'Confessions of a Penn Square Borrower'

In the midst of all the financial news of the last several weeks -- falling oil and gas prices, banking woes, stock market plunges, and so on -- I couldn't help but recall an article my uncle, Bill Dutcher, penned for the Wall Street Journal more than two decades ago. "Confessions of a Penn Square Borrower" appeared on the editorial page on August 15, 1985. Bill wrote:

When Penn Square Bank was closed in July 1982, I owed it a little over a million dollars. Not much by Penn Square standards, but an impressive sum to me. My first job as a newspaper reporter, less than 12 years earlier, had paid $140 a week.

Unfortunately, I wasn't able to pay Penn Square all that money back. I was able to trade my oil and gas properties, not to mention our home, for the debt and call it even, thereby avoiding the crowds in the local bankruptcy courts.

How did Bill manage to get himself into that big of a hole? He explained:

Since I worked for one of Penn Square's "best customers," I soon discovered that my banking friends were more than happy to lend me as much as I had the nerve to ask for. And they weren't overly concerned with how, or when, I intended to pay it back. ...

Bankers, being human, are reluctant to admit mistakes. Thus, even though they may obtain collateral worth twice as much as the loan, they are slow to realize how swiftly the value of the collateral can slip away in a falling market. One way to hide a little mistake is to bury it under a bigger one. So bankers cure a problem loan by lending more money to the source of the problem. By the time the loan becomes so hopeless that even a bank examiner can see the problem, it's too late to recapture the collateral and sell it for the amount of the loan. Standing amid the financial rubble caused by plummeting prices of deep natural gas, I could only tell my banker, "You can call my loan, but it won't come."

It's 2008 now and Bill has recovered nicely, so I'm sure he looks back on the article with fondness. I encourage you to read the whole thing, which is available here.