How safe is your bank, Missoula?

There’s a number of ways to check on the safety and financial soundness of your bank. If you’ve got a little bit of finance knowledge, then the FDIC is the place to go (they’re the folks that guarantee your bank deposits up to $100,000 per account). For credit unions, its the NCUA who do the same thing:

Federal Deposit Insurance Corporation

National Credit Union Administration

But, perhaps a simple rating system (with abundant research behind the ratings) is more useful, and for that Bankrate.com’s Safe & Sound® service is a good option. The fewer the stars, the greater the risk that the bank will fail.

(Remember that many banks are owned by larger corporations, which may be headquartered in another state. You’ll need to look under that state.)

Here’s some examples, mainly from Missoula, Montana. (There are simplified explanations of the terms down below.)

Bankrate.com

Leverage

Equity/

Net Income

Net Worth to

Safe & Sound

Assets

Equity

Ratio

Assets

ROE

Total Assets

(‘000s)

(‘000s)

Airway Boulevard Bank

*****

204.3

16

12.77

7.83%

$2,061,000

26.13

7.83

Banco Popular

*****

87.9

44.2

1.99

50.28%

$2,305,000

10.71

Bank of Montana

NA

9.5

3.7

2.57

38.95%

-$154,000

-8.24

38.93

Community Bank

***

85.9

8.2

10.48

9.55%

$466,000

11.12

9.63

Farmers State Bank

***

296.5

30.5

9.72

10.29%

$927,000

6.12

10.31

First Citizens Bank

**

32.7

3.5

9.34

10.70%

-$34,000

-1.94

10.77

First Interstate Bank

****

5284

416

12.70

7.87%

$35,706,000

16.98

7.88

First National Bank of Montana

****

283.9

24.7

11.49

8.70%

$1,226,000

9.93

8.73

First Security Bank

****

847

111.8

7.58

13.20%

$7,090,000

12.79

13.2

Gateway Community Federal CU

****

39.4

4.4

8.95

11.17%

$149,810

11.06

Missoula Federal Credit Union

****

275.7

29.6

9.31

10.74%

$1,355,300

10.82

Mountain West Bank

***

694.2

62

11.20

8.93%

$3,180,000

10.52

8.94

Sterling Savings Bank

**

12215.7

1374.3

8.89

11.25%

$18,111,000

2.61

11.25

Treasure State Bank

****

77.5

9.5

8.16

12.26%

$60,000

1.28

12.21

US Bank

****

242,307.90

21,541.80

11.25

8.89%

$2,157,468,000

20.3

8.89

Wells Fargo Bank

****

503,327.00

43,942.00

11.45

8.73%

$2,951,000,000

13.58

8.73

Little Horn State Bank

*

68.4

6.3

10.86

9.21%

-$158,000

-4.65

9.27

Now, the following explanations are simplified but these are some of the common ways of judging the financial soundness of a bank or credit union.

Capitalization stands as protection against loss for bank customers and credit union members. There are various capitalization ratios, but one of the simplest is Equity to Assets (where Equity is loss reserves, accumulated earnings from the past, and recent net income; and Assets are loans, cash, investments, as well as land and buildings.) It shows whether or not there is sufficient capitalization to cover outstanding loan balances.

The reverse is Leverage Ratio, Total Liabilities / Net Worth (or simply Assets/Equity). Generally, the higher this ratio, the more risky the institution’s situation.

Net Income is simply how much money is being made. The institution either records a profit or a loss. Losses eat into equity, which lowers capitalization and raises leverage, creating more risk.

ROE, or Return on Equity, measures how much money is being made with the assets. It is a measure of financial efficiency, and shows how well a bank or credit union uses investment dollars to generate earnings growth. Overall, the US banking industry had a 3.58% ROE in Q2 2008

Net worth to total assets – this also represents how well capitalized a bank or credit union is. The higher, the better. The Treasury recommends at least 6 percent net worth to total assets in order to be in good standing.

Who you gonna call?

I was disappointed, though not surprised, that neither Obama or McCain would answer Jim Lehrer’s question on how they would pay for the $700 billion financial rescue package. It’s a hard question to ask during a political campaign, which is all the more reason why we wanted to hear an answer.

In response, though, we gained a considerable insight into the candidate’s character. Obama waffled, and repeated his priorities. McCain let out a howler, or two.

McCain suggested a spending freeze. Only he exempted defense expenditures, homeland security, and veterans affairs. Sounds good, until you think a bit beyond the simplistic portrayal of Tax & Spend Liberals. I’m guessing that McCain isn’t proposing freezing social security payments (which are increasing, not just with the cost of living but also with more retirees), and he sure doesn’t want to penalize Medicare and Medicaid patients. No-one wants the AARP upset! And, I’m pretty sure that McCain doesn’t want us to stop making our payments on the national debt. That one’s going to go up. I wonder if he wants to cut into FEMA’s budget to assist with hurricane damage or the Forest Service’s budget to fight fires? No, probably not.

Problem is, once you’ve taken all those things off the table there isn’t much left.

Then, he suggests that we should build 45 new nuclear power plants. Putting aside the costs of transporting and storing all the nuclear waste (45 new nuclear waste plants? One coming soon to a backyard near you!), how is he going to pay for them? A single new nuclear plant costs a bit more than $2.2 billion. Forty five times that equals over $116 billion. Others estimate a new plant costs around $13 billion a plant, which would be $585 billion. Ouch!

Now, skip the fact that the Federal Government has already given more than $100 billion in research and development to the nuclear industry over the past half century. It appears that private investors aren’t terribly excited in getting involved in building new nuclear plants. (That’s compared to the renewable industry — including wind and solar — that last year attracted $71 billion in private investment.) So, either we’re going to end up paying for it, or we’ll be providing loan guarantees covering 50 percent of the cost of building them. Senators Lieberman and McCain’s Climate Stewardship and Innovation Act of 2007 (S.280) suggested just that.

How exactly is McCain going to pay for all this, and his tax cuts? (Remind me how much those tax cuts will cost. $100 billion over five years? $200 billion? $300 billion?) Maybe it’s time to call MythBusters!

Deliberation or debate?

It’s your money, rescuing others. So. Do you understand what your money is being used for? I’m not sure I do. I’m not sure I know who does.

Maybe the Masters of the Universe? You know, the oh-so-smarter-than-you investment bankers. They’re certainly paid more for their wisdom than you or I. A first year, just out of college, investment banker gets around $125,000 – $150,000. And, we all know how much top-of-the-line investment bankers make – just look at Henry Paulson. In 2005, as CEO and Chairman of Goldman-Sachs, it is reported he made $30 million.

Maybe Paulson knows a thing or two: “There’s no way to stabilize the markets other than through government intervention.” Did he really say that?

Ah, but Paulson started out not wanting any strings attached. No equity stakes. No dividends. No limits on CEO compensation. Otherwise, the banks won’t play. Which begs the question: if they really need the bailout/loan/subsidy, then why wouldn’t they agree to those terms? Could they really turn down the government’s offer and watch the financial system go down the gurgler? Put aside the moral outrage that would be targeted at them (let alone the odd stone projectile or two), but wouldn’t that substantially eat further into their reserves and profitability. Doesn’t sound like a wise decision, either on behalf of their stockholders or their own future.

I continue to ponder the details. Like, where does the money come from? Is the Treasury going to print more money? That leads to inflation, which makes everything more expensive for everyone. A sure recipe to a major recession. Or, is the Treasury going to borrow more and raise our already dangerously high debt level? That will drive down the dollar, making imports more expensive and weakening the status and stature of American business overseas. (Not forgetting that it would probably be foreign sovereign wealth that would finance the debt!)

And, I ponder where the money will actually go. I suspect it will be the big banks (getting bigger by the day) that gets the lion’s share. They’re the ones who made all the dodgy investments (or have bought out the guys who did). They’re the ones who were able to package them into indescribably complex securities. And, they’re the ones that probably need it least – they’re big enough to cope with the losses and ride out the slump. Small banks, on the other hand, are more at risk. But, small banks (with some notable exceptions) never had the wherewithal to make those dodgy loans. So, are we rewarding the wrong guys? Who need it least?

Maybe that small-guy investor, Warren Buffett, has it right. When a bank needs liquidity, you either loan it to them at good terms or you get preferred stock. With a 10% annual dividend, even if the price of the shares fall in market value. Using that as a model, the country’s $700 billion should earn us a cool $7 billion. Guaranteed.

Does McCain understand that? Obama? I’ll be watching the debate, hoping to find out.

Obama is the true leader this week

McCain showed himself this week to once again not have the judgment to be our president. He announced Wednesday that he was suspending his campaign and going to Washington to help bring a bipartisan solution to the Congressional negotiations. (Of course, his campaign really wasn’t suspended as everyone else on his campaign was still campaigning and as his negative ads continued.) While his announcement may have sounded like a good idea to some, when you take a step back, you see that, even if we give him the benefit of the doubt and say it was well-intentioned (which is giving him a HUGE benefit that I don’t think he deserves), it was ill thought out and showed a lack of understanding of politics (which is ironic since he’s been a politician for over a quarter century). And it is this that further confirms to me that he is not fit to be president.

McCain is the Republican presidential nominee. Everything he says and does is now identified as “Republican” because he is the new leader of the Republican party and is running his campaign on a Republican platform. Nothing of consequence that he does during his campaign will be seen as bipartisan (appearing at Ground Zero with Obama doesn’t count). I fully admit that the same goes for Obama at this point in time. No matter how much either candidate wants to get past partisan politics, during their presidential campaigns is not the time to do it. Every Democrat wants their guy in the White House come January. And every Republican wants his guy in the White House. I’m not saying this is right, I’m just saying that’s the way it is. And so no Democrat is going to be amenable to McCain riding in on a high horse to bring “bipartisanship” to Washington. They’re going to scoff and rear back. The Republicans would do the same thing if Obama was the one riding in to save the day.

The difference between Obama and McCain is that Obama understands this. He recognizes that right now, by his very title as “Democratic presidential nominee,” he is very much hindered in his ability to foster bipartisanship. After the election, when Republicans have come to grips with the fact that they’ll be dealing with Obama for the next four years at least, they’ll both (Obama and Republicans) be in a better position to work together. The same can be said for McCain and Democrats. And so Obama, recognizing his handicap and seeing that a bipartisan agreement was coming along quite nicely in his absence, wisely chose to stay away from Washington. This does not mean he was disengaged. He’s been in frequent, regular contact with Congressional leaders, Secretary Paulson, and Fed Chairman Bernanke. But he recognized that going back to Washington, given his current status as Democratic presidential nominee, would infuse partisan, presidential politics into a delicate situation. He put the good of the country over the good of his campaign by recognizing this and acting accordingly.

McCain, on the other hand, decided that he had to go to Washington to push for a bipartisan agreement that was developing well without him. Of course, the irony is that, as all the newspapers report, the bipartisan agreement crumbled just as he arrived at the White House. This proves that his presence infused presidential politics into a delicate situation that he should’ve stayed out of. We are now further away from a deal than we were before McCain’s trip to Washington. If he did his by accident, then his utter lack of self-awareness and his reckless, misguided attitude that he could forge a bipartisan agreement shows that he does not understand the political process and is ill-equipped to be president. And if he knew exactly what he was doing, then it shows that he has put his campaign above his country by choosing to imbue partisan, presidential politics into a sensitive situation that was making good progress without him. Either way, it doesn’t paint him in a good light.

And what’s even worse is that we read just about everywhere that McCain has refused to take a stand on the agreement, said almost nothing in the White House meeting, and has not at all been involved in the real negotiations. How is this leadership? If he had gone to Washington with some sort of idea or vision or solution to get this passed, then maybe I could give him some credit. But he has nothing of the sort, which leads me to conclude that he (unwisely) thought that his mere presence would foster an agreement. How arrogant, pig-headed, and narrow-minded is that?!

The true leader this week has been Obama, who recognizes that good things can happen even in his absence and who is willing to let people do their jobs and to let the political process work. Let’s be clear, what isn’t working right now is the financial market. That is what needs to be fundamentally changed. But the political process of the executive branch submitting a bill to Congress who then negotiates and debates it and eventually passes a better form of the bill is fully functioning right now…or at least it was until McCain stuck his finger in it.

McCain Ruins the Day

Why does McCain have to imbue this financial crisis and the proposed $700 billion bailout with partisan politics? Before he arrived in Washington, Congress was close to a bipartisan agreement. Now, all of a sudden, a small group of Republicans are saying they’re wholeheartedly opposed.

I’m not saying I think that giving the Treasury $700 billion is the right thing to do. I think there is a very serious, rational question that we should all be asking (and asking our Congressmen and women to ask): Should the government be getting this involved in our supposedly free market?

But the problem is that now that McCain has decided to jump in the middle of it, all rationality is out the window. From now on, everything that is or isn’t said or done with regard to the bailout will be seen as a partisan action. For the first time in a very long time, we were seeing Democrats and Republicans come together to work toward the best possible solution in this dire situation. And now that McCain has put his finger in it, we see it turning into Democrats (wanting to get some form of the legislation passed) versus Republicans (wholly opposed to the legislation).

The idea that McCain is “postpartisan” and that he’s trying to forge bipartisan relationships and successes is entirely false and is just another smokescreen meant to hide the true McCain.

McCain Running for Cover

Once again, John McCain is trying to hide from the issues in this election. By now, this should hardly be surprising. His first major piece of distraction came when he chose Sarah Palin to be his running mate. She conveniently took over the news so that John McCain (and his policies that are too similar to Bush’s failed policies to be acceptable in the public eye) could hide from the issues.

Next, McCain canceled the first day of the Republican National Convention under the auspices of Hurricane Gustav. Of course, it also worked out well for him politically because he was able to avoid being on stage with George W. and was even able to keep Bush away from the convention. It also cut the amount of time Americans had to listen to the psycho-nonsense babble of the Republican Pary (“Drill baby drill” and numerous references to the “angry left” and “liberal Washington” – which is odd since the Republicans have been in control of both the White House and both houses of Congress for most of the past eight years).

And now, McCain is hiding behind the economic crisis to avoid talking about his foreign policy and national security views in a debate this Friday. Does he really think that everything will be solved if he just returns to Washington ASAP? Talk about a big head! If McCain goes back to Washington, he will simply bring presidential politics with him, and that will do more harm than good at this point.

This is a time when Americans are looking for leadership. We’re clearly not getting it from the White House (we really haven’t at all in the past 8 years), and so we’re looking to the presidential candidates. We need to know whether the candidates can handle more than one issue at a time and can be conversant on more than one issue at a time. A debate on foreign policy in the midst of an economic crisis shows us just that. Running to Washington to jump on board something that other politicians have been working on for a week is not leadership. It’s hiding from the issues and jumping on a bandwagon.

If McCain succeeds in cancelling the debate, he will have forfeited victory in the debate to Obama.

Power tends to corrupt, and absolute power corrupts absolutely

One of the unheralded accomplishments of the Bush administration has been a centralization of power. It is almost as though there is now a fourth branch of government, the White House, to which power has been ceded by the other three branches.

Examples of the power grab might include specific exemptions of the White House from public scrutiny (think secrecy of Vice President’s office, protection of Attorney-General privilege, etc.), politicization of the public agencies (such as political appointments going far deeper than ever before in organizations such as the Forest Service), an either-you’re-with-us-or-your-against-us attitude, and the recent exclusion of Congress from decisions on bailing out Fannie Mae/Freddie Mac.

And now they’re at it again. President Bush has asked the nation to pony up $700 billion so that the Fed can go to the rescue of their friends, the banks. (Member banks must pony up federal funds to meet their reserve requirement. As a result all nationally chartered banks hold stock in one of the Federal Reserve banks.)

That’s right, Bush is asking for carte blanch. A clean check, with no strings attached. To be handed over to Ben Bernanke, Chairman of the Federal Reserve System, to spend how he wishes. Unelected, and supposedly independent, Bernanke is helping engineer the $700 billion mortgage-bailout plan which would significantly increase the responsibilities and vastly expand the lending by the Fed. Sounds like good job security to me!

It gets worse. Now we discover that ‘asset managers’ would be hired. Their job would be to manage the distressed assets, including buying and selling loans and securities. No, we don’t know who they will be. The Bush administration is said to be wanting “ a competitive bidding process to hire the managers.” Somehow I doubt it will be the hard working, underpaid employees of the Treasury Department. But, it could be the very same investment bankers who got us into this mess!

The question of who will get the $700 billion is a big question. Already, the Bush administration has changed their plans. On Saturday, it was only domestically-owned banks. By Sunday, after intense lobbying, it had expanded to any bank “having significant operations” in the United States, foreign-owned or otherwise.

Deciding who gets bailed out is a definitively political decision. And political decisions are best left to our elected officials. Unless you are trying to amass more power. Then the person left holding the purse-strings holds all the power!

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