The Joke is on YOU America

With failure Friday looming tomorrow, I wonder which bank will become the next victim of the FDIC. As I always do when a Georgia Bank fails, I will post my farewell to the bank as a status on my Facebook page.

On July 24, Security Bank of Macon, Georgia was seized by the State Banking Department and all of its assets and liabilities were transferred to the FDIC as the receiver. When a Georgia Bank fails, it usually hits very close to home. This particular failure involved some very close personal contacts, and I think in the back of my mind that someday this could be me. I always pray for my friends and former colleagues to ensure that they have a safe landing somewhere.

On this day, I received a comment on Facebook from one of my friends, “Earl…And the Nation asks…WHY, WHY, WHY are banks shooting themselves in the foot? Every time they sell a foreclosure in a subdivision for 100, and they have other mortgaged properties for 200, why do they not realize what they are doing to themselves?…Banks need an “I know what we are doing” department. Ugly of me, ugh!”

I paused for a few moments to contemplate what I just read. It dawned upon me that most of America doesn’t get it. I was not mad or upset with this individual but I was ready to take exception to the comments.

If you haven’t lost money in one of these bank failures or been involved directly with one, then you probably don’t get it.  Heck, I’m a banker and haven’t been involved in bank failure but I know alot of people, obviously, that have been directly involved with a bank failure. And sometimes, I don’t get it! I do know who is getting stuck with it! YOU! So, I replied to the comment with vigor:

Bankers are to blame in some cases, sure. However, the joke is on America. It’s our own Federal Government that is suppressing the real estate market further. When the FDIC seizes a bank it will either sell its assets to a huge investor for 20-30 cents on the dollar and that investor will in turn sell the real estate for 40 to 50 cents on the dollar and double its money (the investor doesn’t care, it just doubled its money).

Or, the FDIC will enter into an agreement with a bank that buys the assets from the seized bank and the FDIC agrees to cover or pay 90 percent of the loss.  At that point, the acquiring bank doesn’t care because the Federal Government (FDIC) will cover the majority of the loss! At this point, they will sell the asset for whatever it can get.

Another downfall is that the acquiring bank will not work with any of the borrowers because they DON’T care! Pay or we will get rid of the asset! Who ultimately loses? The American taxpayer, the depositors (in some cases),  and the shareholders that invested in the seized banks which is WE AMERICANS.

So, is my solution to let the bankers work through their own problems? Yes. I understand some bankers have been financially irresponsible, but has our own Federal Government shown the ability to properly manage its own finances? If we Americans operated on the amount of debt the Federal Government operates, then we would have been insolvent years earlier.

If bankers could sell its own assets for 20-30 cents on the dollar and have no punishment like having our bank seized, then we could quickly fix our own problems. The FDIC acts like it is a big hero when they seize a bank. They sell off bank assets for pennies on the dollar which is something we can’t do. It appears like they are rescuing America from the idiot bankers. But the joke is on you and me. The taxpayers, depositors, and shareholders are ultimately the ones paying for all of these losses. We the People.