Obama to banks: Show “gratitude” by losing money on loans

(By Ed Morrissey, Hot Air) - After the debacles of the overall housing bubble and the Ginnie Mae rerun last week, one might think that government might reconsider the notion of demanding that banks make marginal loans on a large scale. Last night’s interview with Barack Obama on CBS shows that populists have a particular problem in learning from experience. Obama blasted banks for showing ingratitude for resisting further government intrusion into their industry and refusing to increase loans to marginal borrowers:

President Obama, who lashed out Sunday at “fat cat bankers” who “still don’t get it,” plans to gather the heads of major banks at the White House on Monday to urge them to make more loans and to accept the necessity of greater regulation.

Obama convened a similar meeting with bank executives in March, and the need for a replay highlights the lack of progress in the interim. The banking industry has reduced lending for five consecutive quarters, even as it has regained profitability thanks to vast public aid.

The administration’s success in rescuing banks stands in starker contrast every day with the financial problems of many Americans, most of all the lack of new jobs, and Democrats made restless by the disparity are mounting pressure on the White House.

Meanwhile, the prospects for financial reform legislation have been clouded by industry groups that convinced moderate and conservative Senate Democrats that some proposals would unduly suppress financial innovation and limit economic growth.

The problem is that the Obama administration and its populist allies like Barney Frank and Chris Dodd see reducing lending and increasing profitability as unlinked. Banks have to assess risks in lending, and when they have less money to lend, they get more conservative in their risk-taking. That leads to better profitability, which taxpayers should be praising instead of decrying, as it makes it much more likely that we can recover our bailouts in these banks. Until banks return to fiscal stability, they should be more conservative in taking risks.