“Shorebank Managers Ready if Seized” (WSJ Article Retrieved 2010-08-22)
“My buddies wanted to be firemen, farmers or policemen, something like that. Not me, I just wanted to steal people’s money!” – John Dillinger (Brainy Quotes Retrieved 2010-08-22)
The seizure and management takeover of Shore Bank shows how to steal money in the era of no consequences or shame – good intentions is all that matter. The FDIC, in defiance of its own rules, is selling the assets of the failed ShoreBank Corp. to the same management team that was captaining the ship that ran the bank “ashore” (pun intended). According to the above cited WSJ article, “FDIC rules bar investors who own 10% of the bank from bidding on it once it goes into receivership, according to Atlanta bank lawyer Chip McDonald.” In this case the current management team, under the entity Urban Partnership Bank, is buying the income producing assets of ShoreBank Corp and leaving the bad assets – the consequences of losing lending risks – to normal taxpaying citizens. Of course taxpayers don’t receive any of the money that management earned in prior years off all the bad loans that were made: the illusory profits that management received in exchange for taking the risks of lending. Now, tax revenues that could have been used for public services (or paying the mounting U.S. Government’s interest payments) will instead be used to pay for the bad lending risks made by Shorebank’s management team. The management team gets to keep all prior year earnings without losing their jobs, taking a financial bath, or incurring shame and scrutiny; and they are allowed to continue to run an FDIC insured (i.e. tax payer insured) institution. This begs the question: what does it take to prove you are incompetent to run a bank?
It can only be concluded that the management team of Shore Bank is a public enemy: they are stealing money from the taxpayer by keeping unearned earnings, and they are a moral hazard threat to society. Not only could the same management team fail another bank, but the FDIC’s and Shorebank’s executive’s actions encourage other bankers to make similar risky loans; if not to become explicit bank robbers like the Shorebank executives, at least to compete against the other bank robbers who are making risky loans. The FDIC’s actions give bankers no incentive not to make bad loans – they win if the loan turns out good and they win if the loans turn out bad. John Dillinger might have been a bad man and a true public enemy, but at least he accepted the risks and rewards of bank robbing. In the era of no consequences or shame, Herman-Miller-sitting bank executives eagerly steal tax payers’ money without accepting the consequences of their failures.