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Monday, July 15, 2013

A Democratic Proposal To Rig The Banks

A new Democratic proposal for hybrid public-private partnerships to run banks will make stuffing your money under the mattress look like a great idea.

A really misguided policy proposal from the Democratic nominee for New Jersey Governor shows why Barbara Buono is in Pierre Rinfret territory. Buono proposes a "public-private" bank to foster "investments" in things like "infrastructure" as well as "schools." Here's the crux of the problem: A public-private hybrid bank will be government subsidized and assuredly will be able to have advantages (e.g., being able to offer lower rates, better terms, loans to less-creditworthy borrowers, etc.) over pure private banks. This will drive out good banks from the state of New Jersey and leave the bottom-feeders of the industry, the subprime lenders and so on, which don't compete for prime business and give out only the riskiest (and highest-margin) loans to the least creditworthy.  

This is the type of proposal that would cause New Jersey real estate prices to crater because there would be too few banks remaining to issue good mortgages. There are already major national banks which DO NOT offer certain routine business services in the state; trust me on this. Buono's policy, if implemented (a long shot because she's an equally long shot in every poll), would be an unmitigated disaster.  This policy idea is almost as bad as Cory Booker's really bad policy papers issued last week. 

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