Decatur First Bank Requests Bailout Assistance; Worries About Future
Decatur Metro | February 11, 2009 | 9:53 amThe AJC has a great article this morning about a huge overlooked segment of the financial industry in these tough economic times; community banks.
The article prominently features Decatur First CEO Judy Turner and her thoughts regarding the recent crisis and lack of assistance thus far by the feds to smaller banks. According to Turner, Decatur First will continue to make loans for now “thanks in large part to money raised by its board of directors”, but has also requested $5.2 million from the fed.
So far, no response.
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If DFB is able to raise private money then why should it get anything from taxpayers? These TARP funds are (supposedly) a necessary evil for “too big to fail” banks that pose systemtic risk, not a free source of capital for every bank that might like to hit up the treasury, as opposed to the capital markets, for money. We can’t and should not try to save everyone. I realize that a few community banks have received money, but that is a tiny portion of the program, and it can’t open the floodgates to every community bank. Also, some of the community bank capital influsions have been the result of pure political patronage.
The TARP program is supposed to be available to help banks continue to make loans in an environment that isn’t conducive to raising private capital other than from “friends and family”. The money is not free and the taxpayers should be repaid with interest. The interest is 5% for the first 5 years and 9% after that. That’s a good return in today’s market. For every $1million in capital a bank has, it can make $10 million in loans. Although we are well-capitalized now and are making loans, we don’t want to risk not being able to help our communities in this unstable economic time. I’d love to have the opportunity to talk with anyone who has questions. My number is 404-373-1000.
Thanks for the explanation Judy. Dem (despite his name) is a right wing [edited: no overly severe characterizations aka “name-calling”] who really doesn’t know what he or she is talking about. Keep up the good fight and the good work you do for our community.
I don’t agree with what DEM said, but is it really necessary to jump to labeling and name-calling just because you disagree, DFC? That sorta puts you in the same boat in which you childishly placed DEM. Given the double-talk of our national media and our polititcians, how can any of us be sure we “know what we are talking about”?
Thanks Judy. Decatur First Bank is a great local institution and does so much for the greater Decatur community.
Obviously the fact that I am “right wing” is highly relevant to this issue — I am so sorry I left that out. I am sure every liberal is of the enlightended view that TARP is a great idea and that our limitless ability to spend at the federal level means the federal government should invest in just about every community bank.
Here in reality, of course I’d like to see DFB succeed and think it’s great for the community. I just don’t see why taxpayer money needs to be provided to an admittedly well-capitalized bank that has been able to raise money from private sources. My humble opinion is that if DFB does not have toxic assets on its books and is well-managed it would find investors (as it apparently has, to some degree). That said, continue to flame away.
Beyond the larger TARP issue, which few understand and economists don’t know the answer to…
Perhaps you’re overstating DFB’s security to backup your position DEM? Turner says she’s OK for now, but worries about what the future holds. Therefore, she’s taking precautionary measures now. Are you saying she should wait until she’s on the brink? Or are you just against TARP?
Tax payer money gets spent in a million different ways, recently on programs in which we seem to see no immediate impact. We live in a “instant gratification” world and so tax money going to community banks makes perfect sense to me. What a nice thought (hope) that a community bank like DFB can continue to provide for it’s community in the way it currently does. TARP should take a more vested interest in local community banks. This will assure the taxpayer that the money is being well spent in their own community. DFB supports our community on so many levels. We should be hopeful that a bank which is proactive and responsible gets help instead of a big bank already in the black hole. If bailout continues…(and it will) I can only hope my tax dollars go to responsible lending institutions like DFB and back into a community I am so proud to be a part of.
If we had more community banks like Decatur First and no banks that are “too big to fail” we wouldn’t be in this economic crisis in the first place. So I’m in favor of more money for the smaller banks to ensure that they do survive the current crisis. A part of the economic recovery must also be a change in antitrust law enforcement that prevents formation of more of these “too large to fail” enterprises.
I don’t know about y’all…but there ain’t much ya can’t get from your local loan shark. They are well financed, serious, and take little risk.
And if the risk is high….well….
we’ll just let that slide 😉
I think it is entirely relevant, MariettaDawg, because it is the typical right wing Republican agenda to only help out the big national corporations, financial institutions and banks while leaving the smaller local institutions out to dry.
Maybe I shouldn’t have used a certain term that has now been edited, but I think it is entirely relevant to point out the political philosophy that Dem is coming from with his comments.
I think you’re being a bit harsh DFC. Simply discrediting a legitimate inquiry because the questioner might have a different political philosophy doesn’t really move the conversation forward.
Supporting a local bank sounds nice and ‘feels good’, but may not be the best use of resources. The big banks are so much more interconnected with our economy (whether that’s good or not is a separate argument – we have to deal with the current reality on the ground) that if they fail it grinds everything to a halt with severe financial reprecussions for all.
Now, IMHO the whole TARP & stimulus packages stink to high heaven, but that’s on both sides of the aisle. I think in this case Dem does know what he is talking about and raises an extremely valid point: if a business can make it on its own, then why should we be forced to support it with our tax dollars?
The TARP is a response to a credit crisis. Confidence in the “Paper Market”, the source for high-level, institutional lending, collapsed when the major players starting filing for bankruptcy in September and October. At that point, the credit market seized up–huge, perfectly solvent companies (like Caterpillar, one example that has been discussed widely) could not get short term loans at reasonable rates that allowed them to do business. The effects cascaded down into the all aspects of the credit market, including DFB’s level. They need access to a functional credit market in order to loan money. Right now, that doesn’t exist, and the TARP’s function is to replace that.
Capitalism is based on people having (or being able to borrow) money to invest in their businesses or homes, producing value and creating jobs. Over the years, Judy Turner and DFB have done an amazing job of ensuring that City of Decatur businesses have had that capital, and DFB has been a model of fiscal prudence. Now, through no fault of their own, the market they depended on has stopped functioning correctly.
The TARP is not meant to keep insolvent banks solvent. It is meant to keep solvent banks healthy and lending, thus driving the economy. And for an institution to forego those funds (simply because it is federal money) while its competitors do puts the institution and its community at a competitive disadvantage. It would be irresponsible. The new shop doesn’t open, your neighbor can’t build an addition, and the restaurant can’t get the money to fix their plumbing and has to close. Jobs are lost and it gets worse.
The Feds (and the rest of us) should be hoping that thousands of DFBs are lining up all over the country. Solvent, responsible lenders that create jobs one at a time on the local level, and can then pay back the TARP funds with interest. We’d all be back to work in no time, and I could get more sponsors.
One, I am not a republican.
Two, I am against TARP completely, I am not for TARP for Citibank and against TARP for DFB. In fact I think the government needs to nationalize many of the large banks and clean up their balance sheets, then spin out what’s left to private investors. So your assumption about the political philosophy here is just 100% wrong. By the way even the article DM linked to refutes your chariacatured thesis of republicans, because it’s Johnny Isakson who has been pushing to use TARP to help GA’s community banks. Something tells me that none of these facts will make any difference to you.
Three, even if I were pro-TARP, the issue is that TARP has a limited amount of money — about 350 billion left. Some estimate the banks’ total losses to exceed $1.2 trillion, much of which has yet to be written down on their balance sheets. So TARP may not even have enough to save the banks that arguably pose systemic risks, and we therefore have to draw the line someplace. And it seems to me that it’s one thing to inject capital into banks that are basically insolvent, and which present systemtic risk if they fail, and quite another to inject capital into an admittedly healthy bank that poses no systemic threat whatsoever. The mere hypothetical risk that DFB might run into trouble later does not seem to me to justify a taxpayer investment now. And the argument that “hey, the government is spreading money around, so everyone should get some” strikes me as pretty juvenile, frankly.
Do all of you realize that the federal government will run a deficit of over $1 trillion next year — more than double the huge deficits Bush ran? My purpose here isn’t to compare political parties. It’s to say that we don’t have the money for all this, regardless of who is in the White House. If DFB is worthy, why not most or all of the other thousands of community banks out there?
“If DFB is worthy, why not most or all of the other thousands of community banks out there?”
I think that was the Judy’s original point.
The central thesis of capitalism is that if you loan money at a price (i.e. interest), you make money. That’s where the term comes from–one has capital, and invests it. You can invest it in a company (buy stock), or invest it in a home, or you can loan it to a bank, which then loans it to its community. That’s how capitalism works, and its how people with money make more money. A TARP loan to a solvent bank makes money for the fed(aka taxpayer), it doesn’t cost us money.
The US government MADE money on the Savings and Loan Bailout, because it invested capital where others would not. There was a significant lack of transparency into those companies, their assets and liabilities, and that made the market behave irrationally. In the end, the assets that were held by those S&Ls were worth more than the market had valued them when the feds were buying. The feds bought low, eliminated the uncertainty (as only the feds were willing to do) and sold high, and everyone was grateful for it.
I truly wish folks would educated themselves and know about things before they post comments that are simply foolish and not true. It is one thing to disagree with an opinion, it is truly another to be ignorant and still rant on with the total picture. DFB is our local bank and needs to be treated the same as any other financial institution that the law allows. They are clearly playing fairly and by the rules and laws, and are doing nothing wrong.
I must have missed where TARP injections became loans. The initial injections were structured as purchases of preferred stock, not loans. Is that now different? If so, why would DFB want to borrow at 5% to loan at 5.5% (roughly the current rate for a 30 year conforming loan, last I checked)?
Of course, the purpose of TARP is not for the government to find a way to make $ by investing in solvent banks. It was to get credit flowing by taking crap off insolvent banks’ balance sheets, and from there it morphed into direct capital injections, and now, to who knows what.
As I understand it, DFB’s position is not that it can’t raise money because it is holding all sorts of toxic mortgage backed securities that it has not yet marked to market, or that it can’t mark down because there is effectively no market at all for those securities. Thus, Daren, I am not aware of any facts suggesting that your situation even applies to DFB. DFB’s position is that is has raised money recently, is well-capitalized, but would like to hit up TARP just in case. The government has never been in the business of trying to make profits by investing taxpayer money in healthy banks, and TARP was not designed to change that. It, like the RTC in the S&L crisis, was passed to resolve a market crisis, not to make the Treasury Secretary into a national investment manager. Is your position that loans to community banks are such a great deal for taxpayers that we should borrow trillions from the Chinese to effectively become national investors in thousands of small banks?
“I must have missed where TARP injections became loans”
dem, the purchase of preferred stock gives the banks $$$ to make loans.
I realize that. Daren W referred to a “TARP loan.” Judy referred to “interest” paid on the money. But TARP hasn’t made loans to banks, it has purchased preferred equity that pays a 5% dividend. That means the bank is not required to repay the monet to the treasury (though it can choose to do so), but that the treasury can sell the preferred shares later if it wishes.
The real question here is if DFB accepts TARP funds, will Judy be willing to a $500K cap on her salary?
Judy’s salary is well under $500K. Trust me.
I think Bic Schaeffer was trying to be sarcastic with “Flair”…
Japan passing on lessons learned re: banking industry
http://www.nytimes.com/2009/02/13/business/economy/13yen.html?em
I think what’s missing in the discussion is consideration of the source of these TARP funds. That’s me. That’s my money. And yours too, of course. So the question becomes, should we have our money to invest where we see fit, or should the Congress confiscate our money and give it to DFB to loan to our neighbors?
I’m sure you can guess my answer, but it’s surely a topic intelligent people can debate.
However, given that TARP is a reality, it’s hard to understand how Congress makes the money available arbitrarily. That’s been the puzzling part of this to me – who gets saved, who is allowed to perish or be acquired, is a decision I’m uncomfortable handing over to the government. The government! The one entity that proves more firmly with each passing year that it is entirely incapable of making any important decisions at all.
Rick – thanks for posting the NYT article. But there are a lot of intelligent people that conclude from the same facts that Japan spent way too much money trying to dig itself out. A country cannot – ever – spend its way into prosperity. That’s the lesson we should have learned from Japan, and it’s stunning and tragic that we did not.
I’ll say it again….
Hope is not a strategy.
Insightful Left Wing, thanks.
Hoping the country fails is not a strategy either, Left Wing.
Where did I say I wanted to country to fail? Seriously? Can you please point it out to me where I wrote that?
Give me a break Left Wing. While I’m sure there are folks out there that have no interest or understanding of politics who got caught up in this election cycle because of the great rhetorical skills of our president, but no one here has ever argued that hope is a strategy.
To suggest so is an insult to both those that clung to hope instead of despair in an act of self-preservation in a difficult time, and to those that make a different economic argument about how to get the economy going again.
Stand back, take a deep breath and think about it. Local is always better when possible. Our local bank deserves help more than Merrill Lynch or it’s equal. That’s a no brainer for a republican or democrat.
George, you’re on the right track but still not quite there. The money being invested in banks now is not mine or yours — it’s China’s and Saudi Arabia’s. The people who pay that back will not be us so much as our children. But I am sure they won’t mind. Same for the 40 trillion — yes, trillion with a T — in unfunded medicare and social security liabilities we plan to pass on to them.
President Barack Obama has turned fearmongering into an art form. He has repeatedly raised the specter of another Great Depression. First, he did so to win votes in the November election. He has done so again recently to sway congressional votes for his stimulus package.
In his remarks, every gloomy statistic on the economy becomes a harbinger of doom. As he tells it, today’s economy is the worst since the Great Depression. Without his Recovery and Reinvestment Act, he says, the economy will fall back into that abyss and may never recover.
This fearmongering may be good politics, but it is bad history and bad economics. It is bad history because our current economic woes don’t come close to those of the 1930s. At worst, a comparison to the 1981-82 recession might be appropriate. Consider the job losses that Mr. Obama always cites. In the last year, the U.S. economy shed 3.4 million jobs. That’s a grim statistic for sure, but represents just 2.2% of the labor force. From November 1981 to October 1982, 2.4 million jobs were lost — fewer in number than today, but the labor force was smaller. So 1981-82 job losses totaled 2.2% of the labor force, the same as now.
Job losses in the Great Depression were of an entirely different magnitude. In 1930, the economy shed 4.8% of the labor force. In 1931, 6.5%. And then in 1932, another 7.1%. Jobs were being lost at double or triple the rate of 2008-09 or 1981-82.
This was reflected in unemployment rates. The latest survey pegs U.S. unemployment at 7.6%. That’s more than three percentage points below the 1982 peak (10.8%) and not even a third of the peak in 1932 (25.2%). You simply can’t equate 7.6% unemployment with the Great Depression.
Other economic statistics also dispel any analogy between today’s economic woes and the Great Depression. Real gross domestic product (GDP) rose in 2008, despite a bad fourth quarter. The Congressional Budget Office projects a GDP decline of 2% in 2009. That’s comparable to 1982, when GDP contracted by 1.9%. It is nothing like 1930, when GDP fell by 9%, or 1931, when GDP contracted by another 8%, or 1932, when it fell yet another 13%.
Auto production last year declined by roughly 25%. That looks good compared to 1932, when production shriveled by 90%. The failure of a couple of dozen banks in 2008 just doesn’t compare to over 10,000 bank failures in 1933, or even the 3,000-plus bank (Savings & Loan) failures in 1987-88. Stockholders can take some solace from the fact that the recent stock market debacle doesn’t come close to the 90% devaluation of the early 1930s.
Mr. Obama’s analogies to the Great Depression are not only historically inaccurate, they’re also dangerous. Repeated warnings from the White House about a coming economic apocalypse aren’t likely to raise consumer and investor expectations for the future. In fact, they have contributed to the continuing decline in consumer confidence that is restraining a spending pickup. Beyond that, fearmongering can trigger a political stampede to embrace a “recovery” package that delivers a lot less than it promises. A more cool-headed assessment of the economy’s woes might produce better policies.
It is amazing to me that Obama is getting so much flack for an economic situation brought on by the deregulatory demons of the last administration. Not being an economist, I have no idea if what he is doing will work or not. But to imply that he is “fearmongering” to get elected and to get his proposals past is ludicrous. I worked in the field of education in the early 1980s. Teachers were not losing their jobs but this next year many will be out of work. Fayette County will more than likely lay off175 teachers. Everywhere else you look, school systems are cutting wayyyyyyyy back, with many losing jobs. So, from my limited perspective, this situation is much worse than any I have seen in my lifetime. So, it is not fearmongering, it is looking at the reality of the situation. We were told by the former people in charge that we were not in a recession, when we were. The truth is best even if it hurts.
They take from my limited perspective? …I work as a project manager in a large hospital software development firm. IT investment has basically come to a halt because businesses can’t get credit and they are frantically dealing with thier own organizational economic problems. In hospital IT there is a typically a 1.5-2 year pipeline for projects from the initiation of sale to the start of implementation. The company I work for started in the 60’s and over time has been gobbled up by larger and larger corporations. The amount of prospective business in the pipeline is the lowest it has ever been in the history of the company. Colleagues of mine at other competitor companies are telling me the same story.
Layoffs are taking place but they are not sweeping. Historically, if it had to happen, say in 2001, there was a single big sweep. Now the ax falls to smaller numbers of people on a quarterly basis which perhaps gives the impression that its “not so bad”.
If anyone really needs these tools more than ever right now, its the healthcare industry. Information sharing is really still an inefficient complex mess and the way healthcare costs are skyrocketing we really can’t afford for these organizations not to be investing in this infrastructure. (along with simultaneously encouraging folks to get off their big butts and start getting some exercise and eating properly…like real adults typically would do)
Its taken years to create this economic mess and now we are just beginning to see the seriousness of the mess unraveling.
Editing point. I meant “passed” not “past.”
Obama is quite right to warn us that the economy is bad and will likely get worse in the near term, though I agree that comparison to the Great Depression are at this point not justified. Where he veered into scare-mongering was when he warned that failure to pass his pork-laden “stimulus” plan immediately would result in “catastophe.” If that was not an attempt to push through hundreds of billions in new spending without real debate, I don’t know what is.
Also, blaming this crisis solely on deregulation is badly off the mark. The problems were many; some might have been helped by more regulation (in the CDS market, for example), but many were the direct result of horrible government policies (see Fannie and Freddie and the Fed). Others — a systemic misjudgment about the risks posed by mortgage-backed securities — are simply the sort of human error that government can do nothing about.
I suppose Obama could have done what our last president did. Tell everyone that everything is peachy and good until the bottom falls out from under us. Mission accomplished, in everyway. I prefer my politicians and physicians tell me the truth about the potential for problems down the road. People blaiming Obama for this mess is just childish. Like he came into office wanting to spend money for fun.
It would be childish, if anyone had done that, which they haven’t.
Dem,
I just copied this quote off of the web. It was given 5 days ago. By the way, DFB should get all the money it needs to stay afloat if it reaches the point that it needs the money.
Now, I think we’ve got to keep perspective. We’re not going through the Great Depression,” Mr Obama said.
“I know there have been some analogies there, but when (president Franklin Roosevelt took over in 1933) unemployment at that time was 30 per cent, as opposed to 7.5 or 7.6 per cent.”
JEM, I agreed that his statements have been fairly measured, for the most part, and that it’s necessary to be honest rather than blowsunshine up our collective you-know-whats. But the quotes I was referring to above re: “catastrophe” were about the stimulus bill specifically, he did say them, and I think they well well over the fear mongering line.
I remember bank shopping in the spring of 2008 at Decatur First. I asked to see their books, and the banks accountant let me see them. I felt anxious about the millions in mortgage back securities. Also not mentioned in the article is that the bank has millions in municipal bonds, which I fear may be endanger of defaulting should the local governments not be able keep up their tax collections. Of course there is FDIC. At the time both investments overwhelmed shareholders equity. I don’t know how sufficient the paid in capital is to cover the possibility of municipal bond defaults. I wish the investors of DFB well, and I am sorry to sound unkind. Perhaps their latest financial statements should provide sunshine and happiness. I say if Judy needs a TARP bail out then she is using fine acumen. I pray that DFB gets its bail out. The shame is if the bank had only invested the reserves in Treasuries instead they would not be talking bailout. I’m sorry Judy. You are decent people, and it is sad you got defrauded.
Wow! Very interesting comments. First, I’d like to thank those that do have faith in us and tell you how very much we appreciate your confidence and your business. I know you don’t want a lecture or lesson on bank investments so just suffice it to say that all of our MBS securities are backed by the full faith of the U. S. Government. Our municipals have to be “bank qualified” and are triple A rated. All of our bonds continue to pay interest and we haven’t lost money on any of them. If no one was willing to buy MBS and municipals, we would have much worse problems in the country than at present.
Remember, we do have FDIC insurance and no one has every lost a penny on insured deposits.
Those of you that were concerned about our taking TARP money can rest easy. We made the decision last week to withdraw our application after seeing that Treasury continued to add stipulations to the program. We were a little concerned in the beginning that they had the right to change the agreement at any time and make it retroactive. We are well-capitalized and plan to continue to be so.
Each bank has to make its own decision about TARP. The fact that a bank does or doesn’t apply shouldn’t indicate anything other than each bank has analyzed its situation and made a decision that they think is best for them. You’ve probably read that many of the banks that received TARP have made the decision to repay it now since one change is that you don’t have to wait three years. This again is an individual institution decison. My major issue is that small banks should have the same access as big banks. The idea that the government decides which banks are important and which aren’t is not good. As you look at the banks that have received TARP, you see that there is no consistent criteria. My personal feeling is that Decatur, Ga. is just as important as any city that has received TARP for its banks. Actually, I think Decatur, Ga. is more important! (But I’ve been accused of being biased.)
Judy Turner
You may want to revisit the triple A rating on your bonds. The ratings agencies have a terrible record of ratings inflation.
You’re right about that, but so far, so good!
Judy
Not exactly the response I was hoping for…
http://www.nytimes.com/2009/03/16/opinion/16partnoy.html?_r=2&ref=opinion
Mortgage backed securities per se are not bad and didn’t cause most of the problems with banks – it was various derivative and leveraged products. As for muni bonds, a little research will show they are still considered one of the safest investments and have a very low default rate.
The smaller banks in Georgia that have gone under were mainly wrapped up in real estate construction loans, which are not the same thing as MBS by a long shot. Check the article in Sunday’s AJC.
David, I’m curious as to where you placed your business that you considered safer than DFB?
I basically cash out my whole check and leave a token amount for the sludge bank in deposit, not DFB in this case.