Sunday, December 20, 2009

The Keating Five Return-2

"Federal regulators on Friday seized AmTrust Bank, a battered Cleveland thrift kept alive this year after local politicians pleaded with the government for a second chance. ... The family-owned AmTrust, with $12 billion in assets and roots back to 1889, had been in trouble for more than a year. Like many other banks during the housing bubble, AmTrust barreled into unfamilar geographic areas with aggressive mortgage and construction lending. ... The [FDIC] said the AmTrust failure was expected to cost its deposit-insurance fund about $2 billion. ... As part of the deal, the FDIC is shielding New York Community from most losses on $9 billion of AmTrust's assets. ... Last fall, its primary regulator, the Office of Thrift Supervision, rejected AmTrust's requests for aid through the federal government's Troubled Asset Relief Program. ... After AmTrust missed a deadline to raise capital, the FDIC in January approached other banks to gauge their takeover interest--a sign the agency was gearing up to seize the thrift, according to people familar with the matter. ... But AmTrust benefited from the advocacy of politicians, including Rep. Steven LaTourette (R., Ohio), who pleaded with Treasury and White House officials not to kill a second Cleveland bank. ... Sen. George Voinovich (R., Ohio) wrote to then-Treasury Secretary Henry Paulson, complaining about Treasury's discretion in 'picking winners and losers.' ... The OTS and FDIC eventually agreed to plans by AmTrust to aggressively shrink its balance sheet, sell branches, and thicken its capital cushions, according to people familar with the matter. ... People close to AmTrust blame federal regulators for some of the troubles. In recent months, OTS examiners demanded that AmTrust write down the value of loans far more aggressively than bank officials thought necessary, these people say. ... The requirements triggered more losses. Deteriorating finances prompted regulators' complaints about AmTrust's health to amplify from 'a gradual drumbeat ... to a crescendo,' said a person close to the company", my emphasis, David Enrich at the WSJ, 5 December 2009, link:

Apparently AmTrust needed a "former" executive at Treasury. Would AmTrust still be with us if Hank Paulson was its "former" Board Chairman? AmTrust's death is another argument for busting up our TBTF financial institutions. Citigroup has only survived since 1983 because of Fed bailouts by manipulating the yield curve adverse to savers. Citigroup should be killed. But that won't happen. Regulation is a joke., Instead of letting Vampire Squid fail, Uncle Sam lets it become a bank holding company. Amazing.


Cleanthes said...

In Stalin's USSR, a manager would be sent to the gulag for failure to make quota. A manager would also be sent to the gulag for falsifying production figures. In the first case, Mr. Manager went off to Siberia right away; in the second case, maybe the commissars wouldn't find out for years. Guess which choice most managers made?

So, why don't banks "accidentally" misplace a decimal point on their balance sheets? I suspect this is happening much more often than is reported.

Anonymous said...

In China they have the policy banks that fund the central governments agricultural development projects, infrastructure financing, and trade financing.

We have "policy banks" that mediate credit for the federal government.. and diddle in the markets when asked ...

They won't kill Citi... or touch Goldman...

Obama doesn't have the courage. Although he might easily suffer a lot of political damage from C and AIG and Bernanke.

It's banks as usual.

Happy holidays!

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