THOSE DAMN BANKS!

I think we all have said that at one time or another.  My business is coaching businesses that rely on bank’s for financing and I too get angry once in a while.  But my role is to teach my clients how lending works and what they need to do to communicate and keep their financing alive. This week the government announced a mortgage deal whereby the banks would be “punished” for the mortgages they made that are underwater or delinquent.  Hurray, that’ll teach them!  Make them pay! But…… we will pay for it!  Somewhere, somehow we will pay a bit more for interest on loans or a bank fee on something.  Count on it, it will happen.  Unless like B of A which tried to charge fees on debit cards that resulted in a near-revolution and they changed their minds.  There are many ways to get it back. My experience with it was in credit cards interest.  I pay off my card each month and have good credit so I had a fairly low rate on my card.  Once in a while I used to carry a balance for a month or two to manage my cash, but since the credit card laws changed a few years ago guess what happened?  My bank increased my rate to 12% on any balance I carry.  I won’t use it now to borrow so the only way I get hurt is if I have an unusual situation come up.  But some others with previously low rates will pay more if they keep a balance.  The banks will get it back, they have to if they are to keep their profits and returns to investors where needed.  If they don’t their stock may go down and pension funds etc my lose values needed to pay for pension benefits.  Kind of a vicious circle isn’t it?  We also have a consumer finance czar now to protect folks from those damn bankers and their complicated agreements.  Never mind that 90% of the complicated language in the agreements are required by law and regulations.  But it is a circle: government requires disclosures that are complicated; then created jobs for folks to protect folks that don’t understand them! This may be a key issue though, all consumers don’t understand what they are getting in to when they borrow money.  I sympathize with their dilemma but also believe that lack of knowledge is not a reason to get subsidized.  I had a variable rate mortgage once my self, but I understood it.  My rate went up but I had calculated what the increase in cost would be and satisfied myself that I could afford it if I had to.  But I refinanced when I could get better terms.  I have a problem with adjusting these mortgages because folks didn’t understand.  But I hope it solves the problem as a whole in the housing market.

In this situation most every knowledgeable person I hear understands that it wasn’t just the banks’ fault.  Fannie and Freddy put out the offer to buy mortgages for lower credit standard loans.  The banks should be mostly criticized for going along with it and selling mortgages that deep down they knew were not good loans.  The banks did some bad things on their own, but it is hard to criticize them for selling loans to an entity that offered to buy them.  It is not any seller’s job to judge whether the buyer knows what they are doing is it?

I am hoping that there will be some “common good” in this, as they say.  I doubt it, unless consumers get smarter!