July 21, 2008 -- Lies, Delusion, or Both?

I drove past the former First Federal Bank branch (now OneWest Bank) on Montana and 17th the other day and decided I should dig up this gem of a letter which I have been holding onto for quite some time. You can click on it for a larger image. I encourage you to read both pages of it. To start, I will quote a few of my favorite lines from the first page (above).

...First Fed has nearly twice the regulatory capital required to be considered "well-capitalized." We believe we have more than enough capital to withstand this current market cycle.
...we decreased our originations of Option ARM mortgage loans in late 2005.



Below is the second page of the letter.



Some more great lines (from the second page above):

We are not a "complex" financial institution like many others...
First Fed is not currently in any danger of being taken over by the FDIC nor do we foresee any scenario that could even put us in that position.

Our current stock price is unrelated to our capital and is based on investor perception...Our stock price does not reflect our financial soundness or your deposit safety.

Bottom line: First Fed has been in business since 1929 and we've weathered many economic cycles. We are equipped and ready to weather this cycle, and will bounce back quickly as conditions improve.

First Federal failed 12/18/09...more than a year after this letter was sent out, but the writing was on the wall for a long time and this thing was in zombie penny stock status for quite a while before finally being seized by the FDIC.
The branch on 17th and Montana was where I opened my first bank account. I remember wheeling a bunch of pennies over there with one of my Franklin classes when we did a fundraiser for the rain forest or something like that. I once saw a celebrity in the parking lot as a kid...fast forward and I remember looking through 10-Q reports a few years ago and being worried about how much negative amortization interest they were booking as profits before actually receiving it.

While we're on the subject of looking back at the wretched excess of the housing bubble and the financial chicanery which enabled it, I want to highly recommend The Big Short by Michael Lewis.
It is a pretty quick read and highly entertaining while at the same time, highly educational. I thought I knew a good amount about the relationship between Wall Street and the mortgage market but this really opened my eyes. Here is a little excerpt:

There weren't enough Americans with shitty credit taking out loans to satisfy investors' appetite for the end product. Wall Street needed his bets in order to synthesize more of them. "they weren't satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn't afford," said Eisman. "They were creating them out of whole cloth. Once hundred times over! That's why the losses in the financial system are so much greater than just the subprime loans. That's when I realized they needed us to keep the machine running. I was like, This is allowed?"