Loans Should Be Local

In today’s technology, there is no good reason why all banks, large and small should not be competing for the same customers for services relating to demand deposit accounts and even long-term deposits. They are all equally dependent upon the same technology backbone, electronic funds transfer, and everything else.

But bigger is not necessarily better and centralized banking is not necessarily better than local banking. If you are looking for a cause for the mortgage meltdown look no further than that branch banking was expanded beyond state borders and that loan decisions were made far away from the communities impacted. Many of the securities sold around the world were indexed on discretionary data points issued by Wall Street brokers who were pretending to own the obligations of homeowners.

Is that globalization or just a way to hide the bones?

More importantly, centralized deregulated “lending” under false pretenses has put community banks and credit unions in a place where competition is nearly impossible. Only mammoth entities dwarfing the size of any community bank or credit union, could offer “interest rates” that are below 3%, no documentation, and with incentives like no closing costs, lower payments for a specified tune period etc.

Soon they will be offering toasters or refrigerators because the point is not the risks and reward of making a loan. It is the lack of risk and the reward of participating in a grand slam of scams: selling worthless Securities to investors. Both weaken neighborhoods and pensions across the world, particularly those where population density is greatest, education is lowest and financial sophistication is nearly nonexistent.

How many of those crazy “toxic” “loans” would have been closed if there was a lender who was absorbing a credit risk? The answer is obvious. Those transactions were only toxic to homeowners, investors and consumers. They were a gold mine to Wall Street brokers. They still are a gold mine. Those transactions would not ever have been considered loans if in the end the party seeking administer, collect or enforce the “debt” was required to show that they had an account ledger with an account receivable on it bearing the name of the homeowner.

My opinion is that we should return to the days before Glass Steagall was repealed (1998) and not allow brokers into commercial banking. I think that all loan decisions need to be local because a local bank is the only lending source that will consider the impact on the community if lots of loans go south. And only a lender with local risk not offset by other related activities will make loans that are founded upon economic sense, as advertised.

3 Responses

  1. There are local banks that will not even take an application if any loan is assigned to trustee to BS trust. They know the score.

  2. Great idea Neil. Shame on old Bill Clinton and his successors. It is ALWAYS a very bad idea when bankers and brokers from Wall Street are in bed together!!! Semper Fi.

  3. The real world in Tenn. is the big banks and crooked servicers have such a stranglehold/monopoly on ” securitization ” and ‘ resales ” that
    there is really no way to obtain a loan that will be held in a local portfolio, we know, cuz we have tried. Plus there is such a mess with our DOT and note ownership, no body really wants to invest the time to untangle it even if they do hold notes locally.

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