Banks are still not lending in spite of the bailout funds that they have received, for the same reason that caused the collapse of the houses of cards that were our mortgage and credit industries: lack of accountability, regulation and supervision that should have been the strings attached to the bailout dollars. The financial institutions were given–and happily took–the money without even a thank-you note, and continued on their way, using it for whatever they pleased–acquiring other failing banks as their only means to gain entry into states where they previously could gain no presence in order to position themselves for a much greater market share (in the event that anyone ever gets any more money to put in them again) instead of using it as intended, which was largely to make mortgage money available to help homeowners burned in the mortgage debacle to refinance their homes and stave off foreclosure. Today the news announced that bailout recipient Citicorp just ordered a $50 million corporate jet.
The banks actually do have mortgage money available, and at rock-bottom rates, too. The problem is, they know they can’t expect another bailout so they have belatedly found it prudent to adopt standards for loaning out the available money. So if you’re in trouble with your mortgage and are the intended target of one of the government-backed loans, you can’t get them at the low rates because of: yes! being in trouble with your mortgage! Your credit is no longer perfect, so you automatically don’t qualify for the low rate.
Even more frequently, after years of making “zero-down” mortgages, homeowners can’t benefit from the intentions of the bailout money because they still owe 100% of what their homes were worth two years ago, and now they’re worth thousands–or tens of thousands–less. Speculative lending at best, predatory lending at worst–and who’s going to make up the difference in the lost value of these homes so that their owners can qualify to refinance them and avoid foreclosure? The banks aren’t going to volunteer to eat the difference.
Additionally, while banks have begun advertising home loans and refinances at fire-sale rates, solid borrowers with decent credit and a respectable home equity position are discovering that along with the preferential rates touted on these loans, comes the unheralded return of those almost-forgotten “points” and unspecified “loan fees” that propose to tack thousands of dollars onto their new loans, reducing or wiping out their equity positions–and they are simply balking, and walking away. Some banks even charge $500 or more just to begin to process an application, and that fee goes straight into their coffers–it won’t be applied to routine mortgage costs such as an appraisal, inspection, title insurance, etc. If it can’t be by interest rate, the banks will get their pound of flesh in “fees.”
As for loans to shore up businesses and protect jobs–if action isn’t taken almost immediately, any amount is going to be too little, too late. Every new day is now met with the latest list of companies laying off thousands of workers. People without jobs can’t buy product. People afraid of losing their jobs won’t buy product. If nobody buys product, more businesses close, and more workers lose their jobs and their homes. I visualize a country of homeless people against a ludicrous backdrop of millions of boarded-up and unlived-in houses.
Capitalism is subject to these cyclical ups and downs, and they say that although it will be slow in coming, the economy will heal and begin to take shaky steps toward recovery. To those who argue against regulation and accountability as being contrary to the concept of free enterprise, I advance the hope that we cannot be so unrealistic as to not have learned from this extremely painful illustration–of which I’m afraid we’ve only witnessed the tip of the iceberg so far–that wherever money dances with ethics, a chaperone must be mandatory.
01.26.09
