Oversight and regulation at its worst

In the business section of the Phoenix newspaper was a small article about a BIG problem facing American small business.

After over thirty years, a family business that developed property and built houses, announced that they were closing their doors and ceasing operations, laying off all 60 employees. Customers who were in the process of buying one of their homes would not be allowed to close. The builder has deposits from these customers and is promising to refund the buyers deposits, but can’t complete the sales, as his bank, which he didn’t want to name, will keep all those homes as collateral! I find my self mad as hell!

I don’t know the bank involved or do I know the builder. I do know a lot about what is going on, and why, at least I think I do. What a shameful thing when an honest business man with a good reputation for thirty years is caught in this web of over-regulation.

Earlier this year, the bank re-appraised the builders land and housing assets, probably at the direction of bank regulators, either the FDIC, the state banking authority, or the Controller of the Currency. Naturally, the values have dropped because of the current mortgage mess. This happened to thousands of banks and their builder customers. The regulators have, as they have so many times before, panicked and demanded that the bank “write down” these loans to their re-appraised values, put them on a “Problem Loan List” and refused to permit any kind of reasonable work out with the borrowers, many of whom have just thrown up their hands and told the banks that they couldn’t meet these new, sometimes unreasonable demands.

All this has nothing to do with the sub-prime mess. The banks that are involved in that deserve to be penalized, and watched carefully. Instead the regulators have stomped on the legitimate builders, and the banks they depended on for financing. At the same time the government has come to the “Rescue” of the large lenders and creators of the sub-prime mortgage mess, by giving them the bail-out trillion bucks, and are trying to encourage the Wall Street investment bankers to start lending more money, but so far have not turned a tap to the smaller and mid-sized banks who can’t take care of their customers. Where in hell is the justice?

Sure, many banks went too far in financing developments and houses, and their concentrations of these types of loans need to be slowed down, but to penalize an entire industry for something that can be worked out is worse than awful. How about outrageous?

In the case above, it would seem to me that it might border on being litigous. If the builder can’t pay his sub contractors, his other bills for materials, and the bank is taking all of his assets, and 60 employees have lost their jobs, and no one has done any thing wrong, where is the justice-if any?

My own opinion for many years has been that government always achieves the opposite of what it sets out to do. Think about it.

Later…

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