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How to Sell a Money Pit
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Monday, September 29, 2008
The new Inside WBJ
We've launched our new Inside WBJ blog hosted on our own site, WBJournal.com. To visit our new blog, click here. The new address is http://www.wbjournal.com/InsideWBJ. Please update your links and let us know what you think.
Thursday, September 25, 2008
FDIC fights back
The FDIC just sent out this letter to the media in response to an article headlined FDIC May Need $150 Billion Bailout as Local Bank Failures Mount by Bloomberg News. It's not typical for a large federal agency to send out this kind of public criticism, but I guess this is a sign of the troubled times we're in.
Here's the letter:
Executive Editor
Bloomberg News
Dear Mr. McCorry:
Bloomberg reporter David Evans' piece ("FDIC May Need $150 Billion Bailout as Local Bank Failures Mount," Sept. 25) does a serious disservice to your organization and your readers by painting a skewed picture of the FDIC insurance fund.
Let me be clear: The insurance fund is in a strong financial position to weather a significant upsurge in bank failures. The FDIC has all the tools and resources necessary to meet our commitment to insured depositors, which we view as sacred. I do not foresee – as Mr. Evans suggests – that taxpayers may have to foot the bill for a "bailout." Let's look at the real facts about the FDIC insurance fund.
The fund's current balance is $45 billion – but that figure is not static. The fund will continue to incur the cost of protecting insured depositors as more banks may fail, but we continually bring in more premium income.
We will propose raising bank premiums in the coming weeks to ensure that the fund remains strong. And, at the same time, we will propose higher premiums on higher risk activity to create economic incentives for poorly managed banks to change their risk profiles. The fund is 100 percent industry-backed.
Our ability to raise premiums essentially means that the capital of the entire banking industry – that's $1.3 trillion – is available for support. Moreover, if needed, the FDIC has longstanding lines of credit with the Treasury Department. Congress, understanding the need to ensure that working capital is available to the FDIC to provide bridge funding between the time a bank fails and when its assets are sold, provided broad authority for us to borrow from Treasury's Federal Financing Bank.
If necessary, we can potentially raise very large sums of working capital, which would be paid back as the FDIC liquidates assets of failed banks. As per our authorizing statute, any money we might borrow from the Treasury must be paid back from industry assessments. Only once in the FDIC's history have we had to borrow from the Treasury – in the early 1990s – and that money was paid back with interest in less than two years.
Finally, Mr. Evans' suggestion that the "government" could ever be "on the hook for uninsured deposits" demonstrates a misunderstanding of FDIC insurance. To protect taxpayers, we are required to follow the "least cost" resolution, which means that uninsured depositors are paid in full only if this is the least costly option for the FDIC.
This usually occurs when a bidder for the failed bank is willing to pay a higher price for the entire deposit franchise. We are authorized to deviate from the "least cost" resolution only where a so-called "systemic risk" exception is made. This is an extraordinary procedure which we have never invoked. And again, any money we borrow from the Treasury Department must be repaid through industry assessments. I
am confident in the strength of the FDIC's resources to make good on our sacred pledge to insured depositors. And, remember, no depositor has ever lost a penny of insured deposits, and never will.
Andrew Gray
Director
Office of Public Affairs
Federal Deposit Insurance Corporation
Here's the letter:
Mr. John McCorry
Executive Editor
Bloomberg News
Dear Mr. McCorry:
Bloomberg reporter David Evans' piece ("FDIC May Need $150 Billion Bailout as Local Bank Failures Mount," Sept. 25) does a serious disservice to your organization and your readers by painting a skewed picture of the FDIC insurance fund.
Let me be clear: The insurance fund is in a strong financial position to weather a significant upsurge in bank failures. The FDIC has all the tools and resources necessary to meet our commitment to insured depositors, which we view as sacred. I do not foresee – as Mr. Evans suggests – that taxpayers may have to foot the bill for a "bailout." Let's look at the real facts about the FDIC insurance fund.
The fund's current balance is $45 billion – but that figure is not static. The fund will continue to incur the cost of protecting insured depositors as more banks may fail, but we continually bring in more premium income.
We will propose raising bank premiums in the coming weeks to ensure that the fund remains strong. And, at the same time, we will propose higher premiums on higher risk activity to create economic incentives for poorly managed banks to change their risk profiles. The fund is 100 percent industry-backed.
Our ability to raise premiums essentially means that the capital of the entire banking industry – that's $1.3 trillion – is available for support. Moreover, if needed, the FDIC has longstanding lines of credit with the Treasury Department. Congress, understanding the need to ensure that working capital is available to the FDIC to provide bridge funding between the time a bank fails and when its assets are sold, provided broad authority for us to borrow from Treasury's Federal Financing Bank.
If necessary, we can potentially raise very large sums of working capital, which would be paid back as the FDIC liquidates assets of failed banks. As per our authorizing statute, any money we might borrow from the Treasury must be paid back from industry assessments. Only once in the FDIC's history have we had to borrow from the Treasury – in the early 1990s – and that money was paid back with interest in less than two years.
Finally, Mr. Evans' suggestion that the "government" could ever be "on the hook for uninsured deposits" demonstrates a misunderstanding of FDIC insurance. To protect taxpayers, we are required to follow the "least cost" resolution, which means that uninsured depositors are paid in full only if this is the least costly option for the FDIC.
This usually occurs when a bidder for the failed bank is willing to pay a higher price for the entire deposit franchise. We are authorized to deviate from the "least cost" resolution only where a so-called "systemic risk" exception is made. This is an extraordinary procedure which we have never invoked. And again, any money we borrow from the Treasury Department must be repaid through industry assessments. I
am confident in the strength of the FDIC's resources to make good on our sacred pledge to insured depositors. And, remember, no depositor has ever lost a penny of insured deposits, and never will.
Andrew Gray
Director
Office of Public Affairs
Federal Deposit Insurance Corporation
Wednesday, September 24, 2008
Ever the optimists
Keeping on the real estate kick we've been on, I figured I'd share with you a recent comment we received on an article we ran in yesterday's WBJ Daily Report (our free e-mail newsletter).
WBJ Staff Writer Livia Gershon checked out a Massachusetts Association of Realtors conference at the DCU Center (which was pointed out to us by Jane Levine) and found a relatively optimistic bunch. But at least one of our readers was a bit skeptical. In particular he took issue with a prediction made by the National Association of Realtors that the housing market will recover by mid-2009.
"Recover in mid 2009? More like BEGIN to recover. Needs another year to bottom out - then the upswing may start."
What do you think? How much longer will housing values keep falling?
WBJ Staff Writer Livia Gershon checked out a Massachusetts Association of Realtors conference at the DCU Center (which was pointed out to us by Jane Levine) and found a relatively optimistic bunch. But at least one of our readers was a bit skeptical. In particular he took issue with a prediction made by the National Association of Realtors that the housing market will recover by mid-2009.
"Recover in mid 2009? More like BEGIN to recover. Needs another year to bottom out - then the upswing may start."
What do you think? How much longer will housing values keep falling?
Monday, September 22, 2008
A Realtor's Take
Folks in the housing industry are having a rough time, and many could have predicted much of the trouble we have seen thanks to risking lending practices. We got this response to an article we ran about Attorney General Martha Coakley's criticism of the mortgage industry from Jane Fine Levine of Fine Properties Inc.
"As an experienced Realtor for over 23 years, my colleagues and I watched 2-3 years ago when these loans started. Every time we spoke out and tried to inform "higher ups" no one knew what to do and everyone avoided the problem.
This is a perfect example as to why Realtors do not want Banks in the Real Estate Business. People unfortunately get greedy, have no ethics, are interested in the quick buck and then somehow manage to avoid being accountable for their actions.
I applaud Congressman Barney Frank and Attorney General Coakley for caring enough to take action."
What do you think? Is Coakley barking up the wrong tree? Or is she right in her criticism?
"As an experienced Realtor for over 23 years, my colleagues and I watched 2-3 years ago when these loans started. Every time we spoke out and tried to inform "higher ups" no one knew what to do and everyone avoided the problem.
This is a perfect example as to why Realtors do not want Banks in the Real Estate Business. People unfortunately get greedy, have no ethics, are interested in the quick buck and then somehow manage to avoid being accountable for their actions.
I applaud Congressman Barney Frank and Attorney General Coakley for caring enough to take action."
What do you think? Is Coakley barking up the wrong tree? Or is she right in her criticism?
Friday, September 19, 2008
Evergreen Solar CFO catches heat
Marlborough-based Evergreen Solar has caught the ire of a blogger at 10Q Detective. I'll let you read for yourself here.
Beware of the blogosphere
We picked up on this blog after they blogged about an article we ran on financial troubles at Medway-based Strata Bank. This is a blog run by a group of owners at the bankrupt University Park Lofts project in Worcester.
If you want an inside look at the housing crisis, I don't think it gets much better than this.
Thursday, September 18, 2008
400 at 40 Under Forty
We had a great 40 Under Forty event last night. We also played a video that included wisdom from four local executives over the age of 75 (John Jeppson, Barbara Greenberg, Lois Green and Paul Morgan). Check the video out at Joe Pagano's site. He edited the video for us.
We hope to post the extended interviews soon!
We hope to post the extended interviews soon!
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