In an industry that is notoriously under-regulated, Federal Reserve
Officials warn against ANY regulations that might cramp their ability to suck
the life out of American borrowers.
need to take care not to stifle innovation as they seek to ensure
new loan practices, such as "exotic" mortgages, do not put institutions
or consumers at undue risk, a top Federal Reserve official said on
Richmond Federal Reserve Bank President Jeffrey Lacker told the Conference
of State Bank Supervisors that the expansion of credit to U.S. consumers
had been "broadly beneficial," [to lenders] even though the pace
of defaults and bankruptcies had risen.
"We need to be mindful of benefits as well as risks when evaluating
banks' activities, and be careful not to stifle worthwhile financial innovations,"
[a.k.a., scams] Lacker said.
Lacker, who is among the voters this year on the Fed panel that sets interest
rates, did not address the U.S. economic or interest-rate outlook in his remarks.
The Richmond Fed chief noted that concern has been on the rise about the
potential for new bank loan products to ensnare unwitting consumers,
but said the best approach would be to work harder to educate borrowers.
"Many proposals amount to calls for lending restrictions or
the outright prohibition of some lending practices. This strikes
me as a dangerous approach," he said.
How else are we supposed to fleece those hard to reach consumers?
Lacker said a better job could be done with the disclosures banks are required
to make of loans terms.
"The supervisory community ought to encourage disclosure statements
written for real consumers, rather than lawyers, as now seems to
be the case," he said.
Nevermind that many borrowers don't bother to read them.
Lacker said advances in information technologies had fueled the expansion
in consumer credit availability by making banks more efficient in
monitoring and extending loans.
And you thought all that spying was for national security purposes. It's to
keep track of how much you spend and earn, the better to know who to target!
He said a rise in the number and rate of delinquencies was a natural byproduct
of the wider availability of credit.
While these "bad outcomes" could expose some banks to increased
losses, a rise in bank losses was not, in and of itself, problematic, he said.
That's because bankers collect
interest for doing nothing. They extend "credit" which is nothing
air that is ALWAYS paid by the interest they collect from someone else.
"As long as a lender's entry into a new product line is appropriately
managed, increased loss rates are in a sense a measure of the extent to which
access to credit has been provided to new borrowers," Lacker said.
They don't care if 5% of borrowers default. They collect the difference from
everyone else by expanding credit and collecting more interest.
As far as they're concerned utopia is a world in which NO loans are