Today the details for the “Making Home Affordable” plan came out. The problem with the plan is that it depends on banks being willing to cooperate with government in making the plan work. The concept is a very good one, but the banks may prove to be the stumbling block. I find it hard to imagine that those who cannot see people, but can only see money, will be willing to lower interest rates on mortgages so that people can afford to pay them. I wonder if there is enough incentive in the plan to make it work.
Borrowers are going to be calling up their lenders and asking to be part of this new plan, and will the banks do the right thing? I wonder. I am so skeptical of banks right now. The plan says that banks could lower interest rates to as much as down to 2% — yeah right.
Lately I find myself thinking of that charming movie we see every year at Christmas: It’s a Wonderful Life. While we all love the movie, we seem to miss the main point. In this movie there is an ongoing battle between two styles of banking. One is the caring, small town banker who knows the people, and is willing to take risks with them. The money in this case is in circulation, so that everyone in the community is involved in the success of his and her neighbors, and the whole town benefits. The other is the big bank whose goal is to make the most profit, and doesn’t give a *&@!!# about the people. The value is in the bottom line, and whether or not people have good homes, or sound businesses is of no concern.
While in the movie the small town banker “wins” in the end because the people come to understand the way this bank is on their side, in reality the big bank has won. It is a sad commentary on we humans that we have watched this movie, and failed to see the benefit of having small local banks, and thinking we were going to do better with the big bank, we let the little banks fail. Now we are stuck with banks that are “too big to fail” and so we have to rescue them, even while they refuse to rescue us.
It looks like we allowed many different entities to get “too big to fail” and that can’t be good. AIG is now taking another huge amount of tax payer money, and what we’ve given them already — we don’t know what they’ve done with it. Maybe it is time to break up these entities.
Tags: banks, interest rates, mortgages
