Good grief, the sky is falling!

When banks feel threatened by the passing of new draft laws or when they urgently need the help of the state, the ghost of the imminent collapse of the financial and economic system is aggressively "pushed" before the public and the lawmakers.

This is what has happened in the United States at the end of the last decade, when hundreds of billions of dollars have been allocated for rescuing the major Wall Street banks, and this is what is happening now in Romania, when the law of giving in payment has to go through the Parliament again.

In this context, it is at least curious the fact that the approval of the "First Home", in 2009, with the greatest haste, was not accompanied by similar "fights" between its supporters and its opponents. Could that be because of the national sense of "urgency" that gripped the authorities at the time, after they had irresponsibly ignored all the warning signs?

Why wasn't there then any scrutiny of the issue of moral hazard, which is defined as the involvement of an economic agent in a risky activity simply because the risk of its actions is borne by someone else?

In the years that preceded the crisis, lending has not only seen a high dynamic, it has actually boomed, amid the lax monetary policy of the NBR and the major deficiencies in the prudential oversight of the banking system.

It is during those years of irrational exuberance that the law of giving in payment should have shown up, as well as other regulatory measures concerning the degree of indebtedness or the minimum downpayment for a mortgage loan.

Before the notion of "macroprudentiality" being posted everywhere by the central banks, that kind of measures would have been absolutely necessary, especially for an economy that is in a state of constant transition, especially so because we were dealing with very long term loans. And such loans are by definition risky, even for a "mature" and predictable economy.

The ignoring of the elementary principles for identifying and managing the banking risks, including by the subsidiaries of the major international banks present on the Romanian market, have led to the current situation, where anything else but the debtors' eternal slavery is a threat.

It is enough to watch the evolution of lending between 2007 and the end of 2015, according to NBR data, to notice that, at the level of the households, it has reached a new record, of almost 108 billion lei.

Amid the drop in the volume of consumer loans, the new record is caused by the accelerated growth in the volume of home loans denominated in lei.

This has entered an exponential growth trajectory, after the change of the terms of the "First Home" program, which required mortgage loans to be denominated in the Romanian currency.

Regardless of the economic theory used to evaluate such an explosive dynamic, there can only be one conclusion: the authorities' attempt to stimulate lending will end badly, because there is no exponential growth that can be supported by an economic system with finite resources.

Unfortunately, the National Fund for the Guarantee of Small and Medium Enterprises (FNGCIMM) only boasts its transparency when it comes to the flow of analytics of the guarantee requests as part of the "First Home" program, but it does not provide essential information concerning the monthly evolution of the volume of guaranteed loans and the non-performance ratio thereof. That information, corroborated with that supplied by the NBR, would provide a clear picture on the influence that government guarantees have on the dynamic of loans granted to households.

This is where the National Bank plays a fundamental role. Based on the evolution of the last few years, it should ask for the halting of the program, starting from macrostability considerations. Why aren't any steps being taken to do so, especially since the government has approved the creation of the National Committee for Macroprudential Oversight last summer, an institution which offers a high degree of immunity to its members?

The law of giving in payment, even though its intention was different, can halt this process before it's too late, so that we won't have to listen to the justifications of the authorities for concluding new foreign financial aid agreements.

Real estate developers have joined the banks' brutal offensive against the law of giving in payment, which has even been "seasoned" with calls to the creation of a "pact for prosperity", instead of "deepening a cold war of distrust". Development is impossible in the absence of lending, in the banks' opinion, even though they, together with the National Bank of Romania, "are doing everything" to discourage saving, which is a fundamental condition for the reconstruction of the national capital.

"It is possible that people can live without loans, but it is certain that the industry and the home construction real estate market can not exist without loans", it is stated in a press release of an association of real estate developers, and the promulgation of the law of giving in payment or the halting of the First Home program "will have dramatic effects, if not catastrophic, of return to the period of the real estate crisis".

Good grief, the sky is falling! Yes, for some, the law of giving in payment is the equivalent of the "the sky falling", but isn't this an implicit acknowledgement of the fact that there is an impassable chasm between home prices and the true purchasing power of the population?

It is enough to calculate the ratio between home prices and the annual household earnings to evaluate the conditions for a potential real estate bubble. If the result if higher than 4, then we are "encased" in a real estate bubble.

In the spring of 2008 I wrote that "this is the time for "real estate patriots', who have to take on the difficult mission of supporting the market to step up", as the ratio between the average price of a studio and the average annual income has reached 13 - 14 (author's note: see the "Patrioţi imobiliari, uniţi-vă!" - Real estate patriots, unite! - , BURSA, March 28th, 2008 Real estate patriots, unite!. The call still applies.

Can developers only survive through cheap loans guaranteed by the state? If yes, then they are in an indescribable suffering "tied to the machines", and the "pain" should be ended according to international humane regulations.

It is true that the law of giving in payment can lead to a contraction of the lending market, but that is absolutely necessary after the explosive growth of the years that preceded the crisis and absolutely necessary to eliminate moral hazard on the banking market, supported by the NBR, including through recommendations that come from the European Central Bank.

In a hearing before the Banking Committee of the House of Representatives, in December 1912, J.P. Morgan was asked whether the foundation of commercial lending is represented by financial or real estate guarantees. "No sir, the first thing is character", the most influential banker at the time responded.

"A man I do not trust could not get money from me on all the bonds in Christendom", J.P. Morgan went on to say.

The law of giving in payment, even if it were to create a period of turbulence in the medium term, is fundamental for rebuilding trust between banks and their customers, and the foundation of this lengthy process must be caution.