Wednesday, October 21, 2009

More Obama Financial Incoherence

There's a mythology growing up around the financial collapse last year that's going to lead us to make policy mistakes if we don't dispel it: that the problems were due only to speculation, derivatives, and over-reliance on incorrect models. That was certainly part of the problem. But underlying all of that was the fact that banks were loaning money to people who couldn't pay it back.

Yesterday, President Obama said the following:

"When I hear stories about small businesses and medium-sized businesses not being able to get loans, despite Wall Street being profitable, that tells me people aren't thinking about their obligations," Obama said, chastising bigger banks.

(Let's hope Obama isn't just "hearing stories," but is actually looking at hard data.) But let me get this straight. Obama thinks banks have "obligations" to lend money to small businesses? All small businesses? Even ones that, maybe, the bank thinks won't be able to pay them back? He's in favor of "tighter regulation," but apparently in his mind that means looser lending rules. Despite the fact that loose lending rules got us into this mess in the first place. Someone please tell the President that when you're in a hole, the first thing to do is stop digging.

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