Monday, August 24, 2009

FDIC Bank Failures (Selected Best Answer - Linkedin)

Mike O'Mara's Question: FDIC Bank Failures

FDIC Bank Failures
Bank takeovers by the FDIC are up to 77 YTD as of August 15th and the markets are still waiting for the FDIC put into place a viable program to move these toxic assets through the system?

What ‘s your view on this situation and how do you invest in the distressed debt & real estate through the FDIC?

David Kaufman's Answer (Selected Best Answer - Linkedin):
With such good and knowledgeable answers, I probably should not attempt to weigh in on this question, however, I do have a few observations.

When the S&L crisis was first heating up, I can remember that Congress voted to shore up the F.S.L.I.C. with 2 or 3 billion to take over, liquidate failed thrifts and their assets while covering the depositors at the same.

You don't hear much about them anymore because they were under in a heartbeat (the F.S.L.I.C. that is). It took my breath away.

During that crisis, I conducted the first, last and most auctions for the Resolution Trust during their brief existence and worked with a lot of good people from this organization.

I recall that after my first auction in Houston (125 houses for Fannie Mae in 1985), I met some wonderful Texans. One of my new friends asked me if I would visit "his" bank with him because he was on the board of directors and was very proud of it.

I did, and after seeing all the beautiful artwork, furniture, conference rooms, etc... I suggested to him that he should call his attorney and ask his attorney if he should resign immediately. While he was flabbergasted at my suggestion, he did call his attorney who told him, "hell, yes, resign!".

He resigned and the Feds took that bank down a year later. Because he resigned when he did, he avoided the legal onslaught that financially swallowed the other members of the board.

Now is not the time to be on the board of directors of a bank!

There are so many commercial loans coming due shortly that are not worth their mortgage balances because of the vacancy rates in the underlying collateral that I fear will lead to a huge number of financial institutions going under.

For many reasons that I won't go into here I don't think that the Private/Public buyout of "toxic" assets has a low chance of succeeding. In my opinion, the only resolution to this huge problem will be the same as it was in S&L Crisis and that is for the government to take over the failed institutions and liquidate their assets including their real estate.

While this may not be the bottom, nobody can ever pick the bottom, so it is probably a good time to start buying. But wade in carefully because it is very dangerous.

Go to the F.D.I.C.'s website, look for their auctions and sales and use LinkedIn to network to the right people.

There will be many a new fortune made out of this huge disaster. Be ready to participate.