Reader Questions on “Credit-Worthiness”: Did Banks Give Mortgages to Non-Creditworthy Borrowers?

Courtesy of Mish.

I received several emails from readers regarding Can Bernanke Force Banks to Lend by Halting Interest on Excess Reserves?

Here are the specific sentences in question:

Banks lend if and only if both of the following are true.

1. They are not capital impaired
2. They have credit-worthy borrowers willing to borrow.

Reader Gil writes ….

Hello Mish
I must take exception to #2.

Did the banks not lend to anyone that walked through their doors just a few years ago without asking questions and without income to repay the loans?

Yes, I know the Fed “forced” them to do it, but ….
Any thoughts on that?

Thanks, Gil

Meaning of “Credit-Worthy”

For starters let’s quickly discard the notion the Fed forced banks to lend. The Fed has no such power. If the Fed did, there would be more lending now.

My statement of lending conditions above are accurate. It all depends on the meaning of “Credit-Worthy“.

All I meant is banks thought they would be repaid. More accurately, banks extend credit if they think loans will result in profits….