Today I came across an interesting quote from Norm Brodsky’s article in the Street Smarts column of Inc Magazine.  Brodsky is a veteran entrepreneur who is a co-author of the Street Smarts column and has founded six different companies.  His article discusses the pre-recession atmosphere where banks were willing to absorb risk and it was easy to grow, buy and sell a business.  On banks in today’s lending environment he says:

“They’ve since eased up a bit, but banks remain extremely cautious — which is normal. And that’s the point. What’s happening now is not an aberration. The aberration was what was happening then, at least as far as valuations are concerned.”

In the article Brodsky reflects upon how willing people were to ignore risks back in 2007 when he was attempting to sell his records storage company, CitiStorage.  It is his belief that the Federal Reserve’s policy of making capital “cheap and plentiful” hugely affected the value of companies just like CitiStorage by nurturing intense competition amongst potential buyers.  He describes the pre-recession economy as somewhat of a “feeding frenzy” where people were simply blind to the dangers of participating in risky transactions.

But that got me thinking— is Brodsky’s view correct?  How cautious should lenders be?  Is the willingness to absorb risk necessary for growth?