Tuesday, November 3, 2009

Headline: FDIC closes 9 banks in one day . . .Oct. 30, 2009 . . .

What you don't see behind the curtain is . . .

image from FBOP's home page
All banks were owned by FBOP Corp. of Chicago. The Chicago Tribune covered the situation comprehensively here: http://www.chicagotribune.com/business/chi-fbop-seize-oct30,0,502486.story

Excerpts: 1) Until recently, Kelly was viewed as a brilliant operator. But he had an abrupt reversal of fortune last year when the government takeover of Fannie Mae and Freddie Mac exposed the holding company's large concentration of Fannie and Freddie preferred stock. The company unsuccessfully applied for about $500 million in federal TARP funds

2) The timing was awkward. The government shut down $4.7 billion-asset Park National on the same day that its community development arm, Park National Bank Initiatives, received $50 million from Treasury Secretary Timothy Geithner at a ceremony in Chicago.

3) The Park National shutdown occurred after several Illinois congressmen, including Reps. Bobby Rush and Danny Davis and Sen. Roland Burris, called the FDIC asking it to delay closing the bank for at least a week, said Marilyn Katz, a bank spokeswoman.

4) "At 10 a.m. this morning they were praising them and giving them $50 million, and at 10 p.m. this evening they'll be putting the padlock on the door," Rush said Friday evening. "There is something wrong with this picture: Wall Street wins and Main Street loses."

This story is a clear (in its muddledness) example of how the intermixing of federal interventions and private enterprise conjures tragedy and travesty, when it doesn’t conjure conspiracy and crime.
==> Michael Kelly was seen as a canny operator. He erred in trusting Fannie Mae and Freddie Mac preferred stock. The man and his company are ruined because the feds drew their line on the other side of them.
==> The holding company was reported still profitable, but could not meet capital requirements after the quasi-government entities defaulted.
==> FBOP was denied TARP funds. Again, FBOP found itself on the wrong side of the Fed’s line.
==> Intervention by local politicians was insufficient. When you play in these games, you never know.
==> Treasury Secretary Tim Geithner’s right-hand didn’t know what his left-hand was doing.
==> This company (nine banks) and its sole proprietor, Mike Kelley, foundered in the cross-winds of Washington politics and policy. It did not fail from lending policy. In fact, it did not fail for lack of performing loans. This was and is just a nasty, stinking mess.
==> Under Obama, one immediately wonders whether Mike Kelly didn't put his political support in the wrong place.

More details here: http://www.chicagobusiness.com/cgi-bin/news.pl?id=31185

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