For all the talk on Capitol Hill about how the $700 billion bailout was
needed to keep credit flowing to Main Street businesses, Tom Moran,
president of Community Bank, said the bill signed into law by President
Bush last week primarily benefits Wall Steet.
"As you read through it, it becomes fairly evident that it's geared
more for assisting in the recovery of the Wall Street banks, and to a
much lesser degree the Main Street banks," Moran said. "We're still at
a very early stage of this whole process, so whether this plan will
assist or hinder, is difficult to tell."
In its final form, the bailout bill's stated purpose is "to restore
liquidity and stability to the financial system of the United States
and to protect home values, college funds, retirement accounts and life
savings, and to preserve homeownership, promote jobs and economic
Although the law's provision increasing the Federal Deposit Insurance
Corp.'s protection of individual accounts from $100,000 to $250,000 is
a good thing for banks of all sizes, Moran said that change is listed
as temporary, and he'd like to see it made permanent.
Ken Olson, president of Old West Federal Credit Union, said the higher level of deposit insurance was also extended to credit unions insured through the National Credit Union Administration.
Olson said a big part of the financial crisis stemmed from non-standard loans where people with marginal credit, and sometimes with no credit or even a job, were granted home loans with little or no down payment.
Those types of sub-standard lending practices never took place at Old West, Olson said.
"Quite a while ago this credit union made the determination to serve our members in a prudent, safe and sound manner and this remains Old West's goal today - a goal that we are attaining despite the economic downturn that we are all experiencing," Olson said.
Under the new bailout bill, the Secretary of the Treasury, after consultation with the chairman of the Federal Reserve Board, has the authority to determine which troubled assets to purchase in order to promote market financial security.
According to analysis of the act released by the American Bankers Association and others, protecting bonding instruments used by cities and counties to raise funds, along with purchasing troubled assets held by the Public Employees Retirement System and certain other retirement funds, are listed as high priorities in determining which assets will be bought.
The bill also authorizes the Treasury to establish the Troubled Asset Relief Fund to purchase troubled assets from banks, savings associations, credit unions, securities brokers and dealers and insurance companies organized and operating in the United States. The program is to be operated through the new Office of Financial Stability, under the leadership of an assistant treasury secretary to be appointed by the president and confirmed by the Senate, according to a summary from the American Banker's Association.
Treasury is required to report all asset purchases and other agreements to Congress within 60 days, with written progress reports to Congress required within seven days after the first $50 billion in asset purchases, and additional progress reports required with each succeeding $50 billion in asset purchases.
In terms of what's in it for the individual borrower who has a variable rate mortgage, the bill includes foreclosure mitigation requirements. The Treasury is required to provide financial assistance to borrowers and renters living in properties securing troubled assets purchased with bailout funds.
Olson said that's a significant change from the original bailout bill that the House rejected.The original bill provided no assistance to people who needed to refinance but couldn't because they owed more than their houses are worth.
The bill also limits excessive compensation, tax benefits and golden parachutes for senior executives of financial institutions that sell troubled assets to the Treasury Department.
There's also some enforcement teeth in this bill, requiring federal financial regulatory agencies to cooperate with the FBI and other law enforcement agencies investigating fraud and misrepresentations related to the development, advertising and sale of financial products.
A study of the market-to-market accounting system that at times inflates property values and at other times depresses property values is also initiated under the bailout bill, along with authority for the Securities and Exchange Commission to suspend market-to-market accounting when doing so is deemed to be in the public's best interest.
To ensure the bailout doesn't' add to the long-term debt, the bailout bill requires the Office of Management and Budget and the Congressional Budget Office to report to Congress on the net gains or losses within five years. If there is a loss, the president must propose how he intends to recoup the loss from the financial industry.
Fortunately, Moran said, "Community Bank is largely unaffected by the negative financial machinations that seem to plague Wall Street on an hourly basis."
"We're not particularly focused on the bailout plan, since we don't have anything to be bailed out of," Moran said.
Jeremy Gilpin, a Community Bank vice president and loan officer at the Baker City branch, said 2008 is actually the best year ever for Community Bank.
For the second quarter of 2008, net income at Community Bank's 15 branches totaled $1 million, up 24 percent from the first quarter, and Gilpin said a growing portfolio of well-performing government-backed and shared participation loans contributed to the bank's success.
"We never partook of the sub-prime real estate market at all," Gilpin said. "At the Baker City branch we've had zero foreclosures this year. We've had zero repossessions this year."
Olson said the nationwide financial crisis has little effect on credit unions like Old West, which focus on lending money deposited by local depositors to local people who are buying homes and running area farms, ranches and businesses.
"Old West is built for tough times," Olson said. "The fact of the matter is that Old West is chartered as a low-income credit union and we serve members in those counties of Oregon that have had some of the highest unemployment rates and lower income averages in the state," Olson said.
"Making safe, sound and prudent loans and offering out members a fair return on their money is a serious commitment that this credit union has made."
While the purpose of the bailout bill was touted by President Bush and congressional leaders as shoring up the nation's financial system, the final bill approved by Congress includes a number of tax benefits added to garner enough support from lawmakers.
Additional tax relief is provided for families through an increase in the child tax credit to $8,500.