Capital? What Capital?

One of the FDIC's favorite games prior to closing a community bank is to demand the bank raise more capital.  "Hey, Community Bank, you're down to 2.5% capital to asset ratio.  Better go raise more capital."  In this economy, CB has to beg and scrounge to find some capital.  $10 million later, the FDIC says, "Great, but we've written down your loans.  Now you're down to 2.3%.  Better go raise more capital."  CB had exhausted its resources last time, so the next $10 million comes straight out of the directors' pockets.  The FDIC says, "Put that money in your loan-loss reserve where it doesn't count as capital.  And by the way, we wrote down your loans again.  That takes you to 1.9%, so we're going to have to close the bank."  After beefing up CB's value by $20 million, the FDIC hands it over to Regional Bank.

True story.  How do we know this was intentional?  Because the FDIC's paperwork for closing CB was dated three months prior to closing, and the $20 million was raised during those three months.  One month prior to closing, RB was the sole bidder despite interest from several buyers, and it bought the bank for pennies on the dollar, plus the FDIC loss share guarantee.  After the FDIC had already decided to close CB, the directors were scrambling to save it, even if it meant wiping out their own savings.  This was not their cash cow, they were totally committed to it. 

CB had always been profitable while having a low capital-to-asset ratio.  They were risk-averse, did not jump on the real estate bubble, and didn't grow too fast.  Their only mistake was investing in mortgage-backed securities with triple-A ratings that later turned out to be worthless thanks to Wall Street.  But they still had strong core earnings and were completely viable despite the losses.  We're sure RB thought it was a pretty good deal.

Let's face it:  there is no capital available in this economy.  When the FDIC demands a community bank raise capital, they are asking them to do the impossible.  Even if they do find capital, the FDIC can decrease the value of a bank's assets on a whim.  For whatever reason they see fit, they can tell the bank to put the money in the loan-loss reserve where it doesn't count as capital.  They have the power to put a bank on either side of that magical 2%, and can tease the bank as long as they want.

It's all a game, pure and simple.

Clawback!

It's just as ominous as it sounds.

"The rule authorizes the FDIC to recover pay for the two years preceding its appointment as receiver from senior executives and directors 'substantially responsible' for the firm’s failure. The agency would determine the size of the clawback after evaluating an executive’s role in the shareholders’ overall losses after liquidation."  -Bloomberg, 7/6/2011

In theory, this targets those outrageous salaries and bonuses awarded to Wall Street bank executives in the financial free-for-all leading up to the crisis.  But as we see time and again, those guys just aren't affected by all these regulations.  Community banks, on the other hand, are still subject to this rule and are suffering under it.

This is another in a long line of examples in which FDIC "regulations" are really subjective assessments influenced by examiners' biases (good and bad).  A multiple choice test:  which of the following qualifies as "substantial" responsibility?

1. A single bank manager hides liabilities from the bank board and regulators.
2. Bank management encourages and rewards a culture of maximum profit while ignoring risk.
3. Bank management goes after sub-prime borrowers for the high rate of return while ignoring the borrowers' ability to pay.
4. Bank management decides to expand into a booming market to keep shareholders happy, and the market busts.
5. A loan officer sells mortgages to several individuals employed by the same company, who are later laid off and default.

Answer:  all of the above.  In each case, one or more individuals made a decision that went bad - they truly are "substantially" responsible for the results.  Note that "substantial," however, is not the same as "negligent."  Any rational person would consider the first three negligent - #1 is fraud that can happen anywhere, #2 is exactly what Wall Street banks did, and #3 is why several cities have sued Wells Fargo.  But #4 and #5 are just plain bad luck.  Does that mean they still need to be held accountable to the tune of two years' pay?

Eventually the FDIC capitulated and revised their stance:

"The agency, in changes to the initial proposal released in March, clarified that an executive or director would be considered substantially responsible if there was a failure to conduct their responsibilities 'with the degree of skill and care an ordinarily prudent person in a like position would exercise under similar circumstances.'"

Again, completely subjective.  Exactly how much is a "degree?"  What is "ordinarily prudent?"  FDIC Exposer considers ourselves to be ordinarily prudent, but that doesn't mean we know jack about banking.  A "like position" under "similar circumstances?"  That invites a 20/20-hindsight rationality that only the FDIC can perfect.  (We are currently working on that post.  It's a doozy.)

Community bankers are not fat cats.  Their job is to create a successful bank, just like any other small business.  When the local manufacturer closes and no one can afford items at the only grocery in town, do we go after Mom and Pop for price gouging?  True, there are bad seeds in any industry, big and small.  But the vast majority - and even the vast majority of banks closed by the FDIC - are honest people who made a bet and lost it all or lost just enough to be anxious.

In this economy, everyone's anxious.  We all have friends who didn't make it, mostly due to bad luck.  But the rest of us are getting through it, one hard-working day at a time.  We are the constituency politicians claim to fight for while shoving money into the real fat cats' hands - we are the backbone of America.

Is that really who we want to punish?

Comments Welcome - And Appreciated!

If you'd like to chime in on the conversation, offer corrections or opposing viewpoints, or express your support or lack thereof, FDIC Exposed welcomes comments on posts.  Let us know what you think!

P.S.  You can post anonymously if you'd like...

Just Called to Say Hi

Part of our research has been to visit community banks under FDIC scrutiny.  In a town of less than 3,000 people, a bank staff of 30, a management team of 6, and many shareholders, the bank is the community.  When we walked in the lobby, tellers and staff alike greeted customers by name.  On a rainy day, that's where the farmers hang out.

FDIC Exposer was chatting with some of these community bankers last night when Harry (not his real name of course) received a message scrawled on a piece of paper:

Cheryl Herman, teacher 30 years ago.  Lives in Tuscaloosa.

He called her back, and after a lengthy telephone conversation with Ms. Herman, Harry told us the story.  Long ago, Ms. Herman (also not her real name) and her grandmother came into the bank.  Because the grandmother had gotten a loan from Harry once upon a time, she asked to see Harry so her granddaughter could get a loan.  Now Harry hadn't made a loan in years, but he sat down with them, no questions asked.

Ms. Herman wanted to be a teacher, and she needed the loan to get her degree.  She graduated several years later and mentioned to Harry that she was looking for a teaching position.  Harry knew the superintendent of the local school, asked if anything was available, and voila!  Ms. Herman taught high school English for eight years there, and by all accounts she was a phenomenal teacher.  She married a military man who was eventually stationed in another country.  While they were there, Ms. Herman taught English as a second language.

Thirty years and twenty-one grandchildren later, Ms. Herman called Harry at home just to say hi.  They hadn't spoken since she had moved away, but Harry knew exactly who she was.

Community bankers have tons of feel-good stories like this.  We post this not to be all warm and fuzzy, but to give a quick glimpse at what we're losing.  It's more than economics.

Inside a Bank Heist

On July 1, 2011, the London Financial Times ran this story.

A few select quotes:

"'We’re going to outnumber them, and it’s almost going to be like a herd of locusts descending on the place where they work.'" -Ann Hill, FDIC

"This was no ordinary bank heist. The intruders were from the government and they were here to close down the failing bank and replace it with a profitable one in the course of a single night."

"[Sadie Kelly] expressed concern for the bank employees, but not the management or owners, who will lose their jobs and shares in the company.  'It seems like the big guys with the big bucks are the ones holding the reins. To be honest I’m quite happy to see them crumble.'" -Sadie Kelly, Habersham Bank customer

"[L]ike much of America, Cornelia is getting used to having its banks closed on a Friday night."

"[Kevin] Hagler was a bank examiner, patrolling the Georgia countryside trying in vain to exert some regulatory control. It was tough to put the brakes on, he says, when a banker wanted to lend to a property developer who, in turn, had five builders fighting to work on his project. 'I say, ‘that’s a bit risky’ and they say ‘get the hell out of here – you’re taking food out of my baby’s mouth!'" -Kevin Hagler, FDIC

"'Georgia is over-banked.'" -Kevin Hagler, FDIC

"[Robert Hill's] energetic team was already going through the Habersham books on Saturday morning, poring through lists of old customers. Things have been so bad that there hasn’t been any proper lending for three years. 'One that we called on said he’d always banked at Habersham but hadn’t been able to do business there,' says Hill. He extended the businessman a $1m equipment loan there on the spot." -Robert Hill, South Carolina Bank & Trust

"When I asked Eric Raines of the FDIC whether he could see a big bank closed in the same way, he smiled: 'You mean like a Chase or Bank of America? ... It gets political.' -Eric Raines, FDIC

"[FDIC Chairman Shelia] Bair, though, is determined to keep the politicians out of the picture and ensure that her legacy will be ending the dreaded 'too big to fail' phenomenon."

FDIC Exposer may be reading these wrong, but these statements seem a bit biased against community banks.  The FDIC wants us to believe that bank management, the "fat cats" as customer Ms. Kelly calls them, are mavericks out to make a quick buck, and the examiners have no real power to rein them in.

Just how helpless are these examiners?  The FDIC wants us to believe that their only power lies in their magical formulas to determine whether a bank is insolvent.  In reality, the only hard and fast number is the 2% capital to asset ratio that Congress arbitrarily chose to define insolvency.  How you reach that number, however, is open to interpretation.  The FDIC determines how much loans must be written down, and they provide no explanation for how they reach a particular value.  So many of the other factors they look at are incredibly subjective - how do you measure management on a 1 to 5 scale?

Without hard numbers to back up their findings, any biases - for or against - will play a huge role in whether a bank makes the cut.  If an examiner simply doesn't like a particular individual at a community bank, he can be as vengeful or intimidating as he wants.

Are those really the rules we want our community banks to live and die by?

Community Bankers in the House

This Congressional hearing from May sums up the relationship between community banks and the FDIC.  Rep. Lynn Westmoreland is the new best friend of community bankers:



*  Disclaimer:  FDIC Exposer has no relationship with Rep. Westmoreland and has never made a political contribution of any kind.  In fact, we had never even heard of him before last week.  But we are very thankful for his advocacy for community banks.

Washington Begins to Question the FDIC

An article in the Wall Street Journal outlined a proposed bill in the House to reduce the capital rate before the FDIC deems a bank as "troubled."  The stringent capital requirements demanded by the FDIC are unrealistic in the current economy, and it hurts the chances of a viable community bank surviving the regulators' wrath.  From the article:

Rep. Bill Posey, Republican of Florida and the author of the bill, raised concerns that regulators are hurting the economic recovery by currently requiring banks to consider loans technically non-performing, when parents or others make payments on them while the borrower is between jobs, even though not a single payment was late or missed.

“Such subjective over-regulation makes banks less inclined to lend for job creation and results in more foreclosures, greater layoffs and longer unemployment lines,” said Posey. “The traditional definition of a performing loan is exactly that: a loan which a borrower is currently repaying on the agreed terms. Period."

Community Banks and "Community Banks"

Somewhere between community banks and Wall Street lies the regional banks.  They started off as small-town banks and expanded throughout an entire section of the country over the years.  They still like to promote themselves as "community banks," but they don't quite fit the bill.

Somehow, these banks have come out ahead in the Great Recession, courtesy of the FDIC.  The majority of community banks shut down by the FDIC have been snapped up by these regional banks, and they have made a tidy profit.  In the South, Bank of the Ozarks is quickly becoming a mighty presence.  How on earth did a rural Arkansas community bank creep across states from Texas to North Carolina and amass over 100 branches?

"Since the start of 2010, the bank estimates it has bid on over 50 failed banks. Its goal? To buy them cheap using a conservative low bid strategy. Of the 50, the company has won 7 deals, a good indication the bank is succeeding in not overpaying." -Todd Campbell, Seeking Alpha (article)

So how is that strategy working out?

"Bank of the Ozarks today [July 13, 2011] announced record second-quarter earnings of $50.2 million, compared to $10.9 million a year ago.

"The whopping 361 percent increase was powered by two FDIC-assisted acquisitions. The company's purchase of First Choice Community Bank of Dallas, Ga., and The Park Avenue Bank of Valdosta, Ga., marked its sixth and seventh FDIC-assisted deals." -George Walden, Arkansas Business (article)

Huh.  So how did those failing community banks suddenly become profitable?  According to Campbell, "the deals are designed to contain risk thanks to FDIC agreements to reimburse up to 80% on losses on disposed loans and foreclosures."

The FDIC shuts down community banks, auctions them off to regional "community banks," and the FDIC pats the buyer on the back and reassures them that the government will absorb any losses.  Sounds like a pretty sweet deal.

The Idea Is Catching On

The handful of community banks who came to FDIC Exposer aren't the only ones seeing a disturbing trend.  Others are taking notice that the big banks have emerged from the financial crisis bigger than ever, despite legislation to correct that.  Under Dodd-Frank, the FDIC is charged with dismantling those banks, but so far the only ones affected have been community banks.  From an article in the Washington Times:

"In fact, the Dodd-Frank law reinforces the market perception that a small and elite group of large firms are different from the rest” by designating those banks as “systemically important." -Joshua Rosner, managing director of Graham Fisher & Co.

So Congress and regulators have done nothing to fix the problem that led to this mess.  No big surprise, really.  Big money and big power have a way of doing that.  Unfortunately, what Rosner proposes as a compromise spells big trouble for the little guys:

Since Congress repeatedly rejected amendments to break up the banks last year, perhaps it could consider a less far-reaching measure that would make banks much more careful about the risks they take by requiring their executives to pay dearly in the event of failure. [emphasis added]

It's not enough that the FDIC already threatens bankers with personal liability, instead we apparently need legislation mandating it.  When the big banks use their financial, political, and legal clout to sidestep the latest regulation, Washington comes up with another.  And another.  And another.  And each time community banks are the only ones who feel the effects.  What's next, placing liability on bankers' families and friends, because they failed to address the bankers' risky behavior during dinner conversations?

And round and round we go.

Score One for the Little Guy...Hopefully

US Representative Lynn Westmoreland of Georgia's 3rd district was highlighted in an article for sponsoring a bill "forcing the FDIC inspector general to look at its practices and how they impact banks in the 10 states with the highest number of bank failures."  So far the bill has passed the House Financial Services Committee and hopefully will pass the House by August.  Please contact Rep. Westmoreland and show him your support for community banks!

Wall Street and Washington

Following the previous post, someone forwarded us a few links.

On July 20, Secretary of the Treasury Timothy Geithner wrote an opinion piece in the Wall Street Journal.  A key quote:

"All financial crises are caused by too much leverage, and by reducing leverage, we have taken the most important step toward diminishing the risk of future crises. We have forced the largest financial institutions to take less risk and to hold much stronger financial cushions against the commitments they make. Our banking regulators have reached global agreement on new capital standards that require the world's largest financial firms to hold roughly three times more capital relative to risk than before the crisis."

Note that Geithner targets the "largest financial institutions," but the Frank-Dodd legislation hits ALL banks.  "Reducing leverage" and increasing "capital relative to risk" sound good to the public (count FDIC Exposer among them before we started digging into this mess) because the media and regulators focused on Wall Street's excesses. 

The unintended (or perhaps intended?  For those of you who tend toward conspiracies.) and unseen consequences, however, are the destruction of community banks.  While the legislation appears to give more control over Wall Street, in effect it concentrates power in these enormous entities as they absorb community banks.

These ever-growing monsters are not the result of capitalism at its finest.  Through "regulation" and close ties between Wall Street banks and government officials (see "Government Sachs" here and here), they become quasi-government entities.

The thousands of community banks in this country don't have the luxuries afforded to Wall Street or the funds to fight the FDIC.  Where the government effectively turns a blind eye while Wall Street gradually meets the regulations, the FDIC doesn't give community banks a fighting chance.  One by one, they are taken down and sold off to "too big to fail" corporations.

Some of our sources see a conspiracy to socialize the banking system in the government's determination to create a Socialist state.  FDIC Exposer doesn't buy into it, but we all agree that the end result is irreparable harm to our country.  One community bank on its own has zero power.  Politicians claim to fight for small businesses and Main Street, but up until now it's only been talk.  What FDIC Exposer wants is for community banks to stand together to keep our communities intact.  We know politicians will never do it for us.

"Fair Value"

A little insight into one way regulators are taking down community banks, also explained very well in this article.

One of the problems which led up to the economic meltdown was Wall Street valued its investments by what they deemed was an appropriate price (you can imagine how well that worked).  When the government instituted mark-to-market accounting, Wall Street instead had to value its stocks and bonds by the actual selling price on the exchanges at the end of the day, every day.  Hence, "fair value."

FDIC Exposer will never claim to be an expert on banking regulations, but here's our take on what's going on now:  after the Glass-Steagall Act prohibiting lenders and investors from mingling in a single company was repealed in 1999, Wall Street suddenly because a conglomerate of giant ("too big to fail") corporations gobbling up every sector of the financial industry.  When their investment parts blew up, the banking parts went down with the ship.  Oops...

So, since the meltdown put the focus on Wall Street, and Wall Street "banks" used mark-to-market "fair values" for the investment side, surely the same should be applied to the banking side.  Wouldn't that only be "fair"?

Not really.  Investments are liquid, their values change constantly throughout the day and can readily be sold on the open market, and the current selling values are there for all to see.  Bank holdings, not so much.  Money is tied up in loans that are bringing in regular income in the form of interest and principal payments, and those loans are going to provide income for a long time - say, 30 years for a mortgage - or the principal will be paid off early at whatever date the borrower wants.  The bank is bound by contract and can not call in a performing loan whenever it wants its capital back.

Let's say we do apply "fair value" to banks.  Any sane person would think that "fair value" of that loan is the amount of principal owed the bank, not the collateral.  If you sell your house for less than the amount owed on the mortgage, you have to pay the difference.  The collateral does not become the asset unless the bank forecloses, and only then should it be valued by how much the bank sells it for.  Right?

Oh, FDIC Exposer, how naively optimistic you are!  A little regulation called FAS 157 passed in 2007 requires loans to be valued at the current market value of the collateral.  If you've ever had a house appraised, you know that current market value is determined by an educated guess.  You won't know the value until the house actually sells.  Now let's say the FDIC has their own appraiser.  If they are determined to shut down a bank*, those appraisals may not be too favorable.  Banks can counter with their own appraisals, but who do you think wins that one?

Let's say the FDIC does want to be fair in determining market value.  When half your neighborhood has gone into foreclosure, and banks sell at a loss to get them off the books, the value of your home plummets.  You may have no intention of selling, the market could bounce back in a year or two, and you have never missed a mortgage payment, but as far as the regulators are concerned, the bank just lost tens of thousands to millions of dollars worth of assets.  Can things get any worse?

You betcha.  When the FDIC closes a bank, it auctions off alot of the assets.  The FDIC has no stake in how much it gets.  The bank's assets flood the market all at once, and they are sold at pennies on the dollar.  $30,000 lots are now worth $1,000.  And every bank with loans in that area now have to value their lots at the same price.  Never mind that those lots are likely to increase in value over time, and the banks have no intention of selling them at such a low price.  Unless...

Congress had the brilliant idea of coming up with a magical number that determined the viability of a bank.  If a bank's capital falls below 2% of its assets, the FDIC shuts down the bank in a move lovingly titled "Prompt Corrective Action".  In order to avoid that magical number, the FDIC makes the bank sell assets to raise capital, including performing loans that provide income, and those assets sell at that bargain-basement price set by the FDIC itself.

As the FDIC closes more and more banks, and the market is flooded with more and more firesales, every bank has to keep writing down the value of its assets and raising capital in a vicious cycle.  Wall Street banks are big enough to offset minor things like this, but community banks are kept on the razor's edge.

Community banks aren't the only ones who suffer - homeowners are caught in the trap too.  They have to sell their houses at ridiculously low prices, if they can find a buyer.  If they want to buy a new house, they can't get a loan because that would eat into the bank's capital.  The market freezes except for the bottom feeders.  Instead of the market bouncing back in a year or two, we could be stuck here for decades.

Community banks are fighting for their lives and the lives of its customers.  These are not reckless entities and greedy individuals who ran Wall Street into the ground.  Apart from bad real estate investments during the housing boom, they have no excesses to rein in.  And yet they bear the brunt of the new regulations.

Instead of being the enemy of community banks, the FDIC could be their biggest supporter.  Every bank's viability should be examined, and the non-viable ones should be shut down.  The FDIC can work with banks rather than against them, but they choose not to.  From the boots on the ground to Washington, DC, the FDIC is actively destroying our communities.

"Fair value" should be what a community bank is worth to the community.  And that's why we want to expose the FDIC.


*In many cases, the FDIC is indeed determined to shut down community banks regardless of their viability.  This is especially the case when those on high decide that the FDIC can save money by shutting down banks sooner rather than later, a practice which catches too many viable banks.  Actual examples will be provided when anonymity is no longer a concern.

FDIC Exposer Wants to Hear Your Story

Snowball Sampling:  "Asking a participant to suggest someone else who might be willing or appropriate for the study."  -Barbara Sommer, University of California

The best method for us to gather stories about community banks' interactions with the FDIC is for our current readers to send other participants our way.  We are interested in anyone involved at any level - from bankers to customers, shareholders, government officials, and anyone else who has been affected by or involved in the FDIC's actions.  Note that FDIC Exposer wants both sides of the story - we have also spoken to several sources who support the FDIC, and they have very sound arguments for doing so.

If you know anyone who is willing to speak to us, on or off the record, please contact us at info@FDICExposed.com.

Check Out Those Articles on the Right

Alot of stories about community banks have popped up recently.  On a community bank seized by the FDIC and sold to another community bank:

“As long as it was staying a community bank, which I was glad to see,” Kopp said of keeping her checking and savings accounts at now-Points West. “If it had been taken over by the FDIC and the larger (banks) I wouldn’t have been here."  -Greeley Tribune

Ask any customer in a community bank, and you'll likely get the same response - they want that local touch.  Larger banks just can't offer that.

The Seen and the Unseen (Part 2)

So if you can create something out of nothing, what exactly is that something worth?

In the end, nothing.  And community banks picked up the tab, courtesy of the FDIC.

While everyone was distracted by Wall Street's implosion, the FDIC pounced on community banks' millions of dollars worth of real estate loans.  The loans' value was now frozen up in the housing bust - they were far from worthless, but they had no market.  Given time, however, markets bounce back, and land will always be in demand.

The FDIC trapped community banks in a vicious cycle:  because the market for lots had dried up, banks could no longer count those loans as assets.  The FDIC demanded the banks write down those loans based on an imaginary number of what the lots could possibly maybe be worth today, as decided by their own assessment.  Poof!  There goes a big chunk of capital.  So the banks find themselves undercapitalized, and the FDIC forces them to sell performing loans to increase capital, thus decreasing the banks' income.  When the FDIC decides those lots have decreased in value again, they are written down, and the bank has to raise capital by selling assets.  Over and over until the bank has nothing left - and the FDIC has the gall to blame the banks for mismanaging their capital.

But wait - there's more!  When the FDIC closes down a bank and seizes its assets, many of those lots are sold in the shady world of online foreclosure auctions run by DebtX.  The FDIC really doesn't care what it gets for the lots, it's just getting them off the books.  Suddenly a $30,000 lot is sold for $1,000 - and all the banks must write down their lot loans to this new "fair market value."

How many banks have been shut down just because they were caught in this trap?  FDIC Examiner aims to find out and share their stories.

The Seen and the Unseen (Part 1)

   [W]hat advantage is there in institutions of credit? It is, that they facilitate, between borrowers and lenders, the means of finding and treating with each other; but it is not in their power to cause an instantaneous increase of the things to be borrowed and lent. And yet they ought to be able to do so, if the aim of the reformers is to be attained, since they aspire to nothing less than to place ploughs, houses, tools, and provisions in the hands of all those who desire them.
   And how do they intend to effect this?
   By making the State security for the loan.

   [I]f you submit the most complicated Government institutions of credit to the same test, you will be convinced that they can have but on result; viz., to displace credit, not to augment it. In one country, and in a given time, there is only a certain amount of capital available, and all are employed. In guaranteeing the non-payers, the State may, indeed, increase the number of borrowers, and thus raise the rate of interest (always to the prejudice of the tax-payer), but it has no power to increase the number of lenders, and the importance of the total of the loans.

 - Frederic Bastiat, What Is Seen and What Is Not Seen, 1850.

Bastiat had a few issues with Socialism.  FDIC Exposer aims to be impartial, and we use his words not to take a political stand against the FDIC, but to highlight the logical absurdity of its policies.

What lay behind the housing boom and bust, and the free-for-all lending followed by sweeping bank closures are the dysfunctional actions of government agencies.

While the FDIC blames the banks for taking too many risks and mismanaging their capital, they were the ones who approved every new charter and gave the banks their blessing.  Many of the loans which led to the bust (bad loans as a whole and not held by any one bank) were backed by Fannie, Freddie, and the FHA, whose goal was to enable consumers to achieve the American dream of homeownership through credit - by any means possible.  Some banks could see that it was a bad idea - but as one source says, the FDIC said they had to make so many bad loans to get their new charter.  Then the FDIC turns around and blames the banks for not predicting the mess that followed.

Remember where Bastiat wrote about the government creating capital out of nothing, just by guaranteeing loans?  We'll get to that next.