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Sunday, November 14, 2010

Bank Lending: Computer Models Or Seasoned Judgment?

Until the 1970s borrowers had to pass one-on-one detailed scrutiny by bank officers.  Since then the trend has been to treat bank lending like a computer game: an abstract manipulation of numbers, unattached to the character and economic circumstances of the borrower.  Federal banking regulations can’t prevent the new fiascos awaiting us at the hands of computer-jockey bankers who don’t understand business and lack judgment that comes only with extensive experience.