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Monday, February 02, 2009

Obama To Force Banks to Make Loans

Obama wants to force banks to make more loans. Of course it's a noble goal - more lending will put more liquidity in the system and enable both consumers and businesses to spend more to meet their needs. I think everyone from 5th grade and up understands this concept.

What I disagree with is government forcing banks to make loans. Isn't this how we got into this mess in the first place? The Community Reinvestment Act forced banks to make loans to unqualified lower income folks. These loans are today better known by the name "subprime."

What Obama fails to understand is that all loans are not good. Anyone remember just 6 weeks ago, when an Illinois based door and window company closed down a factory and blamed Bank of America for not making them a loan? Obama stood side by side with Governor Blagojevich in condemning Bank of America for the move. This was of course one day before the governor was indicted and since then Obama has tried to separate ties with the governor. Does anyone really trust the government to know how to make these loans?

Hopefully one of Obama's advisors will explain to him a little Econ 101. If not, Obama administration may be starting yet another bubble.