March 30, 2010

Health Care Bureaucracy May Be Like FDIC

Posted in Banking, Big Banks, Bonds, Capital, community banks, crises, derivatives, Finance, Forward thinking, government, investment advisor, investment banking, investments, local banks, municipal bonds, San Francisco, Stocks, Uncategorized tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , at 8:18 PM by Robert Barone

The folks in Washington D.C. say one thing – the bureaucrats in the field do another.  This is happening today on Main Street to America’s community financial institutions.  Because I suspect the health care bureaucracy will be similar, this writing will point out the abuses by the FDIC and relate them to what might happen in health care.

There are now 702 institutions on the FDIC’s Medusa list.  This number is likely to rise in the second quarter despite the closure of 41 banks year to date through March 26, 2010.  Almost all of these are community based or regional institutions, and they are victims of current economic conditions.  The balance sheets of these institutions were never meant to be “marked to market” or “marked to fire sale prices”.  As the economy heals, so would these balance sheets.  In the interim, nearly all of these institutions have enough liquidity to survive even if their “capital” base is low.  Yet, the FDIC’s approach has been that the managements and boards of directors of these institutions are lacking or even incompetent despite the fact that 3 years ago the FDIC itself rated most of these managements and boards in the top two rating categories.  It almost appears that the FDIC is on a mission, directed by the “Too Big To Fail” (TBTF) institutions, to eliminate a large chunk of community institutions so that the TBTF can get even larger.

The institutions on the Medusa list cannot raise capital precisely because they are on the Medusa list.  The FDIC is supposed to “resolve” a failing institution in a “least cost” way.  The least cost way would be to provide some seed money (like TARP which went mainly to TBTF) or change some regulatory accounting rules to allow write-downs to amortize over a longer time period, like 10 years.  In either case, once the public perceives that the Medusa banks can survive, private capital would become available.  But, under current FDIC policy, why should private capital come into a Medusa institution when all the investors have to do is wait for the FDIC to “resolve” the institution?  The deals the FDIC makes when it closes an institution are once in a lifetime deals for investors, and something they would never see in a free market transaction.  How could it cost the FDIC more if private capital comes to the aid of the institution without an FDIC “intervention”?  Even if it is later closed, the FDIC would be better off by the amount of the private capital raised.  Clearly, the FDIC closure policy is illogical in and of itself.

Let’s dig a little deeper.  Each of the Medusa institutions is under a “Cease and Desist” order which requires a blizzard of paperwork and reports which takes up most of management’s time and effort, often reporting on a weekly basis, to fulfill a whole lot of irrelevant requirements.  This takes time away from the important things management should be doing, e.g., dealing with the asset problems and trying to find additional capital.  At examinations, examiners are often arbitrary, especially when it comes to capital, often requiring uncalled for asset write-downs, which directly depletes capital.  It actually appears as if the examiners are under orders from their superiors to do so.

Having given away taxpayer money to save TBTF Wall Street institutions (the very ones that caused the financial crisis), the FDIC seems to have reacted to taxpayer outrage.  So, in an effort to appear “tough”, they aren’t about to help any other institution, even if it’s what the public wants or is the “least cost” resolution method.

More important, the way government bureaucracy is set up leads to wrongheaded decisions.  Today, the FDIC case managers are overwhelmed with the number of cases to manage.  The Medusa institutions send paperwork to the case managers who have so many cases to manage that they don’t have time to read the reports they themselves have required.  Most of these Medusa institutions regularly get messages from the case managers asking for reports that often have already been sent multiple times.  In the end, the easiest way for the case managers to cope is to reduce the number of cases.  This is shorthand for “closing” the institution, because keeping it open would only increase the case manager’s workload.  From their point of view, it isn’t their money and the money pot is unlimited.  So, case managers instruct field examiners to do what they have to do to justify an FDIC “intervention”, even if they have to be arbitrary in their judgments.  (Often, when the “intervention” occurs, it is Gestapo like.  For example, the FDIC sent 65 field agents to close a one branch, nine employee bank in Carson City, NV in February!)

This is what happens when a bureaucracy is given unlimited power.  The managements, boards of directors and shareholders have no recourse, and any lawsuits filed are met by an army of government lawyers with unlimited resources.

Think of what this means for the health care system.  First, for any particular illness, the bureaucrats will establish rules and guidelines which they will apply whether it makes sense or not.  That is, the bureaucrat, not the doctor and/or patient makes the medical decision.  Second, because cost will always be an issue in health care, the case managers will always be overwhelmed.  They will not have time to collect and read all of the relevant information.  Even if they do, if the rules and guidelines do not permit a treatment, it is safest for the bureaucrat to say “no”, even if he/she thinks a different treatment is appropriate.  No criticism can be leveled against a bureaucrat who follows all the rules.  Finally, like at the FDIC, the best way to control your workload is to get rid of case files.  Saying “no” may lead to a patient’s death – saying “yes” may prolong the life and keep the case file on the bureaucrat’s desk.

Like the TBTF Wall Street banks, if you are lucky enough to be a celebrity or a big political contributor, no doubt you will receive “special treatment” in the new health care world.  But, if you, like most, live on Main Street, no matter what is said in Washington, D.C., if you become ill, you can expect the same treatment that the 702 Medusa institutions are now receiving at the hands of the FDIC.

Robert Barone, Ph.D.

March 29, 2010

Ancora West Advisors LLC is a registered investment adviser with the Securities and Exchange Commission of the United States.  A more detailed description of the company, its management and practices are contained in its registration document, Form ADV, Part II.  A copy of this form may be received by contacting the company at: 8630 Technology Way, Suite A, Reno, NV 89511, Phone (775) 284-7778

March 14, 2010

Inflation vs. Deflation

Posted in Banking, Big Banks, Bonds, Capital, crises, derivatives, Finance, government, investment advisor, investment banking, investments, San Francisco, Stocks, Uncategorized tagged , , , , , , , , , , , at 4:16 AM by Robert Barone

As we work our way through the Great Recession, the discussion often sways between whether to expect inflation or deflation.  Deflationists mention the huge credit bubble that we are digesting, and often like to point out Japan’s experience over the last 20 years.  Inflationists point out all of the government spending and quantitative easing (essentially money printing) that may lead us to hyperinflation, mentioning episodes like the 1970’s Great Inflation, or even worse, Germany’s Weimar Republic. Who is right, and is the answer actionable for an investor?  In order to keep the brief discussion more interesting, I’ve decided to add a few quotes from John Maynard Keynes, the economist our leaders claim to emulate.

“It is better to be roughly right than precisely wrong” – John Maynard Keynes

Getting the inflation/deflation call seems very important. Inflation typically crushes fixed income, as higher rates can choke business, and pushes down the value of investor’s bonds.  Further, high interest rates make stock investments less appealing relative to bonds, and therefore stocks tend to fall in price until their dividend yields become more interesting to investors.  Hard assets can often make large gains during these periods, as falling currency values lose purchasing power, pushing up the nominal value of real assets.

On the other hand, deflation can cause investors to flock to bonds, which makes their values rise, and yields fall.  Business suffers as prices drop.  Wages also drop, as business slows.  People often save more and spend less, further deepening the deflationary spiral.  As business suffers, stocks typically drop.  A poor business climate usually leads to less use of commodities (hard assets), and their prices often fall.

It is easy to conclude that making a bold bet on inflation will be disastrous if deflation continues, and vice versa.

“Markets can remain irrational far longer than you or I can remain solvent.” – John Maynard Keynes

Even if an investor ultimately makes the right call on inflation/deflation, when does her/his thesis play out?  Remember, one of the best investors  of our generation called the debt bubble well before it happened.  George Soros (among others) mentioned the dangers of our enormous leverage in the mid 80’s, through the 90’s, and into the 2000’s.  He was spot on in his analysis, but acting on his forecast would have made one miss the greatest bull market in American history.  Imagine being short stocks as they rose 16+ percent a year from 1982-2000?

“Worldly wisdom teaches that it is better for the reputation to fail conventionally than to succeed unconventionally”
– John Maynard Keynes

In order to avoid being out of sync, or even worse, loosing their investors, many “professional” money managers choose to follow the crowd.  They “manage” risk by hugging investment indexes, and feel it is ok to lose 49% of an investors portfolio, as long as the markets went down 50%.  Clearly, this may work for the stockbroker/financial advisor profession, but it doesn’t work for people who want to grow their assets and retire in comfort and safety.  We believe this mentality is destructive to most people’s savings.  The need to follow the herd is deep seeded in the human psyche.  To overcome this bias, one must first understand it.  Then, one must study history to see what people did well, and where they failed.  Most importantly, a rational investor must be willing to do things differently than the herd.  It is difficult to watch the neighbors make millions on tech stocks, or reap huge profits flipping houses and condos.  However, fundamentals eventually apply.  A rational investor will be called stupid, old fashioned, and jealous while bubbles expand.  She/he will be resented when the bubble pops.  In order to survive and thrive in an investment career, it would be wise to avoid “worldy wisdom”.

“A study of the history of opinion is a necessary preliminary to the emancipation of the mind.
– John Maynard Keynes

In the inflation/deflation debate, most people with an opinion attach their ideas to a specific guru or school of economics.  One theory is memorized, and doggedly followed, even when experiences dictate that things aren’t working as forecasted.  There is very little thinking and learning involved, only determined rooting for whichever “team” one has chosen to follow.  History is ignored, and few people open their minds to the idea that they might be wrong.  Instead of learning all sides of an issue, most observers start with a premise and assume that everyone else is wrong.  In our opinion, these debates are interesting, but only semi-relevant.   Often times, each school of economic thought offers a few nuggets of wisdom attached to much hubris.

“The difficulty lies, not in the new ideas, but in escaping the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.” John Maynard Keynes

While we understand the different schools of economic thought, and pay attention to their lessons, we choose to be open minded as to what may happen in the future.  History leaves a thick paper trail, and what actually happened to markets and asset valuations over time is more valuable to us than defending individual theories.  We want our clients to survive and thrive over their investing careers regardless of the direction that inflation goes.

Those of you that visit our office frequently know that while we religiously track current events, we also spend an enormous amount of time studying the history of the markets.  Often times, the parallels are chilling.

What we find is that most often, the bulk of the mainstream economists are wrong.  Most of our leaders appeared to be caught off guard by the collapse of the debt bubble, despite nearly twenty years of warnings by high profile investors, competent journalists, and the lessons of history.  Politicians typically follow Keynesian policies (stimulus spending to create jobs until the economy gets back on its feet), as this is often the school of economic thought most readily pushed on students at American Universities.  Further, Keynes’ prescription for recessions requires massive amounts of deficit spending and appeal to the populist mentality of “doing something to help”.  Our leaders forget that Keynes recommended government surpluses in good times, and government spending in tough times.  It seems that we either suffer from selective memory, or that we have chosen our theory because it allows our leaders to avoid fiscal responsibility, while feigning to follow a well known economist.  Historically, stimulus hasn’t worked well in solving recessions or credit bubbles.  Tough love (bankruptcies, assets price collapses, high unemployment) has worked faster, but has understandably wrought political unrest.  Our politicians don’t have the will to say “no” to their voting base, therefore stimulus will most likely continue until it creates massive inflation, high interest rates, and potential social unrest.  (Hey, no one said running a democracy is easy!)

We also find is that quality businesses purchased at low prices tend to thrive over all time and space.  The price of their stocks may swing with the ebb and flow of boom and bust cycles, but this really has little to do with the cash that these businesses earn and distribute to their shareholders.  Large, multinational corporations have the added advantage of doing business in different countries.  Some countries boom while others bust, creating some protection in the event of regional issues.  Regardless of the economic outlook, people still eat, drink, and wear clothes, and the companies that supply these products really don’t care if we are of the Keynesian or Austrian persuasion!

Further, when we buy a bond, we actually become a creditor.  Our thought process, when loaning money, is no different when buying a corporate bond than if we were loaning money to a distant cousin.  When do we get paid back?  Is there adequate cash flow to pay us timely interest and principle?  Is the interest rate we are charging enough in context of both the risk of the loan, as well as in regard to competing investments?  Only if these questions can be adequately answered will we invest.

By the way, these things also work for real estate investments, with an additional look at regional supply/demand characteristics as well as incomes and cap rates.

History shows that rational analysis of business and loans, as well as the proper pricing of these investments is more important to financial success than just looking at the economic backdrop prevailing at the time of investment.  To reiterate, the safety of an investment (whether it be a loan or an ownership position) is of paramount concern for an investor, but the price paid is nearly as important.  Money managers and individuals that got these two concepts right made money during the 30’s and 70’s, two difficult periods for investors.

“The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”  John Maynard Keynes

As pointed out above, it is not only difficult to pinpoint the direction of inflation/deflation, but also the timing.  Credit bubbles tend to cause significant damage to an economy (see Reinhart and Rogoff’s This Time is Different) that takes years to play out.  Contrast this with the United States high debt, inflationary policies, and a fed Chairman that has stated he will “drop money from helicopters” before he allows deflation to take hold.

Instead of making a bold wager on one or the other directions, we think it is prudent to remain open minded and hedge our bets.  Housing and other big-ticket items that require financing to purchase are likely to continue falling in price.  Until incomes begin to stabilize, and even rise, expect other discretionary purchases to remain weak.

Keep in mind (thanks Dave Rosenberg of Gluskin Scheff) that some Americans are walking from their homes and freeing up their cash, which leaves more room for consumption, while further hurting banks, investors, and the fed which hold the mortgages on these properties.  If enough people strategically default, without retribution, consumption can recover quicker, although the losses will most likely be born by investors and by taxpayers in the form of more bailouts, with  higher government debt and rising taxes.

As the government continues to add debt, and the Federal Reserve continues to monetize assets (print money), we put our currency at risk.  A floating currency means that the value of said currency is left up to the financial markets in theory at least. In practice, many countries manage the value of their currencies through market intervention.  If investors believe in the stability of the U.S. dollar, it’s value can remain high despite skyrocketing debt and quantitative easing.  If, on the other hand, investors panic, the results could be severe, and could happen almost instantly. The British Pound’s recent sharp drop should be a warning to developed countries.  We are a nation that imports more than we export.  If the value of our currency plummets, the cost of much of what we import will rise.

Tying it together, we think it is entirely possible to see, for example, houses continue to fall, while the cost of food and oil rise.

We could spend hours discussing other potential sources of inflation/deflation, but I think our readers get the big picture.  There are legitimate threats for both inflation and deflation.  Over time, our spiraling deficits will most likely lead to a weaker dollar.  Whether these trends play out over 2 years or 10 years, nobody knows. In the meantime, the collapse of a credit bubble tends to push prices down for years, slowly unfolding despite our impatient desire for “things to get better”.  In conclusion, we think it is entirely possible to see, for example, house prices continue to fall, while the cost of food and oil rise. There is no reason to believe that all prices must rise or fall at the same time.  If history is any guide, quality assets bought at cheap prices will provide protection from inflation and deflation.  By owning assets of this type, we believe an investor can both protect capital, and grow purchasing power.

Matt Marcewicz

March 14, 2010

This writing contains discussion on investment market theories, asset allocations and various influences in securities investing and strategies.  The mention of specific investment strategies and sectors, securities products in this presentation should not be considered as an offer to sell or a solicitation to purchase any specific securities product(s) or recommend a particular strategy mentioned.  Please consult an Ancora West Investment professional on how and which of these strategies can be implemented to meet your particular investment objective goals.

In some instances, historical data or information is presented for discussion and illustration purposes.  This wrinting has been compiled from sources and historical data provided to Ancora West Advisors LLC that is believed to be accurate and credible.  Ancora West Advisors makes no guarantee to the complete accuracy of this information.

Past performance of the markets and securities products based on historical and economic events may not occur in an identical manner if identical or similar events were to occur in the future.

Ancora West Advisors LLC is a registered investment adviser with the Securities and Exchange Commission of the United States.  A more detailed description of the company, its management and practices are contained in its registration document, Form ADV, Part II.  A copy of this form may be received by contacting the company at: 8630 Technology Way, Suite A, Reno, NV 89511, Phone (775) 284-7778.

Fiscal Crises: The Next Shoe

Posted in Banking, Big Banks, Bonds, Capital, community banks, crises, derivatives, Finance, Forward thinking, government, investment advisor, investment banking, investments, local banks, municipal bonds, San Francisco, Stocks, Uncategorized tagged , , , , , at 4:02 AM by Robert Barone

The fiscal crisis in Greece has recently been in the business headlines.  Readers may also be familiar with the term “PIGS” (Portugal, Italy, Greece, and Spain) or “PIIGS” (if Ireland is included).  This term has been coined as an antithesis to the BRIC economies (Brazil, Russia, India, and China) which, except for some hiccups in Russia, have weathered the worldwide recession with continued economic growth.  The PIGS have all of the same characteristics – high levels of debt and burgeoning deficits relative to their GDPs.  We recently learned that Greece has been hiding some debt and deficits with some creative off balance sheet financial arrangements, courtesy of Goldman Sachs (why am I not surprised?), sort of hearkening back to the good old days of Enron and Worldcom.   In reality, in the scheme of things, Greece, with a population of just over 11 million really isn’t significant when compared to Spain (population 46 million) or Italy (60 million).  So, Europe and the Euro will face continuing fiscal issues once the market lets go of the Greek situation.  More turmoil to come in Europe.

Even more significant that the PIGS is the fiscal crisis now surrounding most of the state and local governments in the U.S.  At last count, 48 of the 50 states had significant fiscal issues, some worse than others.   Here is a list of the seven worst: CA, FL, IL, OH, MI, NC, and NJ.  Each of these states has a population greater than 8 million, each has had to borrow more than a billion dollars to pay unemployment claims, and each of these states has an underemployment rate (the U-6 measure) of more than 15%.

As you would expect, because things happen first in CA, that state leads the fiscal crisis pack.  Itself, the 7th largest economy in the world, produces 15% of U.S. GDP, has a population of 37 million and an underemployment rate (U6) is now over 21%.  One would think that its $26 billion deficit would have garnered more attention from the market by now. Here are the issues that are common to the state and local governments:

  • Unlike the Federal Government, state and local governments must balance their budgets and cannot print money, although CA came up with a near money equivalent when it issued IOUs last fall having run out of cash;
  • 55% of state and local revenues are tied to income and sales taxes, both of which have taken a deep dive in this recession;
  • A large percentage of the remaining 45% are tied to property taxes; property taxes go down with a long lag as taxing districts are slow to revalue downward;
  • States are responsible for a huge chunk of now rapidly rising Medicaid and unemployment benefits (which Congress keeps extending without regard to where the states will get the funding);
  • State pension and retirement plans are now significantly under funded despite what appears to be unachievable long-term returns attributed to the future (i.e., returns in the 8% and 9% range when history tells us that, after a debt bubble bursts, long-term returns are significantly reduced).  So the pressure to find funding for existing commitments will plague state and local governments for years to come;
  • The gap between salaries and benefits of government employees and private sector employees is now quite significant.  Because of powerful unions and existing contracts often agreed to by officials whose time horizon was the next election, the only solution for these state and local entities appears to be lay offs.  This is true in city budgets (including police and fire), state budgets, and in most school districts.

We, in the U.S., have only begun to see the fallout from the state and local government fiscal crisis.  Such governments account for more than double the GDP share of the federal government. In February, state and local governments laid off more than 25,000.  More lay offs are sure to follow, making it all the harder for the struggling economy to find its legs.

Investors in municipal securities need to be wary.  The state and local government crisis is real, it is huge, and it is just beginning.  The market simply hasn’t yet focused on it, but I assure you, it will.  While history tells us that municipal bonds have low default rates, state and local governments have never faced such a fiscal crisis in our lifetimes.  History isn’t a good guide in this case.  In the 1970s, both New York City and Cleveland defaulted on municipal bonds.  Last year, Vallejo declared bankruptcy, and more recently, the bonds of the Las Vegas Tram defaulted.  More bankruptcies are surely coming.  And, once they start, expect a reactionary flurry (as usual) of downgrades from the rating agencies.  Having been through the financial crisis of ’08-’09, you know the drill.  Expect a lot of municipal bond market volatility.

Robert Barone, Ph.D.

The mention of securities and municipal securities (bonds) in this article should not be considered as an offer to sell or a solicitation to purchase any securities of the municipalities mentioned.  Please consult an Ancora West Investment Professional on how the purchase or sale of securities and investments can be implemented to meet your particular investment objective goals.

Ancora West Advisors LLC is a registered investment adviser with the Securities and Exchange Commission of the United States.  A more detailed description of the company, its management and practices are contained in its registration document, Form ADV, Part II.  A copy of this form may be received by contacting the company at: 8630 Technology Way, Suite A, Reno, NV 89511, Phone (775) 284-7778.

March 4, 2010

FDIC Policies Are Devastating Main Street America

Posted in Banking, Big Banks, Capital, community banks, crises, Finance, investments, local banks, Uncategorized tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , at 9:19 PM by Robert Barone

There are now 702 banks on the FDIC’s endangered list.  That’s about 10% of all community financial institutions.  Unless something changes, very few of these will survive.  As I’ve recently blogged (The Creation of Jobs – A Systemic Failure, February 23, 2010, https://ancorawest.wordpress.com ), these are institutions that make loans to small business, and it is widely recognized that small business is the job creating engine in America.  So, imagine, 10% of this vitally important industry is being devastated.  Our politicians praise FDIC Chairwoman Shelia Bair.  But I submit that she and her organization, the FDIC, is single-handedly destroying the basic fabric of American business.

It need not be that way.  What we have is government run amok.   First, two decades of excessively easy monetary policy which has led to a devastating debt bubble.  Then, when the crisis hits, the government responds by using taxpayer dollars to save the “Too Big To Fail” (TBTF) institutions that played a key role in fostering the debt bubble.  Finally, seeing that the public is up in arms about such policies and government behavior, the government reacts by refusing to aid those institutions that are now victims of the government’s own and the TBTF institutions’ policies, but are vital to economic recovery.

In trying to make it look like it is protecting the taxpayer, the FDIC has taken heavy handed and aggressive tactics with community financial institutions.  The problem here is political.  They want to appear tough to satisfy what they perceive the public wants, especially after the government’s TARP, AIG, and TBTF “bonus” fiascos.  The result is a depleted FDIC insurance fund, a certain need for a taxpayer bailout sometime this year, and devastation for America’s small banks and small business.

Each of the 702 endangered institutions has a Cease and Desist Order (C&D), the last step before closure.  Each C&D Order and all of the correspondence from the FDIC accuses Boards and Management of “incompetence” and “mismanagement” despite the fact that in ’05 and ’06, most of these same Boards and Managements received high scores in examinations.  I simply can’t swallow the assertion that most of the 702 institutions suffer from “incompetent” management.  We are in the midst of an economic crisis, not a crisis of management.  Yet, the FDIC is addressing the issue as if only the latter is the cause.

Each of the 702 problem institutions has a capital raising mandate as part of the C&D order.  The fact is, once on this list, capital is impossible to raise.  Those with capital to inject simply only have to wait for the FDIC to close the institution to get a once in a lifetime sweetheart deal from the FDIC.  On the other hand, the TBTF easily raised capital last November and December to repay TARP in order to ensure that big bonuses could be paid.  They could raise capital because the public knows that the government won’t let these behemoths fail.

Worse, when an institution is closed, in come the Wall Street wealthy who appear to get the deal of a lifetime, at taxpayer expense.  [The FDIC will argue that the insurance funds are not taxpayer dollars, but insurance premiums paid by insured institutions.  Two points: 1) the FDIC fund is now -$20 billion, so soon taxpayers will be on the hook; 2) bank fees would be lower without insurance premiums, so, like every other tax, eventually the consumer pays.]  By the way, one must be an “approved” purchaser to purchase the failed banks, an exclusive club composed mainly of Wall Street sharks.

Capital devastation for these small banks comes mainly from souring loans (although the opening salvo was the losses many took on FNMA and FHLMC preferred stock in September, 2008, another government failure).  In many instances accounting rules require loan write-downs upon renewal of loans if appraisals come in lower than at loan inception, virtually a 100% probability.  Bank balance sheets are illiquid by design (they turn illiquid collateral assets into cash via the loan process).  Rules that force “mark to market” on such illiquid assets only erodes capital, make survival problematic, and prohibit new loans to small business, thereby prolonging the economic crisis and joblessness.  Instead of blaming management and employing Gestapo like tactics, an approach to capital that allows “healing” time for bank balance sheets appears to be a better and cheaper approach, especially in light of the FDIC’s mandate to resolve institutions using a “least cost” approach.  Most of the assets on those balance sheets will regain value as economic conditions improve.  Time is all the institutions need.

One way to provide time would be to have a special category of capital where the “write-downs” of loans due to economic circumstances could be amortized over a long period, say 10 or 20 years.  This would give the vast majority of the 702 doomed institutions new life.  If it is publicly perceived that they will survive, most will have the ability to raise capital, and the time to heal.

I believe the devastation and havoc being wreaked upon Main Street America’s financial institutions by Ms. Bair and the FDIC’s current policies will continue to cripple America’s economic engine and prolong the economic malaise.  Funny thing about America, oftentimes media heroes turn out to be real villains: Elliot Spitzer, Bernard Madoff, Alan Greenspan, Tiger Woods, to name a few.  If the FDIC’s current policies continue, we’ll soon add Shelia Bair to this list.

Robert Barone, Ph.D.

March 1, 2010

Ancora West Advisors LLC is a registered investment adviser with the Securities and Exchange Commission of the United States.  A more detailed description of the company, its management and practices are contained in its registration document, Form ADV, Part II.  A copy of this form may be received by contacting the company at: 8630 Technology Way, Suite A, Reno, NV 89511, Phone (775) 284-7778