Bank Lawyer's Blog

Clarity

I'm in the midst of a road trip this week in the service of the Dark Side of The Force, but before I "go dark" until next week, I'd like to give my "props" to the two NAFCU compliance officers who've taken over postings at the NAFCU Compliance Blog from Anthony Demangone (who was kicked upstairs to the COO's job). Last week, Sarah Loats Zimmerman had a useful clarification about the upcoming changes to the FCRA Adverse Action model forms. As Sarah points out, Dodd-Frank mandated a change to the FCRA form, not the Regulation B form, but since many lenders combine the notices where appropriate, the FRB issued a proposed combined model form. The effective date for the new form is July 21, 2011, so a final form should be issued shortly. If your bank has been confused about this issue, Sarah's post should help clear up that confusion.

On Friday, Steve Van Beek wrote his second post of the week (and revised an earlier post) regarding the second notice that must be given regarding noninterest-bearing transaction accounts. While Steve discusses some other notices that are required in regulations that apply to credit unions, the discussion should be useful to banks and other financial institutions, which have similar regulations. It's another fine instance of compliance officers clarifying less-than-clear regulations inflicted upon financioal institutions by lawyers. For that, you have to give both Steve and Sarah a hat tip.

GAO Report: CRE Guidance Needs Improvement

Anyone who represents senior management and/or directors of community banks who are in trouble or have failed, allegedly because they concentrated in commercial real estate lending, needs to read the GAO Report on the federal regulators' CRE guidance and its uneven application. The report was featured in a recent Housing Wire story.

The GAO recommends that the regulators either reissue or supplement the guidance "to provide greater clarity and more examples to help banks comply with CRE concentration and risk-management requirements and help examiners ensure consistency in their application of the guidance, especially related to reductions in CRE concentrations and calculation of CRE concentrations." The GAO also recommends that, after providing greater clarity in the guidance itself, the regulators "should incorporate steps in existing review and quality assurance processes, as appropriate, to better ensure that the revised guidance is implemented consistently and that examiners clearly indicate within bank examination reports the basis for requiring a bank to reduce CRE loan concentrations."

I don't think I'm alone in thinking that a GAO report that says that the guidance lacked clarity and was inconsistently applied might have some nuggets of value within it for those defending claims that bank officers and directors breached their duty of due care by concentrating in commercial real estate loans without putting into place (or establishing but not following) the risk mitigation  practices "suggested" by the guidance.

The report also asserts that CRE concentrations by community banks (banks with total assets under $1 billion) is widespread (30% of total loans in 2000 and 43% ten years later), that the average CRE concentration in the period 2005 to 2010 was 289% of total capital, and that, according to the FDIC, 30% of community banks have CRE concentrations in excess of 300% (the level at which heightened risk mitigation practices are "suggested"). In other words, the concentration of community banks in commercial real estate was something that did not occur overnight (the GAO alleges that it was 10 to 15 years in the making), that the regulators knew what was going on, yet they didn't act to reign in CRE concentrations until 2006, when they issued proposed guidance in January 2006 and issued final guidance in December 2006. According to the GAO, the guidance that was issued was less than clear to both the examiners and to the examined.

One of the major complaints of bankers to the GAO was that after the current crisis went to "DEFCON 1" in 2008, the regulators suddenly started applying the guidance very restrictively, and in many cases "misapplying" the guidance. The GAO report gives these complaints some support.

"Additionally, we found that out of 47 ROEs that include CRE concentration information, a number of them did not include CRE concentration numbers that were calculated according to the 2006 CRE guidance. For example, some ROEs appear to include owner-occupied CRE as part of the CRE concentration calculation (14 of 47), although the 2006 CRE guidance specifically excludes this type of CRE. We also found that 23 of these 47 ROEs include CRE concentrations calculated by using some combination of tier 1 capital (and sometimes also include a number simply referred to as a concentration,' although how it was calculated was unclear). However, another 24 ROEs specify using either total risk-based capital or equity capital (or also include tier 1 capital), which is consistent with the 2006 guidance...

"While we and the regulators have reviewed examiner application of the CRE guidance and generally found examiners' actions were accurate or well-supported, some inaccuracies and inconsistencies were evident--particularly relating to the 2006 guidance. Regulators have mixed views about the adequacy of the 2006 guidance. Our findings from an analysis of ROEs were similar to those of the regulators' internal reviews and assessments, which raised questions about the consistency of policy guidance application. Given these findings, and in light of lessons learned from the recent financial crisis and CRE market downturn, the regulators could reassess the adequacy of the guidance. Revising or supplementing the guidance to provide more details about risk-management practices and examples of when to reduce CRE concentrations would help both examiners and bankers better understand how to assess and manage such concentrations."

The responses of each of the federal bank regulators are attached to the report. They range in tone from the FDIC, which seems to take the approach that the FDIC hasn't done anything wrong, doesn't need to improve, and, so, stick it you ear GAO, to the OCC, which agrees with the GAO's conclusions and recommendations and admits that there's need for improvement.

It's interesting reading for those of us who have experienced the kind of confusion and inconsistent (and sometimes inappropriate) application (or misapplication) of the guidance, and who are trying to assist community banks in defending themselves from allegations that alleged violations of the such guidance constitutes an unsafe and unsound practice. It's not "For Whom The Bell Tolls," but for a certain sort of reader, it will hold their attention.

Independent Directors And Independent Cousnel

This week's edition of Bank Safety & Soundness Reporter (paid subscription required) pursues a story that we commented upon a couple of weeks ago, the lawsuit recently filed by the FDIC against former senior officers and directors of the failed Wheatland Bank. Among other things, I discussed the fact that unlike many prior FDIC lawsuits (there have been less than ten filed so far, so it's not a large number, but many more are likely on their way), in the case of Wheatland Bank, the outside directors were sued along with the inside directors based upon their alleged negligence and gross negligence in failing to properly supervise the management of the bank. I said this was "an ill omen for any outside board member who thinks he or she might have a closet within which to hide from the vengeful glare of the FDIC."

The Bank Safety & Soundness Reporter article contains my views and those of the senior member of the firm for which I work, Tom Bieging (an ancient mariner five full years older than I, and, therefore, a lawyer steeped in the wisdom that only age can bestow), as well as of other legal bloviators like Jeff Gerrish, John Douglas, Jeffrey Werthan, and Mark Kanaly. Mark and I are identified in the linked article only by our last names (our full names are given in related articles and the editor might have become confused). It's nice to know that, like Madonna, Oprah, and Charo, Mark and I can assume the one-name mantle.

Some commenters, like Tom, think the "failure to supervise" claim is potentially a big deal, some, like Jeff, thinks it's some of the "same-old, same-old," and others, like Jeffrey, think it's too early to tell. While I agree with Jeffrey that it's likely too early to tell (especially since the alleged facts in the Wheatland Bank case appear to be so bad for the outside directors), I'm also a glass-half-full kind of guy, so I opt to find the dark cloud surrounding any silver lining, and I'll stick by my "ill omen for outside directors" view. If you're an outside director of a community bank, you don't need to end up as paranoid as Travis Bickle; on the other hand, when it comes to potential liability for the breach of a director's duties, being fairly paranoid is actually a good thing. Someone is, in fact, out to get you.

I also stand by my previously stated view that the directors, especially the outside directors, of many community banks (and especially those that are or may soon be "troubled") can benefit from the advice of independent counsel. By "independent," I don't mean "independent" like Ross Perot's unsuccessful presidential campaign, I mean an attorney who has not represented, and who is not otherwise affiliated with, the bank, and whose primary duty will be to serve the best interests of the directors. It is best not to wait until the Titanic has struck the iceberg before retaining such counsel (and community banks should seriously consider having such independent counsel available to the board on an ongoing basis in any event). However, if the bank is taking on water, it's absolutely critical that the directors have such independent counsel retained to advise them before the bank sinks.

Breach of duty of due care. Breach of duty of loyalty. Failure to adequately supervise. Not feeding the bank's pet iguana the correct subspecies of cricket. There are many ways to incur the wrath of the FDIC if the bank fails. Understanding the liability and the measures to mitigate it is critical for directors in these perilous times.

There's A Change Coming

In between her attempts to (1) juggle a schedule that's so busy that she spent ten minutes in a he-said-she-said shoe-peeing contest with a Republic House committee chairman over whether or not the chairman's staff told her she only had to testify for an hour, and (2) daydream about the prospect of getting up close and personal with Senator Scott Brown (if only to nibble his head off after messing around with his Senate seat, ala a praying mantis), Liz Warren has been dropping not-so-subtle hints that confirm what we said about her vision for the CFPB some months ago: "There will be blood!"

"Change is coming," warns interim Consumer Financial Protection Bureau chief Elizabeth Warren. This summer, her potentially massive new agency will rewrite and enforce rules for the entire financial sector.

"We will build a strong enforcement arm," she vowed in March. "More than half our budget will be committed to establishing supervision and meaningful enforcement."

"Meaningful enforcement." Otherwise known as the bank litigators relief act.

Bank trade association representatives reacted with their usual sangfroid.

The American Bankers Association predicts the Dodd-Frank Act, which created the CFPB, will help drive more than 1,000 banks out of business by the end of the decade.

[...]

The law creates an unparalleled disclosure headache, especially for smaller banks, which incur disproportionately higher costs for compliance.

That is "bad news for community banks already collapsing under mountainous regulatory burdens," said ABA Chairman Stephen Wilson, who also heads Cincinnati-based LCNB National Bank.

[...]

Community banks make loans that big banks wouldn't touch. Fewer banks mean fewer sources of capital, as well as higher rates and fees for customers.

"If we tie up our capital system, it's going to take money away from the people who need it to create jobs," warned U.S. Chamber of Commerce President Tom Donohue.

The law also heightens litigation risk. Smaller banks can't afford the army of lawyers required to fend off federal redlining complaints and consumer lawsuits.

Dodd-Frank makes it easier for borrowers to sue lenders to get out of mortgages that contain so-called "abusive" features banned by the bureau, including high interest charges and fees and prepayment penalties.

That all sounds pretty melodramatic. It's also probably pretty accurate. You can argue until the next Rapture fails to occur what will cause hundreds of more community banks to disappear, as many of us who've been through similar drills fully expect to happen. The CFPB may very well be one of major reasons (albeit not the sole reason), especially if it unleashes the Mighty Fist of Thor (actually, of Richard Cordray) on one and all so that it can show the world of banking that there's a new sheriff in town and he/she ain't scared of no one, no how. "Setting the table," it's called.

Here's the large stone for banks to swallow: most of the American public doesn't care. They've got more pressing problems to deal with, such as wondering if they'll ever awaken form the nightmare vision re-running in their Big-Mac-With-Fries-filled heads of Kirstie Alley in a leotard doing cartwheels on "Dancing With The Stars". Moreover, the people running the CFPB and their supporters in the seats of political power and in the press (including, by the way, most of the bank news trade press you read ever day) are "true believers" in the need for the CFPB and in the need for it to kick some behinds and to take some names. If some little bankers crumble under the compliance burden or give up the ghost and sell out, they consider that either collateral damage that is definitely worth the cost, that it is, in fact, a good idea that we are losing a large number of little banks so that we can have just a few big ones that will be easier for the federal government to "control."

"Change is coming." Where have we heard that before?

The Bailed Out Now Bailing Out

A couple of years ago, Hartford Insurance Company wanted to partake of TARP and in order to do so, needed to become a bank or savings and loan holding company. So, it acquired a relatively small ($2.2 billion) federal savings bank, became a savings and loan holding company regulated by the OTS, and got a healthy helping of preferred stock courtesy of the US Treasury Department. It bailed out of TARP last year, and this year it's bailing out of the savings bank business.

Many experts believe that other insurers are likely to sell off any thrifts they own prior to July when The Office of the Comptroller of Currency (OCC) assumes the duties of the Office of Thrift Supervision and the Federal Reserve will oversee the compliance of insurers with thrifts. Those insurers that continue to operate thrifts past the July transition need to make sure they are in compliance with the Collins Amendment, the Volcker Rule and they may be put on the list of those institutions that are systemically important (SIFIs).

"We expect there will be a lot of interest in restructuring and shedding these thrifts to avoid oversight," said Howard Mills, former superintendent of the New York State Insurance Department and chief advisor with Deloitte LLP's insurance industry group told its TheStreet earlier. "We think the reporting requirements would be costly for these insurers."

I suppose the timing of these sales is yet more proof for OTS critics that the OTS was, indeed, the softest touch among all the federal bank regulators. The demise of the OTS this coming July, and the transfer of supervision of the banks to the OCC and of the holding companies to FRB, is apparently a prospect that those used to the relatively gentle ministrations of the OTS do not relish. In addition, as other experts quoted in the linked article observe, many insurers only got into the banking business because the economy was crumbling and they wanted to receive a bailout capital injection that only a bank could buy. Now that the Treasury's largess is no longer needed, being a bank holding company is simply one more burden to shed.

It's hard to complain that TARP didn't do what it was intended to do, however. The OTS knew why the insurance companies were acquiring thrifts, decided that it was in the interest of the broader economy to allow them to become a S&L holding company and get TARP capital injections to stabilize them, and let them in the house. Now that the crisis has passed (until the next time, at least), there's no good reason not to hold open the door for those that want out and to wish them well, especially since they'll likely be selling to institutions already in the business and unfazed by the prospect of more oversight and reporting.

TheStreet article linked above includes a table with all the insurers that own banks. You'll notice some very large and recognizable names, including companies like State Farm and USAA that have owned banks for years and didn't enter the game simply to take advantage of TARP. Therefore, while a number of those insurers like Hartford may exit the banking business in the next few months, I expect many of the others to continue as bank holding companies regardless of the perceived additional regulatory burdens come this July.

Wanna' Bet On Who Wins?

I'm not certain how many bankers have been following the legal slug-fest between the National Credit Union Administration and Vensure Federal Credit Union, but it has all the earmarks of a heck of a story, when and if the final story is ever told. The latest recap of the battle is in this article by David Morrison in Credit Union Times, but stay tuned for more tidbits as the federal district court judge in the case, Rosemary Collyer, hears arguments, takes testimony, and makes rulings. The NCUA placed the credit union in a conservatorship on April 15, 2011, and like at least one federal thrift that was seized in March, the credit union decided to challenge the seizure in court.

  It appears that Vensure has had an unconventional history and that its business plan seems perfectly suited for a Martin Scorsese film starring Robert De Nero and Joe Pesci.

In its filings leading up to a May 11 deadline, the NCUA suggested that it had known something was up about the institution, which the NCUA characterized as being a "sleepy little credit union" as early as 2008 when an organization calling itself the National Investors Financial Education Association applied for CU services through the Grand Adirondack Federal Credit Union (Vensure's name at the time).

NCUA's filings said the agency had "concerns" about the request, but that after they were answered, it allowed members of the organization's Manhattan chapter, located in New York City, to join GAFCU.

Prior to this addition, the NCUA characterized the CU as "self-liquidating," with assets dropping from $73,529 in December 1999 to $30,966 in December 2007.

But after the addition of NIFEA in April 2008, a delayed examination of the CU's books in November of that year found that the CU's assets had grown by more than ten times, to more than $349,000.

It was soon after, in early 2009, that the NCUA said it was surprised by the credit union's "sudden" move from New York to Arizona.

"NCUA was completely unaware of any intended move by GAFCU and caught off guard by the news because not only did GAFCU fail to convey its intention before it moved, it also elected not to notify NCUA first after it moved," the agency said in its filing.

Then, according to the NCUA, an almost comic search ensued around the country for the true location of the CU that involved the NCUA staffers phoning or visiting locations in New York, Florida and Texas before they finally found GAFCU, now headquartered in the small Arizona town of Gilbert.

Only by this time, the CU's assets had increased to $2.1 million, its balance sheet swelled, according to someone whose name was redacted from the filing, by fee and "other operating income" from two CUSOs: Account Process Systems and Verartis Inc., which offered financial transaction and financial counseling services.

But by the time GAFCU applied for and received permission to change its name to Vensure FCU, the NCUA said it had learned that the income had not come from transaction processing or financial counseling but from the "legally suspect source" of Internet gambling transaction processing.

The agency was immediately concerned and said it began pressing Vensure to stop the processing and sever its relationship with Trinity Global Commerce Corp., the third-party transaction provider for two of the largest online poker sites, PokerStars and Full Tilt Poker.

If I'd known these folks were working with PokerStars, I'd have asked them to set me up for a private game of one-on-one "No-Limit Texas Hold 'Em" with Vanessa Rousso. I never realized the sleepy world of credit unions had within its ranks institutions run by people who understand that when you scream "All IN!" you're not urging everyone at the pool party to jump in the water.

As might be expected, Vensure has an entirely different spin on its activities. Illegal? Fuggedaboutit!

Vensure reiterated its previous contentions that it had complied with the NCUA's demands to cease processing for Trinity and that the agency had been satisfied with the CU not renewing the contract and only processing for Trinity in the interim. The NCUA had only conserved the CU, Vensure argued, because its leadership was concerned about being embarrassed by the U.S. Attorney's actions.

The "U.S. Attorney's actions" are explained in a previous article in the Credit Union Times.

...Vensure was the only credit union on a list of 16 domestic U.S. financial institutions to have an account or accounts seized by federal officials after the U.S District Court for the Southern District of New York unsealed indictments against the principal owners and officers behind some of the largest Internet poker websites. The dual indictments, one criminal and the other civil, charged the owners and officers of PokerStars, Full Tilt Poker and Absolute Poker/Ultimate Bet and the companies themselves of conspiring to defraud banks to get them to process credit, debit and prepaid card transactions from their gambling sites.

I'm outside the loop on this one, and can only guess at how it will eventually play out. On the other hand, I've had decades of experience in representing certain people who think that because they can argue with a straight face that what they are doing is not technically illegal, the financial institution regulators should just leave them alone so they can use insured deposits to fund all of that fun stuff. I'm a slow learner, but even I have learned this about that sort of business plan: you will cast your bread upon the water and it will return to you as burnt toast. If you're doing something "edgy," do it outside a highly regulated business like a bank or a credit union. Unless, of course, you like spending lots of money on lawyers, in which case, please come right on in and double down.

Dr. Bair Knows Best

She's only got a couple of weeks left in her tenure as head of the Consumers Union FDIC, but Sheila Bair isn't wasting any of her remaining time saving community banks who could use a helping hand by having her say a few kind words about efforts like the recently introduced Communities First Act. No, that would distract her attention with matters pertaining to those annoying insured depository institutions and divert it from the topic on which every FDIC Chairman naturally focuses: the intersection of consumer advocacy, residential mortgage servicing, and public health.

The head of the Federal Deposit Insurance Corp. is warning that flaws may have “infected millions of foreclosures” and questioned whether other regulators’ inquiries into problems at the nation’s mortgage-servicing companies have been thorough enough.

“We do not yet really know the full extent of the problem,” FDIC Chairman Sheila Bair said Thursday in written remarks submitted to a hearing of the Senate Banking Committee. “Flawed mortgage-banking processes have potentially infected millions of foreclosures, and the damages to be assessed against these operations could be significant and take years to materialize.”

[...]

...Ms. Bair, who is departing her position in July, argued that other regulators likely missed homeowners who should have been provided loan assistance but who were improperly denied such help. The FDIC, she said, has found a “not insignificant” number of such cases. “There needs to be much more aggressive action,” she told lawmakers.

She tried to start off with a slant that would lead you to believe that she was concerned about the safety and soundness of the large mortgage loan servicers (which, thanks to Uncle Sam, were bailed out first with plenty of yummy TARP confections and can duck or sidestep every dodge ball the state AGs and federal regulators throw at them), but she just couldn't stay on message and veered off into her one true love: providing loan modifications for people who can't make their mortgage payments.It's the same old song, and she's been singing it since she took office.

Meanwhile, back at the ranch...

May 6, 2011 – 2011 Bank Failures Rise to 40 as Regulators Seize Florida Bank. On Friday, Federal and State Regulators closed Coastal Bank of Cocoa Beach, Florida, a small regional bank with $129.4 million in assets. In April, there were 13 bank failures with assets totaling $7.0 billion, the largest was Superior Bank of Birmingham, Alabama with assets totaling $3.0 billion and an estimated loss to the FDIC of $259.6 billion. For this bank failure, the FDIC and Superior Bank, N.A., a newly-chartered bank subsidiary of Community Bancorp LLC, Houston, Texas, created to assume all of the deposits of Superior Bank, entered into a loss-share transaction on $1.84 billion of Superior Bank's assets. Of the 13 bank failures in April, four were in Georgia, two each in Florida and Alabama, and one each in Michigan, Mississippi, Minnesota, Nevada and Illinois. These 13 bank failures resulted in an estimated $1.3 billion in loss to the FDIC. FDIC arranged for all the deposits of these bank failures to be assumed by other financial institutions.

Tomorrow's another potential Bank Fail Friday, so stay tuned as we bring you more of "Nero Fiddles While Rome Burns."

Stern Is Not Bowing Out Gracefully

David J. Stern may have been jilted by Fannie Mae and Freddie Mac, but he's decided that he'll not simply sail quietly into the sunset on his yacht, licking his wounds and drowning his sorrows in a barrel of Mai-Tais. No, Stern claims those mortgage giants, as well as Bank of America, Aurora Loan Services, Citigroup and others owe him a boatload of unpaid attorneys fees, and, by crikey, he wants them to pay up pronto!

Bank of America BAC and its servicing arm, BAC Home Loans Servicing LP, owe a combined $10.7 million, the lawsuits, all filed in South Florida courtrooms, allege. Aurora Loan Services allegedly owes Stern more than $5.3 million, and Citigroup (C: 41.24 -0.72%) clocks in at more than $4.4 million, the lawsuits allege.

Stern, the sole partner of the Law Offices of David J. Stern, also sued Freddie Mac, alleging the government-sponsored enterprise owes the law firm more than $1.3 million. It would have sued Fannie Mae, too, but the GSE beat Stern to the punch by filing an arbitration case seeking damages. Stern filed a counterclaim in that case alleging that Fannie owes his firm $800,000.

Most of the defendants have clammed up for the time being, but one of them decided to fire back at Stern in court.

Nationstar Mortgage — which Stern alleges owes the firm $386,175 — denied the allegations in court documents and alleged that Stern's claims are barred because the invoices attached to the complaint are "incorrect as to both amount and entitlement."

Nationstar also filed a counterclaim accusing the firm of legal malpractice. It said it notified Stern by email on Nov. 12, 2010, of its decision to remove all its cases and got no response. On Dec. 3, 2010, it said it sent an email to Stern's counsel about the handling of Nationstar's cases and also got no reply. Then on Dec. 9, 2010, it asked for an invoice on work performed and was met with silence, according to court records.

Finally, on Dec. 15, 2010, Nationstar directed the Stern firm to transfer all of its cases to its substitute counsel. Stern's counsel responded five days later by saying it would retain the files until all invoices were paid, according to court documents.

Nationstar also alleged in its court filings that any claims against it are barred because of the removal of the Law Offices of David J. Stern from the list of law firms approved by Fannie Mae and Freddie Mac.

According to Stern's attorney, Stern's law firm's full time focus is on collecting unpaid fees. What happens after that is undecided. Frankly, given the amount of unpaid fees involved, I'd say a business plan that consists of nothing more than collecting makes a lot of sense. If he only collects half of what he claims, even after paying his own lawyer, he ought to have enough left over to buy some serious entertainment for himself and those close to him, far from the worries of robosigning and similar controversies that once plagued the now deposed King of Foreclosures.

Osama bin-Amish

[Once in a great while, a story flies from the nether regions of a land where no banks dare venture that pushes aside our pedestrian concerns with banks, banking law, and bank lawyers, and thrusts its mailed fist into our faces and commands us to sit down, shut up, and take notice. This is one of those stories.]

We may have a tough time securing our borders against terrorists. It may have taken us nearly a decade to track down Osama. But, by Yahweh, we're smackin' down those lawless Amish and their diabolical sharing of unpasteurized milk (hat tip to The American Princess via Twitter).

Federal agents watched the home closely for a year, gathering evidence. Then, in a pre-dawn raid, armed members from three agencies swooped in.

No, this is not a retelling of the lightning U.S. commando attack in Abbottabad, Pakistan, that killed terrorist leader Osama bin Laden. Rather, the target of the raid late last month by U.S. marshals, a state police trooper and inspectors from the Food and Drug Administration (FDA) was Amish farmer Dan Allgyer of Kinzers, Pa. His so-called “crime” involved nothing more than providing unpasteurized, or raw, dairy milk to eager consumers here in the Washington area.

[...]

What could possibly be the rationale behind this FDA action? The agency banned the interstate sale of raw milk in 1987. It says raw milk can contain harmful pathogens such as listeria and that pasteurized milk is safer.

[...]

Many critics question why the agency concerns itself with raw milk. After all, virtually any food can conceivably contain harmful pathogens - including beef, poultry, pork, seafood, fruits and vegetables. Yet the FDA and the U.S. Department of Agriculture (USDA) permit the overwhelming majority of these products to be sold in their raw forms. For example, the USDA, which regulates beef, pork and poultry, permits their sale in raw and cooked forms. The FDA, which regulates seafood and eggs, likewise permits those to be sold raw or cooked.

[...]

Even if consumers were unaware of the risk involved in consuming a raw agricultural product like raw milk or raw beef, FDA and USDA guidelines, along with many state and local health codes, typically require warnings about the potential dangers of consuming raw or undercooked foods. Where a warning will suffice, a ban is inappropriate. The FDA’s extraordinary message when it comes to raw milk, though, is that the American people are too dim to read the very labels the agency requires.

You give in on unpasteurized milk and the next thing you know these horse'n'buggy Amish gang-bangers will be sharing organic produce with the poor and the starving. Then where would this country be?

I don't know about you, but I sleep better at night knowing that E. coli-hating bovine bureaucrats are slammin' down stings on these low-lives and watching over the health and welfare of you, me and every other homogenized, pasteurized, milk mustache-wearer in this great country I like to call "The Land of the Free."

Help keep the U.S. udderly free of foreign bacteria. Bust a Mennonite today.

The MSM Starts To Come Up The Curve

If it's on CNN, it's official: commercial real estate is killing community banks.

The troubled commercial real estate is slowly killing off the nation's small and regional banks, and industry experts fear the worst is yet to come.

The delinquency rate on commercial mortgage-backed securities hit a record 9.62% in April, according to a report by Trepp, a firm that tracks commercial real estate and banking data.

Analysts expect that to rise above 10% by year end.

[...]

The bulk of these rising delinquencies is falling squarely on the shoulders of the nation's already struggling small and regional banks, forcing dozens to close.

According to the FDIC's David Barr, the fact that 71% of the CRE market is held by small-to-regional banks is because CRE is "a local business." As we've discussed before, because it is "a local business," CRE lending was one of the few business niches where community banks could beat out the large banks. Yes, I realize that's a fact that drives some of my readers to distraction. Whether they were smart, dumb, or somewhere in between, when times were good, many smaller banks over-indulged on CRE and once the subprime mortgage market collapsed and the economic dominoes started falling, CRE values dropped like an anchor, taking the borrowers and lenders along on a steep, swift ride into the briny deep. These too-small-to-save banks have been allowed to die, unlike their too-big-to-fail brethren, who ate their fill at the public trough and now are, for the most part, doing just fine, thank you for asking.

Here's another ironic facet of this process: buyers for the stressed CRE portfolios of failed banks are out there. Why? I'm glad you asked.

That may be partially due to how regulators have handled the assets by writing loan-loss sharing agreements with the acquiring institution to make the loans easier to digest.

A typical loan-loss agreement will limit an acquiring bank's losses to a fixed percentage, like 20%, with the FDIC carrying the rest of the burden should the loan continue to deteriorate in value.

All of last month's bank failures used some form of loan-loss provisions.

There's a lesson in all of this. As soon as I can find other than Anglo-Saxon expletives to describe that lesson, I'll be happy to pass it along.