Wednesday, March 25, 2009

When Prudence is Declared Imprudent

Via HBL comes the story of East Bridgewater Savings Bank. The FDIC recently gave the bank a "needs to improve" rating because it hasn't been lending enough money.

“There are no apparent financial or legal impediments that would limit the bank’s ability to help meet the credit needs of its assessment area,” the FDIC said in its CRA evaluation.

FDIC examiners also faulted East Bridgewater for not advertising and marketing its loan products enough. The bank, which does not have a Web site, offers fixed-rate mortgages.

At a time when taxpayers are on the hook for trillions of dollars to bail out irresponsible businesses, the government is penalizing East Bridgewater for being too responsible. The bank has no delinquent loans or foreclosures. The bank even managed to make a small profit in 2008, while the industry as a whole was losing $26.2 billion in the fourth quarter alone.

But this isn't good enough for regulators--they consider East Bridgewater stingy because it refuses to engage in the same reckless behavior of its colleagues.

As Richard Salsman writes:

Besides a desire for re-election, shared by all politicians, at root the Obama Administration wants individuals and firms to become more dependent on government. That requires not merely a more intensive redistribution of wealth to the needy (whether needy people or needy firms), but also programs and plans that might proliferate the ranks of the needy, even if that requires turning otherwise healthy people and firms into unhealthy, needy ones.

When the Bush Administration first offered "assistance" to financial institutions, they made an offer that literally couldn't be refused. They forced healthy banks, as well as those in trouble, to take the money. The Obama Administration is taking this even further.

In an industry that is increasingly dependent on the government, East Bridgewater stands as a refutation of government policies. So long as East Bridgewater is allowed to act according to its judgment, it will provide concrete evidence that prudent lending practices are not only possible, but actually good for business. This of course, doesn't fit with Obama's agenda.

Forcing East Bridgewater to loosen its lending standards is about destroying independence:

Independence is the recognition of the fact that yours is the responsibility of judgment and nothing can help you escape it—that no substitute can do your thinking, as no pinch-hitter can live your life—that the vilest form of self-abasement and self-destruction is the subordination of your mind to the mind of another, the acceptance of an authority over your brain, the acceptance of his assertions as facts, his say-so as truth, his edicts as middle-man between your consciousness and your existence.

The destruction of independence is in full-swing. Whether it is forcing financial institutions to take government money against their judgment, or pressuring AIG employees to return their bonuses, or forcing Detroit to make "green" cars, or forcing East Bridgewater to alter its lending practices, the trend and the purpose is to prohibit individuals (and businesses) from acting according to their own judgment. The purpose is to penalize the prudent for the benefit of the imprudent. The purpose is to vest power and control over the lives of individuals in the hands of politicians and bureaucrats.

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