Outside Voices: Small Business

Don't Be So Hard on the Bankers

March 27, 2009 RSS Feed Print

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Tim Berry

I hate to take an unpopular stand on something, but jeez, we’re making it awfully hard on the poor bankers.

For as long as I can remember, we in the world of entrepreneurship groused about how the banks wouldn't invest in a good business plan. Being a contrarian, I’ve tended, through some 30 years of this, to remind people that banking law used to forbid that. Ever since the Great Depression, regulations wanted banks to have collateral before they risked depositors’ money.

And then the pendulum swung, and for the past few (eight? 15?) years, we—meaning the regulators and Congress, not you and me—have been telling the banks to go for it. Get wild. Say "go ahead" to the mortgage and so forth.

And, partly as a result, the banks—some banks, some mortgage lenders, some people in the industry—made bad decisions. Stupid decisions. Greedy decisions. The authorities pretty much told them it was OK. Banks took dumb risks, and banks went under, and then banks got bailed out. With our money.

And now there’s a credit crunch. We need to jump-start the economy. We need the banks to start lending money.

But wait—here’s the Catch-22—do we want them to not be cautious? Do we want them to make bad loans to high-risk borrowers without collateral? I don’t think so.

Aren’t we sending a lot of mixed messages lately? I mean, I’m jus’ sayin’.

Tim Berry is president and founder of Palo Alto Software, founder of bplans.com, and a cofounder of Borland International. He teaches about starting a business at the University of Oregon. He is author of books and software, including Business Plan Pro, published by Palo Alto Software, and The Plan-As-You-Go Business Plan, published by Entrepreneur Press. Berry has a Stanford M.B.A. degree and degrees with honors from the University of Oregon and the University of Notre Dame. He blogs at Planning Startup Stories and Up and Running.

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Tim, Well said. So many people complain about the thoroughness of the application process (Im referring to commercial loans here) but yet complain about how banks made terible lending desicions. Catch 22 as always
Jeff
http://www.cfa-commercial.com

jeff of MI 5:06PM September 15, 2009

Banks have been allowed, thanks to your Congress and mine, to charge interest at amazing rates, while ringing up "fees" for late payments and the like at $29 per and then raising your rates on your credit card at anytime they like.
What is the rate that the large banks are getting money loaned from the Fed at right now?--between zero and .25%? Anyone on here being loaned money at less than 4.25% on home mortgages or credit cards at 8% or home equity lines at 6%? I didn't think so.
And when the giant banks lose tons of money, do they go out of business like the small banks? No, instead they are given billions from taxpayer funds directly to cover their losses so that they can figure out some great scheme to fleece the public ones again. (I guess the Fed charging .25% was too high a rate for the banks to want to pay back.)
But, of course, they are careful with the money we give them--well, that is, if you don't count the millions at AIG and billions at Merrill Lynch/Bank of America in bonuses, or the trips to the spa resorts, or the stock option gains (like Blankestein at Goldman Sachs, who only made $700 million in 2007--yet a year later his company almost went out of business, or Richard Fuld at Lehmann Brothers, who made over $40 million the year before that company went bankrupt).
And, of course, they are honest, but just had a little trouble doing their job. I guess that's why Fuld, after Lehmann's bankruptcy sold his share of his $13 million mansion to his wife for $10. (Sounds similar to Madoff's wife holding over $78 million in assets while he's in jail.)
Sorry, Tim, if we seem a little hard on the big bankers, but maybe that's because we are tired of this shell game and want the regulators to do their job, and this fraud on the American taxpayers to end. We would hope that you would want the same.

G. Kelly of CA 4:04AM March 30, 2009

One of the reasons that banks are not now lending as much is that there are not that many GOOD loans to be making.
That was true in recent years too, so they loosened the standards.

Muser of NM 1:30PM March 27, 2009

Don't Be So Hard on the Bankers

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