Time to Bank on Common Sense

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By TED LUX

All we hear from the government these days is about how banks aren’t making enough loans and they need to soon to help get our economy on track so our country avoids an even deeper recession. But when we step back and think about it, does this really make any sense?

I recently had lunch with a good friend of mine who runs a small business bank in the Los Angeles area. Over our chicken burgers and fries we discussed the economic plight facing America and our city of Los Angeles.

“We’re ready and willing to make loans to businesses,” my friend said. “But to whom, for what and why?”

Banks like to make loans to companies and individuals that truthfully don’t need to borrow money. That is, to financially secure entities with ample cash flow and strong balance sheets. The problem today is with the shrinking economy, higher unemployment (now at 7.6 percent nationally and greater than 9 percent in California), slower sales and rising inventories finding qualified candidates to loan money to is becoming increasingly difficult.

“Should I make an irresponsible loan,” the banker asked, “just because the government has told us (the banks) to make loans?”


More selective

No doubt with fewer qualified applicants for loans, banks have to become more competitive with one another to obtain the business. As that happens, rates get squeezed and terms become more favorable to the borrower.

“A point is reached where there is simply no profit for us (the bank) to make the loan,” my friend added. “It’s just not a good business decision.”

Does the government really have an idea what it’s talking about? Didn’t our country, state and city get into a whole lot of trouble from a bunch of bad loans to unqualified applicants to begin with? Look at all the foreclosures nationwide. Why should banks get back on the bandwagon and do the same thing all over again?

It does seem prudent to me and I’ve been in real estate lending for over 20 years that banks make loans using sound judgment and analysis. This did not happen in the recent past. It’s what caused our great financial turmoil here and nationwide. We certainly don’t want to “rewind the clock” do the same thing all over again and compound our mess.


Ted Lux is a former account executive with Morgan Stanley and has been involved in real estate lending in the Los Angeles area for more than 20 years. He lives in Playa del Rey.

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