Banking Industry is Still Broken

The banking industry is still broken and perhaps more so than ever before. Why? I have two clients who have recently relayed scary stories to me. Yes, it is sad, millions of dollars, perhaps billions of economic impact and yet we still have a dysfunctional banking system here in the greatest country in the world. America will fall, unless we can effectively manage our financial system. As you know, I favor small local banks - always have - since the days of my college thesis. What the banking industry has done with these two individuals is not just inefficient, it is incompetent according to financial standards of excellence. The two banks of course are mega giants - Wells Fargo and US Bank. Leading financial institutions have thrown out assets as a criteria for granting loans. Read on to hear the specifics - it is scary if you understand finance and economics, the United States' financial system is literally a broken bridge - an obstacle that may forever impede an effective economic recovery.

In the following two scenarios I will share with you both individuals have a net worth in excess of $700,000.  Their portfolios include homes, farmland and retirement stocks and bonds.  Yet, the assets they have worked for their entire lives are no longer a consideration when applying for a standard equity loan.

Both cases, the loan request was an equity loan - not a personal loan - a loan with a physical piece of property attached to mortgage.

An 80 year old woman who owns free and clear over 100 acres of farmland and two homes - one in Illinois and one in Florida was recently denied a $30,000 loan.  The reason stated was her "low income".  When she questioned about her asset base, she was told that criteria was no longer being considered.

To make matters worse, she was never asked why she needed the money.  The money was needed to add drainage tile to her family farm.  Her goal was to not just maintain a fruitful asset but to increase her farming production.

The good news is she pulled money from her own investments and the drain tile is now 98% complete.

This is a warning flag for government officials, banking executives and any citizen who hopes to see the American economy return and provide jobs and exports.

This is not just about one 80 year old female farmer, it is about the injustice of not considering the economic impact of the loan, the stability of the borrower, the asset base of the borrower.

How can we put people back to work, if hard working farmers who need improvement funding cannot readily access loans?

This one floors me and if I didn't know the top executive well, I would have discounted the story as a falsehood.

A top executive has one of his three children in college.  The son took out a loan in his name and yes, more than likely Dad is the co-signer - this is not the point.

The calculation by the bank was to subtract $700 a month for payment for this loan which is in his son's name.  The part that is disconcerting is the son is a freshman in college!  And yet, 4 years before graduation, Dad's financial impact is already being calculated - fully!

Have we gone too far to the conservative side of finance where we have become our own worst enemies?

Word to the wise, parents get your loan needs met before you send your children to college because the "new" financial standards will penalize you even in the first year of college!

Please feel free to share your thoughts about these new financial standards.