Op-Ed: Cutbacks Harm The Economy

Op-Ed

Sanders Op-Ed: Cutbacks harm the economy (USA Today)

Note: This article was printed along with an editorial from an opposing standpoint by the USA Today, pasted below.

Increase lending to responsible individuals, small businesses.

By Bernie Sanders

Last year, then-President Bush issued an ultimatum to Congress: Give the banking industry the largest taxpayer bailout ever or else banks will drastically reduce lending — denying credit to millions of American consumers and businesses. Further, the Federal Reserve provided trillions of additional dollars in low- and zero-interest loans to big banks with the goal of increasing consumer and business lending.

The result? Bank lending is in free fall. Banks are severely reducing credit card limits on small businesses. And, as USA TODAY reported, banks are getting "stingy" and denying credit cards to millions of Americans.

No one would argue that big banks shouldn't improve their underwriting standards and stop issuing credit cards to consumers who cannot afford them. After all, that approach contributed to the subprime-mortgage debacle and the current financial crisis.

But to assume that big banks are only denying credit cards to those who can't pay them back is simply naive. In March, USA TODAY reported that lenders will be reducing available credit card lines by up to $2 trillion by the end of next year.

Undoubtedly, this severe cutback will mean that credit will be denied to a large number of responsible and hardworking American consumers and small-business owners. Remember, we're talking about a banking industry that calls its most credit-worthy customers "deadbeats" because they pay their balance on time and in full.

Adding insult to injury, large financial institutions continue to act like loan sharks, charging interest rates as high as 41% and increasing fees at any time for any reason.

Huge lenders need to be told in no uncertain terms: Use the money that the American people gave you to increase lending to responsible consumers and small-business owners, and stop ripping off the American people by charging usurious interest rates and sky-high fees.

USA TODAY editorial: Banks offer fewer new credit cards. Good.
Recovery built on loose lending practices is doomed to collapse

America's love affair with the credit card seems to be cooling. And, like the end of many dysfunctional relationships, this breakup is painful at first but healthy in the long run.

Banks, which deluged mailboxes with 6 billion credit card solicitations in 2005 (that's nearly 60 per U.S. household), are on pace to send out less than a third that number this year. Banks opened 6 million fewer new card accounts through April this year than during the same period in 2008. And the spending limits on those cards have fallen, too.

Consumers, meanwhile, are borrowing less, paying down debt and saving more. For most of 2007, Americans saved less than 1% of their income, and their credit card debt grew by billions each month. This May, however, the savings rate jumped to nearly 7% — the highest since December 1993. And outstanding credit card debt, while still enormous, fell for the eighth month in a row, according to the Federal Reserve.

Some economists and lawmakers bemoan this reduction in new credit by banks, and the new thrift by consumers, as an impediment to recovery. Sen. Bernie Sanders, I-Vt., and other liberal lawmakers criticize bailed-out banks for cutting back too far, too fast.

Hold on a minute here.

Wasn't the recession triggered by lenders who peddled too many mortgages and credit cards to people who got in over their heads? The answer isn't to reinflate the credit bubble. It's to lay a firmer foundation for sustainable economic growth.

To the extent that lenders are finally using sounder judgment about how they extend credit, they are doing Americans a favor.

For years, too many consumers, egged on by the rapacious industry, have been slaves to their credit cards. And financial institutions have been only too happy to put them in bondage, deluging consumers with junk mail, extending more credit than many could afford, then raising interest rates on existing balances "at any time, for any reason" —an abuse that the law allowed. Banks also reaped huge profits by larding on fees for even the most innocent infractions.

Now several factors — the recession, the drying up of the market for securities backed by credit card receivables, and passage of a law in May that will outlaw many of the worst abuses — are forcing the industry to do what it should have been doing all along: evaluate consumers' credit worthiness up front, deny credit to some and assign realistic limits.

"Just as credit is best when used responsibly, it is also best when offered responsibly," says Rep. Carolyn Maloney, D-N.Y., chief sponsor of the credit card reforms.

People who want financial institutions to use their bailout money to resume promiscuous lending miss the point. Yes, some borrowers might be punished by the stricter standards. The evidence suggests, however, that banks are issuing fewer cards to marginal and high-risk credit customers, according to Experian, which provides credit and risk data.

A return to old-fashioned underwriting practices might well crimp consumer spendi

Source