm which began really in 1977 with CRA.
          For old style bankers like me and consumers like you, it no longer will be “It’s A Wonderful Life.” And the people in neighborhood won’t be able to put dollars in a hat.
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