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Five Banks Are Seized, Raising U.S. Failures This Year to 45

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posted on Jun, 27 2009 @ 06:14 PM
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Five Banks Are Seized, Raising U.S. Failures This Year to 45


www.bloomberg.com

Five U.S. banks with total assets of about $1.04 billion were seized by regulators, pushing this year’s tally of failures to 45 as a recession drives up unemployment and home foreclosures.
Community Bank of West Georgia, in Villa Rica, Georgia; Neighborhood Community Bank of Newnan, Georgia; Horizon Bank of Pine City, Minnesota; MetroPacific Bank of Irvine, California; and Mirae Bank of Los Angeles were closed yesterday by state regulators, according to statements from the Federal Deposit Insurance Corp. The FDIC was named receiver of the four banks.
The FDIC didn’t find a buyer for Co
(visit the link for the full news article)


Related News Links:
seekingalpha.com
www.foxbusiness.com
www.thestreet.com




posted on Jun, 27 2009 @ 06:14 PM
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I guess 5 banks in one month aren’t too bad considering they expect 50% of all banks to fail by 2010. Does FDIC have the money? They can’t find a buyer for one bank and FDIC eats the other $247 million.

Seems like a small number doesn’t it? We already know FDIC had to get a bailout last year. How do they plan to remedy the other 49% of bank failures? It may be getting close to opening an account in the bank of Mattress soon!

What will we see by 2010 and beyond. They fail to mention the reason the smaller banks were taken over. I’m sure they were heavey in comercial real estate amd small time building contractors.. We cant call this bad business decisions any longer. Were going down!

Five Banks Fail, Depositors Suffer


State regulators on Friday shut down five more banks, bringing the total number of failed U.S. banks and savings and loans during 2009 to 45.



This was the largest number of bank failures in one week during the 2008-2009 banking crisis



All of the failed banks were included in TheStreet.com's recent list of 89 undercapitalized


www.thestreet.com...

SmarTrend(R) News Watch: FDIC Shuts Down Five More Banks


Although the FDIC has found other banks to assume nearly all of the insured depositors, the bank closures is said to cost the FDIC insurance fund approximately $247 million


www.foxbusiness.com...

Who Is Regulating FDIC?


This is a serious misrepresentation of FDIC jurisdiction over insured banks. Please explain to me how a government agency has the right to do whatever it wants because of its own interpretation of its powers. No official in this country, including the President, should hold such dictatorial authority. Sheila Bair now wants to have these same jurisdictions over bank holding companies and other large institutions. I am shocked by the pervasive media support for this regulator, calling her a crusader and protector of average American taxpayers.


seekingalpha.com...

Has it dawned on us that that are not enough banks out there in healthy enough condition to continue buying up these failing banks?





www.bloomberg.com
(visit the link for the full news article)

[edit on 27-6-2009 by wonderworld]

[edit on 27-6-2009 by wonderworld]



posted on Jun, 27 2009 @ 08:13 PM
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I have direct, firsthand experience with one of the banks listed there, having been an employee of a bank that failed.

I can tell you a few things. First, the bank that I worked for - as well as most of the small community banks in the area - were heavily involved in lending money to residential home builders. They lent money to home builders to purchase vacant lots ("lot inventory") and to construct residential homes.

At first, we saw a major thaw in the houses that were in the $500k+ range, then 6 months later, any houses over $250k weren't moving. A few months later, no houses were moving at all. As a result, the home builders were stuck paying interest only on a whole slew of vacant lots and newly built homes no one was buying.

In my area, we have seen a wave of community banks that have closed because of the abovementioned scenario. Once the home builders stopped paying their loans, they filed bankruptcy and left the banks holding vacant lots and newly built or partially built new homes. And we are talking tens of millions of dollars here, too.

In addition to the above, the management running these banks - in particular the Board of Directors - put all their eggs in this one basket of loans - home builders. When the real estate market dried up, they were toast. To make matters worse, the management at these small town banks are - for lack of better words - well known to give loans to their friends and buddies with little or no strings attached. Our Board of Directors was particularly dangerous in this regard, lending money to Board members with few strings attached - no collateral, no personal guarantees, etc.

Banking got to be so loosey goosey that there was clearly evidence of fraud taking place, not just at my bank, but elsewhere around the country. If you get a chance to see the PBS interview with former S & L regulator, William K. Black - he's interviewed by Bill Moyers - he gives a very concise, description of what happened at banks, Wall Street, and other firms around the country that led to this financial crisis.

I predict many, many more banks to fail in the months ahead. And I would also expect to see one of the big players to fall at some point as well. I hope it doesn't occur, but I am afraid that the banking industry is a huge house of cards right now.

As far as the FDIC is concerned, they are left to clean up the mess from the massive fraud and crazy lending that these banks were engaged in. I don't blame the FDIC - they come in after the mess has been created and try to clean it up. The FDIC aren't the bad guys - The management running these banks into the ground are the bad guys.

The real culprit - in my opinion - is the Federal Reserve regulators, and the state banking regulators that turned a blind eye to these problems during the boom years. Just my opinion. Why weren't the regulators taking proactive action to stop these loosey goosey lending practices?

In the case of my particular bank, the regulators just HAD to have known that we were overweighted or over-concentrated in home builder loans. They knew we didn't have any diversity in our portfolio. They had to have known.

Then again, many of these banks had major profits in the early years when credit was loose, so no one thought there was a problem until the bottom fell out. It's either gross incompetence, fraud, collusion, or just plain human stupidity. Any way you look at it, though, it's a big mess, regardless of whom you point fingers at.

I'd be happy to try to answer anyone's questions on this subject. I have a pretty good pulse on this particular subject matter.


MBF

posted on Jun, 27 2009 @ 09:43 PM
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reply to post by CookieMonster09
 


My brother worked in a bank that may fail. He lost his job about a month ago. He told me a while back that the FDIC, I think it was, came in a while back and told them they had to make a lot of certain loans that they didn't want to make. They felt like they were too risky, but they made them anyway. He collected over $5,000,000 in the last few months that the bank would have lost from those loans, but I guess they didn't feel like he was earning his pay. They told him that he didn't do anything wrong, but they were eliminating his position and they would give him a good letter of recommendation and they did.



posted on Jun, 28 2009 @ 12:16 AM
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MBF - If I were to guess, it was probably the state regulators in Georgia, or the Federal Reserve, that was requiring the bank to make changes to their loan policy.

My guess - if it was a small community bank in Georgia - the bank regulators were requiring the bank to diversify its lending practices to commercial businesses and not home builders.

If they received TARP funds, or any other kind of government financial assistance, the banking regulators could have been strongly suggesting that the bank to use those government funds to lend in their local community.

The senior management probably wanted to use the government money - TARP funds - to shore up their bad debts and foreclosures.

My understanding is that the FDIC only steps in after a bank has failed. It is the Federal Reserve and the state banking regulators that actually conduct the regulatory reviews with each bank, not the FDIC.

If they let your brother go, it's probably just like you said - not based on his personal performance, but based on the bank's very weak financial position. The bank is bleeding money because they have too many borrowers that aren't paying on time or have filed bankruptcy and stiffed the bank. So, it's not your brother's fault - It's the bank's weak lending practices and over-concentration in residential construction and lot inventory loans. You can blame the Board of Directors and senior management for weak oversight and overzealous lending in a hot market that has since turned cold.


MBF

posted on Jun, 28 2009 @ 12:31 AM
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reply to post by CookieMonster09
 


That sounds right. The bank didn't get any TARP money that I know of. It is my understanding that they have so long to come up with $5M or they will be shut down. They let 8 people go that I know of.



posted on Jun, 28 2009 @ 01:12 AM
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Well, it was the same with the bank I just left. They had a few months to shore up their capital, and then they were toast. The FDIC came in and shut them down, turning all their assets over to the assuming bank.

Black mentions the Prompt Corrective Action Law, or PCA Law, which says a lot of things, but the gist of it is that the banking regulators are required to take prompt corrective action if a bank needs to shore up their capital. They have a limited time window to pony up the money - maybe 60-90 days, then it's adios, amigo.

In this market, if they have to raise millions, they are in deep trouble. No one wants to invest in a failing bank, let alone one in Georgia, unless they get controlling interest. I will say that it will be very, very tough for them to come up with the capital right now. Not impossible, but the odds are really stacked against them.

They are shedding employees because they are trying to cut costs, but they really need to raise capital. Cutting people doesn't raise the necessary funds to make the grade.

It's actually a totally idiotic thing for a bank to do, because they not only tarnish their reputation, but they lose valuable employees with specialized knowledge about the bank's operations, clients, etc. that will be hard to replace in the event they do secure capital. But these are decisions made by desperate bank managers under a lot of stress, and who are, frankly, if they are in this situation, very incompetent.

It sends a bad vibe to the marketplace, because rumors start to float in the marketplace about how so-and-so bank just let go so many people. That's the beginning of the end. Give it 90 days. My guess is they will be toast.



posted on Jun, 28 2009 @ 01:15 AM
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Keep in mind that the West Georgia Community Bank had Silverton Bank as it's clearing house.... Silverton ( a bankers bank) went under a while back as well, and dominoes are starting to fall all across Georgia... I have it on good authority that there are many more to come... but much like these... you don't really know for sure until "that Friday"....

www.bloomberg.com...


And CookieMonster... echoing what you said...

I live in a Providence Group Home community... www.tpghomes.net... and many of their properties are now bank owned... just like you were saying...




[edit on 28-6-2009 by HunkaHunka]



posted on Jun, 28 2009 @ 01:50 AM
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Hunka- Yes, I am very familiar with Silverton. They were the major clearing house for wires, etc. for almost all of the small community banks in Georgia. And, I am not sure how easy it has been for these small banks to find a replacement for Silverton.

Silverton was a mess, though. They provided a lot of the back office support to these small community banks, but they also packaged up big loans - like $50M real estate loans for large real estate developments, like hotels, etc. Their underwriting and due diligence, from what little I saw, was practically non-existent, and frankly, a complete joke. They were giving $50M hotel loans to non-American citizens (good luck trying to sue in the event of default), and other nonsense I won't even get into. All I will say is that they were definitely not doing their due diligence at all.

Regarding Providence, yes, many of these properties and developments around Atlanta - especially Henry County - are now owned by banks.

Now, this would be quite simple you would think - Just sell the property at a loss or discount, and take a loss, and move on with your life. The banks can't do that because they have soooo many of these properties - and they can't afford to take a huge hit all at once. So they freeze lending - in Atlanta, most banks have frozen lending for more than a year now - and try to wait it out and sell these properties one by one until the market improves. It's a joke. So the credit markets are frozen until these banks can figure out what to do with all of this crappy housing and lot inventory that they own. They can't sell it at a loss, because they don't have the cash reserves to sustain a hit. And they can't lend any more money, because they need the cash to pay for the projected losses when they do in fact sell this real estate inventory.

So, basically, you have all of these banks sitting on all of this property - land and houses primarily - and they can't sell it at a discount because they are bleeding already. They aren't collecting any interest income, because the home builder by this time has filed bankruptcy. So they are stuck. So bank management just plays the "let's slow walk" game, and tries to ride this recession out hoping that the economy and real estate market will improve. Meanwhile, that's what every other bank is doing, so nothing will improve until this gets straightened out at the banks themselves regarding this backflow of housing inventory.

The regulatory requirements for capital reserves are stiff. These small banks don't have the kind of cash reserves on hand to sustain these kinds of losses. They can't raise cash in this environment because they can't find investors.

To make matters worse, most of these CEO's and senior bank managers are a bunch of blathering idiots. And do pardon me for being so blunt. They created this mess by lending loosey-goosey, then they wonder why they are in this situation. Meanwhile, they earned record personal incomes and bonuses for the past 7-10 years or so, so they got rich in the process. Time to bail. Who cares anyway? Most of these CEO's have never had to deal with a crisis this large, and don't have the management skills to manage through this downturn.

So what do they do? They hire some stupid consultant that says, "You need to cut your staff". So they shave a few - maybe - hundred grand off their bottom line, and --- now they have a skeleton staff dealing with these massive problems and they have had a major brain drain of the bank officers that had specialized knowledge of the bank's clients, procedures, etc. - all gone now. So now you have even fewer people working on these problems, and the ROOT ISSUE - which is dealing with these real estate issues, is not solved until the FDIC shows up at your door.

It's truly a beautiful situation.



posted on Jun, 28 2009 @ 02:11 AM
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reply to post by CookieMonster09
 


Wow... Cookie, thank you very much for your contributions in this thread... they have been very enlightening...





posted on Jun, 28 2009 @ 07:44 AM
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Thanks Hunka. In case anyone is interested, here is the link to the William K. Black interview with Bill Moyers, one of the best analysis of the crisis I have ever heard:

www.pbs.org...

Black gets it right, and tells the story about our banking crisis straight up without mincing words. I wish Obama would put him in charge of this banking crisis - He knows his stuff.


MBF

posted on Jun, 28 2009 @ 11:27 PM
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I felt like something had to happen when new expensive houses started going up left and right for years. You can sell only so many expensive houses in a area. The house prices around here were way above the income level of the people buying them. You would see a house change owners about every year. You would have a young married couple buy a house and it would take everything they both could make just to make the house payment. As soon as the wife would get pregnant and the first child came along there goes the money for the house payment and they would have to find something cheaper.



posted on Jun, 29 2009 @ 03:24 AM
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this is a big joke,,,,, the big banks hand out massive bonuses after being bailed out and the little guys go out of business,,,, shrinking the choices

everyone join credit unions and put BoA and such out to pasture

and why are they failing,,,,,

our printed money we deposit is physhically somewhere,,,, it all exists,,,, it's "hard money"

so apparently it's fake money,,,, or balance sheet electronic transfers, paper loans etc that kill these banks

you know where the bank gets 6% interest on a piece of paper for a house without ever moving a dollar
that's a scam in and of it's self,,,,fiat money


i deposit 10 bucks and they loan out a hundred
good racket to be in!!!!



posted on Jun, 29 2009 @ 11:03 AM
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ShortyWarn - What killed these small community banks was that they lent money to home builders for lot loans and residential home construction. When these loans turned sour, the banks got hit hard.

When the home builders went to sell these newly constructed homes, the sub-prime residential mortgage crisis hit. Residential mortgage lenders stopped lending money to sub-prime borrowers. Hardly anyone could buy a home because they couldn't find financing. Credit dried up.

Hence, the home builders couldn't find any buyers for these newly constructed homes. When these homes wouldn't sell, the home builders could no longer afford to pay their interest payments to the bank. The home builders filed bankruptcy, and then the banks foreclosed on these properties - primarily vacant lot inventory and newly constructed homes.

The banks have had a massive wave of these foreclosures on newly constructed homes and lot inventory. That's what killed these banks - Loans that went bad and were never repaid. The banks gambled on a hot real estate market and lost big time. The money went out, and was never repaid. Now these banks are sitting on a huge amount of real estate inventory of houses and lots:

Banks ---> lent money to Home Builders
Home Builders ---> used money to build houses
House Buyers ---> couldn't purchase houses because they couldn't find financing
Home Builders ---> can't sell these houses, default on their loans, file bankruptcy.
Banks ---> foreclose on properties

The small community banks don't print money. They take in deposits, then lend these deposits at interest. If they do borrow from the Federal Reserve system, they have to pay interest on any borrowed funds.

The bank gets 6% interest because it lends money out to borrowers that are supposed to repay their loan notes at interest. If the borrower fails to repay, the bank is left holding the bag.

If you don't want to deposit your money in a bank, you are perfectly entitled to lend your money to whomever you want and try to recoup a profit like the banks. It's a risky business these days. There are plenty of avenues for you to lend money - corporate bonds, government bonds, etc.

Banks take risks - in these particular cases, very high risk. 6% isn't much of a return for these high risk investments.

Think about it. When a bank loans money, they write a check - real cash - to a real estate seller - the seller of the home or real estate property. Say $200k. The bank writes a check for $200k, and places a first lien on the house. If you default, the bank forecloses on the house, and hopes to recoup the $200k.

But in this current market - where real estate prices have fallen in some cases 30-40% - the bank that forecloses on the property can't sell it for $200k. They are lucky if they can sell it at all, or even for $130k or less. That means a loss of $70k. This is where the banks get squashed. They own rapidly depreciating assets that aren't worth nearly what they paid for them. Not only did they lose their $200k investment - cash out the door - but now they own a worthless piece of real estate.

When does the bank recoup their investment? Do the math:

Bank writes a check for $200,000. Cash out the door.
30 year mortgage, at say 6% = $1200/month
$1200 x 60 months (5 years) = $72,000
$1200 x 120 months (10 years) = $144,000
$1200 x 180 months (15 years) = $216,000

So the bank finally makes a profit after nearly 15 years! That's a long time to wait for a return on your investment. What if the borrower loses their job in that 15 years? Has a heart attack? You get the idea. The bank takes a huge gamble whenever they lend money.

Take the sub-prime crisis - Here they were lending money - Zero down, interest only - to borrowers with known credit problems. What on earth was the chance of getting repaid and breaking even after 15 years? Slim to none. As Black notes, this was a clear cut case of fraud by the sub-prime mortgage lenders

[edit on 29-6-2009 by CookieMonster09]



posted on Jun, 29 2009 @ 12:09 PM
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With them raising interest rates our money will be worth less than when we borrowed it. I'm expecting to soon see a Credit Union crash next.

It's only the biginning of the small bank failures. We could easily see double digit inflation in a couple years or less if they keep the printing presses rolling.

I'd rather live through a Great Depression, than experience hyperinflation!

Compare our economy to this!



posted on Jun, 29 2009 @ 03:40 PM
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It sure will be interesting to see what the Federal Reserve does when inflation starts to kick in. What can they do but raise interest rates to try to contain the inflation? I wonder if we will have a return to the Carter era, with massive inflation, long lines at the gas stations, and double digit interest rate mortgages.

I don't know where all this bailout money is going - It sure hasn't created any jobs, and the banks still aren't lending. They can do all the printing in the world, but it sure hasn't helped the average Joe American one bit.

And yes, you can expect even more bank failures in the upcoming weeks, and I am sure we will see some credit unions fail as well. I think the next big bubble to burst will be the commercial and industrial real estate sector - office buildings, strip malls, etc.

Once this hits, expect to see a massive wave of empty industrial parks. Just visit Detroit metro or Cleveland someday and drive around the industrial parks. Every other office building is for sale and vacant.

And we still haven't seen the full effects of the GM bankruptcy either. This is already starting to have a major ripple effect throughout the economy. Just look at all the dealerships closing. Now comes the second wave - parts suppliers, and ancillary businesses that support the auto companies.



posted on Jun, 29 2009 @ 08:34 PM
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reply to post by CookieMonster09
 


There's no doubt inflation will kick in.

We could easily see a 25% annual inflation rate which would lead to Hyperinflation in only 3 years but we can always hope for the best.



posted on Jun, 29 2009 @ 11:55 PM
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My question regarding inflation is this - It seems that in recent history, the Federal Reserve's response to inflation has been to raise interest rates to slow the economy down. It seems to be their only mechanism to do so, though there are probably some other measures they can take as well I'm sure.

Higher interest rates means that it is more expensive for businesses to operate, and so the idea is that it tends to slow the economy down a bit.

My question - If we do start to see inflation, and the Fed hikes up interest rates, will it slow or halt inflation? Or not?

It seems that a few things remain unaffected by inflation - medical costs keep skyrocketing, oil prices seem oblivious to what the Fed does, and college costs keep going up - though I think that might change here soon as fewer and fewer students are going to be able to afford to go to college.

Also, all this money that is being printed - Where is it going? It's clearly not going to produce more jobs and rebuild our economy in this country. What is being done with all the newly printed dollars?



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