The North Pole--I know how much you all pay attention to the quintessential Credit Score in evaluating the credit worthiness of borrowers. Since it hasn't worked to prevent all sorts of lending disasters, I'm offering you something else in your attempts to set the banking business on its right course. I call it the Merit Score. It's similar to what I use to keep track of who's naughty or nice.The Merit Score is an automated mechanism that takes into account three aspects of any bank customer: assets, debts, and human traits. The Credit Score looks at debts only. It seems that your solution to the banking crisis was one sided-terminate all lending. That's as if I put coal in every stocking. I'm not ignoring the fact that there are some bad guys out there. Even our President admitted at his Nobel Peace Prize acceptance speech that force is necessary to combat the presence of real evil.
Please know that I'm not a banking expert, but I do know something about good people. During the off season I did a lot of reading about the banking crunch. Many of my customers pitched in as taxpayers to save the banking industry. And some of my other customers like Jamie, Kenny, Vicky and Johnnie took the gifts. It looks as if the U.S. Treasury will earn a nice profit on its bank bailout.
I believe banks can earn money also doing what they do best-banking. The Merit Score is a combined Financial Statement (assets and liabilities) as well as character attributes. You know what a financial statement is, but you may not know what I mean by character attributes. One of my favorite stand-up comics, Bob Hope, said it well in the form of a joke: "If I ever need a heart transplant, I want to get it from a banker because it wouldn't have been used much."
Now is a good time to go organic. Use the heart organ in evaluating loan applications. Arbitrary reductions and cancellations of credit lines are wrong. Small business owners don't receive gluttonous bonuses. When you stop lending to them, they get no salary, and they put up their children's college funds for the business to continue. When they get the operating funds they need, they hire workers and unemployment heads downward. That's character. Get to know the good customers you have. Don't penalize them with the Credit Score. Credit them with the Merit Score.
Help me sing the carols with confidence this year! Do the right thing.