“The problem is trying to get qualified people to borrow”

March 27, 2009

” ‘The problem is trying to get qualified people to borrow,’ said Raymond P. Davis, president and chief executive of Umpqua Bank, a regional lender based in Portland.”  NYTimes, A Downturn Wraps a City in Hesitance

This is a curious restatement of the credit problem.

Davis suggests that credit is no longer a problem of how to select creditworthy applicants (qualify people), nor is it a problem of collections and controlling default.  Instead, the problem of credit is to get qualified people to take out loans.   The activity is one of persuasion, not of selection and screening or of capital recovery.

Taken to its logical limits this could mean that the lack of lending is not because capital is no longer flowing, but because the people who are eligable for it are not borrowing enough. This would imply that economic stimulation could come from activating a segment of the population that qualifies for credit under the current policies and getting them to borrow…

I’m not sure what to make of this, but it struck me as odd and worthy of some thought.

3 Responses to ““The problem is trying to get qualified people to borrow””

  1. Dada Says:

    Yes, it is an interesting view. I think though that what Davis means is “we cannot find qualified people to borrow the amounts they are safely able to afford”.
    Example: I want to buy a house (I wanted last year, too, but I decided to wait). The bank keeps courting me because I am probably a rather safe client. The problem is that what the bank wants to lend me, safely, is less than I need (compared to what I would have got last year, when they were not playing so safe). What is the problem? The problem is that I have not updated my expectations – I am still dreaming to buy the house I could have bought last year and I am not prepared to settle for less. If I put together the numbers I can afford the rent + waiting time. An I unique? Akerlof and Shiller would say that we all have this tendencies which they call “Animal Spirit”.

  2. marthapoon Says:

    This is an interesting qualification Dada!

    One of the the curious things about lending under risk is the way in which creditworthiness ceases to be a strict quality that one has or does not have. Instead it becomes a question of matching amount of credit and the price with a risk class.

    According to your observations one of the reasons for a slowing consumer credit market is that people are not satisfied with the terms of credit, which are meager compared to what they could get before. People are qualifying for credit but the offer they’re getting just isn’t suiting them…

  3. […] A curious restatement of the credit problem — On the Socializing Finance blog, Martha Poon, a visiting scholar at Columbia University’s Center on Organizational Innovation, takes issue with a statement made in the New York Times recently that the problem today is getting qualified people to borrow money. […]

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