Isaac Laquedem

Mississippi can teach Georgia something about banking

Friday's four failed banks included two from Georgia.  Georgia has, or more accurately had, a lot of failed banks: 32 since January 1, 2009.  Almost one of every five banks that's failed since then has been from Georgia.  Why so many?  I don't think of Georgia as a hotbed of real estate speculation, or as an unusually tough place in which to do business.  Its bankers should be, as a class, no less numerate than those from Alabama and Mississippi.  Yet, in the same time period, only four Alabama banks failed, and not one bank in Mississippi was closed down.  It suggests to me that Alabama and Mississippi might want to help out their ravaged neighbor to the east by airlifting Georgia some bankers.  They might start by asking Chevis C. Swetman to lend a hand.  He's the president of The Peoples Bank of Biloxi, Mississippi, and despite a tough year in 2009 (revenues were 25% below 2006 levels), his bank managed to make a reasonable profit.  Last year the Wall Street Journal quoted him on the subject of bankers who took lavish salaries and perks despite losing money and needing government bailouts: he said simply, "These people ain't got a clue."

How not to sell stock in your bank

A Friend Of Long Standing is now a vulture, in a cheerful and professional sort of way; she and her coworkers buy troubled assets (the nice phrase for "bad loans" and "repossessed real estate") from banks that are themselves in trouble and need to sell them to raise cash.  My F.O.L.S. reports that one small bank (not a Portland-area bank) doesn't want to negotiate the sale of its troubled assets, but is holding out for full price, and insists that buyers of its troubled assets must also buy its stock.  (The bank needs to raise capital quickly or it will be shut down this spring.)

My F.O.L.S. and I don't know whether to laugh or cry at this bank's philosophy.  If the troubled assets were still worth their face value, they wouldn't be troubled assets.  And the bank's stock would be more desirable if it hadn't made those loans in the first place.  As it is, it makes me imagine a car dealer who won't sell me a Yugo unless I buy a Lada also.

A Sounder example of mass transit

Difficult as it is for me to admit, I think I've caught a mild case of soccer fever, not from anything going on in Portland, but from watching the Seattle Sounders' opening game from a skybox at Qwest Field.  It's a fine facility that serves football and soccer, My hosts claimed that soccer outdraws baseball in Seattle, at least in attendance per game.  It's a stadium with a lot of visible sponsors and it's remarkably easy to get to on foot or by car, train, bus, or light rail.

I was also struck by Seattle's bus/rail tunnel.  I had first seen it when it was bus-only, before the rails were installed.  Now, with buses and trains sharing the tunnel, it's an efficient way for mass transit to pass through downtown.  The thought occurred to me that instead of replacing the Interstate Bridges with a new 10- or 12- or 16-lane bridge (I'm not sure where the count is today), we could build a bus-rail tunnel underneath the Columbia and not do anything about the bridge and car traffic.  With a massive park-and-ride on the Vancouver side, light rail between Portland and Vancouver might become faster than driving, something that should have been the goal of our rail system in the first place.

Niketown revisited five years later

Back in 2005, when Nike was lobbying the legislature to protect its main campus from being annexed by Beaverton, I wrote this piece about it, pointing out that although the Nike Act prevented Beaverton from annexing Nike's campus, it would not prevent a group of neighbors, as for instance the residents of Cedar Hills, from forming a new city and including Nike's campus within it.  The neighbors' sense of humor might extend to naming their new city Niketown, since Nike would be providing about 70% of the tax base.

A cheekier thought occurred to me today: if Cedar Hills were to incorporate and include the Nike property within its boundaries, the new city council could declare all of the new city, except the Nike campus, to be a blighted area worthy of taxpayer support, and (with a little work) make Phil Knight pay for patching their roofs and painting their houses. 

2010: setting a record pace for bank failures

In 2009 the FDIC and state regulators closed 140 banks.  So far this year the government has closed 37 banks, including five in Oregon and Washington, and the first quarter's not over yet -- we have one more bank closing day yet to go before March ends.  At this pace we'll get to 160 failed banks by the end of the year, beating 2009 by about 15%.

As I read about these institutions and look over their balance sheets, I note how many were done in by residential construction loans.  It's as if a herd of bankers, lemming-like, rushed over the same cliff, reassuring themselves that there was safety in numbers.

A banker friend who chose not to swim with the lemmings once explained to me his policy on making loans.  "Every loan must have two sources of repayment, no exceptions," was his rule.  Usually one source was the borrower's income and the other source was the collateral.  On commercial real estate loans, one source was the rental income from the property and the other source was the borrower's outside assets.

One of the many errors that many banks made was to imagine that they had identified two sources of repayment when in fact they were identifying the same source twice under different names.  For instance, the two sources of repayment for a loan to a homebuilder might be the homebuilder's income and the real estate collateral.  Overlooked by the lender was the fact that the homebuilder's income depended on the value of the collateral, and when the market for large houses on tiny lots dried up, not only did the builder's income do the same, but so did the value of the collateral.  The two sources of repayment were really only one source of repayment.

In my friend's last 10 years of banking, I think he had only two loans go bad.  I know a few banks that could have used his expertise in the last five years, but for most of them the fox has already overleveraged the henhouse.

A credit card bank catches the FDIC at a disAdvanta

One of Friday's seven shuttered banks, Advanta Bank, was different from the other six.  The other six closed banks had offices and tellers, took retail deposits, and made home, commercial, and consumer loans.  Advanta had $1.5 billion in deposits, but as far as I could tell it had no retail offices at all; it took brokered deposits and issued credit cards.  Its assets consist largely of credit card receivables.

When it closes a bank, the FDIC issues a press release stating what it thinks the closure will cost its insurance fund.  The FDIC insurance fund pays four kinds of costs when it closes a bank: the staff time to close the bank, find a buyer for the deposits, and sell the assets; the payout to insured depositors whose deposits aren't assumed, the premium it has to pay an acquiring bank to take over the deposits (though in some cases the FDIC can collect a premium); and the difference, if any, between what it has to pay out and what it can recover from the assets. 

In the case of Advanta, the FDIC could not find a buyer to take over the deposits or (so far) the assets, and it estimates that the failure will cost its insurance fund $635 million.  That's more than 40% of what Advanta's customers owe the bank.  Put another way, it suggests that the FDIC thinks that Advanta's borrowers are going to repay only 60% of what they borrowed on their credit cards.  Some days I feel like asking for the same deal myself.

A California property tax appeal company is 15 years late and $189 short

From the scam file: I received a delightful letter yesterday from an outfit in Granada Hills, California called Property Tax Adjusters.  The fine folks there told me that they believe that Laquedem Manor "may be over assessed for property tax purposes" and (they said) "a REQUEST FOR PROPERTY TAX REASSESSMENT is available to you" that might save me $1500/year.  If I send them a service fee of $189, they will prepare, sign, and file an application to reduce my property tax assessment for the current tax year, or, if they determine that I do not qualify for a reduction, they will refund my $189.

Two little problems: first, the figure they quote as Laquedem Manor's assessed value is not in fact its assessed value, but what Mrs. Laquedem and I paid for the place 15 years ago.  It's worth about twice that today, even to the jaded eye of an indicted bank appraiser.  Second, the deadline to appeal assessments for the current tax year was December 31, 2009.  It's too late to file an appeal.

Even though it won't draw $189 from the Laquedem treasury, it's an engaging letter.  I might send it to Mr. Kroger and see what he makes of it.

The Laquedem High-Test Plan to Evaluate Politicos

Let's expand the idea of testing our high school students (and by inference, their teachers) and give the same test to candidates for paying public office.  There would be no passing grade, but the candidates' scores would appear on the ballot next to their names, much like the octane ratings on gasoline pumps.  For the reading comprehension portion of the test, I'd use a public-private partnership agreement (such as the one that is bringing a change of soccer league to Civic Stadium).  For the mathematics portion of the test, I'd use a recent school district budget.  One advantage of using standardized high school tests is that we've already paid the consultants who designed the test, and the marginal cost would be simply to print a few more copies and hire some impartial graders.  In fairness the candidates who take the test should be given their scores privately first, and a chance to withdraw from the competition without their scores being published.  And voters might cast a warier eye on a prospective Solon's promises of fiscal responsibility if they come from someone who scored only 24% on the math test.  If the plan works out, we could later on hire Consumer Reports to rate our legislators.

License the bikers, not the bikes

I'm not yet at the point of wanting to license bicycles, but (if I should get that crotchety some day) I hit on a better plan.

The main area where bicycles conflict with cars, trucks, trains, and buses is downtown Portland.  Just as New York (so I'm told) imposes a higher age limit on drivers in Manhattan than in the rest of the state, we could have an enhanced requirement for bicycling in downtown Portland.  I define downtown Portland, for this purpose, as the area between Front Avenue and Interstate 405, starting at Market Street and going north to Burnside Street.  This doesn't affect Waterfront Park and Portland State University.

Instead of licensing bicycles, let's license bicyclists.  Make it unlawful for anyone to bicycle within downtown Portland unless he or she is wearing one of those bright yellow bike jackets.  The wrinkle is that the City would sell the jackets, and each jacket would have the cyclist's license number prominently displayed on the back, rather like a license plate printed on Gore-Tex.  No cyclist could get a numbered jacket without first attending a traffic safety course.  Each cyclist would be responsible for violations of traffic laws committed by whoever is wearing that cyclist's jacket, just as the owners of cars are responsible for their parking tickets regardless of who parked the car.

The FDIC scores another septuple

Seven more banks have fallen today, and it's not even four o'clock.  I like the fact that one's in a town called Fort Deposit.

 State Bank of Aurora, Aurora, MN
  First Lowndes Bank, Fort Deposit, AL
  Bank of Hiawassee, Hiawassee, GA
  Appalachian Community Bank, Ellijay, GA
  Advanta Bank Corp., Draper, UT
  Century Security Bank, Duluth, GA
  American National Bank, Parma, OH