Neil Irwin has the details. Apparently Ben Bernanke–the man of the seven-figure book deal and somany high-profile speaking engagements that it’s difficult to make it to court–can’t refinance the mortgage on his $800,000 Washington townhouse. The problem is that he has left his long-term job that paid a moderately high salary to one where is working for commission. Those kinds of job transitions make loan origination more problematic; statistically, folks in Bernanke’s situation aren’t always the best credit bets. In any case, agency loans–those backed by Fannie Mae and Freddie Mac–aren’t available in these kinds of circumstances.
Some people take this as a sign that credit remains too tight, and that we should give loan officers more flexibility in treating some job changes differently than others. But is that the right answer? This kind of response, that rules are too tight following a crisis and that we should ease up and relax a bit, are exactly what Erik Gerding has warned against in his excellent book about the cycles of law, speculation, bubbles, and crisis.
Now, it may well be that credit is tighter than central bankers want it–perhaps even that we face secular stagnation, or a chronic slack in consumer demand that is unlikely to respond to our usual tools of low-interest rates. But the path away from rules and toward standards, from bright lines toward human judgment may start with debtors who credibly promise that their new businesses will be very lucrative and end with NINJA loans.
From an economic perspective, of course, we want to get more credit into the hands of those who will use it in a way that will pick up the slack in our economy. From a post-crisis regulatory perspective, we want to enforce a regime (largely informed by experience before, during, and after the financial crisis) that is less amenable to a one-way ratchet toward removing gateways to credit compliance.
I put the title as a question, though, because I’m not exactly sure of the answer. That will come down to whether the regulatory reaction we have to the problems of credit extension should be over- or under-inclusive–they will never be perfect. And that will depend in turn on whether the costs of over-inclusion (people like Ben Bernanke don’t get refinanced) outweigh their benefits (we keep a hedge around the pre-crisis lending standards).