Friday, January 8, 2010

Almost missed this one...

Looks like Bako lost one of its Credit Unions this evening.

From the Californian:

An excerpt:

Kern Central Credit Union was closed and liquidated by state regulators Friday due to inadequate capital, but members will be able to carry on business as usual, its former chief executive says, and accounts are safe.

Loans and deposits at the nearly $35 million-asset Bakersfield institution were taken over by the $75 million-asset Self-Help Federal Credit Union headquartered in North Carolina. Kern Central will operate under the business name Community Trust Credit Union, a division of Self-Help. Self-Help already operates six branches in California

Heh. I like the name of the new branch. "Community Trust Credit Union". Just remember what Ronald Reagan said about the Soviet nuclear missile agreement: "Trust, but verify."

Like I said in an earlier post, check the health of a financial institution before depositing your money. The FDIC is effectively insolvent, and the government has shown itself far more willing to bail out large well-connected institutions than small businesses or individuals.

Caveat Emptor when depositing your money...

Better late than never, I suppose

Without comment:

Plea Agreements

Thursday, January 7, 2010


The toxic substance that sickened the TSA workers at Meadows Field, causing them to be transported in an ambulance to the hospital? None other than that lethal liquid, honey.

Story HERE.

I have a scoop that the Californian does not have, however. I have a picture of the TSA workers. The link to their photo is HERE.

OK, that wasn't very nice. What would be nice is for all of the passengers who were inconvenienced by this to get apologies from the TSA workers and the authorities who "did not over-react". ;)

Tuesday, January 5, 2010

Money Market Funds - Heads-up!!!

Here is some spooky stuff you won't learn from watching TV, even the financial network channels:

The government is about to change the rules on Money Market fund withdrawals. THIS is a rather long article over at Zero Hedge explaining the proposed new rules. ZH was kind enough to highlight the important parts in bold.

Here is the most important part:

Rule 22e-3

From the SEC:

Proposed rule 22e–3(a) would permit a money market fund to suspend redemptions if:

(i) The fund’s current price per share, calculated pursuant to rule 2a–7(c), is less than the fund’s stable net asset value per share;

(ii) its board of directors, including a majority of directors who are not interested persons, approves the liquidation of the fund; and

(iii) the fund, prior to suspending redemptions, notifies the Commission of its decision to liquidate and suspend redemptions, by electronic mail directed to the attention of our Director of the Division of Investment Management or the Director’s designee.

The bottom line is that the proposed rule change will allow institutions to halt redemptions from money market funds under certain conditions.

I have two views on this:

Yes, a panic is bad, and yes massive withdrawals from funds are profoundly destabilizing for the overall financial system. Because money market funds are not FDIC-insured, they are certainly likely to be prone to runs. It happened in November of 2008 after Lehman failed.

On the other side of the argument:

i)The money in question is MY money, not theirs.

ii) Since it is in a "liquid" account, I should be able to access all of MY money at any time.

iii) The last guy who needed to halt fund redemptions was Bernie Madoff.

I am still trying to decide whether or not this is a feature or a bug in the plan. The effect will be to coerce Americans to put their cash into the stock/bond markets, if only to guarantee access to their money. Of course a by-product of this rule will be that the financial industry benefits, and the stock market goes up. However forced purchase of stocks is not organic stock market behavior. It's manipulation.

2010 Resolution: More posts!

Happy New Year to all! (both of you, hahaha)

I have resolved to post more about local issues and finances. As I write this, Meadows Field is under lock-down because a piece of baggage sickened some TSA workers when they opened it. The unidentified substance that sickened them is probably someone's dirty socks ;)

I would like to suggest that people move their banking/checking activities to smaller banks, away from the big money-center banks such as Wells Fargo, B of A, or Chase (a.k.a JP Morgan/Chase). I prefer Credit Unions, for reasons I cited earlier.

Rather than reinvent the wheel, I will just link to a very useful article that I read recently (HERE).

There is a link (ALSO HERE) in that article that allows you to check the health of your local Thrift or Credit Union. Imagine my surprise at learning that Kern Schools FCU is not very healthy compared to its peers.

Here is the summary of my Credit Union, and it validates my earlier suspicion why my money still needs to be kept (as cash) in a coffee can.

Institution Commentary
OVERVIEW of Institution
KERN SCHOOLS is a federally chartered credit union, which, as of June 30, 2009, reported total assets of approximately $1.7300 billion. At that date, loans and deposits held by the instutition amounted to $1.1415 billion and $1.6078 billion, respectively. Equity, the difference between a credit union's total assets and total liabilities, was determined to have been $76.4024 million, which was 4.42% of total assets.

Bankrate believes that, as of June 30, 2009, this credit union exhibited a below average condition, characterized by well below standard capitalization, questionable asset quality, substantially lower than normal profitability, and near normal liquidity.

Balance sheet structural changes, through the one year period of time ended June 30, 2009, have had little or no positive, and quite possibly a negative, impact upon the instutition's capital position. Our analytical methodology does take into account the quantity, quality, durability, and direction of net worth, and, as set forth above, we have determined, based upon our series of tests, that this credit union demonstrates well below standard capitalization. Notwithstanding any of the information contained within this section, we believe, based on our analysis, that the institution should consider plans for enhancing reported capitalization.

The institution revealed, as previously stated, questionable asset quality. That conclusion incorporates our analysis of data depicting regional economic conditions as well as our computations of a substantially higher than standard June 30, 2009 nonperforming asset ratio and much better than normal reserve coverage for nonperforming loans. The institution's current level of nonperforming assets could lead to sharp write-downs and consequent substantial loss provisions. Hence, careful monitoring and additional inquiry are warranted.

Credit card lending activities should not, based on our analysis of asset quality trends and conditions, have a substantial negative impact upon future results.

For the six months ended June 30, 2009, this institution recorded a net loss of $-17,934.54 thousand, which represented a return on average assets (ROA) of -2.11%. Year earlier results amounted to a net loss of $-5,620.62 thousand, or a -0.65% annualized ROA. ROA is the key measurement of profitability within the credit union industry, and the industry's ROA, for the six months ended June 30, 2009, approximated 0.5%.

We have concluded that, for the first half of 2009, the institution achieved a substantially below average return on average assets , and, in fact, sustained an actual loss for that six month period ended June 30, 2009, as noted perviously . A significantly higher than average overhead ratio is in evidence.

As of June 30, 2009, the institution displayed strong balance sheet liquidity. Accounting principles require some security investments to be categorized as "Available-for-Sale." Changes in market value of securities so classified are reflected through GAAP (Generally Accepted Accounting Principles) net worth. We believe that, in view of the composition of the institution's reported investment portfolio, securities categorized as "Available-for-Sale" are almost certain to have a very meaningful effect upon future net worth.

This credit union has been rated below average.
Negative factors that impacted that rating follow:

* Capitalization
* Asset Quality
* Earnings

As noted previously, early warning indicators possibly requiring specific investigation include:

* Capital Adequacy
* Nonperforming Assets
* Overhead

As stated, we have determined a Composite Star rating for this credit union of 2 stars, indicative of a below average financial condition. At times, conditions of financial institutions change rapidly and significantly. Hence, our Safe & Sound Star ratings should not be deemed predictive of likely future ratings. However, in view of early warning indicators set forth within this report, in combination with the institution's financial data, we believe that the Star rating for this institution is likely to decline within the ensuing twelve month period.

I did not look up the status of other small Bakersfield financial institutions, but the answers are easy to get with the links provided.


I realize that this Credit Union is FDIC-insured. However since the FDIC itself is effectively insolvent, the FDIC guarantee doesn't give me a great deal of comfort. I view it as the equivalent of one Subprime borrower guaranteeing the mortgage of another Subprime borrower.

From Wikipedia:

A March 2008 memorandum to the FDIC Board of Directors shows a 2007 year-end Deposit Insurance Fund balance of about $52.4 billion, which represented a reserve ratio of 1.22% of its exposure to insured deposits totaling about $4.29 trillion. The 2008 year-end insured deposits were projected to reach about $4.42 trillion with the reserve growing to $55.2 billion, a ratio of 1.25%.[19] As of June 2008, the DIF had a balance of $45.2 billion.[20] However, 9 months later, in March, 2009, the DIF fell to $13 billion.[21] That was the lowest total since September, 1993[21] and represented a reserve ratio of 0.27% of its exposure to insured deposits totaling about $4.83 trillion.