Bank of Clark County post-mortem

The Columbian reports on the findings of an audit concerning the failure of Bank of Clark County. The whole article is worth a quick read if you follow the financial meltdown, because the FDIC during the Bush administration appears to deserve some of the blame. But so do the “best and the brightest” of Clark County’s bidness guys ‘n gals, as they got caught in a death spiral of declining property values.

The report lays the bulk of the blame on bank management, which in several instances ignored the FDIC’s warnings. In its 2008 examination, FDIC examiners discovered the bank had failed to provide current appraised values on at least 11 of its loans, causing regulators to underestimate the bank’s need for backup funds.

“They were hiding appraisals — that’s pretty damning stuff,” said Scott Jarvis, director of the Washington Department of Financial Institutions, on Thursday.

One thing that still gripes me about this case is how certain bank customers were tipped off about troubles at the bank, and others were not. What’s troubling is that it appears, from best I can tell, no laws were broken.

It may be legal, but that doesn’t make it right. The local bidness guys ‘n gals ran this bank into the ground in their effort to secure huge profits from excessive development that was not justified by population growth nor demand. When the bubble burst they were screwed, as were customers who didn’t get the word to bail.

You’d think someone would do something, in addition to an audit. At the very least releasing insider information to some customers and not others should be illegal.

Comments

  1. 1

    Roger Rabbit spews:

    “It may be legal, but that doesn’t make it right.”

    Just because something isn’t a violation of criminal statutes or banking regulations doesn’t necessarily mean it isn’t actionable.

    This kind of favoritism can easily give rise to civil claims for breach of fiduciary duty or even fraud. There might even be a basis to go after the bank managers personally (i.e., reach their personal assets), who may be more solvent than the bank at this point. It might even be possible to sue the big customers who benefitted from the favoritism — it would be hard for them to credibly argue that they weren’t involved in collusion with the bankers at the expense of other customers.

  2. 2

    Roger Rabbit spews:

    I’m just saying, the defrauded customers shouldn’t give up just yet, as good trial lawyers often can make much of what seems like nothing to the untrained eye.

  3. 3

    Roger Rabbit spews:

    This bank’s meltdown, and the meltdown of asset values generally, should serve as a lasting reminder to investors of all stripes that only cash is cash, and assets are subject to value fluctuations and illiquidity.

    In other words, assets are not cash, and it’s a big mistake to treat assets’ presumed market values as cash in hand.

  4. 4

    ArtFart spews:

    @1 This says one hell of a lot about why the right keeps screaming for “tort reform”.

  5. 5

    ArtFart spews:

    People might have been more prudent in recent years about where they put their money, but another effect of the Fed’s keeping interest rates so low, aside from essentially handing out free money to the mega-banks, has been to force everyone into the securities markets. Aside from not being particularly glamorous, just plain old savings accounts (and even bank-issued CD’s) haven’t come anywhere near keeping up with the actual rate of inflation.

  6. 6

    ArtFart spews:

    @3 Actually, not even cash is cash, any more! If it’s just left to sit, it shrinks. Aside from that, there’s plenty of playing in the international money market, with various entities betting against which nations’ currencies are going to shrink the fastest.

  7. 7

    Roger Rabbit spews:

    @4 It also says a lot about why “tort reform” is bogus, because often a civil remedy is the only remedy there is for people who have been cheated, swindled, or otherwise wronged. The criminal statutes were never intended to be the sole avenue of redress for people who are harmed by the wrongful actions of others.

  8. 8

    Roger Rabbit spews:

    @5 Low interest rates and investment returns are very harmful to senior citizens who depend on interest and dividends earnings for their daily expenses. Couple that with the wholesale confiscation/destruction of pensions and what we’re seeing is a massive financial assault against old people.

    As for me, I prefer to own equity rather than be owed money. I own no corporate or government bonds at all. I do, however, own real estate and stocks. For example, the hundreds of shares of Harley-Davidson stock that I bought in mid-June are already up about 40% — that sure beats the 1/2 of 1% a year that banks want to pay you for your savings, which they then lend out to credit card customers at 18% to 32% a year. (And, if bankers can’t make a profit off a spread like that, they should get into another line of work.)

  9. 9

    Politically Incorrect spews:

    The downside to cash is cash is subject to the erosion of inflation. Just a little inflation over a long period can really erode the purchasing power of cash. 2% over 30 years can make a buck worth about 55 cents in term of purchasing power.

  10. 10

    ArtFart spews:

    @8 Hmmm…seems lately at least one Harley dealer’s been borrowing a sales-promotion tactic from the bank featured in the beginning of Bowling for Columbine. Buy a new hog, get a free gun.

  11. 11

    mark spews:

    8 Maybe you could cut off your ponytail and sell it on ebay for some extra cash. “Legend in his own mind” section.