Feeding the Sharks

by David Glenn Cox

Last week federal regulators shut down Montgomery, Alabama, based Colonial

Bank Group. In the end it will cost the American taxpayer an estimated

2.8 billion dollars. It will cost many people their jobs and

livelihoods because the operations of the bank have been assumed by

BB&T Corporation. The little banks get swallowed by the

medium-sized banks, and the big banks swallow the medium-sized banks;

then the government bails out the big banks because they’re too big to

fail!

Colonial Bank was a medium-sized bank, the brainchild of

one Bobby Lowder. If you have any experience with Montgomery or

Montgomery real estate you are familiar with the Lowders. They are an

old Southern family with their fingers in every pie. In Montgomery they

built shopping centers and apartment complexes. They knew all the

politicians and where all the bodies were buried.



There was a

residential neighborhood development that was quite successful in

Montgomery. It was comprised of fifteen hundred to two

thousand-square-foot houses with nice yards and landscaping. Problem is

that in a town like Montgomery with little real growth, how do you sell

more houses? This neighborhood was around ten to fifteen years old and

well established, and at the end of the two main roads were dead end

streets. It had been assumed that perhaps a phase two might be built at

some later date.

But the developers had a different plan; they

went to the zoning board and got a variance. For the Lowders it was no

more than a formality, like borrowing a cup of sugar. At the end of the

dead end streets they built apartments, and not luxury apartments but

low-income apartments. The effect on the neighborhood was devastating;

overnight the yards filled with for sale signs. The value of the homes

plummeted and most homeowners lost their equity.

Just across

town a new residential development was opening, offering fifteen

hundred to two thousand-square-foot-homes with smaller yards and two

dead end streets at the back of the neighborhood. The sign out front

said, “A Lowder Planned Community,” and as I drove by I said to myself,

“Yep, and I know the plan!”

This is how you use political

power in a small town. People who don’t want to move must be frightened

into moving, and you, as a realtor and developer, profit on both ends.

So when Bobby Lowder formed Colonial Bank in 1981, I knew it would get

interesting sooner or later. With the construction company, the

residential real estate division and the commercial real estate

division, now they had their own bank to finance their projects. They

owned the country music radio station in town as well as a string of

other radio stations.

The corporate officers list reads like a

who’s who of Alabama politics along with Milton McGregor, the father of

Alabama’s dog track industry, was ex-head Auburn football coach, Pat

Dye. Then, this being Alabama after all, there is Big John Ed Matheson,

the preacher at the biggest mega church in town. What could go wrong? A

preacher, a gambler, a football coach, and Bobby Lowder.

In May

of this year Bobby Lowder stepped down as head of Colonial Bank. He

could see the train tracks running out and it was time to get off the

train. As a going away present the bank awarded favored directors an

average of five thousand shares of stock to cushion the blow. From a

high of over $25.00 per share it would have been a bonus of $125,000,

but by April the stock price had fallen to just 91 cents a share and

closed yesterday at 41 cents.

Bank of America has sought an

emergency injunction, freezing one billion dollars in Colonial assets

over the mishandling of funds in mortgage lending. Colonial is also

under investigation by the Justice Department for accounting

irregularities and a criminal investigation in connection for alleged

accounting irregularities at its division in Orlando, Fla., which

provides financing for mortgage lenders, and a civil probe by the

Securities and Exchange Commission concerning accounting issues and the

bid for federal bailout funds.

But they had a plan; new

management took control under a plan for a $300 million investment led

by Taylor, Bean & Whitaker Mortgage Co. of Ocala, Fla. The infusion

of cash would make Colonial eligible for as much as $550 million in

government bailout funds. Ah, but the best-laid plans of mice and men

sometimes go awry.

The deal fell through when federal agents

raided the Ocala headquarters of Taylor, Bean & Whitaker and shut

down the operation. From failing to file financial reports to “certain

irregular transactions that raised concerns of fraud,” HUD, Fannie May

and Freddie Mac had all suspended T.B.& W. It was the final straw

for Colonial, the two mice trying to work together to build a rat. It’s

always a bad sign when your merger partner gets raided by the feds!

The

seizure of Colonial is the seventy-seventh bank failure this year; it

is also one of the largest failures since Washington Mutual. The

Federal Reserve always holds their executions on Friday so that maybe

you little folks won’t notice what’s going on. Regulators also closed

two other institutions in Arizona, one in Las Vegas and one in

Pittsburgh.

A report in Bloomberg news says:

“Aug. 14

(Bloomberg) — More than 150 publicly traded U.S. lenders own

nonperforming loans that equal 5 percent or more of their holdings, a

level that former regulators say can wipe out a bank’s equity and

threaten its survival. The number of banks exceeding the threshold more

than doubled in the year through June, according to data compiled by

Bloomberg, as real estate and credit card defaults surged. Almost 300

reported 3 percent or more of their loans were nonperforming, a term

for commercial and consumer debt that has stopped collecting interest

or will no longer be paid in full.”

Makes you wonder if maybe

a program to assist the borrowers, as was done in the last Great

Depression, might not have been a wiser course of rescue than to just

keep feeding the sharks and allowing them to eat each other. The board

members will keep their six figure incomes, but the employees will

suffer. Like an autoworker when the plant shuts down, what do you do

when the bank you work at is bought out? Everyone loses and the folks

who ran the train off the tracks, they just walk away.

Yet no

matter how much money the government gives to the banks, the banks

customers still can’t make their payments. I guess we need more shark

food!

Ben Cohen is the editor and founder of The Daily Banter. He lives in Washington DC where he does podcasts, teaches Martial Arts, and tries to be a good father. He would be extremely disturbed if you took him too seriously.