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Whatever happened to character lending?

Wednesday, January 14, 2009 by Bill White
I can remember as a small child sitting at the dinner table as my aunt & uncle discussed a distant family member who had filed for bankruptcy.

My aunt and uncle were appalled at the thought of someone in the family doing such a thing.  I can still hear them talking about how that bankruptcy would bring shame on our entire family.

I guess the days are gone when families took pride in doing the right thing and they banded together to make sure nobody in the family failed to meet an obligation.

I got my first bank loan when I was 18 years old.  I had no job and no income.  However, my aunt worked at Wal-Mart and always talked about how their stock was constantly going up.

I decided I needed to buy some stock in Wal-Mart.

I went to our local bank, applied for a loan, and got my money a day or so later.  Fortunately for me, the stock doubled in value in the next six months and I sold it.

Years later, after I got into banking, I bumped into the loan officer who approved that first loan for me.  I asked him why he approved that loan.

I had always wondered how he justified lending me any money.  He told me that he knew my family, they had always banked with him, and he knew that if I didn’t pay they would.  He said It was a character loan.

You know something, he was right.  There is no way my family would have ever allowed me not to repay that loan or any other.

It’s a shame we have migrated so far away from the days when character still mattered when it came to financial affairs.  When I first entered the banking field, some of the more experienced bankers I met talked fondly of the days of character lending. 

I suspect that if more people raised their kids the way my aunt and uncle raised me, you could still get a character loan, it would be paid back as agreed, and the world would be a better place.

On another note, just for fun, I looked at what the stock I originally bought in Wal-Mart for $1,500 would be worth today had I held on and not sold.  It would be worth more than $330,000. 

I used the money I made on that investment to pay for my first semester of college.  In hindsight, I think I made the right choice.

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