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Obama Dances a Most Delicate Line
You can’t bark out of both sides of your mouth, yet that’s essentially what President Obama did today.
In a meeting today with the CEOs of the 12 largest banks, Obama told them they their companies should make more loans. This as his regulators are preventing the banks from doing exactly that.
So my main message in today’s meeting was very simple: that America’s banks received extraordinary assistance from American taxpayers to rebuild their industry — and now that they’re back on their feet, we expect an extraordinary commitment from them to help rebuild our economy. That starts with finding ways to help creditworthy small and medium-size businesses get the loans that they need to open their doors, grow their operations, and create new jobs.
But in the same speech he said:
Now, no one wants banks making the kinds of risky loans that got us into this situation in the first place. And it’s true that regulators are requiring them to hold more of their capital as a hedge against the kind of problems that we saw last year. But given the difficulty businesspeople are having as lending has declined, and given the exceptional assistance banks received to get them through a difficult time, we expect them to explore every responsible way to help get our economy moving again.
I wonder exactly how that works. Or, put another way, I wonder whether a bank CFO can tell her bank 
regulator that, “well, my coverage ratio is out of whack because President Obama told me to make more loans”? I doubt that would fly.
If you want banks to lend prudently and abide by their coverage ratios, then you can’t criticism them for underwriting to what the banks consider to be prudent guidelines. Unfortunately, I see these as cheap political points. The president said today:
The way I see it, having recovered with the help of the American government and the American taxpayers, our banks now have a greater obligation to the goal of a wider recovery, a more stable system, and more broadly shared prosperity.
Therein resides the great disconnect. What exactly does it mean to “have a greater obligation to the goal of a wider recovery, a more stable system, and more broadly shared prosperity”? Perhaps that means lending less, rather than more? The message is so muddled and unsavory, and it speaks to politics rather than prudence. You’d think prudence would override all as we come out of the Great Recession.
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