It has become apparent that all the fist shaking and rhetoric going on between the Feds and the banking industry regarding consumer lending is going nowhere.

I wondered just how Congress can mandate a bank to lend money.  No matter how you cut it, lending money is a matter of choice for banks.  You might dictate the circumstances as congress has done with housing but not the choice.

As long as a bank does not decline a loan due to the protected under the Equal Credit Opportunity Act (among other legislation), you are out of luck.  Our banks simply raised the standards when faced with losing profits.

Can you blame them?  I don’t think you can.  The standards will rise until the reward meets the risk. They are a For Profit business.

What I do think is the government will be forced into directly lending, buying or guaranteeing almost all consumer loans for the time being.  This could be done through a new entity created with private and bank capital backed by the government.  After all, the Federal Reserve Bank was created in the same manner.  Now you just have to deal with consumers.

There will be of course, a whole lot of belly aching going on from many sides on this idea. However, the Feds are backing literally every lending aspect anyway.

In the end, consumer credit has been driving this bus for a long time. And it seems without a license or practically blind.

Take the bus driver off a bus and see if the passengers can complete a route.  Now make sure you replace that driver with an educated high income sort of guy. See where he thinks the route should be driven. A bunch of folks will never even see the bus.

I see the government needing to get a new bus driver.

___________________________