OT- Conversation with my banker

I do some real estate investing when good deals come along, and have some pretty favorable lines of credit at my bank ("semi-local" bank- about 30 branches in western Washington and Oregon). I'll be getting some cash in soon, and was going to pay them down to $1, but it occurred to me, what if I do that, then the bank "freezes" them? Wouldn't be the end of the world, but it would dry up my "workin' capital". So I inquired about that of my bank manager. She just laughed and said "I was feeling like the unpopular girl at school who never gets in on the playground gossip- no messages of doom from above- am I the only one out of the loop? So I called my district guy to see what's up, and he said 'No problems here- we never did any liar loans, and never will, and our portfolio is as strong as it ever was- and, oh, by the way, we've got money to lend, so be talking it up to your good customers to get out there and do something, and we'll finance it if it makes sense. Lots of opportunities out there.'"

Pretty refreshing, in light of all the doom and gloom, and pretty much in line with the Wall Street Journal piece written by the father of someone on this board, referred to in a post yesterday. And it makes you all the "madder" that we who are prudent (of which there are many on this board) and deal with prudent bankers now have to pay for the avarice and greed of the others who were just in it for the quick buck. A pox on all their houses.

Finally, as today's "idea of the day that is supposed to help, but instead will make the stock market tank again", the feds are talking about taking an "ownership interest" in banks. I'm sure the crux of that is to then force the prudent, profitable banks to help prop up the bandits. I've never seen the feds get into anything without screwing it up, and this will undoubtedly be no exception.

I recently got more or less the same "story' from my local home-town banker.

Let's hope it's TRUE, and stays that way!

Back in the Great Depression, my father says a bank in a small town about 12 miles North of my town here failed & people lost their money. However the banker here in my town liked to mention now & then that his bank did not fail in those difficult years.
My tractor runs well when I get a chance to run it. Got to get a cup/ coffee. Mark SW Wis.

No - te well-run banks won't need or get any of that federal money.

What that plan will do is put taxpayer money into banks run by fools. It's similar to taking working people's money and giving it to people that won't work, just on a bigger scale. The people that won't/can't run a bank properly will be wearing nice suits while they piddle away the taxpayer money.

Seems the banking part that got into trouble was the ARM loans on inflated housing, which went by a formula, and were all lumped together & resold into on of the few big banking institutions. The more local banks were doing business more or less as usual, and really wouldn't have too many problems these days. It's the big ones that took on too much risk to try to keep up with the other big ones, who were trying to keep up.....

It's actaully a pretty small % of 'problems' out of the whole bank loan industry, but it has put the squeeze on several of those big boys. So they are drying up credit to try to keep their head above water, and this trickles down to other institutions - and you & me.

But again, it mostly affects the big boys, as they were into offering 20-30 year loans, and instead of financing them with long term CD's or etc, they were financing them with 30 day notes to each other. Well, now, each other needs cash, so the 30 day notes went in the toilet, and the big boys can't find any way to finance all those long term loans that really don't look too good right now.

So, they are using up their cash reserves trying to figure out how to deal with all these poor value ARM loans that don't have anything to back them up.

The problem is by burning up their cash, they can't make any more loans - even good ones - because they don't have the cash left. So they are in a pickle - a few more bad loans than expected; no one with short term money to lend them; and no long term investments to pull in steady income.

Oops.

They set themselves up with very short term lucritive income, and now got no income to pull through a period of riskier loans outstanding.

The local banks will be affected, but are not in the middle of this losing game.

As you say, most of us don't trust the big banks or the govt & assume we will be screwed over by both, so we aren't buying as much.

Which, hurts the retailers and the manufaturers.

Which can't meet their short-term obligations then, so have to stretch out their payments or not meet payments or something.

Which, again tightens up available cash in the banking industry, and makes all the big boys short on funds.


Put another way, the real big banks leveraged themselves out to the bitter end, making riskier & riskier loans that paid off today but had a lot of clouds with them, and using too much short-term borrowing that looked good 'this week' but no balance with long-term incomes to weather any storms.

Storm hit, big banks have no cash. Poof.


Stock market works on confidence. Everybody buys when things look good, everyone sells when things look bad. With the electronic and off-hours buying & selling, it happens a lot faster now. You & I can be trading by computer. So, we lose confidence in the ecconomy, & everyone sells. We know it's going down tomorrow, so no point in buying - just wait, it will get lower....

So, the stock market goes in the toilet. No suprise. Business doesn't have to be bad - it's just those trading stocks are confident prices will go down - so they do.

Nothing the govt can do to change that - throw money at banks & businesses - who cares, the stocks will be lower tomorrow, so no point buying any today..... And so it comes true, stocks continue down. Doesn't matter if a business is doing well, or the ecconomy is good or bad - it's all in our head, we won't buy a stock until it comes down. So it's gotta fall.

--->Paul

My son went in to the local one loction bank last Friday to see about financing a house. He didn't have enough of a down payment,but the banker said he could loan him the down payment too if he wanted it.
Thing that gets me is,they lowered the prime rate to get banks loaning more money,when the thing that started this whole mess was banks loaning money that they can't get back? What am I missing?

Wife is a 42-year banker; COO and EVP of a small, locally owned bank; 4 branches, 70-plus employees. All this gloom and doom the media is pushing has NOTHING to do with what us common folk refer to as 'banks'.

As in $440,000 parties?

You don't know for sure Lehmann Bros was declaring that everything was fine up until the day they filed for bankruptcy.What do you expect them to say really no matter what the financial condition tell you they're ready to go broke?

That's it. I just want my fair share.

I stopped and talked to my ag loan officer about the prospects that it will take more cash to farm next year and asked if I would be able to up my credit line by as much as 30% to be sure I could get the financing I needed. He told me that they are interested in making loans to people that have a track record and can produce good records and budgets.

He told me that "we have money to lend" rest assured that we are going to be here for you. That was reassuring given the input costs that I have been hearing.

There's lots of banks in that situation... everything is fine and actually going quite well. However, there are some banks in trouble.
A fellow I know, a big roller, who spends his summers here just bought a bank... I don't know all the details on it obviously, but the crux of it was that he went in looking for HIS money. They didn't have his money. He now has controling interest in that bank... and so it goes.
That probably wasn't the first. It won't be the last I'm sure, but some of them need weeded out.

Rod

went in last friday to ask banker about a loan to by a mobile home and set it up.$60,000.00
went in to bank last wednesday,left with cashiers check to home dealer for 29500.00 and 30500.00 in my checking account

The very essence of a bank is to make money through loans, as long as depositors have money in savings accounts and CDs then the bank should be solid. The CD gets 3% return and the bank loans out the money at 7% return to them,,,should be simple math even if the bank cant get money from the fed reserve.

Maybe but anyone who says they KNOW what it will be like next week not to mention next year is kidding themselves or lying.

The Chicago Tribune is plastered every day with adds for CD'S pay 4% on 12 month or less terms. Banks appears to me trying to inhale as much lock up dollars as possible. Last June the same adds were in the low 3% area for longer terms.

Postscript to my initial post above.

Had lunch with one of my sons today. He's got a secure job as a civil engineer with the state highway department, his wife is a "stay at home mom", with son 2 years old and expecting daughter next month. He has "80-12-8" financing- 80% first mortgage, 12% second mortgage, and he put 8% down when he bought the place 2 years ago. I haven't specifically talked to him about the "mortgage crisis", so just for fun, I quizzed him a bit:

"So, what's the status of your loans, as to value of your place?"

"Well, judging by the similar house down the road that just sold, I'm upside down on my first mortgage, so my second mortgage isn't worth the paper its printed on."

"Soooo- what do you plan to do?"

"Whatya mean, 'What do we plan to do?' We're just gonna keep making the payments like we always have."

Still testing, I noted, "You know, you could just walk away."

"How stupid would that be? Then we go live in a shelter? Its our home. If we walk away from this deal, how long before we can buy another- 10, 15 years? No thanks. Value will come back, probably, but even if it doesn't, its a lot more comfortable than a tent."

Not holding son up as a paragon of virtue- but he and millions of others doing the same thing show that "middle america values" are still alive and well.

It should be noted that he did not offer to pick up the lunch check. . .

God bless 'im. And ain't no reason he should pick up the check, he's yer son. However, if he should insist, let 'im.

Yeah, ownership interest. It is good poltical language. It translates to government controlled banks. They have enough control of everything as it is. I'd like to have less government involvement myself...

If you want to check the current health of a bank go to Bankrate.com, click on "Safe and Sound" and get the Financial summary of the bank as well as the CAEL rating. Lot"s of surprizes. Most banks are listed as long as they are a member of FDIC (some arn"t). bob f.