The top stories yesterday seemed to be of the financial sort. The Federal Reserve and U.S. Treasury stepped in to help shore up mortgage lenders Fannie Mae and Freddie Mac, which together either directly hold or supply the backing for $5.3 trillion in mortgages.
And then there was the Federal Deposit Insurance Corp.'s takeover of Pasadena-based IndyMac Bank. A run on the bank by IndyMac depositors left the institution so cash-poor that it triggered the FDIC action last week.
With over $32 billion in assets, IndyMac represents the second-largest U.S. bank closure since 1934. The lines of rattled depositors queued up outside IndyMac branches yesterday seemed more like images from the Great Depression than contemporary America. The Daily Bulletin has an article covering the story from a local angle:
La Verne residents Bill and Nancy Armstrong arrived at the Foothill Boulevard branch an hour before the bank opened and got in a line that was 100 people long.
The elderly couple has their life savings in their neighborhood bank, including assets from inherited property.
Nancy Armstrong said she remembers the stories of her parents going through the Depression.
"Once you live through that, you learn to be frugal," she said. "Now here we are."
David Barr, an FDIC spokesman, said customers will be informed about how their accounts are structured and may be eligible to recoup dollar-for-dollar beyond the $100,000 limit.
If deposits aren't fully insured, customers will receive a receivership certificate and told about the process to possibly recoup more of their money.
More bank trouble is on the way, all courtesy of the mortgage meltdown. The FDIC lists 90 banks as troubled, and more failures are on the horizon. None of this bodes well for Rancho Cucamonga-based PFF Bancorp, whose shares closed yesterday at $ .80 per share, down from nearly $40 two years ago. PFF is awaiting shareholder approval of a sale to FBOC Corp., an Illinois banking concern that owns California National Bank. The sale may also be affected by a pending shareholder suit.
The Bulletin's Matt Wrye also had an article about the PFF sale, which noted that top PFF officials should get by just fine after the buyout, thank you:
If the acquisition is approved, PFF's president and CEO, Kevin McCarthy, and its chief financial officer, Greg Talbott, would each receive more than $2 million if they quit their jobs or are fired within 90 days of the merger. McCarthy already has said he will leave the company after the transition.
These employment agreements were inked in September, according to SEC documents, and they're on top of another $4 million other executives would get under the same rules.
"There are shareholders interested in stopping the sale," said Walter Hackett, who during the housing boom was a vice president and commercial note department manager.
He's also a witness for a group of shareholders building its case against PFF.
"I had to remind them that I didn't work for them, that I worked for PFF shareholders," Hackett said about certain PFF executives he worked with. "Ultimately, that's why I left."
Most analysts seem to think the current crisis of confidence will be less severe than the Savings and Loan bailout of the 1980's, which ended up costing Joe and Jane Taxpayer nearly $125 billion. As with every preceding financial crisis, we'll just have to ride this one out. That's the price of being a debtor nation when the bill comes due.
In the meantime, the effects of the current troubles continue to trickle down to the local level. Faced with tightened credit, rising food and energy costs, and a general uncertainly, consumers are reining in spending, which means lower sales tax revenue to cities like Claremont that are dependent on that income source.
It was telling at last week's city council meeting to hear councilmembers comment that Claremont cannot really afford $500,000 from the General Fund for a one of the proposed plan to mitigate tree root damage along Shenandoah Dr. near The Claremont Club. Cost was not the main reason councilmembers cited for opting for one of the other less expensive choices, but it was nonetheless a concern.
Time will tell if the Big Project mentality that has dominated our city government in recent years will give way to fiscal restraint as we wait for this storm to pass. There is an city election next year, and Claremont Mayor Ellen Taylor has hitched her wagon to a number of big ticket items: Police station - $25-30 million; Padua Ave. Sports Park - $10-12 million; water company takeover - $100 million-plus; affordable housing project - unknown costs.
We get to see in coming months whether politics trumps reason.
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