What the Government and Big Banks Have Failed to Learn

Too big to fail -- do you ever wish you'd never heard that phrase.
Put it up there with the global war on terror and the end of history.
As president Obama addressed Wall Street and talked up modest
regulatory reform, the giant elephant in the room was the fact that
through this crisis those already too big banks have only gotten bigger.

This is what Nobel Prize winning economist Joseph Stiglitz said
the other day. So don't take it from me. Speaking from France, Stiglitz
also said that the problems are worse now than they were before the
crisis.

But there is another side of the story -- the mouse that's not
allowed into the room on Wall Street. Throughout this year of crisis
small banks and community banks have fared much better. Why? Because
they had a closer relationship with their clients. They weren't too big
to care. And, in general, the 8,000 regional and community banks in the United States have remained healthy.

Take Natchez Mississippi for example. Local banking officials say that
a more conservative approach on the part of community banks accounts
for a much lower foreclosure rate than the national average.

"We underwrite our loans differently from the larger mortgage
companies," said the executive vice president of Delta Bank, which has
a foreclosure rate of practically zero. "If they don't have the cash
flow to sustain the loan, then we can't make it."

Fancy that.

"If they don't meet the criteria or we don't feel they have the
ability to pay back the mortgage, we don't make the loan. That is not
the way community banks do business."

Good to know. But that's precisely the way that the big banks--the
ones that are too big to fail--have been doing business. And there's no
reason to believe that they'll stop any of it. Especially now that
they've morphed--and been helped to merge--into even larger
institutions.

In Natchez it was the large banks and lending institutions that
issued subprime loans. And they're the ones being foreclosed on.
Instead of bailing out the big banks, maybe Obama could give credit
where credit is due. To small, local institutions that aren't
underwater and that might actually be the place to turn for swimming
lessons. Not the elephants.