Obama tells banks to lend, clearly doesn’t understand risk management

Bankers need to put their money to work, President Obama says. On Sunday, he said that the “fat cat bankers,” a safe expression to use when appealing to Middle America, “still don’t get it.” So, he’s pushing them to make more loans and accept the fact that regulation is coming.

But, let’s leave a little elbow room for common sense here. How the hell can the bankers deploy more of their capital if (a) regulation constrains their ability to do so and (b) they can’t accept the levels of risk that got them into trouble in the first place? Banks need borrowers who are likely to repay their loans, and that means they can’t look anything like the subprime borrowers of 2005 and 2006.

With unemployment at 10% and expected to increase, a wide risk of unemployment remains, and those currently out of work don’t exactly make high-value borrowers. So, it seems as though lending aggressively wouldn’t be a brilliant move right now, especially when so many loans are waiting to be rehabilitated and landmines, such as corporate real estate loan portfolios, have yet to reveal themselves fully.

The Obama administration is trying to increase bank lending as a way to stimulate an economic recovery. This is part of a broader reform agenda that includes limiting executive compensation, increasing regulation and, outside the banking sector, job creation.

President Obama said on “60 Minutes” Sunday night, “What’s really frustrating me right now is that you’ve got these same banks who benefited from taxpayer assistance who are fighting tooth and nail with their lobbyists . . . up on Capitol Hill, fighting against financial regulatory control.”

Industry leaders have kept a low profile during the debate over banking reform, with Kenneth Lewis of Bank of America, Jamie Dimon of JP Morgan Chase and Lloyd Blankfein of Goldman Sachs leaving engagement to industry groups, such as the U.S. Chamber of Commerce.

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