Contrary to the liberal narrative that this economic recession is all Bushes fault for easing regulation, bank regulators all had jobs this last decade and they reviewed and examined in great detail all of the banks in the US. They were charged with pouring over each asset, asking questions about the current value and validity of each asset, and prescribing a recommended course of action through what they ask of the banks and don’t ask of them (reserve requirements and loan classification).
The regulators didn’t seem to be bothered too much about these mortgage-backed securities that were being traded bank to bank. They didn’t seem too bothered nor did they prescribe caution as the biggest banks in the country continued to buy up mortgages with shoddy valuation and paperwork (if any). No, very simply they were asleep at the wheel as the US economy began to fail. They collect a taxpayer funded paycheck every month to go out and protect the country from the very practices these banks were engaging in.
Well all of that is ancient history, water under the bridge right? Right, except for one problem. These clueless bureaucrats have become activated and are now unleashing a Nazi-like atmosphere on this nation’s small community banks. While the banks that got bailouts continue to operate with record profits, the small community banks are feeling the brunt of the overreaction from the Federal Regulators. This year has seen 150 banks, mostly community banks, go under at the hands of the Feds. So what is happening behind the curtain?
Community banks are operating under intense fear of regulation. Just go ask your local bank when their next examination is to be conducted and you will see a bank that is delaying its loans until that process is over. Why is this? Well, in this economy, you would think these small businesses that have capital loans and such, if they could at least stay current with their interest payments well at least thats a “good” loan right? No, the regulators, like vultures smelling a wounded body, demand that all loans not only be current with their interest payments but also do principal reductions annually as well. Now how can these small business, who have cut everything to the bone and who are simply trying to buy time to survive in hopes that maybe the market will turn around, how can they be reducing their principal on their loans? They can’t, and when they don’t the community banks get a red mark on them, and if they get enough, they are shut down (and those all those loans are foreclosed on and the business go under).
So I ask, how is that stimulating the economy? We all know how we got in this mess and we certainly know who not to count on to do their jobs, but at this point, with Bernake doing everything he can think of to get the money to the banks, doesn’t it make sense to review the process of what is going on between those banks and the business community? There is a clear snag in the money flow, and I think our overzealous bank regulators share the most blame on this. Its time for the GOP to go after these clowns and try and save these small business that are dropping by the day, many of which are having their hands forced for reasons that are not prudent.