Why did 1st Centennial Bank, Redlands CA

Earlier, I wrote about 1st Centennial Bank of Redlands, CA failure. The Office of Audits has an interesting report on 1st Centennial Bank and I found it online. The report linked HERE tells the story pretty much how a bank imploded by just following the rules given to it by the government. The regulators really didn’t find anything wrong:

Cause of Failure and Material Loss – 1st Centennial failed primarily due to bank management’s pursuit of asset growth concentrated in high-risk CRE/ADC loans without adequate loan underwriting and credit administration practices. In addition to a concentration in CRE/ADC loans, the bank also concentrated its loan portfolio in one geographic area that experienced a severe economic downturn, further increasing the risk to the bank. The bank did not ensure that underwriting adequately considered the borrowers’ ability to repay and the adequacy of the underlying collateral. Credit administration practices did not sufficiently ensure that CRE/ADC loans were adequately managed and monitored. Examiners determined that 1st Centennial’s asset quality was seriously deficient at the FDIC’s April 2008 examination, primarily due to deterioration in the bank’s CRE/ADC loan portfolio. Also, examiners found that the bank became increasingly dependent on wholesale funding, including brokered deposits. The examiners concluded that bank management failed to implement adequate risk management controls to effectively mitigate loan portfolio risk and ensure that the allowance for loan and lease losses (ALLL) was properly funded. Significant provisions to the ALLL reduced earnings, eroded capital, and tightened the bank’s liquidity position. Ultimately, the bank became critically undercapitalized and failed.

Nothing really wrong. No fraud, no malfeasence. Everything noted by government regulators is Monday morning quarterbacking. That is the scary part. When banks go bust by following the rules, then a LOT of banks are going to go under.


Failed bank? No problem…Just Biz as Usual

Fabulous article in the LA Times about a bank failure that is Not The Classic Bank Failure People Envision. Here is one taste:

Yet when it all came crashing down, the pain was muted, the repercussions muffled. Federal regulators moved in so swiftly and efficiently that hardly anyone noticed until it was over. The new owners cleaned out the management ranks, but tellers and new-account specialists — the public face of the institution — stayed on. There was no run on the bank. Only a handful of uninsured depositors lost money.

Ruined lives and public disgrace were staples of the classic 1930s narrative of a bank failure. In the new century, the shame and suffering have been obscured by bigger forces, subsumed in abstractions: the global credit squeeze, the liquidity crisis.

But I think this is my favorite:

Tom Vessey, fired as chief executive five months before 1st Centennial failed, pointed out to those who asked that the bank’s board never accused him of any wrongdoing. He continued to allow his Italianate mansion to be used for fundraisers, showing off his garage filled with Route 66 memorabilia and awards won by his half-Arabian show horse, Ring O Fyre.

Seriously, how do you get mad at a man who was just playing by the rules? Good Businessman only play by the rules given to them by the politicians. Why don’t we begin to look at the root causes of our country’s problems and see where the regulations the banks were forced to follow came from? I have an IDEA!!!! Let’s look at Barney Frank, Chris Dodd, Fannie Mae, Freddie Mac,…

Impossible happening? Irvine Real Estate Crumbling?

IrvineHousingBlog has a recent post with THE List of Irvine homes service over $1,000,000 of debt. Please view. It is a good sized list.

But how can that be? We have been told throughout this entire economic downturn that “Irvine was different”. That “Irvine real estate was different”.

Hmmm, guess they are the latest to find out ‘parts is parts’.

"Czech"mate for European Union?

Stating the Obvious

In yet another article about another European head of state stating the obvious. The WSJ quotes Václav Klaus, president of the Czech Republic:

First, the euro zone has failed: It hasn’t delivered growth and the economies of member states have not converged. According to European Central Bank, average annual economic growth in the euro-zone countries was 3.4% in the 1970s, 2.4% in the 1980s and 2.2% in the 1990s. In the decade of the euro, from 2001 to 2009, it was just 1.1%.

“As a project that promised to be of considerable economic benefit to its members,” he says, “the euro zone has failed.”

The rest of the fine short article is here.

Euro Collapse actually good for US?

Will Europe problems help the US?

In a fascinating article over at Pajamas Media entitled “What Would a Euro Collapse Mean for the United States?”, Soeren Kern quotes three heads-of-state:

But European officialdom is now reeling from an outbreak of apostasy within its own ranks. The chief heretic is German Chancellor Angela Merkel, who in recent weeks has said publicly what many have been speculating about privately: “The euro is in danger. … If we don’t deal with this danger, then the consequences for us in Europe are incalculable,” Merkel recently told Germany’s Süddeutsche Zeitung. She repeated the warning in a speech to the German Bundestag: “The current crisis facing the euro is the biggest test Europe has faced in decades. It is an existential test and it must be overcome … if the euro fails, then Europe fails,” she said

Merkel’s fears have been echoed by European Central Bank President Jean-Claude Trichet, who told the German newsmagazine Der Spiegel that these are “dramatic times” for the euro and “the most difficult situation since the Second World War, perhaps even since the First World War.”

Italian Prime Minister Silvio Berlusconi told fellow European leaders in Brussels that the euro is in a “state of emergency.” (Berlusconi once said that the euro “screwed everybody.”)

Meanwhile, French President Nicolas Sarkozy is said to have threatened to pull out of the euro altogether unless Merkel agreed to back the EU’s giant €750 billion bailout. The threat was reported by Spain’s El País newspaper, which attributed the information to Spanish Prime Minister José Luis Rodríguez Zapatero. El País reported that Sarkozy “banged his fist on the table and threatened to leave the euro, which obliged Angela Merkel to bend and reach an agreement.”

Why do I get a vision of The Three Little Pigs here?

The entire article is very informative.

Collapse of Euro to "Save" Europe?

Is the coming Euro meltdown ushering in a new age of Democracy?

Inquiring minds are reading a great commentary in the Telegraph, by Simon Heffer. In the article he states that the coming collapse of the Euro will ultimately save Europe:

What may be about to happen in Europe will shift considerations from the economic sphere into the political. That will be deeply uncomfortable not just for the unelected people in Brussels and Frankfurt who control the destiny of the great European project, but for elected politicians around Europe who have obtained, and kept, power and credibility only by signing up at all times to the European ideal.

For Europe has advanced largely by being anti-democratic. Some nations, unlike our own, do offer referendums when great political changes are proposed, but they also offer another one if the “right” result is not obtained the first time. The constitutional changes then effected enable the bureaucracy to proceed as it wishes without having to bother the electorates of the 27 member states on minor matters like the loss of sovereign powers: that is why the Treaty of Lisbon, like other treaties before it, is so reprehensible and so anti-democratic. Europe has been sovietised; and, like the old soviet experiment itself, is now realising that the consequence of pursuing an unrealistic ideal is political and economic bankruptcy.

I highly recommend the entire editorial for the refreshing candor of what has happened in Europe, what is happening, and what is about to happen.

The Problem is “Debt”

Tim Iacono wrote an excellent article on what exactly is our country’s problem: In a Word, the Problem is “Debt”.

We all like new roads and bridges and, just like when a family buys a house, it’s difficult to make such big outlays with cash. Governments borrow to pay for costly infrastructure work just as households finance the purchase of new homes costing two or three times their annual income (at least that’s the way it used to be).

New Debt Not the Same as the Old Debt

Unfortunately, the borrowing and spending that has gone on over the last few decades in most of the Western world (not coincidentally, since the entire global monetary system lost its last tether to anything resembling a system of sound money) seems far removed from any of these “a little debt goes a long way” examples that, by and large, benefit society.

Over the last 30 years, a rapid expansion of credit and debt has been one of the major reasons why economies have grown at such an impressive pace and why asset prices have risen so high, but all the new debt hasn’t gone to build bridges and buy modest homes.

Please read the entire article.

You want to know what is the scariest part of the above graph? What it doesn’t show. This graph stops in 2004. It doesn’t show the late 6 years, especially the last 20 months.