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.
ping
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.
How true.
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.
BTT
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.
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