Who's a Fat Cat?

Now while I am one of the first to encourage banks to lend, I think it is inappropriate for the Commander in Chief to refer to commercial lenders that make loans to businesses as "fat cat bankers on Wall Street." The "bankers" that got us into this financial mess are NOT the commercial lenders that you see on Main Street in your town. I wonder. . . . .does the President know the difference?

Commercial bankers make business loans. Investment bankers aid in the buying and selling of securities, making a market, and assisting in the negotiation of the transaction. Investment banking is a world away from commercial lending.

The current financial mess started with "innovative financial engineering” from Investment Bankers and Insurance companies NOT because commercial banks stopped making loans. Traditional commercial lenders aren’t very innovative. As Paul Volcker, former Federal Reserve Chairman, said recently, the most innovative thing commercial bankers have done is to encourage the use of the ATM.

I agree that the lack of loans has reduced liquidity for many small business owners. And that is now becoming a problem in itself. However, this isn’t the CAUSE of the reduced lending.

The reason commercial banks have been hesitant to make loans is because they must maintain certain capital ratios as dictated by the Federal Government. In many cases, they have been UNABLE to lend because doing so would cause the ratios to fall below where bank regulations allow. And with many of their previously made good loans that are now turning “bad” because of the economic slowdown, commercial banks have even more problems to deal with. So it is a conundrum. And is not solved by name-calling.

When banks make loans, the economy improves because money circulates. The current credit crisis is a lack of confidence by banks to fund deals. A year ago, they didn’t even trust one another enough to lend to themselves let alone a business owner!

I have a lot of faith in the ingenuity and guts of business owners. Without them, this country wouldn’t be what it is or has been. Business owners DO need help right now. Commercial bankers SHOULD be willing to take risks on them. However, I know that is easy to say and hard to do especially given the circumstances.

So, Mr. President, while I applaud you for encouraging commercial bankers to make loans, don’t put them in the same category as investment bankers. They are NOT the same breed of cat. The biggest thing you could do to stimulate the economy is to cut taxes, stop scaring us with this socialized health care, reduce regulations that restrict commercial banks from making loans, and realize that as President Reagan said: “government is not the solution to our problem. Government is the problem”.

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