Contrarian Pundit

You might be hard pressed to imagine a pro-banking-industry proposal that Geithner, Bernanke, Sheila Bair, and John Dugan all think is stupid and destructive, but Rep. Ed Perlmutter (D., Colo) has succeeded:

Attention is focused on the House-Senate conference on a once-in-a-generation rewrite of the rules of finance. But a provision added, almost unnoticed, to a help-small-business bill that passed the House last week would allow all but the 100 largest banks to pretend they haven’t made bad loans, to prompt them to lend more to small businesses.

The provision would permit more than 7,800 banks, with nearly $3 trillion in assets among them, to spread losses on bad real estate loans over six to 10 years instead of recognizing reality immediately.

This wink-wink accounting, letting banks act as if they have bigger capital cushions than they do, is a remake of an old movie: the savings-and-loan horror show of the 1980s and the Japanese banking monster of the 1990s.

Perlmutter says his unique experiences with banks and small businesses give him a superior insight into what’s necessary to aid both.  Obama’s proposed $30 billion isn’t enough.  What they really need is pixie dust to make their toxic loans disappear, so that they can create … more toxic loans!

As my recent piece on banking makes clear, the notion that community thrifts are necessarily responsible and beneficent institutions is a complete myth.  It all depends on the people who run them. The bad players need to be weeded out, before they cause more damage.