Keeping Tally

FDIC Exposer spoke with two bankers yesterday, and both declined to comment - they explicity said they feared retaliation by the FDIC.  That was just one day.  Of all the community banks out there, FDIC Exposer expects many more will have the same fear.  However, we are certain that enough fall into the "nothing left to lose" camp to make an air-tight case against the FDIC.  Once this ball gets rolling, it will multiply exponentially.

Current tally:
FDIC:  2
FDIC Exposer:  9

We can win this one...

Nothing Left to Lose

"Our communities and our country cannot reach their full potential without the presence of a local bank – a bank that understands the financial and credit needs of its citizens, farmers, businesses, and government."  -Matt Williams, Vice Chairman of the American Bankers Association and Chairman and President of Gothenburg State Bank

Several prominent individuals have spoken out against what the government is doing to community banks, but their efforts go unacknowledged.  As one banker commented, it's like a man alone on the beach shouting and pounding the sand, and no one pays attention.  When a group as important as the American Bankers Association is ignored, something is wrong.

These efforts are drowned out not because the audience is unreceptive.  Government, media, and public attention has been focused on Wall Street banks.  More importantly, however, is that many bankers are afraid to speak up - like the Mafia, the FDIC threatens them into silence - "Let us close your bank in a way that makes us look good, and we won't come after you for personal liability."  (Several bankers reported to FDIC Exposer that the FDIC told them this statement or a variation thereof.)

FDIC Exposer has talked to many of these threatened bankers, and they fall into two camps.  One group submits for the sake of their bank, their customers, and their families.  They are afraid to even discuss the matter for fear of retaliation.  The second group consists of those who have nothing left to lose, and they are the ones who are determined to make this issue as well-known as any Wall Street has to offer.

For the full text of Matt Williams' Congressional testimony, go here.

"Your Bank Has Failed"

CBS 60 Minutes aired this on May 31, 2009, from the FDIC point of view:  a team of agents make a coordinated move to shut down Heritage Community Bank in Illinois.

On the surface, this feels like a happy ending - the FDIC swooped in to save the customers, and they found a new owner to save the branch employees.  Hooray, score one for the little guy!

Keep in mind, however, that not once do we get a glimpse of what led up to the closure of Heritage Community Bank, nor do they speak to those with the bank (or give the disclaimer "the bank refused to comment").

Pay close attention to two key moments in this video:  at 7:45, FDIC Chairman Sheila Bair says, "We don't go broke. We're the government, we are backed by the full faith and credit of the United States government."  This was meant as an assurance to depositors, but think of the implications - who can fight against someone with unlimited funds and unlimited power?

Second, at 9:44, the FDIC holds a secret auction "a few days before" to sell Heritage.  Who exactly gets invited to a secret auction?  MB Financial was one, and they ultimately won Heritage.

Ready for the kicker?  At 10:26, the reporter announces "it was a sweet deal for [MB CEO Mitchell] Feiger."  (As an aside, the transcript on CBS' website omits the word "sweet.")  Continue watching and you will discover that "the FDIC paid MB Financial about $3.5 million dollars. MB got all the deposits, customers and loans. If some of those loans go bad, the FDIC will pick up at least 80 percent of the losses."

A common misconception is that the FDIC is taxpayer funded.  Not so - every bank insured by the FDIC pays a premium for that insurance, much as you pay regular premiums for health, auto, and home owner's insurance.  The FDIC puts these premiums into a reserve fund which is tapped to pay depositors.

At 12:45, the video mentions that "because Heritage Community Bank was bought by MB Financial, the FDIC didn't have to pay depositors."  You may have had different experiences, but FDIC Exposer has never had its home or auto insurer bring in a third party to take over my house and car to avoid paying for the losses that I had paid premiums for.

At this point, the FDIC is nothing but a broker who not only finds a buyer for the bank but pays that buyer for their trouble - to the tune of $3.5 million, plus guarantees against future losses in Heritage's case.

$3.5 million on the books can mean the difference between survival and failure for a community bank.  If the FDIC instead had loaned that money to the bank, the bank could get back on its feet, the FDIC would get its money back (plus interest), and the community would remain intact.  What is going on here?

The 800 Pound Gorilla

"800 Pound Gorilla:  One that is dominating or uncontrollable because of great size or power." -Merriam Webster Dictionary

Community businesses are the backbone of America, but they don't have the clout of corporations deemed "too big to fail."  The end result is that dollar for dollar, the government is causing irreparable damage to the economy and small-town America by targeting the little guys.

To community banks, the FDIC is the 800 pound gorilla - their words, not ours.  They were originally founded to protect depositors and banks after the bank runs in the Great Depression.  The Savings & Loan crisis in the 1980s was their first big test, and they failed.

One of our sources* wrote, "It is often said that generals are always fighting the last war.  The same could be said of the regulators in the current Great Recession."  Where the FDIC failed in the S&L crisis, they are taking out on community banks today.  In addition, they are covering up their recklessness during the housing boom by blaming us.

We are left fighting not just the bureaucratic machine, but an organism drunk with power that holds in their hands the careers and life savings of hard-working, dedicated people.  They are destroying our communities and selling us out to corporations who only care about the bottom line.

By telling the stories of community banks, we aim to expose the FDIC, their dirty tactics, and the far-reaching repercussions of their actions.


*  This particular source has stated this publicly.  However, FDIC Exposer has elected to preserve a degree of anonymity for all involved to prevent retaliation for the time being.  The threat of retaliation is real and has been exercised by the FDIC, as future posts will show.  Once the public knows how the FDIC works, we will be fully transparent in the hope that the FDIC's power to retaliate will be limited.