SF Mortgage Spot

I read Ben Bernanke's most recent speech to the Economic Club of New York with great interest.

He offered three reasons that banks are being so Scroogelike with their money.  I offer these explanation not to excuse the banks, but to encourge you, dear borrower, to not take it personally when it seems your bank wants to do anything BUT lend you money!

1.   Some banks are keeping more liquid assets on their books, at the request of regulators.  That reduces cash available to lend.  Analogy:  while you'd love to lend your nephew part of his college tuition, you decide it's smarter to have a bigger cash cushion in these difficult times.

2.  Banks have already sustained large losses, and don't know what future regulations will be enacted; they don't want to take on additional risks until there is more certainty.  Analogy:  you lent your college roommate money to buy her wedding dress but she never paid you back.   So the next time a friend in need calls, you are not exactly in the mood to be  so trusting again.   

3.  Lenders are still having trouble finding a secondary market to securitize the loans already on their books.  Translation:  it's harder for banks to find fresh money to lend out.  (Bailout money is supposed to help, but that's different than creating a secondary market, which will be durable and predictable, which bailout money is not!)

To sum up, banks recklessly lent out money that never got paid back, there have been repercussions, and now they are afraid to make foolish mistakes again and lose even more money.  No wonder they are so grouchy!

Does that make you feel any better?