The Other McCain

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Another Friday, Another Bank Shutdown

Posted on | June 18, 2010 | 39 Comments

The FDIC has gotten into the habit of announcing bank closures on Fridays:

Regulators on Friday shut down a Nevada bank, raising to 83 the number of U.S. bank failures this year.
The Federal Deposit Insurance Corp. took over Nevada Security Bank, based in Reno, with $480.3 million in assets and $479.8 million in deposits. Umpqua Bank, based in Roseburg, Ore., agreed to assume the assets and deposits of the failed bank.
The failure of Nevada Security Bank is expected to cost the deposit insurance fund $80.9 million.
With 83 closures nationwide so far this year, the pace of bank failures is more than double that of 2009 . . .
The number of bank failures is expected to peak this year and be slightly higher than the 140 that fell in 2009.

Bank failures are expected to be only slightly higher, but (a) we’re actually on pace for about 170 failures this year; (b) the commercial real-estate crisis is getting worse, not better, and (c) ”unexpectedly” has become the MSM’s all-purpose adverb for bad economic news lately.

Meanwhile, a new report by the Center for Responsible Lending looks at “Foreclosures by Race and Ethnicity: The Demographics of a Crisis.” The report includes this handy chart:

So the foreclosure rate for Hispanic mortgage holders is 68% higher and the rate for black mortgage holders is 75% higher, in comparison to whites. The report goes out of its way to dismiss as “red herrings” any suspicion that the Community Reinvestment Act and the government-sponsored entities (GSEs) Fannie Mae and Freddie Mac had anything to do with this problem.

The conclusion of the report can be summarized this way: People who took out mortgages they couldn’t afford, thus allowing themselves to live (temporarily) beyond their means, were victims of unfair lending practices.

And you people who have limited yourself to only borrowing money you can afford to pay back? You’re chumps.

Ask yourself this: If Fannie Mae and Freddie Mac didn’t cause the foreclosure crisis, why does FDIC Chairwoman Sheila Bair say reforming the GSEs is a top priority?

For decades, the mortgage GSEs raised funds in global markets at preferred, near-government rates on the basis of their quasi-governmental status. For many years, this arrangement lowered the cost of mortgage credit to millions of homeowners without adding to the federal debt. However, in the aftermath of the mortgage credit crisis and the conservatorship of Freddie Mac and Fannie Mae, the implicit backing of these entities is now an explicit cost. Federal subsidies for the GSEs in 2009 and 2010 are estimated at over $300 billion.
In banking, the implicit backing of large financial institutions under the doctrine of Too Big to Fail led to moral hazard and excessive risk taking . . .
Our future financial stability demands that we deal with these implicit liabilities head on, and limit the ability of private companies to take risks at the expense of the taxpayer. In the case of the mortgage GSEs, there are a variety of options for making some of their functions governmental while putting others in private hands. But what we cannot do is perpetuate their quasi-governmental status, which privatizes gains and socializes losses.

So the free ride is over for Fannie Mae and Freddie Mac, at least if Sheila Bair has anything to do with it, but do you really think Chris Dodd and his fellow Democrats want to crack down on their buddies at Fannie and Freddie? Let me remind you of the names of the top three recipients of Fannie/Freddie campaign contributions, 1989-2008:

  • Chris Dodd . . . . . . . . . . $165,400
  • Barack Obama  . . . . . . $126,349
  • John Kerry  . . . . . . . . . $111,000

And a few other names from that list:

  • Harry Reid . . . . . . . . . $77,000
  • Hillary Clinton . . . . . $76,050
  • Nancy Pelosi . . . . . . . $56,250
  • Steny Hoyer . . . . . . . $55,500
  • Rahm Emanuel . . . . . $51,750
  • Barney Frank . . . . . . . $42,350

Fannie and Freddie have already cost taxpayers upwards of $300 billion, and heaven only knows what the final bill will be at the FDIC for this record-breaking year for bank failures, which might “unexpectedly” be worse than anyone yet imagines. One thing is for certain: Democrats are laughing all the way to the (taxpayer-subsidized) bank.

UPDATE: Welcome, Instapundit readers!

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Category: Economics

Comments

  • JorgXMcKie

    As far as I know, the feds always shut down banks on Friday afternoon. That gives them the weekend to organize stuff. They come in and do bookwork in the bank on Saturday and Sunday so Monday they can deal with customers. If possible, they shut down before a three-day weekend.

    My sister was VP of IT for a small bank in the Midwest and they got shut down on Friday afternoon just before a 3-day weekend. About a dozen feds, accountants and such came in Friday at 2:30, announced the closing and escorted a whole bunch of employees off the premises.

    Then they spent the next 3 days organizing stuff. My sister was kept on for almost 6 months as she continued to find and provide various computer records and files for them.

    It went pretty smoothly and no customers were very upset. The checking accounts were sold/transferred to another local bank and everyone had access to all their money. No panic, no problem.

    In her case, she had kept copies of records that pretty much showed the owners/upper mgt/board of directors had been looting the bank. Some will go to prison. [I suspect, but don't know, that she blew the whistle on them.]

    It was quite a smooth operation and no one, to my knowledge lost any deposits. Almost all the loans were also sold to other banks.

    The 3 days allowed for a lot of work to be done.

  • JorgXMcKie

    As far as I know, the feds always shut down banks on Friday afternoon. That gives them the weekend to organize stuff. They come in and do bookwork in the bank on Saturday and Sunday so Monday they can deal with customers. If possible, they shut down before a three-day weekend.

    My sister was VP of IT for a small bank in the Midwest and they got shut down on Friday afternoon just before a 3-day weekend. About a dozen feds, accountants and such came in Friday at 2:30, announced the closing and escorted a whole bunch of employees off the premises.

    Then they spent the next 3 days organizing stuff. My sister was kept on for almost 6 months as she continued to find and provide various computer records and files for them.

    It went pretty smoothly and no customers were very upset. The checking accounts were sold/transferred to another local bank and everyone had access to all their money. No panic, no problem.

    In her case, she had kept copies of records that pretty much showed the owners/upper mgt/board of directors had been looting the bank. Some will go to prison. [I suspect, but don't know, that she blew the whistle on them.]

    It was quite a smooth operation and no one, to my knowledge lost any deposits. Almost all the loans were also sold to other banks.

    The 3 days allowed for a lot of work to be done.

  • rain of lead

    sorry to go ot but ya’ll need to see this article about the oil spill

    http://www.godlikeproductions.com/forum1/message1097505/pg1

    snip

    Over the next 2 months the mechanical situation also cannot improve, it can only get worse, getting better is an impossibility. While they may make some gains on collecting the leaked oil, the structural situation cannot heal itself. It will continue to erode and flow out more oil and eventually the inevitable collapse which cannot be stopped will happen. It is only a simple matter of who can “get there first”…us or the well.

    We can only hope the race against that eventuality is one we can win, but my assessment I am sad to say is that we will not.

    The system will collapse or fail substantially before we reach the finish line ahead of the well and the worst is yet to come.

    Sorry to bring you that news, I know it is grim, but that is the way I see it….I sincerely hope I am wrong.

    We need to prepare for the possibility of this blow out sending more oil into the gulf per week then what we already have now, because that is what a collapse of the system will cause. All the collection efforts that have captured oil will be erased in short order. The magnitude of this disaster will increase exponentially by the time we can do anything to halt it and our odds of actually even being able to halt it will go down.

    The magnitude and impact of this disaster will eclipse anything we have known in our life times if the worst or even near worst happens…

    We are seeing the puny forces of man vs the awesome forces of nature.
    We are going to need some luck and a lot of effort to win…
    and if nature decides we ought to lose, we will….

    Godspeed, we surely need it…

  • rain of lead

    sorry to go ot but ya’ll need to see this article about the oil spill

    http://www.godlikeproductions.com/forum1/message1097505/pg1

    snip

    Over the next 2 months the mechanical situation also cannot improve, it can only get worse, getting better is an impossibility. While they may make some gains on collecting the leaked oil, the structural situation cannot heal itself. It will continue to erode and flow out more oil and eventually the inevitable collapse which cannot be stopped will happen. It is only a simple matter of who can “get there first”…us or the well.

    We can only hope the race against that eventuality is one we can win, but my assessment I am sad to say is that we will not.

    The system will collapse or fail substantially before we reach the finish line ahead of the well and the worst is yet to come.

    Sorry to bring you that news, I know it is grim, but that is the way I see it….I sincerely hope I am wrong.

    We need to prepare for the possibility of this blow out sending more oil into the gulf per week then what we already have now, because that is what a collapse of the system will cause. All the collection efforts that have captured oil will be erased in short order. The magnitude of this disaster will increase exponentially by the time we can do anything to halt it and our odds of actually even being able to halt it will go down.

    The magnitude and impact of this disaster will eclipse anything we have known in our life times if the worst or even near worst happens…

    We are seeing the puny forces of man vs the awesome forces of nature.
    We are going to need some luck and a lot of effort to win…
    and if nature decides we ought to lose, we will….

    Godspeed, we surely need it…

  • Rob Birch

    The more I read your blog, the more I like it and the more it makes me wish I had money to hit the tip jar. I got some good news coming soon on that aspect.

    This is great stuff Stacy!

  • Rob Birch

    The more I read your blog, the more I like it and the more it makes me wish I had money to hit the tip jar. I got some good news coming soon on that aspect.

    This is great stuff Stacy!

  • Dell

    All just part of what we have come to identify as the “Friday Night Document Dump”. Something good gets “dumped” every Friday night…after the evening news.

  • Dell

    All just part of what we have come to identify as the “Friday Night Document Dump”. Something good gets “dumped” every Friday night…after the evening news.

  • http://illinoispedant.blogspot.com Michael S

    Nancy (Steny) Hoyer.

    Heh.

  • http://illinoispedant.blogspot.com Michael S

    Nancy (Steny) Hoyer.

    Heh.

  • Rob Birch

    Oh and this is the biggest news story that MSM isn’t talking about. Union strikes in China are changing the way bizniz is done over there…nobody is talking about except Bloomberg.
    http://tiny.cc/khqs2

  • Rob Birch

    Oh and this is the biggest news story that MSM isn’t talking about. Union strikes in China are changing the way bizniz is done over there…nobody is talking about except Bloomberg.
    http://tiny.cc/khqs2

  • Joe

    Screw Allah “Moe Greene” Pundit and Ace “Barzani” of Spades, you have patronage from the Blogfather.

  • Joe
  • Joe

    Screw Allah “Moe Greene” Pundit and Ace “Barzani” of Spades, you have patronage from the Blogfather.

  • Joe
  • Joe
  • Joe
  • Estragon

    The whole and entire cause of the banking crisis can be traced to federal actions and policies, beginning with CRA and following with the mandated changes in policy of Fannie Mae and Freddie Mac.

    Half a century ago, banks made mortgages, collected some fees up front, then made the interest as loans were paid. But the advent of mortgage brokers make banks realize the real money was in those fees at origination and they were just tying up their capital by holding the mortgages to maturity.

    And thus the secondary mortgage market took off. Investors were happy to buy securities comprised of home mortgages: the interest was guaranteed and the security very strong, since default rates were low and predictable due to the credit standards on writing mortgages. These were very good securities to own, since the chances they would pay all or nearly all the paper return was high.

    But when Uncle Sam in the persons of Dodd, Frank, and company began mandating all this sub-prime lending to unqualified borrowers, they did not simultaneously require that securities disclose the inclusion of deadbeat Democratic borrowers who would never repay loans they couldn’t afford in the first place. The mortgage securities were tainted, but it wasn’t discovered – or even much considered – until the “mark to market” rules required banks to report their equity assets at current market value, and banks suddenly realized they had no idea what the actual value of these formerly solid securities might be.

    Oops, Democratic social engineering precipitates banking crisis, nothing to see here, move along people. So what do they do to address it? Give incentives to MORE people to default, and quietly cover the massive shortfalls of the GSEs while encouraging MORE such loans!

    We don’t need “accountability” at this point – it’s too late, the horse has fled and closing barn doors only cuts the draft. What we need most is rope, and lots of it.

  • Estragon

    The whole and entire cause of the banking crisis can be traced to federal actions and policies, beginning with CRA and following with the mandated changes in policy of Fannie Mae and Freddie Mac.

    Half a century ago, banks made mortgages, collected some fees up front, then made the interest as loans were paid. But the advent of mortgage brokers make banks realize the real money was in those fees at origination and they were just tying up their capital by holding the mortgages to maturity.

    And thus the secondary mortgage market took off. Investors were happy to buy securities comprised of home mortgages: the interest was guaranteed and the security very strong, since default rates were low and predictable due to the credit standards on writing mortgages. These were very good securities to own, since the chances they would pay all or nearly all the paper return was high.

    But when Uncle Sam in the persons of Dodd, Frank, and company began mandating all this sub-prime lending to unqualified borrowers, they did not simultaneously require that securities disclose the inclusion of deadbeat Democratic borrowers who would never repay loans they couldn’t afford in the first place. The mortgage securities were tainted, but it wasn’t discovered – or even much considered – until the “mark to market” rules required banks to report their equity assets at current market value, and banks suddenly realized they had no idea what the actual value of these formerly solid securities might be.

    Oops, Democratic social engineering precipitates banking crisis, nothing to see here, move along people. So what do they do to address it? Give incentives to MORE people to default, and quietly cover the massive shortfalls of the GSEs while encouraging MORE such loans!

    We don’t need “accountability” at this point – it’s too late, the horse has fled and closing barn doors only cuts the draft. What we need most is rope, and lots of it.

  • http://theothermccain.com Robert Stacy McCain

    What we need most is rope, and lots of it.

    Hmmmmmm.

  • http://theothermccain.com Robert Stacy McCain

    What we need most is rope, and lots of it.

    Hmmmmmm.

  • egoist

    I go to the FDIC every couple of days – most often it’s Friday night, but there have been exceptions. One thing I can’t seem to find is a running tally of the FDIC balance sheet; I know they’re just barely above water – if they have anything left at all. The last 2 weeks, it’s been 1 closure / week; prior to that 6-ish. Are they so broke that they can’t even close zombies?

  • egoist

    I go to the FDIC every couple of days – most often it’s Friday night, but there have been exceptions. One thing I can’t seem to find is a running tally of the FDIC balance sheet; I know they’re just barely above water – if they have anything left at all. The last 2 weeks, it’s been 1 closure / week; prior to that 6-ish. Are they so broke that they can’t even close zombies?

  • egoist

    I check my banks’ health using bankrate.com, and they’ve all been slipping in my area. Beyond the death-spiral housing, there’s an ocean of commercial properties w/ “for lease” signs up, yet “stimulus” orders more building.

  • egoist

    I check my banks’ health using bankrate.com, and they’ve all been slipping in my area. Beyond the death-spiral housing, there’s an ocean of commercial properties w/ “for lease” signs up, yet “stimulus” orders more building.

  • Rick Caird

    Egoist is right. The FDIC is broke. I suspect that is why the pace of bank closings has slowed down lately.

    A second point that always seems to not be emphasize is the bank has been caught lying. In this case, we are told the bank has

    “…with $480.3 million in assets and $479.8 million in deposits”.

    This tells us assets are liabilities are in balance. But, then we are told:

    “…is expected to cost the deposit insurance fund $80.9 million”.

    Whoaa. So assets and liabilities are not in balance and, in fact, assets are about $80 million less than carried on the books.

  • Rick Caird

    Egoist is right. The FDIC is broke. I suspect that is why the pace of bank closings has slowed down lately.

    A second point that always seems to not be emphasize is the bank has been caught lying. In this case, we are told the bank has

    “…with $480.3 million in assets and $479.8 million in deposits”.

    This tells us assets are liabilities are in balance. But, then we are told:

    “…is expected to cost the deposit insurance fund $80.9 million”.

    Whoaa. So assets and liabilities are not in balance and, in fact, assets are about $80 million less than carried on the books.

  • http://www.coldfury.com Noel

    Aside from the off-putting racialism and the Soros funding, CRS is reccommeniding more of the same government intervention “spread-the-wealth-around” scheme that caused the problem in the first place:

    “With millions of foreclosures still ahead, there is an urgent need for policymakers to take stronger actions to stabilize the housing market, keep families in their homes and prevent destructive lending practices in the future.”

    The Good News: Socialized Mortgages work as well as all other Socialized Programs!

  • http://www.coldfury.com Noel

    Aside from the off-putting racialism and the Soros funding, CRS is reccommeniding more of the same government intervention “spread-the-wealth-around” scheme that caused the problem in the first place:

    “With millions of foreclosures still ahead, there is an urgent need for policymakers to take stronger actions to stabilize the housing market, keep families in their homes and prevent destructive lending practices in the future.”

    The Good News: Socialized Mortgages work as well as all other Socialized Programs!

  • Weary G

    Can I ask a question about Freddie and Fannie?

    If these are government run entities, HOW is it legal for them to be contributing ANY money to any candidate? Does that not mean that is some way my tax dollars are being spent to support certain candidates?

    It seems like blatant corruption to have government agencies getting involved in campaigns in any way.

  • Weary G

    Can I ask a question about Freddie and Fannie?

    If these are government run entities, HOW is it legal for them to be contributing ANY money to any candidate? Does that not mean that is some way my tax dollars are being spent to support certain candidates?

    It seems like blatant corruption to have government agencies getting involved in campaigns in any way.

  • http://theothermccain.com smitty

    @Weary G,
    Better question: if Amendment X means anything, how are Freddie and Fannie remotely legal at all?

  • http://theothermccain.com smitty

    @Weary G,
    Better question: if Amendment X means anything, how are Freddie and Fannie remotely legal at all?

  • Pingback: Virginia Right! News Hound for 6/19/2010 | Virginia Right!

  • Stinky

    Good points, especially the snarky bits, but I’m going to ask you a big favor: please stop classifying hispanics as non-white. They are white. Just like Scandinavians are white. Latinos are multi-racial, just like Americans. Classifying hispanics in this way plays into the race-hustling race industry on the left, and furthers the Balkanization of Americans. Or, you can use the term in the chart: non-hispanic whites, (or hispanic whites.)

  • Stinky

    Good points, especially the snarky bits, but I’m going to ask you a big favor: please stop classifying hispanics as non-white. They are white. Just like Scandinavians are white. Latinos are multi-racial, just like Americans. Classifying hispanics in this way plays into the race-hustling race industry on the left, and furthers the Balkanization of Americans. Or, you can use the term in the chart: non-hispanic whites, (or hispanic whites.)

  • Joe

    Can we classify people less on race and more on attitude? I like people who work hard, are self reliant, and whose worse crimes are speeding. I dislike people who expect me to work hard for them.

  • Joe

    Can we classify people less on race and more on attitude? I like people who work hard, are self reliant, and whose worse crimes are speeding. I dislike people who expect me to work hard for them.

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