Thursday, April 21, 2011

Trends vs. Intentions

Banks say they’re lending more, but their financial statements say their loan balances continue to decline. Changes happen this way sometimes, with trends and intentions out of sync with each other. This can happen if there is a change in perception that runs in the opposite direction from the intention. In the banking example, perhaps banks are starting to become aware of just how weak many loan applications are. A loan officer might say, “We want to lend money, but a lot of the applicants haven’t quite decided what they want to do — they shouldn’t even be applying at this stage.” It’s similar to the way a lot of people, last year, thought they were driving more because of the lower gasoline prices, but they were actually driving less. They were more willing to drive, but at the same time, they had started to develop more efficient habits for errands, and that new efficiency reduced their driving distances.

When trends run counter to intentions, it just means that the trends are more powerful than anyone realizes. If banks are lending less when they’re trying to lend more, then lending less is just the spirit of the times. When the time comes when they want to lend less, they’ll be lending a lot less. Or, if people say they’re driving more when their odometers say they’re driving less, they are ready to start driving a lot less when there is a reason to.