Banks are Nuts

By Tony Evans

I’m talking banks here, folks. I hate to pick on the Golden State of California, but when Governor Arnold Schwarzenegger thinks about sucker-punching the lottery to try and save the state from the same

depreciating home values

fate that befell the city of Vallejo in Northern Cal think bankruptcy. I kinda shook my head. But the more I investigated and read about what’s in the works just north of Los Angeles I had to run to my refrigerator for a cold one!

In the Santa Clarita Valley, a hop, skip and jump from the “entering Los Angeles County” sign on Interstate 5, the nation’s biggest public pension fund, which acquired 15,000 acres of undeveloped land last year is now looking to stop their default on the land before it turns into a full-blown bankruptcy. Guess where they’re looking for a huge $1.24 billion dollar life jacket? Let me break out my Tarot Cards. Ah…there it is…I knew it….a bank. To be exact Barclays Capital Inc., an international bank headquartered in the UK.

Is it me or is it that some banks or lenders can’t spell the word: SUCKER? The state of California is in the red, and some banking idiots think 15,000 acres of undeveloped land out in the boondocks, 30 miles north of the Los Angeles city limits sign is a good deal. Talk about poor judgment! Well, hold it. Maybe Barclays big shots read that quote from an east coast banker who recently showed his ignorance by saying: “You know the steeper housing prices drop, the bottom is hit. Then we can start back on the road to the recovery process making loans again.” What?

Maybe this guy was a friend of Charles Keating of Lincoln Savings fame who was personally responsible for hijacking $285- million, and ruining the lives of thousands of elderly citizens a couple of decades ago.

Optimists around the USA tout that a near free fall in home prices is a good thing. At least it will shorten the economic agony. Then a banker in West Chester, PA, says the housing correction will be with us until this time next year.

The sad part of all this is the “trickle down” affects that manifest. A family owned wholesale nursery business in hard-hit Colorado says they’re off about 30% the last 24 months. Some Home Depot stores have closed and one of the biggest furniture chains – Levitz – have said adios or suffered big losses. Everybody has been touched in one way or the other. It was a cinch getting a bank loan years ago when the euphoric atmosphere was higher than the cumulus clouds in the sky.

Picture this scenario:

Bank President: “Ladies and gentlemen – we’ve got trouble. Deposits are down and all those bad loans we made and couldn’t sell on the secondary market have come home to roost, and we are paying the price. We have to get back on track to create new and different ways to produce more income.”

Loan Officer Bob: “But boss, weren’t the loans we made and funded to every Tom, Dick, Harry and Alice our own fault?”

Bank President: “Shut up Bob, and keep those comments to yourself or you’ll be back working at the Saturday morning drive-thru window. My new plan is to raise credit card interest rates on all borrowers, stick it to them with late fees when we can, and let them know we didn’t receive their payment on time, and charge even more. You know how bad the post office deliveries are, so that might work to our advantage.”

A Master Sgt. with 21 years in the Marine Corps applied for a home loan in 2006 with a major Virginia bank, which lends primarily to service men and women. He already owned two “cheapie” investment homes. He was badly over-extended with two Cadillac and SUV car payments, three mortgage payments, two personal loans, a FICO of 560 and other than the Marine income he had at the time, no job when he left the service. Even with the low credit score and heavy burden of debt, the Virginia bank gave loan approval for $110,000 in 30 minutes using their online application service.

Now, dial forward to 2008. One of his rental homes has a $7,500 judgment lien on it, and the other two are vacant. He has no job and only a pension income of $1,400 per month of which $700 goes to an ex-wife. Now the Virginia bank, which thought he was a wonderful borrower, has issued a foreclosure notice, won’t discuss the situation with him, and come October, 2008 he’ll probably be living in a tent. Good thing he’s single.

Did bankers back then really know what the hell was going on or did they just go with the flow with blinkers on thinking what a wonderful life and pocket the fees?

To read Tony’s other columns click here.

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