Financial crisis:
Local bankers
talk about finances
By Forrest Adams

With one eyes on their elected officials in Washington, D.C., and the other on the volatile stock market in New York City, voters deal with yet another national crisis, this one financial, and they’re left asking what will happen next.

Folks who deposit money in the bank are concerned if it will be there tomorrow. Small business owners are fearful that credit at low interest rates will be unavailable for their needs. Politicians have led us to believe that home loans, car loans, student loans and the entire financial system could be in jeopardy.

Last week several local bankers and a financial advisor talked about how they’re responding to financial problems on Wall Street, misguided public policy in Washington, D.C., and how it all could reach to the proverbial Main Street of our local communities.

Americana Bank
Asked whether economic calamity is imminent, based on the financial situation as it is now Al Obernolte from Americana Bank said simply: “I don’t think so.”

He explained the problem has largely to do with mortgage-backed securities that have deteriorated in value to the point where it’s hard to determine a price for them. That creates problems for banks to lend and borrow from one another. The federal government wants to provide a backstop for the valuation of these mortgages.

Americana Bank and other community banks could be hit to the effect that larger banks that they rely on for some of their cash could have their own cash problems. It’s called a liquidity issue. Liquidity for a bank means the ability to meet its financial obligations as they come due. Liquidity is used to fund new loans, Obernolte said, adding if you have a liquidity crisis, you can’t fund new loans.

That being the case, customers shouldn’t feel panicked because 85 to 90 percent of the funding at Americana “comes from local sources, local people,” said Obernolte.

Community Bank
The situation at Community Bank is similar, where President Bill Traxler said one of the chief concerns he hears from depositors is that their deposits over $100,000 are insured.
In response to this, bank staff have been busy helping depositors structure their accounts to expand their FDIC insurance levels, Traxler said.

“Concern has risen a fair amount,” he added. “Prior to the last 60 days we got very few calls per month about this. Now we’re getting probably five calls per day.”

FDIC stands for Federal Deposit Insurance Corporation. The FDIC protects you against the loss of your deposits if an FDIC-insured bank or savings association fails, and FDIC insurance is backed by the full faith and credit of the United States government. The basic insurance limit is $100,000 per depositor per insured bank.
For more information, go to www.fdic.gov.

But “there are ways to get more than $100,000 of FDIC insurance based on your accounts and how you have them titled,” Traxler said, pointing out what’s known as CDARS.

CDARS is the Certificate of Deposit Account Registry Service, a way to enjoy full FDIC insurance on deposits of up to $50 million. For more information, go to www.cdars.com.

Klein Bank
Marques Doppler, President of Klein Bank in Chanhassen and Victoria, added: “We work with customers to maximize their FDIC coverage and also have the CDARS Program to further enhance FDIC Insurance coverage.”

He sees challenges facing national financial institutions, but not the calamity foretold by politicians in Washington, D.C. Problems trickle down from Wall Street to Main Street most because they negatively impact customer’s perceptions, he noted in e-mail correspondence.

“With all of the media hype, there have been increasing levels of concern about FDIC Insurance coverage on deposits and questions about how the current state of the economy is impacting KleinBank,” according to Doppler.

But, like the others, he expressed confidence in the soundness of his financial institution.

“The Klein family was looked to during the Great Depression in 1931 for safety and soundness and are experiencing some of the same discussions today,” he said. “Due to our consistent and conservative financial philosophies, we have been effectively serving individuals, businesses and communities for over 101 years. None of KleinBank depositors lost money during the depression when nearly 10,000 banks failed in the United States.”

From Family Security Matters

There is a whole lot of finger pointing going on in the world of politics this week. For those of you who would rather stay in the dark, stop reading. But for those who just enjoy history or want to understand how or why we got to this point in financial chaos:

1938 - Roosevelt got Fannie Mae through a Democrat-controlled congress.

1970 - Freddie Mac was created by Democrats in congress 57-43 Senate and 234-192 House.

1977 - The Community Reinvestment Act was passed by the democratic congress (61-39 Senate and 292-143 House) and signed into law by Jimmy Carter. It encouraged banks and mortgage lenders to loan money for housing to people who would not otherwise qualify (with Freddie and Fannie backing same by taking the paper).

1995 - President Clinton signed the executive order mandating lenders expand their lending for mortgages to sub-prime borrowers (that means people who would not qualify under any criteria in a sane world). Failure to do so would result in the lending institution not having access to federal funds or the quasi governmental Fannie and Freddie.

1999 - Republican Senator Phil Gramm pushed through congress deregulation laws (Gramm-Leach-Bliley Act) removing Depression era laws separating banking, insurance and brokerage activities. The vote in the Senate was 98-1-1. McCain was the one who did not vote, another Republican was the lone no vote. Biden and Harry Reid, who are now saying it's all Bush's fault, voted for the bill. Even Obama this week places the blamed on Gramm, but fails to mention that his running mate voted for it, and Clinton signed it into law.

2003 - President Bush tried to get congress to amend Fannie Mae and Freddie Mac rules to disallow loans to people who would not qualify under normal lending institution rules for making loans.

In other words, rescind the Clinton Executive order, which had by now become the rules of Freddie Mac and Fannie Mae.

The Democrats in the Senate (48) used the threat of filibuster to kill the bill (must have that magic 60 in the Senate to stop a filibuster).

2006 Greenspan testified before congress that Fannie Mae and Freddie Mac were both a house of cards and needed a lot more oversight and controls in case this country found itself in a recession in the future. That duty falls to the U.S. Senate Committee on Banking, Housing and Urban Affairs. Democrat Chris Dodd is Chairman. He wasn't thrilled with Greenspan's advice, because he was the number one campaign money receiver from Fannie and Freddie over the years. Obama was number 2, and he raked his largess in within two years.

Now Dodd is saying he may go for the 700 billion, but he wants more oversight, which he had in the first place, but doesn't want to point his finger at himself for not doing his job, even when told there was a big problem.

Every single piece of legislation the Republicans have put up to regulate the financial industry since 2000 has been killed in the senate by Democrats.

95% of the homeowners are paying their monthly mortgage payments. It's those 5% that are facing foreclosure that will cost the taxpayers a trillion or so if the bailout goes through.

http://www.familysecuritymatters.org/publications/id.1347/pub_detail.asp

Statement from Sen. Norm Coleman
on the financial stabilization plan

Local Republicans rally for Coleman: (Photo by Forrest Adams): Carver County Republican rally for Republican Senator Norm Coleman in the Chanhassen Recreation Center.

October 1st, 2008 - Washington, D.C. - “In a time of crisis, leadership and statesmanship are essential. I intend to vote in favor of the bipartisan financial stabilization package. The domino effect of not acting could topple the finances of every Minnesotan. At first sight, this bill may seem to do more for Wall Street than Main Street. But, at the core, this legislation is about the availability of capital – the lifeblood of the economy. When credit freezes, banks stop lending, businesses can’t make payroll, and jobs are lost. Loans to pay for college, cars and homes become nearly impossible to obtain. Savings are jeopardized. We have no choice but to act. This bipartisan plan is crafted in a way that protects the American taxpayers and holds Wall Street accountable. It ensures no blank checks, contains stringent oversight protections to watch where the dollars are going, and limits executive compensation and golden parachutes for Wall Street executives. And, equally important, is we will create no new permanent bureaucracy. We’ve ensured that once we have achieved our goals and objectives, this plan will sunset. In our efforts to create a 21st Century financial system that works, we can’t make the mistake of simply substituting one bureaucracy for another. Once this bill passes the Senate, the House must quickly follow suit to help stabilize the economy and protect the financial future of working moms and dads. Addressing this financial crisis may not be politically popular in the short-term, but for our long-term economic security and stability it is the right thing to do.”

FINANCIAL CRISIS BILL SUMMARY
The Emergency Economic Stabilization Act authorizes funding for the federal government to purchase distressed assets, with $250 billion available immediately, an additional $100 billion upon Presidential certification, and a final $350 billion subject to congressional disapproval. It also contains strong oversight and transparency measures, executive compensation restrictions, and responsible homeowner relief. The legislation also contains critical tax legislation protecting middle-class Minnesotans from higher taxes while at the same time providing important clean energy incentives, disaster relief and pro-growth incentives. Among some of the key provisions that will protect middle class Minnesotans are an AMT “patch” for 2008 which will keep the AMT from hitting up to 435,000 Minnesota taxpayers, as well as a two-year extension of the tuition deduction and teacher classroom expense deduction. The legislation also extends the R&D tax credit and the New Markets tax credit, both important to helping our economy during these challenging times. The bill also contains $17 billion for energy production tax credits for solar energy, fuel cell investment tax, and plug-in electric drive vehicles.

In addition, the bill contains a provision that prohibits health insurance companies from placing discriminatory restrictions on mental health treatment that do not exist for other physical illnesses. The measure, of which Coleman is an original cosponsor, will finally provide mental health parity for about 113 million Americans who work for employers with 50 or more employees. By requiring parity for deductibles, co-payments, annual and lifetime limits, and treatment limitations, this legislation will ensure that health plans do not place more restrictive guidelines on mental health treatment than on medical or surgical treatments.

Key Emergency Economic Stabilization Act Provisions
TAXPAYER PROTECTIONS/OVERSIGHT
o No blank check
o In 5 years, the President must submit to Congress a proposal to recoup any losses
o Taxpayers get stake in participating institutions and an opportunity to see a profit when their stocks rise.
o Creates a Financial Stability Oversight Board comprised of the Federal Reserve, Treasury Department, Securities and Exchange Commission, Department of Housing and Urban Development, and Federal Housing Finance Agency
o Creates a Congressional Oversight Panel and requires the Treasury Department to report back to Congress every month
o Treasury is required, within 2 business days to publicly disclose the details of any transaction.
o Establishes a Special Inspector General specifically for this funding
o Judicial Review

ACCOUNTABILITY
o No golden parachutes
o Limits on executive compensation
o Enhanced FBI cooperation for investigating fraud, misrepresentation, and malfeasance with respect to development, advertising, and sale of financial products.

HOMEOWNER RELIEF
o Strengthens the Hope for Homeowners program, a mortgage rescue program which was created by this summer’s housing bill (H.R. 3221)
o Extends mortgage debt forgiveness for three years, through 2012,
o For mortgages and mortgage-backed securities acquired through Treasury’s Troubled Asset Relief Program, the Secretary must implement a plan to mitigate foreclosures and to encourage the modification of loans through Hope for Homeowners and other programs. Also allows the Secretary to use loan guarantees and credit enhancement to avoid foreclosures.

Key Tax Extender Provisions

o Midwest Disaster: Provides a range of personal, property, charitable giving and business tax relief, including waiving the 10 percent penalty tax for eligible disaster-related distributions from retirement accounts and increase in standard mileage rate for charitable use of vehicles.
o Extension through 2009 of the $4,000 Qualified Tuition Deduction
o Extension through 2009 of the $250 Teacher Expense Deduction
o Extension through 2009 of the Research and Development Tax Credit
o One year extension for Section 45 tax credits for wind and refined coal and extends other renewable sources to 2010
o Extends 30% investment tax credit for solar energy property and qualified fuel cell property through 2016
o Authorizes $800 million of new clean renewable energy bonds
o $1.5 billion in new tax credits for coal plant projects that demonstrate the greatest potential for carbon capture and sequestration technology
o Provides a new tax credit per ton for CO2 captured, transported, and sequestered from an industrial sources
o Creates a new credit for consumers who buy plug-in electric passenger vehicles
o Extends the $1 per gallon production tax credit for biodiesel through 2009
o Extends the alternative refueling stations tax credit that helps build E85 pumps through 2010