Here is an article that will appear in the Tampa Bay Business Journal this Friday (March 6, 2009)
The boards of directors of two of the biggest credit unions in the United States, and the two market leaders in the Tampa Bay area — Suncoast Schools Federal Credit Union and GTE Federal Credit Union — have signed a letter of intent to merge the two credit unions.
If finalized, it would be the biggest merger ever of two credit unions, according to the Credit Union Journal , a trade publication.
Tom Dorety, president and chief executive of Suncoast Schools, and Wendall “Bucky” Sebastian, chief executive of GTE, said the proposed merger is subject to satisfactory due diligence review and regulatory approval. A final decision on whether to go ahead with a merger is still months away, Sebastian said, as the boards of each credit union review financial information and develop a business plan. If regulators approve, GTE members also would likely be asked to ratify the plan.
No decision has been made on a name or management for a combined organization, Dorety said. The letter of intent came after exploring the value of a merger to members.
“It provides them immediately with greater access to services. It enables us to have more resources to deliver products and services to members, and to do expansions more quickly in the future,” Dorety said.
While some economies of scale would result, no layoffs or branch closing are expected. The footprints of the two credit unions are unique with GTE stronger to the north and east of the Bay area and Suncoast stronger to the south of the Bay area. There are a few branches within a couple of miles of each other, but those happen to be each credit unions’ busiest branches, Dorety said. “What we expect is the combined entities will have more ability to grow,” Sebastian said.
Losses played no role
Combined, the two credit unions would have $7.8 billion in assets, based on their assets as of Dec. 31, and nearly 675,000 members, according to reports filed with the National Credit Union Administration. The combined organization would be the 5th largest credit union in the United States, Sebastian said.
The merger comes on the heels of each of the credit unions’ huge 2008 financial losses in the fallout from the mortgage meltdown and credit crisis. Suncoast Schools lost $76.7 million and GTE lost $27.5 million last year, reports filed with the NCUA said.
The losses did not play a role in the merger discussions, both executives said.
“If these were boom times, I think we would still be talking about this and making the same decision,” Dorety said.
Credit unions nationally reported a consolidated loss of $2 billion for the fourth quarter, the first quarterly loss ever for the industry, the NCUA said.
Suncoast, with $5.9 billion in assets and 471,441 members as of Dec. 31, is the seventh largest credit union in the United States. Headquartered in Tampa, it operates 50 full-service branches in 15 Florida counties.
GTE, with $1.9 billion in assets and 203,376 members as of Dec. 31, also is headquartered in Tampa and operates 38 branches in Florida, one in Louisiana and one in Maine, according to its Web site.
Wednesday, March 4, 2009
Friday, February 13, 2009
Tampa Bay Business Journal - Revision of the Rules
Tampa Bay is a hotbed for credit union activity. We have four credit unions over $1B and competition exists. Here's an article that appeared in the local Business Journal:
As credit union losses mount and their capital erodes, the CEO of GTE Federal Credit Union wants to revamp the institutions.
Statewide figures won’t be released until late February, but credit unions in Florida are expected to report a collective loss for the 2008 fourth quarter, similar to the loss reported in the third quarter ended Sept. 30 when 187 Florida credit unions lost a combined $32.3 million, according to the National Credit Union Administration. The red ink swelled as credit unions set aside more money for loans that could go bad.
In response, GTE chief executive Wendell “Bucky” Sebastian is proposing a new kind of financial services cooperative charter that he said would better suit some credit unions. The plan has attracted growing interest since Sebastian unveiled it in November, as regulators and lawmakers look for ways to bolster financial service institutions hit hard by the mortgage meltdown and credit crisis.
Still, Sebastian conceded, the plan hasn’t yet caught fire with legislators.
A new framework
The idea is to establish “federal financial service cooperatives” with no lending restrictions and with the ability to accept outside capital, which credit unions currently cannot do. In return, the cooperatives would agree to cap CEO compensation and would pay corporate-rate taxes on income in excess of operating expenses, dividends and reserves.
Credit unions’ tax-exempt status has been a sticking point for many bankers for years.
The key, Sebastian said, is the new cooperatives would remain not-for-profit and member-owned, aligning the interests of top executives with those of their customers.
“There would be no motivation to raise fees or sell a product the customer doesn’t need,” Sebastian said. “We would not do anything that disadvantages the customer because they are our member-owners.”
No credit union would be mandated to accept the new charter, but the proposal is an option that might make sense for some credit unions that are interested in doing more commercial lending or that want to raise capital, said Chip Filson, president of Callahan & Associates, a Washington-based credit union research and consulting firm.
“The measure of an institution’s viability isn’t a one-year profit or loss,” Filson said. “It would be hard to be operating in Florida or southern California and not be impacted by events there.”
Well capitalized
Losses eat into a credit union’s capital, which comes primarily from retained earnings. But Filson said Florida credit unions remained well-capitalized at the end of the third quarter with $4.4 billion in total capital, or nearly 11 percent of their $42.1 billion in total assets.
Credit unions are considered “well-capitalized” at a capital ratio of 7 percent or higher, Sebastian said.
GTE, with $1.9 billion in assets, had a fourth quarter loss of $5.6 million and lost $27.5 million for all of 2008. Only Suncoast Schools Federal Credit Union, with $5.9 billion in assets, posted bigger losses — $24.8 million for the quarter and $76.7 million for all of 2008 — in the fallout from a land fraud case in Lee County.
“While we lost money, we were well-reserved,” with almost 8 percent of total assets in reserve, Sebastian said. A slowdown in lending, driven in part by less loan demand, boosted the reserve ratio, he said.
Nationwide, credit unions are lending for real estate, credit cards, auto loans and student loans, Filson said. And, Filson said, the biggest credit unions in the Tampa Bay area, including Suncoast, GTE and Grow Financial FCU, are actively rewriting and modifying loan terms when members make a good faith effort to repay the loans.
mmmanning@bizjournals.com 813.342.2473
As credit union losses mount and their capital erodes, the CEO of GTE Federal Credit Union wants to revamp the institutions.
Statewide figures won’t be released until late February, but credit unions in Florida are expected to report a collective loss for the 2008 fourth quarter, similar to the loss reported in the third quarter ended Sept. 30 when 187 Florida credit unions lost a combined $32.3 million, according to the National Credit Union Administration. The red ink swelled as credit unions set aside more money for loans that could go bad.
In response, GTE chief executive Wendell “Bucky” Sebastian is proposing a new kind of financial services cooperative charter that he said would better suit some credit unions. The plan has attracted growing interest since Sebastian unveiled it in November, as regulators and lawmakers look for ways to bolster financial service institutions hit hard by the mortgage meltdown and credit crisis.
Still, Sebastian conceded, the plan hasn’t yet caught fire with legislators.
A new framework
The idea is to establish “federal financial service cooperatives” with no lending restrictions and with the ability to accept outside capital, which credit unions currently cannot do. In return, the cooperatives would agree to cap CEO compensation and would pay corporate-rate taxes on income in excess of operating expenses, dividends and reserves.
Credit unions’ tax-exempt status has been a sticking point for many bankers for years.
The key, Sebastian said, is the new cooperatives would remain not-for-profit and member-owned, aligning the interests of top executives with those of their customers.
“There would be no motivation to raise fees or sell a product the customer doesn’t need,” Sebastian said. “We would not do anything that disadvantages the customer because they are our member-owners.”
No credit union would be mandated to accept the new charter, but the proposal is an option that might make sense for some credit unions that are interested in doing more commercial lending or that want to raise capital, said Chip Filson, president of Callahan & Associates, a Washington-based credit union research and consulting firm.
“The measure of an institution’s viability isn’t a one-year profit or loss,” Filson said. “It would be hard to be operating in Florida or southern California and not be impacted by events there.”
Well capitalized
Losses eat into a credit union’s capital, which comes primarily from retained earnings. But Filson said Florida credit unions remained well-capitalized at the end of the third quarter with $4.4 billion in total capital, or nearly 11 percent of their $42.1 billion in total assets.
Credit unions are considered “well-capitalized” at a capital ratio of 7 percent or higher, Sebastian said.
GTE, with $1.9 billion in assets, had a fourth quarter loss of $5.6 million and lost $27.5 million for all of 2008. Only Suncoast Schools Federal Credit Union, with $5.9 billion in assets, posted bigger losses — $24.8 million for the quarter and $76.7 million for all of 2008 — in the fallout from a land fraud case in Lee County.
“While we lost money, we were well-reserved,” with almost 8 percent of total assets in reserve, Sebastian said. A slowdown in lending, driven in part by less loan demand, boosted the reserve ratio, he said.
Nationwide, credit unions are lending for real estate, credit cards, auto loans and student loans, Filson said. And, Filson said, the biggest credit unions in the Tampa Bay area, including Suncoast, GTE and Grow Financial FCU, are actively rewriting and modifying loan terms when members make a good faith effort to repay the loans.
mmmanning@bizjournals.com 813.342.2473
Sunday, February 8, 2009
Corporate Credit Union Stabilization Program
Following is the text from a letter written to the NCUA Board, addressed to the Chairman, about the Proposed Corporate Credit Union Stabilization Program. We must make every attempt to mitigate the severe negative impact this Program will have on Credit Unions.
Thank you for the opportunity to comment on the NCUA’s current ANPR on the Corporate Stabilization Program. I have discussed the proposal with a number of colleagues and listened intently on a conference call yesterday, conducted by the Credit Union National Association. With the uderstanding that there may be some minor legislative changes necessary, I’d like to suggest that the Agency consider the following points brought forth by a respected colleague:
Place US Central Credit Union into Federal Conservatorship, immediately, and do the following:
1. Charter a New US Central Federal Credit Union and appoint new officials (professionals and volunteers).
2. Authorize the Central Liquidity Facility to borrow money on their existing line of credit from the US Treasury in an amount needed to purchase all of the US Central Credit Union’s investments at book value. This assumes that the investments were AAA rated when purchased, are performing and will pay par at maturity.
3. Give the present US Central Credit Union one year in conservatorship to let its natural person credit union members find new vendors or other Corporates to provide those services presently available from US Central.
4. After one year liquidate the present US Central CU. Let all of the reserves, if any, remaining when US Central liquidates be transferred to the new US Central Federal Credit Union.
5. The New US Central Federal Credit Union holds their purchased securities (from US Central Credit Union) and allows them to mature and be redeemed. If the NCUSIF pays the New US Central Federal Credit Union’s operating expenses, its balance sheet will consist of cash, investment and notes payable to the CLF.
6. The New US Central Federal Credit Union simply ignores the AICPA’s various FASB rules. It will be a government owned and operated facility. As such, it does not need a Certified CPA Audit.
7. Once The New US Central Federal Credit Union has “cashed in” all of the investments at their maturity then determine a final loss, if any. Natural Person Credit Unions would then either pay the deficit, after enjoying the time value of money for years; or NCUA could charge a premium on an annual basis starting immediately; or charge the loss to the NCUSIF and bill additional premiums. We believe each of these options will be less costly than the current proposal.
Thank you for your time and consideration.
Comments?
Thank you for the opportunity to comment on the NCUA’s current ANPR on the Corporate Stabilization Program. I have discussed the proposal with a number of colleagues and listened intently on a conference call yesterday, conducted by the Credit Union National Association. With the uderstanding that there may be some minor legislative changes necessary, I’d like to suggest that the Agency consider the following points brought forth by a respected colleague:
Place US Central Credit Union into Federal Conservatorship, immediately, and do the following:
1. Charter a New US Central Federal Credit Union and appoint new officials (professionals and volunteers).
2. Authorize the Central Liquidity Facility to borrow money on their existing line of credit from the US Treasury in an amount needed to purchase all of the US Central Credit Union’s investments at book value. This assumes that the investments were AAA rated when purchased, are performing and will pay par at maturity.
3. Give the present US Central Credit Union one year in conservatorship to let its natural person credit union members find new vendors or other Corporates to provide those services presently available from US Central.
4. After one year liquidate the present US Central CU. Let all of the reserves, if any, remaining when US Central liquidates be transferred to the new US Central Federal Credit Union.
5. The New US Central Federal Credit Union holds their purchased securities (from US Central Credit Union) and allows them to mature and be redeemed. If the NCUSIF pays the New US Central Federal Credit Union’s operating expenses, its balance sheet will consist of cash, investment and notes payable to the CLF.
6. The New US Central Federal Credit Union simply ignores the AICPA’s various FASB rules. It will be a government owned and operated facility. As such, it does not need a Certified CPA Audit.
7. Once The New US Central Federal Credit Union has “cashed in” all of the investments at their maturity then determine a final loss, if any. Natural Person Credit Unions would then either pay the deficit, after enjoying the time value of money for years; or NCUA could charge a premium on an annual basis starting immediately; or charge the loss to the NCUSIF and bill additional premiums. We believe each of these options will be less costly than the current proposal.
Thank you for your time and consideration.
Comments?
Sunday, January 18, 2009
Super Regulator on the Way
A strategic focus requires that we look at outside forces that may impact our ability to Serve Members’ Changing Financial Needs. Today, one of our most vulnerable areas is the Political & Regulatory climate. Within the next few days we will see history made, with the swearing in of Barack Obama as the 44th President of the United States of America. It is exciting to see history made.
With the big change in the balance of Congressional Power, it is likely that more regulations are on the way. And, I am concerned that a consolidation of regulatory agencies is very likely. I expect to see at least one proposal in the New Year that will suggest something like Homeland Security for Financial Services – a Super Regulator.
At this point there seems to be a split in Congressional focus: “Mortgage Crisis” and “Auto Industry Crisis.” Our political leaders seem determined to blame someone and punish them, as with the S&L Debacle from the 1980s (De-regulation). US Taxpayer money is being directed into the capital accounts of Banks and loans have been extended to the “Big Three” auto manufacturers. Again, more regulation of the financial services industry is on the way.
Oil prices will not be resolved quickly, although world prices have declined by nearly 30%. My guess is that over the next ten years, Americans will move closer to work and drive smaller, more fuel efficient cars.
What’s next?
What are the Strategic Implications for credit unions? Dispite the lack of legislative activity, we must continue to build relationships with our Legislative Delegation at both the Federal and State level. This begins in the local races. With regard to the specific issues mentioned above, we should expect to see an emphasis on mass transit, including light rail. This will take a decade to deal with – it’s strategic. Our members will likely move away from SUVs and buy more fuel efficient (probably hybrid) cars. There should be less Gridlock in Washington. Let’s hope that’s a good thing.
Let me re-emphasize, from the perspective of the financial services industry, and the credit union industry in particular, it is not farfetched that a super-regulator is on the way. This will create a very different environment for our industry. I expect to hear more talk about a Homeland Security type approach to the regulation of financial services. That would likely lead to the end of the NCUA and change the credit union industry in negative ways.
You can see it is not an easy road ahead. But will be challenging to help credit unions continue to make a difference in the lives of Americans.
With the big change in the balance of Congressional Power, it is likely that more regulations are on the way. And, I am concerned that a consolidation of regulatory agencies is very likely. I expect to see at least one proposal in the New Year that will suggest something like Homeland Security for Financial Services – a Super Regulator.
At this point there seems to be a split in Congressional focus: “Mortgage Crisis” and “Auto Industry Crisis.” Our political leaders seem determined to blame someone and punish them, as with the S&L Debacle from the 1980s (De-regulation). US Taxpayer money is being directed into the capital accounts of Banks and loans have been extended to the “Big Three” auto manufacturers. Again, more regulation of the financial services industry is on the way.
Oil prices will not be resolved quickly, although world prices have declined by nearly 30%. My guess is that over the next ten years, Americans will move closer to work and drive smaller, more fuel efficient cars.
What’s next?
What are the Strategic Implications for credit unions? Dispite the lack of legislative activity, we must continue to build relationships with our Legislative Delegation at both the Federal and State level. This begins in the local races. With regard to the specific issues mentioned above, we should expect to see an emphasis on mass transit, including light rail. This will take a decade to deal with – it’s strategic. Our members will likely move away from SUVs and buy more fuel efficient (probably hybrid) cars. There should be less Gridlock in Washington. Let’s hope that’s a good thing.
Let me re-emphasize, from the perspective of the financial services industry, and the credit union industry in particular, it is not farfetched that a super-regulator is on the way. This will create a very different environment for our industry. I expect to hear more talk about a Homeland Security type approach to the regulation of financial services. That would likely lead to the end of the NCUA and change the credit union industry in negative ways.
You can see it is not an easy road ahead. But will be challenging to help credit unions continue to make a difference in the lives of Americans.
Thursday, December 25, 2008
Merry Christmas 2008
What an exciting year we’ve had. And such excitement brings with it a good share of challenge. Hank and Dale started the year with a trip to the Big Island of Hawaii. Neither had ever been to the Big Island. But, over the years Dale has taken all three of the kids to Hawaii. The highlight of the trip was a day trip to Pearl Harbor to the Arizona Memorial.
On March 14, Dylan Joseph Szmyglewski arrived, 7 pounds and 20 inches. Sara is attending Hillsborough Community College part time. She is such a good Mommy. Great Grandma Schumacher now has six Great Grand Children – all boys.
Patti and Dale headed to the Pacific Northwest in May, spending time with Dale’s parents (Harold & Marilyn), as well as sister, Jill, nephew Jason and his family (Alison & Kyron). What a beautiful time of the year to be there.
The end of June brought the entire family (Dominique, Sara and Hank) together on the beach in Sarasota FL. The picture at the right (and below) was taken at that time. We are very proud of our kids and our three grandsons (Connor, Carson & Dylan). It appears that Patti and Dominique could be beach combers without too much persuasion.
The time together was bitter-sweet. It was great to have everyone together. But, at the end of the time, Hank was off to basic training in the US Navy at the Great Lakes Naval Training Center – just north of Chicago. He says he’s following in Dad’s footsteps. We’re very proud of him, as we were of Sara when she entered the US Air Force a few years back. Hank finished basic training and the whole family invaded Northern Illinois. We had a great weekend and Hank was off to San Antonio TX for military police training. Patti and Dale journeyed there for his 21st Birthday, on October 3 – a birth date he shares with his namesake.
Another big event that occurred this summer - Dale turned 60. He didn’t want a surprise party, so he planned a party of his own. We had a whole house full of people participate in our celebratory open house. Dale realized a dream. Because of the generosity of his friends, he has been able to establish the Dale Schumacher Scholarship Fund at the University of South Florida, focusing on the children of employees of Tampa Bay Federal Credit Union. He is very pleased and proud.
Then along came the end of October. The entire family, except Hank, headed to Central Illinois for a special Family Reunion. Faye opened her house to us. Dale’s Mom and Dad traveled from the Oregon Coast with Jill. What a weekend. We were able to see Aunts, Uncles and Cousins we hadn’t seen in ten years. Hope we don’t wait so long to do that again.
Right after Thanksgiving, Patti and Dale headed to the Western Gulf of Mexico and Caribbean Sea on a cruise ship. The weather wasn’t all that good, but the cruise was very relaxing. We visited Belize, Guatemala and Coasta Maya Mexico. What a great week.
Dale and Patti returned home to a visit from one of Dale’s Viet Nam comrades - Ken Smith (pictured above). They served on River Patrol Boat 125, River Division 521 in northern South Viet Nam (1969-1970). They had not seen one another in nearly 39 years. Ken has kept the lines of communications open and Dale is grateful for that. There is still a Lot of catch up to do.
We’ll all be together again in Southern Illinois this Christmas with Dominique, Grandma Ann, and our three precious grandsons, Connor, who’ll be 6 in January, Carson will be 4 in June and Dylan is 9 months old. We really look forward to this special time with them every year! We can’t wait.
We thank God for all of our blessings, including the health and safety of all of our family and friends and we pray that God will extend these blessings to all of our troops serving here and abroad at this holy time of year.
Wishing you all the joys of celebrating the holiday season with your family and friends…with LOVE,
Dale
On March 14, Dylan Joseph Szmyglewski arrived, 7 pounds and 20 inches. Sara is attending Hillsborough Community College part time. She is such a good Mommy. Great Grandma Schumacher now has six Great Grand Children – all boys.
Patti and Dale headed to the Pacific Northwest in May, spending time with Dale’s parents (Harold & Marilyn), as well as sister, Jill, nephew Jason and his family (Alison & Kyron). What a beautiful time of the year to be there.
The end of June brought the entire family (Dominique, Sara and Hank) together on the beach in Sarasota FL. The picture at the right (and below) was taken at that time. We are very proud of our kids and our three grandsons (Connor, Carson & Dylan). It appears that Patti and Dominique could be beach combers without too much persuasion.
The time together was bitter-sweet. It was great to have everyone together. But, at the end of the time, Hank was off to basic training in the US Navy at the Great Lakes Naval Training Center – just north of Chicago. He says he’s following in Dad’s footsteps. We’re very proud of him, as we were of Sara when she entered the US Air Force a few years back. Hank finished basic training and the whole family invaded Northern Illinois. We had a great weekend and Hank was off to San Antonio TX for military police training. Patti and Dale journeyed there for his 21st Birthday, on October 3 – a birth date he shares with his namesake.
Another big event that occurred this summer - Dale turned 60. He didn’t want a surprise party, so he planned a party of his own. We had a whole house full of people participate in our celebratory open house. Dale realized a dream. Because of the generosity of his friends, he has been able to establish the Dale Schumacher Scholarship Fund at the University of South Florida, focusing on the children of employees of Tampa Bay Federal Credit Union. He is very pleased and proud.
Then along came the end of October. The entire family, except Hank, headed to Central Illinois for a special Family Reunion. Faye opened her house to us. Dale’s Mom and Dad traveled from the Oregon Coast with Jill. What a weekend. We were able to see Aunts, Uncles and Cousins we hadn’t seen in ten years. Hope we don’t wait so long to do that again.
Right after Thanksgiving, Patti and Dale headed to the Western Gulf of Mexico and Caribbean Sea on a cruise ship. The weather wasn’t all that good, but the cruise was very relaxing. We visited Belize, Guatemala and Coasta Maya Mexico. What a great week.
Dale and Patti returned home to a visit from one of Dale’s Viet Nam comrades - Ken Smith (pictured above). They served on River Patrol Boat 125, River Division 521 in northern South Viet Nam (1969-1970). They had not seen one another in nearly 39 years. Ken has kept the lines of communications open and Dale is grateful for that. There is still a Lot of catch up to do.
We’ll all be together again in Southern Illinois this Christmas with Dominique, Grandma Ann, and our three precious grandsons, Connor, who’ll be 6 in January, Carson will be 4 in June and Dylan is 9 months old. We really look forward to this special time with them every year! We can’t wait.
We thank God for all of our blessings, including the health and safety of all of our family and friends and we pray that God will extend these blessings to all of our troops serving here and abroad at this holy time of year.
Wishing you all the joys of celebrating the holiday season with your family and friends…with LOVE,
Dale
Tuesday, November 18, 2008
Newpaper Postings for Discussion
2008 has been an interesting year, to say the least. And, it looks like 2009 will be more of the same. “These are the times that try men’s (and women’s) souls.” Was that Thomas Paine?
Check out my latest postings. Two newspaper items: one an editorial and the other a news article. Both involve Bucky Sebastian and both were published here in Tampa. I believe there are national implications. What do you think?
Check out my latest postings. Two newspaper items: one an editorial and the other a news article. Both involve Bucky Sebastian and both were published here in Tampa. I believe there are national implications. What do you think?
Monday, November 17, 2008
Principled Banker Has Cause To Be Burned Up About Bailout
The Tampa Tribune
Published: September 24, 2008
The proposed federal rescue of the nation's financial system has investors breathing easier, but one Tampa financial executive is steaming about the unfairness of it all. He's right. Every honest participant in the system should be outraged.
Longtime president of GTE Federal Credit Union, Wendell "Bucky" Sebastian, makes local mortgages and looks after the investments of savers. Most of his mortgages are sound and all the money on deposit is safe. But the normally jovial Sebastian isn't happy.
"We were the ones not taking stupid risks," he explains of his and similar credit unions and banks. "The bad guys made billions of dollars. I used to believe virtue would be its own reward. Now being virtuous is beginning to look like you're stupid. As a human being, I'm incensed."
He agrees that federal intervention is essential to get the bad debts out of the banking and investment systems, but he's rightly angry about a few details that have largely escaped public attention. One is the interest rate paid on certificates of deposit, which are federally insured. Banks are advertising rates of 4 percent, even 5 percent, while Sebastian's credit union is offering around 3 percent.
"These banks are raising money at these rates because they can't borrow anywhere else. A conservatively run institution like ours, people ask, how come you're only paying 3.05?" Customers go for the highest rates because all institutions are insured equally. It's a system
rewarding irresponsible behavior.
"Why should anyone do business with us? It's a perversion of common sense. We could issue a 12 percent CD, and it would be insured, until we went out of business. We bankers are not required to be responsible. We, the American public, are insuring risky business."
And now it goes far beyond banks to include even money markets.
"The worst thing about the bailout, we gave de facto insurance to every financial institution in this country, in effect, all the money on Wall Street. You just took real insurance and made it worthless. Insuring every deposit in the country is insane."
How the nation got in this jam is no mystery. As a reaction to the Great Depression, the nation had set up a regulated mortgage system to encourage home ownership.
"The whole thing was working beautifully," until standards slipped and safeguards dropped, allowing mortgage buyers Freddie Mac and Fannie Mae to get "fat and loose," as Sebastian puts it. "Over the last 10 years, partially from urging of Congress and from the executive branch, and from non-regulated entities, slowly they peeled all the rules away until it was almost impossible to turn down a mortgage.
"The incentive is more, better, faster. It gets you on a treadmill that goes faster and higher every minute. They made it go a little faster every quarter, so sooner or later you're going to have a heart attack and die. It's irrational."
"Just because there hasn't been a fire in a week, you don't close the firehouse. It's not surprising we had a conflagration."
Now, even the best-run banks and credit unions are feeling the pinch. "Secondhand smoke can kill you," he says, and explains: "If all your neighbors got mortgages and weren't asked to verify employment, and if they had inflated appraisals, suddenly there could be 10 homes in your neighborhood in foreclosure. You're going to die from secondhand smoke.
"I have signed off on $15 to $20 million in restructured mortgages. We want them mowing the grass, keeping their kids in school. We're taking in half as much each month from them. That's nobody's fault in our loop. It's a travesty.
"The other people all outside the regulated framework got away with it. We didn't do any of the things they did. We made good loans to good members under good conditions. But conditions have changed.
"From developer right down to the finance companies, I don't think anyone was acting in the best interest of the homeowner. They have all gotten their money, and they're gone. "The average citizen has done everything by the book. They're being asked to bail out the
highest-flying risk takers in my memory."
The vast majority of us, like Sebastian, have done nothing wrong yet are forced to help cover bad loans . We have little choice but to pay, but we don't have to like it.
Published: September 24, 2008
The proposed federal rescue of the nation's financial system has investors breathing easier, but one Tampa financial executive is steaming about the unfairness of it all. He's right. Every honest participant in the system should be outraged.
Longtime president of GTE Federal Credit Union, Wendell "Bucky" Sebastian, makes local mortgages and looks after the investments of savers. Most of his mortgages are sound and all the money on deposit is safe. But the normally jovial Sebastian isn't happy.
"We were the ones not taking stupid risks," he explains of his and similar credit unions and banks. "The bad guys made billions of dollars. I used to believe virtue would be its own reward. Now being virtuous is beginning to look like you're stupid. As a human being, I'm incensed."
He agrees that federal intervention is essential to get the bad debts out of the banking and investment systems, but he's rightly angry about a few details that have largely escaped public attention. One is the interest rate paid on certificates of deposit, which are federally insured. Banks are advertising rates of 4 percent, even 5 percent, while Sebastian's credit union is offering around 3 percent.
"These banks are raising money at these rates because they can't borrow anywhere else. A conservatively run institution like ours, people ask, how come you're only paying 3.05?" Customers go for the highest rates because all institutions are insured equally. It's a system
rewarding irresponsible behavior.
"Why should anyone do business with us? It's a perversion of common sense. We could issue a 12 percent CD, and it would be insured, until we went out of business. We bankers are not required to be responsible. We, the American public, are insuring risky business."
And now it goes far beyond banks to include even money markets.
"The worst thing about the bailout, we gave de facto insurance to every financial institution in this country, in effect, all the money on Wall Street. You just took real insurance and made it worthless. Insuring every deposit in the country is insane."
How the nation got in this jam is no mystery. As a reaction to the Great Depression, the nation had set up a regulated mortgage system to encourage home ownership.
"The whole thing was working beautifully," until standards slipped and safeguards dropped, allowing mortgage buyers Freddie Mac and Fannie Mae to get "fat and loose," as Sebastian puts it. "Over the last 10 years, partially from urging of Congress and from the executive branch, and from non-regulated entities, slowly they peeled all the rules away until it was almost impossible to turn down a mortgage.
"The incentive is more, better, faster. It gets you on a treadmill that goes faster and higher every minute. They made it go a little faster every quarter, so sooner or later you're going to have a heart attack and die. It's irrational."
"Just because there hasn't been a fire in a week, you don't close the firehouse. It's not surprising we had a conflagration."
Now, even the best-run banks and credit unions are feeling the pinch. "Secondhand smoke can kill you," he says, and explains: "If all your neighbors got mortgages and weren't asked to verify employment, and if they had inflated appraisals, suddenly there could be 10 homes in your neighborhood in foreclosure. You're going to die from secondhand smoke.
"I have signed off on $15 to $20 million in restructured mortgages. We want them mowing the grass, keeping their kids in school. We're taking in half as much each month from them. That's nobody's fault in our loop. It's a travesty.
"The other people all outside the regulated framework got away with it. We didn't do any of the things they did. We made good loans to good members under good conditions. But conditions have changed.
"From developer right down to the finance companies, I don't think anyone was acting in the best interest of the homeowner. They have all gotten their money, and they're gone. "The average citizen has done everything by the book. They're being asked to bail out the
highest-flying risk takers in my memory."
The vast majority of us, like Sebastian, have done nothing wrong yet are forced to help cover bad loans . We have little choice but to pay, but we don't have to like it.
Subscribe to:
Comments (Atom)
