Monday, September 15, 2008

My Hometown Bank and What the Feds Have Done To It

COMING SOON: Who and What is really to blame for the current banking and mortgage crisis? Candidate Obama hasn't got the faintest clue.
I'm a stockholder in a small town, solid little bank in Middle Tennessee. It's a bank that for the past 120 years has a reputation as good as gold----with a record of making good loans at about the rate of +90% or more---almost unheard of in today's free wheeling markets.

For some years my father, a small town businessman and employer, was chairman of the board of this little bank and continued the tradition of good business and solid loan practices. The community flourished.

Several years after he retired as chairman, the Feds in the Clinton Administration came in and started dictating to this bank as well as banks across America: they had to start making a certain percentage of bad loans even if management knew the loans would never be repaid. In essence the bank was told to start a policy that in effect was the same as giving a portion of its money away. If my hometown bank failed to comply with this insane new banking policy, it would face stiff penalties from the Feds.

Then, the Feds came in and strongly urged another insane policy: my hometown bank and over 8,000 other banks across this nation were strongly urged to buy millions of dollars of Fannie Mae preferred stock.

After this urging, management of this bank felt obliged to buy FNM preferred stock almost as an act of patriotism. Today, this FNM preferred stock is worthless and my privately held bank will have to write off over $5,000,000 losses. The bank is also having to write off a number of bad loans that the Feds told them they had to make.

Is this any way to run a bank or a business? Of course not. Does government really have a right to make businesses that are solid weaker because some bureaucrat in D.C. thinks it a good idea? Of course not.

Thankfully my hometown bank is still solvent and solid, though not as much as it once was--- had government intervention/supervision not stepped in.

I and my fellow stockholders in this small, conservatively run bank are going to eat the excesses of $5,000,000 of the Fannie Mae preferred. We'll do our part to take the hit from others' gross mismanagement far away in D.C. and in the investment banks that are falling.

Meanwhile, I say again: poorly run and mismanaged companies ---like Fannie and Freddie and Lehman Brothers---need to be allowed to fail and held accountable by stockholders and markets for the errors and excesses of their ways. Saving Fannie Mae and Bear Stears were monumental mistakes by the Feds. Taxpayers like me and my children are going to be paying for others' mistakes for a long time to come.Letting Lehman fail is a step in the right direction.

Many small town banks, their stockholders, as well as taxpayers have done more than enough to cover for thee big companies' mistakes and now we're sick of it! Enough is enough.
Please stay tuned for the rest of this saga and where and when this all began in Washington back in the 90s.

2 comments:

Bob said...

Thank you for explaining how this happened. I am sorry.

Webutante said...

Thanks Bob.

Other commenters please note: I don't publish anonymous comments so give yourself an online identity.