Skip to comments.Principled Banker Has Cause To Be Burned Up About Bailout
Posted on 09/24/2008 7:46:52 PM PDT by Iron Munro
The proposed federal rescue of the nation's financial system has investors breathing easier, but one Tampa financial executive is steaming about the unfairness of it all. He's right. Every honest participant in the system should be outraged.
Longtime president of GTE Federal Credit Union, Wendell "Bucky" Sebastian, makes local mortgages and looks after the investments of savers. Most of his mortgages are sound and all the money on deposit is safe. But the normally jovial Sebastian isn't happy.
"We were the ones not taking stupid risks," he explains of his and similar credit unions and banks. "The bad guys made billions of dollars. I used to believe virtue would be its own reward. Now being virtuous is beginning to look like you're stupid. As a human being, I'm incensed."
He agrees that federal intervention is essential to get the bad debts out of the banking and investment systems, but he's rightly angry about a few details that have largely escaped public attention. One is the interest rate paid on certificates of deposit, which are federally insured.
Banks are advertising rates of 4 percent, even 5 percent, while Sebastian's credit union is offering around 3 percent.
"These banks are raising money at these rates because they can't borrow anywhere else. A conservatively run institution like ours, people ask, how come you're only paying 3.05?"
Customers go for the highest rates because all institutions are insured equally. It's a system rewarding irresponsible behavior.
"Why should anyone do business with us? It's a perversion of common sense. We could issue a 12 percent CD, and it would be insured, until we went out of business. We bankers are not required to be responsible. We, the American public, are insuring risky business."
And now it goes far beyond banks to include even money markets.
"The worst thing about the bailout, we gave de facto insurance to every financial institution in this country, in effect, all the money on Wall Street. You just took real insurance and made it worthless. Insuring every deposit in the country is insane."
How the nation got in this jam is no mystery. As a reaction to the Great Depression, the nation had set up a regulated mortgage system to encourage home ownership.
"The whole thing was working beautifully," until standards slipped and safeguards dropped, allowing mortgage buyers Freddie Mac and Fannie Mae to get "fat and loose," as Sebastian puts it.
"Over the last 10 years, partially from urging of Congress and from the executive branch, and from non-regulated entities, slowly they peeled all the rules away until it was almost impossible to turn down a mortgage.
"The incentive is more, better, faster. It gets you on a treadmill that goes faster and higher every minute. They made it go a little faster every quarter, so sooner or later you're going to have a heart attack and die. It's irrational."
"Just because there hasn't been a fire in a week, you don't close the firehouse. It's not surprising we had a conflagration."
Now, even the best-run banks and credit unions are feeling the pinch.
"Secondhand smoke can kill you," he says, and explains: "If all your neighbors got mortgages and weren't asked to verify employment, and if they had inflated appraisals, suddenly there could be 10 homes in your neighborhood in foreclosure. You're going to die from secondhand smoke.
"I have signed off on $15 to $20 million in restructured mortgages. We want them mowing the grass, keeping their kids in school. We're taking in half as much each month from them. That's nobody's fault in our loop. It's a travesty.
"The other people all outside the regulated framework got away with it. We didn't do any of the things they did. We made good loans to good members under good conditions. But conditions have changed.
"From developer right down to the finance companies, I don't think anyone was acting in the best interest of the homeowner. They have all gotten their money, and they're gone.
"The average citizen has done everything by the book. They're being asked to bail out the highest-flying risk takers in my memory."
The vast majority of us, like Sebastian, have done nothing wrong yet are forced to help cover bad loans . We have little choice but to pay, but we don't have to like it.
Welcome to socialism 101...
Why isn’t elected official screaming “...this is good money after bad”. Good business 101. Don’t Do It!
FDIC insurance premiums should be based on the basis of the financial security of the institution. Just like cigarette smoking people pay higher insurance premiums. Just meeting the minimum capital standards in not enough.
I love credit unions. They are like the old local thrift savings and loans that were invested in their own community.
I have banked for years with my credit union and I can rely on them..with people who know me by voice on the phone. The other big banks charge you fees and change people like underwear.
"The average citizen has done everything by the book. They're being asked to bail out the highest-flying risk takers in my memory."
Yes, but the World is On the Brink, so quit bleating, little sheep, and line up to be sheared.
I don’t get it. Bucky did the right thing and he’s pissed that he could have got away with stuff but didn’t?
Mr. Sebastian points out one of many serious flaws with this bailout.
Troubled banks will have little choice but to go dump their bad paper even if it involves shareholder dilution. Well run banks will not dump their paper if dilution or other damaging terms are part of the plan. The end result - shareholders of poorly run banks may take a hit, but clean balance sheets will give poorly managed banks an operational advantage over banks like Mr. Sebastian’s.
Basically, this plan is likely to put good management at a disadvantage to incompetence.
What don't you get? He's pissed that even though he ran a respectable thrift, his bank is going to be affected in a negative manner becuase of the stupidity of the system and the unscrupulous behavior of some others.
By accident, I live in a neighborhood that is on solid ground. Apparently most of the lenders in my area have not fallen into this sub-prime trap. Home prices are down, but I don't see any more "for sale" signs around here than I did five years ago. Thanks be to God.
Those other banks should go under and he should get their deposits and loan business, and be more profitable because of his good business practices. Instead, his profits will lag because his good loans are affected by all the foreclosures, and because his competitors will be bailed out.
This guy is pretty neat. I liked reading this.
With Bush's interference the bad banks win, and the good banks are played for fools.
I suspect the timing of this crisis - right before an election. The financial mess has been known by anyone who showed the smallest interest for years. My guess is the bad banks and high risk takers felt they had a good chance of being bailed out if the crisis happened right before the election. And it looks like they're right. Bush played into their hand.
Bush’s fault, right? Sounds just like MSNBC.
The really big financial institutions should be broken up into smaller entities so that never again will we have anyone say that a bank is too big to let fail.
There are thousands of smaller regional banks that are in excellent shape. But even if one of them failed, there are many others like them and life would go on.
The biggies need to be broken up, just as Standard Oil, the railroads and the big meat packers were broken up in the late 1920’s and 1930’s.
Here is another glimmer of someone with some sanity:
Plug in a weak, lame duck president with heavy duty connections to the finance business and an almost complete disdain for voters. Give him a chance to get even for being steamrollered on the Shamnesty bill and you got the makings of a disaster.
Apparently that was not the message that I got from the article or I wouldn’t have asked the question.
The last time I bought a car before negotiating a price with the dealer I called my credit union. I asked him what the current rate was. He gave me the rate. He then said, "go get what you want and tell the car dealership to call him to take care of the financing and paper work." Credit Unions are great. They do not take great risks and the person on the other side of the desk knows your name.
Wow, a small island of sanity in a sea of greed. McCain should choose this guy, not Cuomo the Complicit.
“The other big banks charge you fees and change people like underwear.”
We’ve always had our accounts with large banks and i’ve had accounts for the last 63 years, the first when I was 8, and have never paid a fee for anything.
“If a bank is too big to fail, couldn’t it, in fact, just be too big, PERIOD?”
It all started when they changed the law and allowed banks to cross state lines all for the benefit of Bank of America, Bank of Italy, at the time.
Of course the law was put into effect origionally to stop BofA!
Giniani’s crappy bank should have been put out of business years ago.
We are so screwed.
I’ve got a great bailout. Tell the financials that they can buy and sell Freddie and Fannie without cap gains, payroll, or other taxes. Allow them to purchase the debt at the reduced rate. They will pick it apart and 5 years later when the market has turned they will make super-BANK! And no more Freddie and Fannie to screw the market.
They don’t want to be bothered working to make money and waiting five years for the market to rebound when they can just get Bush and Congress to extort it from us and hand it to them on a silver platter.
The CRA forced banks into risky loans and “donations” to ACORN and assorted radical neighborhood groups. Fannie and Freddie were more than happy to buy and sell these mortgages.
Several Congressional committees have oversight of the banking and finance world. Where was Congress? It was busy taking campaign contributions from the industry they were supposed to regulate.
You get more of what you reward. If we don't bail out this mess, regular people are going to get burned along with the speculators. But if we DO bail them out, and make speculators feel safe about playing games, they will pull something like this AGAIN in a couple of years. Eventually, we will get a firestorm that is beyond the ability of the American taxpayer to deal with.
I don't think that's Bush's problem. His "connections" are trumped by his personal feelings of grandiosity.
I think the dems send him fake letters from "citizens" making heart wrenching pleas to save them (I had two friends who wrote these kinds of letters for dem politicians - so I assume they would also send these kind of letters to Bush -- - and Bush thinks he's stepping in as hero. It's how he started his speech last night. It's silly.
This bailout isn't going to give struggling people their homes. Far from it. As soon as the bailout goes through, the squatters/pawns/suckers (who were sold more house than they could afford) - who haven't made a house payment in a year or two will be foreclosed. And thrown out on the street.
This bailout is designed to help the irresponsible banks and punish the responsible banks. It's perfect to "reward" those pols who give favorable regulations. And in this case, billions of dollars to the very people who wrecked the system. Freddie, Frannie, WAMU, etc will make out like a bandits and Wells Fargo and other respoinsible banks will be hurt.
But worse yet, the bail out will push the problem down the road - a few months - to a time when we have less money and more problems.
George Bailey, prepare to bend over for the mistakes of Mr. Potter.
The problem is... it takes a plan from someone without a dog in the fight, other than a desire to not see the US economy collapse into socialism and ruin.
The problem is, all the politicians have conflicts of interest - they all stand to benefit in some way from throwing taxpayer money at the problem. Political gain, financial gain, etc.
Paulson is likely in line to actually run one of the bailed out corporations after January... thus would directly benefit from the “injected liquidity”... and the lack of any meaningful regulation.
I agree with everything you said. Thanks.
He’s also rightly PO’d that he and his business are going to have to pay for the irresponsibility of others.
This is the core essence of liberalism.
And that is the bottom line of this whole fiasco, whether talking about irresponsible (and corrupt) financial institutions, or irresponsible unqualified homeowners. Common sense dictates that whatever is rewarded and encouraged is what propagates. It's a travesty that good stewards like GTE Federal Credit Union will be punished by this bail out, as will the most fiscally responsible of taxpayers in our nation.
Rec’d this e mail today...............could it work???? :)
Im against the $85,000,000,000.00 bailout of AIG.
Instead, Im in favor of giving $85,000,000,000 to America in
a We Deserve It Dividend.
To make the math simple, lets assume there are 200,000,000
bonafide U.S. Citizens 18+.
Our population is about 301,000,000 +/- counting every man , woman
and child. So 200,000,000 might be a fair stab at adults 18 and up..
So divide 200 million adults 18+ into $85 billon that equals $425,000.00.
My plan is to give $425,000 to every person 18+ as a
We Deserve It Dividend.
Of course, it would NOT be tax free.
So lets assume a tax rate of 30%.
Every individual 18+ has to pay $127,500.00 in taxes.
That sends $25,500,000,000 right back to Uncle Sam.
But it means that every adult 18+ has $297,500.00 in their pocket.
A husband and wife has $595,000.00.
What would you do with $297,500.00 to $595,000.00 in your family?
Pay off your mortgage housing crisis solved.
Repay college loans what a great boost to new grads
Put away money for college itll be there
Save in a bank create money to loan to entrepreneurs.
Buy a new car create jobs
Invest in the market capital drives growth
Pay for your parents medical insurance health care improves
Enable Deadbeat Dads to come clean or else
Remember this is for every adult U S Citizen 18+ including the folks
who lost their jobs at Lehman Brothers and every other company
that is cutting back. And of course, for those serving in our Armed Forces.
If were going to re-distribute wealth lets really do it...instead of trickling out
a puny $1000.00 ( vote buy ) economic incentive that is being proposed by one of our candidates for President.
If were going to do an $85 billion bailout, lets bail out every adult U S Citizen 18+!
As for AIG liquidate it.
Sell off its parts.
Let American General go back to being American General.
Sell off the real estate.
Let the private sector bargain hunters cut it up and clean it up.
Heres my rationale. We deserve it and AIG doesnt.
Sure its a crazy idea that can never work.
But can you imagine the Coast-To-Coast Block Party!
How do you spell Economic Boom?
I trust my fellow adult Americans to know how to use the $85 Billion
We Deserve It Dividend more than I do the geniuses at AIG or in Washington DC .
And remember, The Birk plan only really costs $59.5 Billion because $25.5 Billion is returned
instantly in taxes to Uncle Sam.
Ahhh....I feel so much better getting that off my chest.
Double check your math.
See my post 38.
Look, even such an ignorant person as myself, resisted the constant barage of no-money-down offers of mortgages for houses I could not afford to maintain.
Not to mention ignoring the get rich quick schemes of buying and selling property, with no money on the line!
I even have a still valid,20 year old, unused, USD DOD first time home buyers VA certificate. So?
Will some large banks fail?
Yes, sort of, but not really.Look back to the dotcom bust.Everyone in the USA was not destroyed, just the stupid, greedy people.
What's going to happen is people who invested in those large banks,and all those people who allowed their personal retirement account funds to be managed by those entities, are going to lose a lot of investment money they were counting on.
I “invest” in $2.00 worth of lottery tickets every week.
Sometimes I get a return of 150%,occasionally I get a 750% return, although most times I lose my entire investment.I average out a zero percent profit...but one day I just might get lucky, and get a 10,000,000% return.
Guess what I think of all of them!
Nobody ever gets money for free.
Sorry, I forgot the sarcasm tag...