From: lessgovt@gmail.com   
      
   Banks Aren’t Busting the Economy, Politics Is Busting Banks   
   By Joseph C. Sternberg, March 23, 2023, WSJ   
      
   We’re in the grip of a banking crisis, although it’s not what you think.   
   What’s in the news now is an emerging, slow-rolling bank panic prompted by a   
   mass repricing of risk as interest rates rise. The crisis is something   
   different—a crisis of    
   banking, caused by the reality that “banks” aren’t really banks in the   
   way they used to be.   
      
   The bailout brigade forming itself in response to the panic wants you to   
   ignore this bigger crisis. The financial great and good, from hedge-fund   
   supremo Bill Ackman and Twitter money-loser Elon Musk to Treasury Secretary   
   Janet Yellen and Sen. Elizabeth    
   Warren, have emerged to offer variations of the same argument: Washington must   
   act in various ways to bail out the banks lest Main Street businesses suffer.   
      
   The image of banking embedded in their call to action is something out of   
   “It’s a Wonderful Life”—the friendly local institution engaged in   
   bread-and-butter lending to the local economy to support local businesses and   
   create local jobs. But it    
   has been several decades since American banks and Main Street enjoyed this   
   sort of relationship.   
      
   Instead, banks serve Main Street less and less. Banks’ share of total   
   commercial and industrial lending has drifted downward since the 1990s and now   
   rests at around 22% of such credit, according to UBS. A variety of reasons   
   account for this. Diversity    
   is a strength of the U.S. financial system, and deregulation over the years   
   means borrowers can choose among a variety of different sorts of lenders, only   
   some of which are traditional banks.   
      
   It’s a good thing they can, since those nonbank lenders have been able to   
   offer ever more attractive terms, relatively speaking, as traditional banks of   
   all sizes have faced ever costlier regulation. Attractive lending terms—and   
   banks’ struggle to    
   offer them—become only more important considering the headwinds facing the   
   small businesses we imagine applying for loans from George Bailey. These   
   include but aren’t limited to taxation and regulation (the latter of which   
   has, since the Obama    
   administration, tended to outrank “poor sales” as a small-business concern   
   affecting borrowing decisions). America now chronically struggles to unlock   
   productive private-sector investment.   
      
   What’s a bank to do, then? Something other than Main Street business   
   lending. Commercial and industrial lending by all banks as a proportion of   
   their total assets has drifted downward, to around 13% before the pandemic   
   from above 20% throughout the    
   1980s. The situation is roughly the same at the largest banks and at smaller   
   ones.   
      
   Banks instead have turned to other means of earning a living. The past 40   
   years has seen an explosion in lending related to real estate, which since   
   1987 has accounted for a larger portion of banks’ total assets than business   
   lending and even after the    
   post-2008 banking cleanup occupied twice as much space on bank balance sheets   
   as did business lending as of 2019.   
      
   Securities such as Treasurys and mortgage-backed securities guaranteed by the   
   government also have become a mainstay of the banking system. The last time   
   business loans exceeded securities holdings as a proportion of bank balance   
   sheets was the early    
   1990s, and securities accounted for nearly 22% of all assets on the cusp of   
   the pandemic.   
      
   This is indicative of a deeper economic dysfunction born of the combination of   
   extended periods of unusually low interest rates, costly bank regulations that   
   stifle business lending and still don’t avert panics, the tax and red-tape   
   burdens on the    
   productive private economy, terrible energy policies and so much more.   
      
   Rampant real-estate lending in particular is both symptom and cause of a   
   breakdown in productivity growth. It signals the economy is pouring ever   
   greater resources into one of its least productive corners.   
      
   The problem here isn’t so much what greedy banks do to the U.S. economy.   
   It’s what the U.S. economy has done to the banks. If you make it harder for   
   them to earn a buck the old-fashioned way (taking deposits at 3%, lending at   
   6%, and hitting the golf    
   course by 3 p.m.), they’ll have to try to earn it in a novel way.   
      
   This helps explain why several decades of monetary, fiscal and regulatory   
   policies that have tended to suppress productivity growth on Main Street also   
   have made Wall Street vulnerable to more and riskier panics far in excess of   
   the normal business    
   cycles we used to have.   
      
   Alas, fixing the banks once and for all would require fixing the economy, and   
   there’s a reason the economy is broken: Too many politicians of both parties   
   still believe their electoral prospects benefit from the policies that   
   undermine Main Street    
   growth.   
      
   Far easier, then, for politicians to orchestrate serial bailouts of banks that   
   will continue to require them until we manage to restore the economy’s   
   underlying productivity and dynamism. Taxpayers who rightly bristle at the   
   cost should at least    
   understand which errors we’re paying the price for.   
      
   https://www.wsj.com/articles/banks-arent-busting-the-economy-pol   
   tics-is-busting-banks-regulation-commercial-industrial-real-esta   
   e-lending-main-street-7bbaf04f   
      
   --- SoupGate-Win32 v1.05   
    * Origin: you cannot sedate... all the things you hate (1:229/2)