Without Bribe or Coercion

The causes of the financial meltdown have been well documented and agreed to by nearly all except Barney Frank and Christopher Dodd. One of the basic lessons that should have been learned through the suffering caused by this fiasco is that banks (and individuals) should be held accountable for the loans that they make or accept. If banks do not think that a business or person is capable of paying back a loan, it should not make the loan. If a business or person is incapable of meeting its financial obligations, it should not embark on the path of creating ever larger mounds of debt in which to live on.

When third parties become involved in an effort to get these ill advised loans approved, bad things tend to occur.

Unfortunately, this is the way that things worked in many parts of the lending industry for a very long time. Lenders were concurrently bribed and coerced into making loans to people that did not have the ability to repay, and borrowers were bribed into accepting the loans through what many consider the illegitimate marketing devices of the sub-prime lending industry.

In an effort to rescue the financial industry from the problems caused by consequence free lending and borrowing, the federal government enacted the bail out bill to the tune of $700 billion.

(I know I am abridging the overall situation. A more thorough explanation can be found here.)

Much of this $700 billion has already been doled out to lenders. We hope that the forces that be within the industry and government have learned a very important lesson, or at least I do.

I do not attempt to imply that I know the whole situation surrounding Republic Windows and Doors of Chicago.

What is known is that Bank of America, one of the recipients of taxpayer provided bail out money, has canceled the line of credit to the manufacturer. Without access to the line of credit the company was forced to close its doors and lay off its workers.

One of the last great acts of Gov. Blagojevich of Illinois (before he was arrested today for being a pretty standard Chicago politician) was to order the state of Illinois to cease doing business with Bank of America until it made the necessary loans to keep the business open.

I am not unsympathetic to the laid off workers of Republic, and it does appear as if those laid off are owed some compensation. They may even have some legal recourse against the company if it closed its doors and laid off its workers improperly.

However, if Bank of America deems that Republic Windows and Doors is not a viable business, if it thinks that to give the business any further loans is too risky, do we want government agencies and officials to try to coerce the bank into making what the bank thinks is a poor loan? Does this not sound vaguely familiar?

If we want the system to change, if we want lenders and borrows to coexist within a system that provides both profitability to banks and access to money for viable borrowers, we have to allow mortgage companies the latitude to make the best decisions they can based on their own expertise--without bribes or coercion.