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Fallout: The Financial Crisis

Bank’s failure gets personal

Bob Moon Dec 22, 2009
Fallout: The Financial Crisis

Bank’s failure gets personal

Bob Moon Dec 22, 2009


Bob Moon: Consider this: Not a single U.S. bank failed between the summer of 2004 and the beginning of 2007. Since then, around 170 have collapsed — 140 just this year. And the consulting firm Accenture reckons in the next three years about 2,000 banks will have gone belly-up. That would be roughly a quarter of all the country’s banks, most of them gobbled up by other banks.

The list of failed banks grew by seven this past weekend. That included First Federal Bank of California, which had as one of its customers our own Senior Editor Paddy Hirsch. And over the past couple of days, he’s gotten a bitter taste of what that failure means to him.
Hi, Paddy.


Moon: I have to say I bank at one of those too-big-to-fail institutions, ticker symbol “C.”

HIRSCH: Yeah, lucky for you.

Moon: Yeah, I have nothing to worry about, right? But I’ve wondered how all these failures actually play out if you’re a customer. So walk us through this. What happened to your bank?

HIRSCH: Well, it’s hard to say, exactly, because nobody is telling us the whole truth yet. But it seems that First Federal was so overexposed to a bunch of bad loans that its regulator closed it down, and then the FDIC brokered a sale to a bigger bank called OneWest.

Moon: OK, so what does that mean to you. The good old FDIC makes it all sound seamless, but you still look a little worried here.

HIRSCH: Well, they say its seamless, but I’m really not convinced. Because OneWest was created at the beginning of this year to buy a bank called IndyMac, which you may remember was a big home lender here in California, and which choked to death on its bad loans. So I feel a bit like I’m jumping out of the fire and back into the frying pan.

Moon: Well, I hope you’ve been able to visit your amassed fortune since this all played out. Your money is safe, right?

HIRSCH: Yeah, my money is safe, yes. Because I’m under the FDIC guaranteed limits, so the deposit insurance fund covers me. Although I did hear yesterday that the fund is now more than $8 billion in the red, by the way. Still, but that doesn’t make me any less unhappy by First Federal being gobbled up because it really changes the whole dynamic of my relationship with my bankers. And I value that relationship. I do.

Moon: You have a relationship with your bank? That’s a quaint concept.

HIRSCH: It may be too you, Bob, if you bank at one of these large behemoths. But to me it was a very good relationship, very important to me. And I purposely opted to join a small bank when I arrived in California, because I didn’t like dealing with the big banks and the way they treated customers — or didn’t treat them as it were. And I got to know the president there. I got to know all the people at the local branches. And it was great, because I got a human being on the phone every time I called. And the difference is dramatic. I mean, here’s what I got when I called OneWest yesterday.

ONE WEST: Hello. Thank you for calling OneWest Bank. To open or apply…

HIRSCH: There you go. Doesn’t that sound familiar? It was voice mail hell. I was poked and prodded through it and for 15 minutes. And then this hideous hold music came up. It was a really, really unpleasant experience. I’m not going to let you listen to this hold music anymore. Let’s get rid of that.

Moon: I was kind of enjoying it.

HIRSCH: No, no, no you weren’t. It reminded of the bad old days when I banked with Chase back in New York.

Moon: Now, now. Jamie Dimon got to the executive suite at Chase somehow.

HIRSCH: I’m sure he’s a very nice guy, but I didn’t think much of his customer service, let me tell you.

Moon: OK, well, what are you going to do now?

HIRSCH: Well, I don’t know. I’d like to go to another small bank but, you know, I’ve had such a bad experience, it’s failed, so I don’t want to go through that again. So I think I’m going to have to do some pretty careful shopping around in the new year. And frankly, I’m seriously considering a credit union.

Moon: It’s only money, Paddy.

HIRSCH: It’s only money, but it’s important to me, Bob.

Moon: Paddy Hirsch, our senior editor at Marketplace. Thanks, Paddy.

HIRSCH: Thank you.

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