Proud Of My Bank

B-Daddy here. An article in yesterday's Washington Post publicizes the outrage that some Americans are feeling that their home equity lines of credit are being frozen. (Full disclosure: Mrs. Daddy and I have maxed out our own line of credit. I am just glad that I asked for much less than the bank tried to push on me.) At first blush, I thought, here goes another greedy corporation hurting the little people story. But I read on anyway. Here are the salient facts. The value of the underlying asset, the home had dropped precipitously in value. So much so, that it could no longer guarantee the loan amount. Second, the family was using the loan to fund current expenses. The bank did this family a favor. KT has a great post on the subject of family finances that explains why in more detail. Forcing this family to face the fact that they are consistently spending more than they earn will help them avoid a downward cycle of ever increasing debt that may end in bankruptcy. Also, those with savings invested in this bank might not like the bank lowering interest rates for investors due to losses from equity lines. Finally, taxpayers may avoid a bank bail out as well. Despite some Ivy League populism from Obama and Clinton, I hope there is no government bail out, because the markets are working out this excess on their own.

Hat tip: Hotair