They're Still At It: Bank United And FDIC
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2009-05-22 08:22 by Karl Denninger
in Regulatory , 13 references Ignore this thread
They're Still At It: Bank United And FDIC*

The Government never ceases to amaze me...

BankUnited, a newly chartered federal savings bank, acquired the banking operations, including all of the nonbrokered deposits, of BankUnited, FSB, Coral Gables, Florida, in a transaction facilitated by the Federal Deposit Insurance Corporation (FDIC). As a result of this transaction, BankUnited, FSB, offices and branches will be operated as BankUnited offices and branches.

For those who don't follow The Market Ticker closely (or who are new to it and the forum) Tickerforum and Market Ticker readers know that I and many others made a very nice profit shorting these guys some time back; we identified this bank, among others, as ones that were absolutely going to be zeros.

Of course there's nothing particularly wrong with business failure - except when regulatory agencies ignore their mandate and let it cost the taxpayers billions.  Like this time.

The FDIC facilitated the transaction with John Kanas and a consortium of investors after BankUnited, FSB, was closed today by the Office of Thrift Supervision, which appointed the FDIC as receiver. The FDIC estimates that the cost to its Deposit Insurance Fund will be $4.9 billion. BankUnited's acquisition of all the deposits and assets of BankUnited, FSB was the "least costly" resolution for the DIF compared to alternatives.

Sure, it was "least-costly" now.  But PCA, "Prompt Corrective Action", is supposed to prevent a bank from getting here.  And further, if the FDIC had done its damn job, along with the OTS, there would have been no loss, since according to the basic principles of sound banking if you never allow unsecured lending to exceed excess capital, there can never be a loss to the taxpayer or insurance fund!

Speaking of the OTS....

May 21 (Bloomberg) -- The Office of Thrift Supervision authorized inappropriate backdating of capital by six institutions, including IndyMac Bancorp Inc., that led to misleading financial reporting, the U.S. Treasury inspector general said in a report.

I'll call it what it is, instead of playing word-games.

This is fraud.

Period.

"Misleading" financial reports?  That's fraud.

"Back-dating of capital"?  That's fraud.

And the OTS did more than just look the other way - this government agency is accused of directly conspiring to defraud depositors, shareholders and taxpayers:

Oversight failures were very serious and included a senior deputy director in August instructing a lender to backdate and a regional director authorizing revised accounting, according to the report today. OTS left unchanged revisions at three unidentified thrifts. Republican Senator Charles Grassley said the actions were completely unacceptable and a congressional subcommittee planned an investigation.

Its alarming that such high-level OTS officials were not only aware of two revisions in capital reports, but directed or authorized the backdating, Susan Barron, audit director in the Office of Inspector General, said in the report that didnt identify five of the six lenders. IndyMacs August revision on capital helped the lender avoid OTS restrictions.

And, I might add, those scams cost the taxpayer essentially the entire contents of the FDIC's insurance fund.

That's right - the FDIC has no money.

Now I'm quite sure Congress will pony up more - of your and my money - to cover up the fraud rather than effort clawing back the assets of every single person involved both in the OTS and the banks that were participants in these schemes.

Oh, and OTS' response?

The agency is committed to continuing to improve and strengthen its processes based on lessons learned from its internal review and the Office of Inspector General, Acting Director John Bowman wrote May 18 to the inspector general. OTS gave detailed guidance and communication to employees and lenders regarding proper recognition and reporting of capital contributions.

How about indictments and prosecutions instead?

I have repeatedly said that this scandal is 100 times worse than Watergate, which was about political intrigue and burglary - not to steal money, but political secrets.

This is about stealing hundreds of billions of dollars from you, me, your children, grandchildren, and those not yet born, then covering it all up instead of locking up those responsible and clawing back every nickel of the guilty's assets.

STOP THE LOOTING AND START PROSECUTING!

Disclosure: Short the FDIC and OTS, long boiled rope.

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