Obama bank reforms don't add up; he likely doesn't understand

http://tinyurl.com/yl7ejmd
The President's Bank Reforms Don't Add Up
Restricting loans to real estate virtually guarantees another bank crisis in the future. By PETER J. WALLISON
After the Democrats' disaster in Massachusetts last Tuesday, President Obama appears to be flailing. Gone is the cool and measured demeanor that made him look presidential when the financial crisis struck during the 2008 campaign. Instead, the financial reform proposals he advanced later in the week seem to reflect political panic—a desperate attempt to appeal to the populist sentiment against Wall Street. Unfortunately, they also reflect a limited understanding of good financial or banking policy.....Where, then, can banks find borrowers? The answer, unfortunately, is commercial and residential real estate.
...These loans will continue to rise in the future, because only real-estate, small business and consumer lending are now accessible activities for banks.This is not a good trend, because the real-estate sector is highly cyclical and volatile. It was, indeed, the vast number of subprime and other risky mortgages in our financial system that caused the weakness of the banks and the financial crisis. Requiring banks to continue to lend to real estate, because they have few other alternatives, virtually guarantees another banking crisis in the future. ...that Mr. Obama now proposes to close off this one avenue through which banking organizations can be profitable is strong evidence that neither he nor his advisers, in attempting to lash out at banks, have thought through the long-term prospects and needs of the banking industry. That might make good populist politics, but it is not responsible policy. Instead of trying to punish the banking industry, Mr. Obama should try to understand why banks have become so heavily invested in real estate...